In ‘Part One’ of our “Was It Worth It?” article we asked whether investing your money in a retrofit of a home to super-low-carbon standards was worth it. We managed to prove that it was an interesting (if tortuous) question to figure out the answer to. The answer was “maybe, maybe not”. In ‘Part Two” we will break down the project into different parts to figure out what paid, and what did not.
Our last effort was complicated because we lumped all the costs together with all the benefits to try and work out if the entire project was worth it. The result was ambiguous. We KNOW it was worth it but how could we demonstrate it? In January 2013 the Green Deal kicks off. This is intended to help people with the up-front costs of such a retrofit to their homes. It would be in the form of a loan that would be paid back through your the savings in your electricity & gas bill. A great idea. But how do we convince the public that it genuinely will pay back?
Well the Superhome network (www.superhomes.org.uk) has tried its best, throughout the consultation phase of the Green Deal, to try and get exemplar homes into the mix. Afterall, who believes the Government? Nobody. But you would believe your neighbour wouldn’t you? If you could see an energy saving home down your street it would build trust.
If you read our first “Was-it-worth-it?” article then you know that Superhome59 got super-insulated, a wood-powered boiler and a heck of a lot of solar panels. So far, so good. So, what works? It is worthwhile pointing out that there were two objectives to the project: a) save money, b) cut carbon. These two sometime coincide and sometimes do not. So we split the project into three technology types:
- Insulation/solar thermal & the savings in heating/hot water
- Electricity and the savings in electricity usage
- Photovoltaics and the feed-in-tariff
Let us start with number 1: we missed couple of things out of the last article so lets correct those now. We omitted an estimate for how much heat from the wood burning stove contributes to the home. After digging through some numbers from the Centre for Alternative Technology we came up with a rough number of 4000kWh pa (not far from the 3320kWh estimated by the BRE baseline calculator for the old gas fire). Then there are the solar thermal panels which contribute about 2700kWh pa to hot water needs. So all together the saving over the BRE baseline is 20% which is half the 40% I originally estimated, based upon the wood pellet boiler alone, in the last article. This isn’t the entire story though because now 2700kWh pa is FREE from the sun. This element can be discounted from the running costs. The effective saving is thus 28%.
From the last article we know that annually our gas heating & hot water bill should be £1,250 pa. How much did we spend on making our home warmer via insulation and using the power of the sun? About £6500. Hence the saving of 28% is £350 a year off the gas bill. This is a payback of 18 years at 5.3% APR. Not bad but not exciting either.
Lets scrutinise the numbers again. Ours was an expensive investment in that we chose sheep wool insulation. That wasn’t cheap. You can get your attic insulated for FREE so we have slightly exaggerated the costs. We also included the cost of removing trees from the south of the property in order to boost solar gain. Over half that cost was contributed by the solar thermal panels though and these have no current government support mechanism.
What happens if we take the sheep wool & solar thermal out and assume free loft insulation? The cost falls to only £1750. We will have to pay an additional amount for that 2700kWh pa hot water in a higher gas bill. The energy saved drops to 20% or £250 per year. This investment pays back in 14 years at a 7% APR. Even better.
What about the solar thermal panels by themselves? They would have saved 2700kWh pa on the baseline of 34,231kWh pa. That is about 8% (remember that most of your heat load is for space heating, only a small amount goes into hot water and, of that, solar thermal contributes about 50-60% at best). 8% of £1250 is just shy of £100 a year. Payback is thus 37 years on a system that cost £3700. So, without government support solar thermal isn’t attractive by itself.
Moving on to number 2: electricity. We know already that we saved 28% on the usage (2900kWh pa versus a BRE baseline of 4100kWh pa). Cost per year of electricity at baseline would have been about £540. A 28% saving is £150 a year. What did we spend? About £1200. Thus the payback is about 13 years at 7.7% APR. (Note that all calculations are simplified: we do not compound interest, apply discounting or inflation.)
Finally, number 3: photovoltaics. They cost us £13,500 to install. We got a £1000 grant from the old Low Carbon Building Program. Total = £12,500. Annual return is £1,600 from the Feed In Tariff (FiT) yielding an 8 year payback at nearly 13% APR. In fact the Feed in Tariff (as it was) was so lucrative that it almost pays for the ENTIRE project by itself. The FiT has subsequently been cut significantly in line with reduction in costs of the photovoltaic panels. Paybacks are now in the region of 16 years. To get that in perspective we installed photovoltaics on our previous home in 2005. Even with half the cost paid by the Low Carbon Building Program Grant it would still have taken 35 years to pay back the cost. We should look on the bright side.
So, what have we learnt? You can cut your energy bills by somewhere between 20% and 30% EASILY and save enough to pay that money back inside 15 years. At current interest rates that is much better than money in the bank and would be a very shrewd investment in your home. In fact energy saving is now a better investment than solar panels which give you an indication as to where your priorities should lie.
So, question: why if these technologies have a good payback did the entire Superhome59 project NOT have a good payback? Answer: simply put, “renewable heat” (solar thermal hot water panels and the wood-powered boiler) have lousy-to-non-existent payback. They save a heck of a lot of carbon: a 90% saving in this case, but it wasn’t economic by itself. But this is just the experience of one home. What do other people think?
Figures from the Energy Saving Trust are somewhat more optimistic per technology:
- Energy efficient light bulbs payback in 6 months
- Loft insulation payback in 2 to 6 years
- Hot water tank insulation payback in 1 year
- Double glazing payback in 5 years
- Heating controls payback in 2 to 5 years
- Draught proofing payback in 3 years
- Replace old boiler payback in 4 to 5 years
- Cavity wall insulation payback in 3 years
We actually employed EVERY one of these technologies. We can’t explain the differences between our numbers and theirs. We wouldn’t read too much into it. There are far more pessimistic numbers out there. In 2006 the Royal Institute of Chartered Surveyors (RICS) ran the numbers and came up with this, very different, conclusion:
- Cavity wall insulation payback in 5 years
- Loft insulation payback in 13 years
- Hot water cylinder & pipe insulation payback in 38 years
- Replace old boiler payback in 38 years
- Heating controls payback in 34 years
- Double glazing payback in 124 years
- Solar hot water payback in 208 years
Clearly experience shows that the RICS numbers are way too pessimistic given today’s gas and electric prices. Likewise our experiences suggest that the EST are slightly exaggerating their case.
So, bottom-line – was it worth it? Yes for insulation. Yes for saving electricity. Yes for photovoltaics (but ‘no’ if there was no Feed-in Tariff). No for solar thermal. No for wood-powered boilers (if you are on mains gas). Overall? Just about worth it in terms of money but definitely worth it for the intangibles.
Next year the Renewable Heat Incentive (“RHI”) rolls in for wood-powered boilers and solar thermal. Therefore these numbers will change and we will be re-writing this article all over again come 2014 – a year after the introduction of the RHI. We will not count our chickens however it can only get better for renewable heat. We should expect the payback periods to be reduced and the return on our investment to blossom.
All this and a lovely warm, modern, house to-boot. It’s a no-brainer.