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We bought our home in the summer of 2011, but it was built in 1962, so energy efficiency was not something that was part of the design. As soon as we were able, we started looking toward ways to reduce our energy costs on our home.

While this was initially driven by a desire to live in a more sustainable home, the changes we made save money in the long run as well. I’m a LEED AP in my day job, which means my work days revolve around sustainability in housing, so it only made sense that we made these changes to our personal home as well.

We bought our home at just 23 when my husband was in school full time and I was in the very entry level position at my job, so we didn’t initially have the funds to make big changes. We began with switching out our plumbing fixtures, because they have a very short return on investment if you do the work yourselves (just 17 months in our case) and the total cost is well under a thousand dollars.

After that, we replaced our light fixtures and paid attention to vampire energy. Again, our first focus was on the low hanging fruit – things that didn’t cost much to change nor did it require our roommates to live differently.

New, efficient appliances since then, but otherwise the same kitchen

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No New Windows

What we didn’t do next then, which seems to be a pretty popular choice for many people, is replace our windows. We have older, double pane windows with metal frames, and as much as I would love to install the great triple pane windows that we spec at work, they don’t make financial sense to replace when you have much bigger energy leaks at play. I see so many people replacing their windows, especially since companies tend to push them as a great 0% option, but unless you live in a century home with original windows, it’s probably not the best place to start.

Since our home was built over fifty years ago, we clearly had much bigger energy problems than our windows – namely our baseboard heaters and the air leaking outside, requiring those heaters to work harder.

Air Sealing and Weather Stripping

The very best, cheapest place to start to reduce your energy bill beyond the beginning step of changing out light bulbs is to pay attention to the air leakage happening throughout your home. Extra insulation and fabulous windows are great, but if the cracks in the walls are leaking like a window is left open at all times, then the insulation and windows do almost nothing. Like a ship with a very thick hull, it still sinks if it springs a leak.

While we haven’t done a perfect job air sealing our home, we’ve done a few things that have sealed up the very worst offenders, and the fix is pretty straightforward to do. We replaced the weather stripping around our door to the back deck with a new door sweep and foam seal around the frame. These get worn out over time, so if you live in a home that is more than ten or twenty years old, there is a good chance they need to be replaced. Doors should sit firmly when closed, with no noticeable air flowing through.

Next, we used air sealing foam to seal up leaks around windows, venting, etc. Here is a good introduction to air sealing and a reminder that most utilities offer a free home energy audit to help you get started. Since we do the equivalent of energy audits at work already, we skipped that stage, but it is a great resource if you aren’t intimately familiar with the process.

Backyard view right when we moved in

Furnace and Hot Water Heater Replacement

After we sealed up the basic air leaks, it was time to turn to the big update: replacing our baseboard heaters with an energy efficient furnace and updating our old electric water heater with a gas one. Our home did not have gas plumbed to the house before we got started, so we also had to have the utility company run piping to our home, and then our bid from the HVAC company included full ducting through out home, venting to the roof, and gas stubs to multiple locations.

If you are simply replacing an older gas furnace or you have the gas piping through your home already, your cost will be significantly less – a good half of our cost was for that labor and material. Another option is a ductless mini split, but we chose to go with a York Affinity 98% efficient gas furnace for a number of reasons. We also went with an upgraded Honeywell thermostat to allow us to program the furnace, but we would likely go with the Nest Thermostat if we were doing this work now (it had not yet come out when we put in our furnace).

Our electric water heater needed to be replaced as well, so we had that installed at the same time. We had considered a tankless hot water heater, but ultimately decided to go with a Rheem 50 gallon gas water heater. The cost was significantly less, and we don’t have enough people in the home to worry about running out of hot water, but the reason that settled it for us was the preparedness aspect of a water tank instead of a tankless system.

In the case of an emergency (here, mostly likely, a large earthquake), a 50 gallon water heater becomes a 50 gallon fresh water reserve. Of course we also have iodine water treatment tablets as well as a Lifestraw, camping supplies that double as emergency preparedness supplies. But a large freshwater holding tank is just one more security that we appreciate having in place, and also hope that we never have to use it for that.

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Utility Rebates

Now, for the numbers. this is to note that we made this change in October of 2012, so these numbers would be higher now due to the increase in the cost of construction in our area. Depending on where you live, the numbers will look different. We didn’t have the cash to pay for the upgrades out of pocket, but the company we worked with set us up with 0% financing for two years, and we paid it off before the interest kicked in.

