(Reuters) - Two and half years ago, Steve Stewart erected a 100-foot windmill at his Barstow, California home. Stewart is no eco-crusader, but he does know a good deal when he hears it.
Although the windmill cost $53,000, Stewart paid only $32,000 thanks to state tax incentives. His electric bill has zeroed out from $2,000 annually before, and most months he can even sell back surplus power to his local utility, Southern California Edison, netting as much as $500 per year.
“For me, it was merely a financial calculation,” says Stewart, who estimates it will take about seven years to fully pay off his investment. “I wasn’t out to save the planet, just to save myself some money.”
Homeowners across the country are doing similar math. Soaring energy costs, generous government and utility incentives plus the falling price of technology are leading more Americans to replace their conventional power or heating sources with renewable ones.
An unseasonably warm winter has brought no relief to the price of home heating oil which has hit a national average of $4 per gallon in February, topping gasoline prices in some states. That’s nearly 50 cents more than a year ago.
“Typically what motivates homeowners to remodel is comfort and quality of life,” says Brad Queen, energy division director at the Colorado-based Center for Resource Conservation. “But it is the economics, the financials, that can ultimately make the case.”
The U.S. market for solar energy systems grew by 140 percent in 2011 as costs dropped by two-fifths, according to the Solar Energy Industries Association. Today, there are 1.5 million U.S. households using solar water heating, and enough solar energy available to power 750,000 homes. Natural gas prices are at a 10-year low, and in 2010 more than half of all new single-family homes were built to use natural gas.
Still, retrofitting an existing home for better efficiency can cost from $6,000 to more than $100,000 depending on the ambitiousness of the plans. But what, and when, will energy renovations ultimately pay back? What are the financing options available? Will your home’s resale value go up? These are just some of the calculations to consider before embarking on your next home-improvement project.
For most property holders, installing solar panels or a wood-pellet stove are not going to bring the highest return on their investment. An energy audit is the best way to understand what will.
Energy audits are highly technical processes that should be done by a contractor or specialist, preferably licensed by the Building Performance Institute, a national credentialing organization. They usually cost about 10 cents per square foot, for a total of about $400 in most cases.
That said, Massachusetts, Arizona, Michigan, Missouri and Maryland are among several states where utility companies have partnered with state and municipal governments to provide free or reduced-fee audits.
“A licensed auditor is going to go room-by-room to assess the existing usage and where the waste is,” says Michael Laurie, a Seattle-area sustainability consultant. “In the end, you are provided with a full report of current expenses, the cost of possible fixes and what the potential savings are.”
Sealing up leaks, replacing drafty windows, and upgrading old appliances can bring dramatic energy cost savings. Replacing
incandescent light bulbs with compact fluorescent or LED bulbs can also help. According to the U.S. Energy Department, things like poor insulation and outdated furnaces can cost the average homeowner 10 to 20 percent more in energy bills.
When Ken Weingarten decided in 2009 to install solar panels on his home in Lawrenceville, New Jersey, it was because federal, state and local incentives were too good to pass up.
The American Recovery and Reinvestment Act of 2009 “had a lot of tax goodies stuffed in it,” says Weingarten, who is a financial planner.
To start, property owners who install solar or wind power, geothermal heat pumps or residential fuel cell and microturbine systems qualified for a 30 percent tax credit on systems installed before December 31, 2016. Unlike previous credits, the current credit has no cap.
Almost every state now offers lucrative incentives, as well. Louisiana, for example, grants a tax credit for as much as 50 percent of the first $25,000 spent on a host of renewable technologies, including solar hot water and electricity as well as wind generators. A detailed list can be found at dsireusa.org, a federally funded database of policies and rebates to promote energy efficiency.
Utilities, trying to meet state mandates on alternative energy, are also offering rebate programs to encourage customers to make their own power. Minnesota Power, for example, recently announced that it would pay up to 60 percent — or $20,000 — of new solar electrical systems for residences.
In New Jersey, utilities not meeting alternative energy requirements can pay penalties or buy a Solar Renewable Energy Certificate (SREC) from customers like Weingarten. In the first two years, Weingarten was netting about $640 for each certificate he sold to the local utility. As both the residential and commercial solar sectors have grown, however, his earnings shrank to about $200 per SREC.
“That changes the payback equation,” Weingarten says. “Where I thought I’d pay back my investment in four years, it will likely be six years now.” He advocates a detailed financial analysis before starting a project.
Going green may entail high installation costs. Prices on the newest solar systems have dropped considerably in the last two years, but still can cost at least $30,000 for the average 3-kilowatt setup.
Financing is not always available from traditional sources, such as a home loan from a local bank. Few lenders — or homeowners — understand the concept of “negawatts,” the energy savings a project can reap down the road.
Peter Adamczyk, energy and finance manager for the nonprofit Vermont Energy Investment Corporation, estimates that efficiency upgrades can save homeowners, on average, $600 to $1,000 annually.
Many property holders are turning to more innovative forms of financing. Perhaps the most popular is the Property Assessed Clean Energy (PACE) program. PACE offers homeowners loans, usually via municipal bonds, to pay for things like solar panels.
Loans are repaid, typically over 20 years, through an annual added property tax assessment. After a site evaluation, homeowners simply had to get approval for their building plans from their local lending agency.
Pioneered in California, PACE financing was enacted in 28 states, including New York, Maine, Ohio and Wisconsin. Due to a dispute with federal lenders Freddie Mac and Fannie Mae, however, the program was put on hold in 2010.
There have been some recent signs that PACE may soon have new life. Last summer the bipartisan PACE Protection Act of 2011 was introduced in Congress to end the standoff. The restoration could go a long way toward steering property owners to renewables.
“From day one, you’re cash-flow positive and enjoying the savings,” Adamczyk says. “The transformative idea was that the savings stayed with the property.”
Local utilities are also becoming low-cost lenders, often offering customers competitive rates. At Kentucky’s Paducah Power System, for instance, customers receive a fixed rate of 7 percent to finance the installation of qualified heating and cooling systems, including natural gas furnaces.
Or, with today’s interest rates, says J.C. Martel, an associate at the Southwest Energy Efficiency Project, “Refinancing is the best rate you’re going to get for any remodeling.”
So far, it is hard to know how much, if at all, home-efficiency remodels will pay off in resale value.
“Your investment in, say, solar could take 10 or 20 years to pay back,” Laurie says. “You probably want to know you’re staying there for the time being.”
Stewart notes that it is important to study carefully the equipment and its warranties before making the purchase. He chose wind over solar, for example, because he could produce 40 percent more power for the same cost. “I didn’t mind putting up this monstrosity,” he says, “if it meant not paying the utility another cent.”
One positive sign: the Energy Department last year released a study of 72,000 properties in California that found a home with installed photovoltaic systems (solar panels) sell for a $17,000 premium over homes without them.
Still, appraisers rarely, if ever, factor in energy efficiency to their home valuations, says George Twigg, deputy policy director at the Vermont Energy Investment Corporation. Twigg expects that in the future houses will have the equivalent of the MPG sticker some cars carry to promote fuel efficiency. For now, he says, “Efficiency is invisible.”
Reporting by Kathleen Kingsbury; Editing by Jilian Mincer, Chelsea Emery and Andrea Evans