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If you’re looking for the most bang for your buck, calculate the return on investment of adding insulation and air sealing your home.
Photo by Mark Gilliland
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Factor in the efficiency difference between the existing windows and the new windows. South Carolina co-op energy managers usually don’t predict big cost savings from window replacements..
Photo by Mark Gilliland
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Check with your electric co-op’s energy manager before you buy rooftop solar, and calculate the return on investment.
Photo by Umatilla Electric Cooperative
Q: How do I calculate the return on investment when considering home upgrades?
A: Your home likely ranks as one of your biggest investments and most significant purchases, so you want to protect it and maximize the benefits of added investments to enjoy while you’re in the home and to increase the home’s resale value in the future.
Calculating a return on investment can determine the economic benefit of an upgrade. It measures the gain or loss of an investment in relation to its cost. ROI is calculated by dividing the net profit—the total cost of the investment subtracted from the total revenue generated—by the cost of the investment and multiplying by 100 to find the ROI percentage. The higher the percentage, the better the investment.
If you take out a loan or home equity line of credit or use a credit card, add the borrowed money and interest rate to the investment cost.
Let’s put the calculation to work on three hypothetical home projects. Prices will vary based on the scale of your project and the cost of labor and materials in your area. Always remember, “an energy audit is critical to understanding the true savings of each individual scenario,” says Matt Porth, manager of energy services at Mid-Carolina Electric Cooperative in Lexington.
Insulation and sealing. Adding insulation and air sealing represents some of the most cost-effective home improvement projects and can save money year-round by reducing the energy needed to heat and cool your home. The Environmental Protection Agency estimates that air sealing and insulation can save an average of 15% on heating and cooling costs or an average of 11% on total energy costs, and maybe more with extreme temperature swings. Attics, walls, rim joists or floors over crawlspaces should be insulated. The ROI will vary based on your location, existing insulation levels and project cost.
Let’s say you spend $3,000 to insulate your home, saving $330 per year for the next 20 years. Your net profit is $3,600. Then, divide the net profit by $3,000, the total cost of the investment, and multiply the result by 100. That’s an ROI of 120%. The calculation looks like this:
(20 years) x ($330 savings per year) = ($6,600 gross profit) – ($3,000 spent) = ($3,600 net profit) ÷ ($3,000 spent) = 1.2 x 100 = (120% ROI)
Windows. The most energy efficiency improvement comes when changing out the least efficient windows—single pane with no storm windows—for the most efficient new windows, but South Carolina co-op energy managers usually don’t predict big cost savings from window replacements. The exact ROI depends on your location, the energy costs and the efficiency of your heating and cooling systems.
The EPA estimates that upgrading single-pane windows to Energy Star-rated windows can save about 12% on annual energy use. Let’s say you replace your existing windows for $5,000, saving $360 per year for the next 20 years. The ROI is 44%.
(20 years) x ($360 savings per year) = ($7,200 saved) – ($5,000 spent) = ($2,200 net savings) ÷ ($5,000 spent) = 0.44 x 100 = (44% ROI)
Windows and insulation upgrades provide the added benefits of making your home quieter and more comfortable. They can also add value if you sell your home.
Rooftop solar. First, before you buy a solar system, be sure to check with your local cooperative about savings claims and the electric rate that would apply to you.
Let’s say a solar system costs $20,000 and is projected to save $30,000 over 25 years. With a net profit of $10,000, the ROI is 50%.
($30,000 saved over 25 years) – ($20,000 spent) = ($10,000 net savings) ÷ ($20,000 spent) = 0.5 x 100 = (50% ROI)
Again, these are only examples. Solar system costs and savings vary depending on where you live, how you pay for the system and your electricity costs. If you have a solar system loan and lease, it can add complexity to a potential sale.
Check for tax credits or incentives to reduce the upfront costs for energy efficiency or renewable energy projects, and compare costs and potential savings to make the best decisions for your home and your bank account.
Miranda Boutelle writes on energy efficiency topics for the National Rural Electric Cooperative Association.