Our utility company has a significant rebate program, which we took full advantage of. They also installed the natural gas to our house for free as part of the process. Odds are decent that you have something similar in your area, at least within the United States. Utility companies are very willing to pay customers to make energy upgrades to their homes, as counter intuitive as it may seem on its face.

They are tasked with keeping up with the energy demand for a growing population, and when they run out of capacity, they have to build new systems to keep up with that demand. The best way they can protect their capital improvement costs is to reduce the demand per customer, and that comes in the form of rebates for upgrades.

For some context, our area’s water utility recently had to install a $2 billion water treatment plant because the population and usage outstripped the capacity of the existing treatment plants. By reducing the utility use of each customer, fewer of these very large capital projects are needed to be built, which benefits everyone.

Return on Investment: Home Energy Updates

A quick note here: my husband did the air sealing and weather stripping updates, so there is no labor factored into these numbers, just straight material costs. We had also already updated our plumbing fixtures and lighting etc like I mentioned above, so our “pre install” energy bills are lower than they were when we initially moved in.

Our home is also just 1,350 square feet, so the numbers would look more extreme if we were in a larger space. Washington State also has lower utility costs than many areas of the country, so our returns are lower than if we lived in an area with high utility costs.

Air sealing cost: $62.57

HVAC contractor cost: $11,694.31

Utility rebate: $3,950

Final cost: $7,806.88

Utility Costs (before and after the home energy updates):

Pre Upgrade (Nov ’11-Oct ’12) Post Upgrade (Nov ’12-Oct ’13)
November $248.27 $138.53
December $287.87 $173.24
January $328.35 $184.05
February $305.47 $171.17
March $355.02 $196.24
April $298.79 $167.26
May $153.66 $86.53
June $72.32 $59.27
July $90.38 $82.60
August $99.24 $86.57
September $166.50 $95.69
October $208.90 $116.41
Total $2,614.77 $1,557.56

*I am also subtracting out an annual cost of $58 for the use of our natural gas stove and grill, per the estimates here as that part of our utility bill changed slightly with those upgrades (we use the grill a lot through the year, and that cost would otherwise be seen in propane / other costs not shown in our utility bill).

$7,806.88 (upgrade cost) / $1,115.21 (annual utility savings) =

Return on Investment of 7.0 years

Long Term Savings

Since this install was completed in October of 2012, we are approximately three months out from our estimated payback period of 7 years, which means we will be saving an average of $93 a month over our utility bills prior to the upgrades. I really appreciate the security of our very low fixed monthly costs, and low utility bills is another piece of that. When money gets tight, we can live off very little compared to most families in our high cost of living area.

Again, if you live somewhere with utility costs that are double ours (very possible – according to this site, Washington has the lowest rates in the entire country), your payback could be much faster. Regardless, I feel that a seven year ROI is very reasonable considering we plan to live in our home for much longer than that. We also would likely have needed to replace the system by this point anyway, and basic home and water heating upgrades are something that every homeowner is going to deal with if they live in one place for long enough.

While I expected a reasonable payback to exist with this decision, I have to admit I hadn’t actually worked through the numbers until now. Our decision to upgrade started with a sustainability mindset as well as a look to overall comfort, and then only then to the money saving aspect.

A high efficient central HVAC system and a new water heater are both significant improvements to the comfort and livability of our home. Baseboard heat is finicky and uneven, and an older water heater has a propensity to run out of hot water at the most inopportune times (like in the middle of a shower). But, as this analysis has shown, these upgrades have also made sense financially.

So far, we haven’t seen utility costs here change much (they’ve gone slightly up and down but mostly tracked inflation). However, at the point our utility needs to put their money into new capital construction for more energy production, our utility rates will eventually go up. Our efficient furnace and water heater are a hedge against future spikes, because when those rates go up, they can go up high and fast.

By using fewer kilowatts and therms, we are buffered against those increases. If our annual costs go up by 50%, for example, we would pay an extra $778.78. If we hadn’t made the switch, those costs would go up to $1,307.39, or another $44 a month.

Have you made any home energy upgrades? Were they to save money, to increase comfort, or for some other reason? 

