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Do the Math

A few months ago, things were rolling forward in my home energy conservation project. But then I hit a snag.

In my last report, I described my frustrating search for a plumber to install a tankless hot-water system and my eventual connection with Pat Kilcoyne. Not only is Pat a plumber, he's an Irish plumber; not only that, he is devoted to the part of Ireland that's closest to my heart. We spoke just before my annual trip to Clifden Arts Week, so Pat and I spent part of the conversation on the hot-water heater and the rest singing the praises of Connemara. He is now waiting for my call-back to confirm an installation time.

That's where I hit the snag. After my return, I decided to get out my calculator and figure out the cost-benefit ratio of the project. And there, things grew complicated.

I have set aside $2,000 for this year's alternative energy project, a reasonable amount for the new tankless system.

Perhaps I should have just forged ahead, but blame the blood of my Scottish grandfather: Writing checks of over four figures, counting the decimal points, makes me nervous. So I paused to figure out if this is the best use of my savings or whether another project should take precedence.

If last quarter I was in the Guy Zone, here I entered the Realm of Payback. Payback estimations often dissuade people from installing fuel-efficient systems, because the calculations almost always show that after the initial installation expense, such systems take five, ten, even thirty years to pay you back with lower monthly bills. For decades, people have selected more wasteful systems, thinking that the cost-benefit ratio does not support the initial outlay for alternative energy.

Take passive solar energy. It's free: The sunlight is there waiting to be gathered. But it's "costly" because the initial systems are not cheap if you can't do the work yourself. In addition, some builders suggest that you install a conventional system in addition to solar (or other alternative) power, on the presumption that when you want to sell your house, unconventional systems turn potential buyers away. "What's that?" the potential buyer says, and you reply, "That's my instant hot-water system, which saves you lots of money." Then the potential buyer apparently says "ick" and leaves hastily.

For all I know, by making my house energy efficient I will turn away buyers when I finally come to retire and live permanently in Wisconsin. But I don't think so: Fuel costs are creeping upwards where they are not soaring, and I think energy savings will attract rather than dissuade a potential buyer. But to be on the safe side, I intend to leave the conventional systems and their plumbing in place. It seems unlikely to me that someone would say, in five or six years, "Oh, YEAH, I really want to spend more money on hot water! Let's hook up that old heater again!" But caution seems in order.

But how to figure payback costs? What if I took the $2,000 and put in window quilts throughout the house? Which would save me more money? What is the best use of my savings?

The last few winters have been relatively warm ones in the Midwest, but this year's venerable Farmers' Almanac predicts a howler for us. Last year I felt the pinch of high heating costs. Okay, it was more than a pinch, but it was less than frostbite. A few years ago, my average monthly heating bill was around $150, with occasional $200 bills in winter. Last winter, I saw a few bills in the $300 range for my drafty old Victorian. If it got really bitter this year, I could see a few months over $400. Not acceptable!

But here is where calculating payback becomes extraordinarily difficult. Do I want to look for things that provide payback in five years, the amount of time before I think I'll sell the house? Or do I figure I might get back any additional investment in the eventual sales price?

If I were a gazillionaire, I could build myself the perfect straw-bale home with passive solar and a graywater recycling system. But I'm not even a mere millionaire. Money is tight. Not as tight as when I was a freelance writer, not as tight as for many of my friends, but tight. So I can't blow my tiny savings on a system that would have, say, a 25-year payback time.

Payback Calculation in Plain English

Figure the total system cost:

Multiply the Cost of the system (Cs) by the R value (in the case of insulation).
Then multiply that amount by the system's efficiency (E).
There's your total system cost.

Then, figure your total energy cost:

Multiply the cost of energy (Ce) by the heating degrees per year (HDY, a number you can find on local weather sites).
Then multiply that amount by 24 (heating hours in a day), to arrive at total heating hours.
That's your total energy cost.

Now, divide the total system cost by the total energy cost. The result is your payback period (in years).

Here is a typical formula for figuring payback periods:

PP = [(Cs x R) x E] ÷ [(Ce x HDY) x 24]

Do I hear you say, "Eeek, time to stop reading!" If so, see the sidebar at right.

I keep running the figures, but I find even the simplest formula does not answer my question. I need my crystal ball instead. Weather is by definition unpredictable, but global climate change has made it even more so. Do I figure that in the next five years, the Midwest will grow hotter, and this winter's likely bad weather will be a fluke? As for energy prices, the one thing we can predict is that they will continue to climb. But how do I put this together? Do I strategize ways to make the house cooler in summer, which would save me less in the short run because electricity is currently cheaper than heating? Or do I anticipate that in a few years, electricity costs will also soar, and the effort I put into cooling will pay off?

Is it any wonder that people just sigh and write bigger checks every year for energy? This is not easy stuff.

The formula works and does not work. It works in the short run, by giving me an estimate of savings using this year's figures. But I cannot predict what E (energy costs) and HDY (heating degrees per year) will look like next year, to say nothing of in five years. I need some other way of making decisions. So I've decided to throw out the payback calculations entirely. What, I ask myself, will increase the likelihood that this coming winter will be more comfortable, both physically and financially?

Here is where the hot-water heater wins, because with two residents who work all day and spend weekends in Wisconsin, there is more waste in hot water than in any other household system. Out of 8,760 hours in a year, we use hot water perhaps 500 hours. My current 50-gallon hot-water heater is 10 years old and, although it was efficient at the time, it is certainly not very efficient now. Therefore we are paying to keep 50 gallons of water at the ready for around 8,260 hours a year. No matter the unit cost of natural gas, we will certainly save money immediately by installing the tankless hot water system.

By comparison, it would take me most of the winter to make quilts for all the many windows in the house. If I were to hire out the sewing or calculate in a fee for my own labor, it would be much more costly than the installation of the hot water system. And I'll be honest: The likelihood of taking off a week to do all the sewing is pretty negligible. I would do a quilt here, a quilt there, and so the savings would not be as immediate as with the hot water system.

So, forget the formula. I'm calling Pat the plumber right now. Next quarter, I'll report on the results.

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  • calculator courtesy of Jane M Sawyer.
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