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February 6, 2018
The following article is part 1 of 2 about what's missing from the cost-benefit analysis of energy efficiency measures in home construction.
Click here to read Part 2.
As building codes in Canada and the US increase requirements for energy efficiency, they also increase the cost of building. Some changes, like lower air leakage requirements, result in incremental cost increases; other changes, like an improved thermal envelope or higher efficiency mechanicals, create significant increases in the final price of a house purchase.
However, improving the building envelope and installing appropriately sized, high-efficiency mechanical equipment means that over time, ongoing costs to the home or property owner drop dramatically. Over the lifetime of the building, those hikes in initial capital costs pay for themselves several times over.
I could give you examples of simple payback or return on investment for performance improvement measures, but I want to focus on something else: a different way of looking at the costs and benefits of energy efficiency and better-performing buildings.
We need to take a deep dive into the non-energy benefits (NEBs) associated with performance improvement and energy efficiency measures. Right now we ignore the NEBs and focus on the cost of energy efficiency measures. What happens if we don’t?
What are Non-Energy Benefits?
In the big picture, NEBs that are associated with energy saving measures fall into in three general areas – economic, social, and environmental. And NEBs that accrue in these areas can have an impact at three different levels: homeowner/ratepayer, utility and society.
Energy efficiency is embedded in building codes - it must be included in new construction or your building is not legal. But there are more old homes than new ones, and the biggest gains in energy efficiency are to be had in updates and improvements to existing houses and buildings. Renovation codes are on the horizon, and you can be guaranteed that energy efficiency and performance improvement will be included.
So? What’s the point?
In Canada, we’re now working under a multi-year, Pan Canadian Framework on Clean Growth and Climate Change. I like the Framework. It takes the long view, and focuses on reducing greenhouse gas emissions. Under the Framework, a large chunk of funding is earmarked for the improvement of existing buildings. We have this opportunity to make it right, but we need a different framework for the cost-benefit analysis that will determine the delivery of all that funding. This is especially true if incentives to improve buildings are administered by utilities, as they have been in the past.
As a whole, we often don’t get to see past the economic benefits — ‘what’s the payback?’ In terms of energy efficiency incentives, the ‘payback’ is usually tied to the economic benefits to the Utility, where Demand Side Management (DSM) projects reside, and where easily accessed, broad scale economic impacts are tallied.
These broad scale economic benefits are quite often viewed through a filter called the ‘Total Resource Cost’ (TRC) test, which, in its simplest form, looks at the success or failure of energy savings programs by comparing ALL the costs incurred by both the DSM program administrator and the customer to the energy savings delivered¹. NEBs are not included in TRC calculations. They are classed as ‘omitted program effects’, or ‘externalities’.
Another test that Utilities use is the Societal Test, which compares the costs of energy efficiency at the Society level to resource savings and non-cash costs and benefits. A very specific range of NEBs are considered. While there are five key tests that are typically used to determine the success or failure of a DSM program, the TRC and the Societal tests are most commonly used.
What does this have to do with the cost of performance improvement and building codes?
Well, it influences how we think about the value of energy efficiency measures. It also influences the scope of energy efficiency measures that are available through DSM programs. Here’s a f’r instance: my 30 year old house had some issues (ahem) with air leakage, an uninsulated portion of the basement and a hollow core door between the mudroom and the garage (I know it’s a massive code violation, in my defense, the garage never had a car in it - it’s a storage unit/woodworking shop).
A few years ago, I qualified for one of the energy improvement programs. I have all new CFLs, dehumidifier, power bars, low-flow showerheads and an electric kettle. The basement is now insulated, but the hollow core door didn’t get replaced under the program. Replacing that door with a proper, insulated steel fire-rated door with a closer, would have been the best and most cost-effective upgrade for my house, one that has both immediate and long-term energy savings as well as improving occupant safety and bringing it up to code compliance. But where TRC is the test, the quick-payback measures made more sense for the DSM program. When energy efficiency measures are skewed towards the TRC test, we end up focusing on the low-hanging fruit, some of which isn’t really that juicy or tasty.
OK...So What are Non-Energy Benefits?
There is a long list – let’s break it down by level:
At the Society level we see positive economic impacts (local job creation/tax revenue). We also see improved housing stock/preservation; emission/environmental impacts; health/safety benefits; and water/wastewater savings.
At the Utility level we see transmission /distribution savings; peak load restrictions; reductions in arrears and late payments/write offs/bad debt; reduced regulatory costs/discount payments; and reduced emergency service calls.
At the Homeowner level we see financial benefits; improved comfort levels; improved aesthetics; improved health and safety; noise reduction; educational/community leadership; and convenience.
What do all of the NEBs for the Society and Utility level have in common?
They can be quantified, some more easily than others.
What do all of the NEBs for the Homeowner have in common?
Except for the financial benefits, they are difficult to quantify objectively. Which is okay, because we’re not very objective critters, no matter what we’d like to think otherwise. We know from several studies that as a whole, the human race in this economic model does not make spending decisions based on bottom line. If we did, there would be no stainless steel appliances, granite countertops, SUVs, or really gorgeous shoes. We make decisions on major purchases based primarily on this list of drivers:
Comfort, safety, peace of mind
Yet, people on both sides of the energy saving renovation transaction – homeowners and contractors – are stuck on this idea of having a ‘good’ payback, say in 3 or 5 years. As a consultant who’s been in this field for over twenty years, I think that we’ve shot ourselves in the foot as far as getting people serious about the long-term investment in their house, new or old, by focusing on ‘payback’.
This infographic from Bruce Power (an Ontario Utility!) outlines some non-energy benefits that can be quantified.
When we start noticing NEBs, their weight and impact becomes more apparent. What if we had a system to estimate a value for the quantifiable AND non-monetary NEBs so we could analyse the cost of a project with a more inclusive list of benefits? Look for part two later this week for a deeper dive into non-energy benefits of energy efficient upgrades in homes and taking a crack at developing that value system!