30 thoughts on “A Cost Savings Analysis For Home Energy Upgrades

  1. Our home was built in 1890 and really need some updates. I should call the energy company and have them come do an audit. Our doors aren’t great. One balcony door doesn’t have any weather stripping. A basement door doesn’t fit well and has a gap at the bottom. I’ll fix these before winter. The storm windows are pretty bad too. They don’t fit very well… Fortunately, the HVAC and water tank are relatively new.
    I guess we’ll just work on it a bit at a time.

    1. Sounds like you need to have someone out and do a blower door test 😉 Old homes are lovely, but they sure are a lot of work.

  2. Great changes to become more efficient in your home. That being said I am a bit shocked that you went with natural gas which is still a non-renewable. I say this considering your Governor is one of the most progressive Climate Change leaders in the country and your state has a strong electrical grid on renewable hydro power. Our home uses a heat pump system and we have an efficient electric water heater, our average cost per month right now is about $85 but used to be $62 as we are now charging our electric car at home.
    (on a side note you might enjoy this podcast I listened to last month > )

    Regardless though great investment and anything that reduces our footprint and consumption is awesome. Especially when you add in the fact you have 4 people living in 1350 sq feet compared to the national trend of 2000sf ft, all the wasted space people are heating in cooling wasting energy.

    Great Post 🙂

    1. We definitely looked at our options, and while non renewable, natural gas was by far our best option at the time. That said, I SO wish we could put solar on our home. We are too much in the trees and our roof doesn’t even see sun much of the year.

      It’s funny. Our home really doesn’t feel so small either.

  3. Great post, Angela! I had been mulling over changing our main water heater to a tankless (yes, we’ve got TWO!), but forgot about the earthquake preparedness bit. Silly Midwestern transplant… I agree, that’s good incentive to keep it. 🙂

    Our 2nd water heater (electric) serves the kitchen only, so I think that’s a good candidate to swap.

    Anyway, awesome job to you both for the improvements/savings! 7 year payback is outstanding!

    1. There are definitely good reasons for a tankless water heater! But it just wasn’t what made sense for us when it came down to it.

  4. We’ve been fortunate to buy energy efficient homes from the beginning, but we did pony up for solar panels with our last house. It was a great financial investment and we’ll probably do it again on our current house. Have you looked at your solar potential on your roof?

    1. We have basically zero solar potential on our roof, unfortunately. We have a north facing lot backed up to very tall evergreen trees. Great for livability and privacy, not great for solar (and why my garden is in our front yard).

  5. Love to see you writing about the finances of sustainable choices ! 7 years is a great payback period.

    We put in solar panels earlier this year, and with the U.K. feed-in-tariff price for any electricity we export to grid, we estimate payback in 10 to 12 years.

  6. our house is old and large. we had an energy audit long ago, maybe 2005-6, that showed us the low hanging fruit like you mentioned. we spend years caulking and weather stripping and foaming all the cracks. i agree that windows are often overrated for the cost vs. savings. we finally insulated our attic and drywalled it this spring so all those leaks should be gone. it will be interesting to see the gas bill over the next year but we really did it for comfort. we pay about 220/mo average in high cost NY state which doesn’t seem too bad.

    we otherwise replace stuff when i breaks.

    1. I’d love to hear how your bill changes with those updates! Old, large homes definitely take a heck of a lot more work.

  7. Great post, full of lots of actionable information. I’m on a never-ending quest to reduce the energy usage and cost in our house. We’ve added solar power, extra insulation, and a wood burning stove in the lat 2 years, which have considerably reduced our utility usage. Ironically, the one thing I haven’t done yet is get an energy audit. I’ve made two appointments that fell through for different reasons. Basically, I keep ending up with auditors that just want to sell me a new roof, windows, or siding, all of which are relatively new. It’s hard to find auditors that don’t have a secondary agenda, since the state-sanctioned program we had went away a few years ago (I live in CT).

    1. Awesome on the solar power!! Definitely one of the biggest downsides of our lot.

      Time to make that audit happen! 😉

  8. Just moved into my new home, and I can’t believe the inefficiencies! Have you looked into solar? Does it seem worth it to you in your professional opinion?

    1. I REALLY should have addressed the solar issue in this post. Ha. We are ensconced in evergreen trees so it is not an option for us, but if it was, we would absolutely go that route at this point. Solar costs have come down a LOT in recent years.

  9. We have a century-old home. This year we’re thinking of replacing our 28+ year old boiler (we have hot water rads) with a new boiler that will also be a hot water heater (and replace 2 old hot water tanks). Are you familiar with this system? We put in 3 rads in the basement a few years ago, but our tenants still rely on some electric baseboard heat as supplemental. The new system can be separately zoned so that the heat will cycle on more frequently in the basement than upstairs.

    I’d LOVE to put in solar panels, and our roof is perfect – south facing, 3-storeys, no trees. But we need to replace the shingles first, and there’s still slate under 2-3 layers of asphalt shingles.

    I don’t want to lose the stained glass windows by replacing them with new, but I’d love to have them less drafty. WITHOUT having to shrink-wrap them each winter.

    1. For separate zoned space, I would definitely look into a mini split system like I linked in the post. As far as boilers are concerned, they can also be a very efficient form of heating – what we use along with solar hot water with the multifamily projects I work with.

      I would definitely take a look at your air leakage though and consider having a blower door test done.

  10. Great ideas in his post. We recently bought a new house and are doing some renovations before moving in. One of the things I insisted on was a low flow high efficiency toilet in the bathroom we were upgrading.

    Never even thought to do an energy audit. As this is a home we plan on living in for a long time I am definitely going to look into this in my area (Canada).

    Thanks for all the great tips. Gives me something to consider in our new home once we move in.

    1. Oh, what toilet did you get?? Did you upgrade your faucets and shower heads too?

  11. I was looking forward to this post as I don’t know where to start with our 120 year old home!

    I’ve looked into energy audits, but it doesn’t look like they are free in our area and run about $200-$400. 🙂 Since we don’t know where to start, it still may be worth our while, though!

    Thanks for sharing our numbers! It’s motivating to get started on making our home more efficient.

    1. Ouch – are you sure there isn’t anything cheaper in your area?? Lots of times historical societies have extra perks for homeowners of “historical” homes, if yours can qualify!

  12. I have done so many updates to my place in the 12 years I’ve owned it and am constantly looking for ways to improve things. Most recently, I got insulation blown into our walls (I had done the ceilings with the help of a friend 10 years ago). I didn’t notice a huge difference in the winter but feel like it’s kept the house much cooler this summer and we haven’t run the air conditioning much. Also my handy partner put up shade sails on the sunny south side of our house and I feel like those help too (very little cost, but not easy to hang securely). Totally agree on the windows in terms of return on investment – I replaced mine in a ski condo I used to own and while I knew the math wasn’t great, I did think it was a little more comfortable during the winter if that makes sense. It probably made it easier to sell too but you are correct about the actual savings because I still wasn’t even close to getting an ROI after 9 years, lol!

    The solar panels have been a pleasant surprise to me. I had been wanting solar panels for 15 years and had kept an eye on costs and kept noticing big drops in the price of panels. The “problem” was that I have always been on the low end of energy use so the numbers never pencilled out. I bought a used electric car in late 2015 as a curious experiment – calculated that the fuel savings would cause me to start saving money in 3 years (not including the cash flow I received from selling my other gas vehicle). The increased electricity use ALSO made the math for the solar panels work with a 5 year payback period so I went ahead and got those installed. Much to my chagrin, the car ROI was 2 years due to the electric company rebates (they increased them) and the solar panels are on track to hit their ROI in a bit less than 5 years. Pro-tip on solar – ANY licensed electrician can install them and they don’t have the markup of those fancy solar companies who do all the excessive marketing.

    1. Oh yeah, solar shades! That’s another thing we do – we cover our 5 skylights in the summer and it helps so much to keep our home. Cooler.

  13. Lots of good things to think about here. We are overdue for an energy audit of our home. It’s about the same age as yours and there are definitely some inefficiencies. Our electric bill is much higher than it should be, even with an energy efficient AC unit.

    1. Time to schedule one! It should be really helpful to figure out what you should focus on first.

  14. As a renter, I don’t feel like I have a ton to add to the discussion but as someone who hopes to own a home in the future, I wanted to say I found this post really fascinating and I learned a lot. Definitely going to bookmark it as a resource for the future!

    1. The “10 things you can do to be more sustainable” post I link to in here is really helpful for anyone regardless of renting vs owning!

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