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Tax Credits, Incentives, Rebates
Find a Zero Energy Home Builder
FAQ's about Zero Energy and Energy Efficient Homes
Making Cents (and Dollars) with Zero Energy Homes
By David Wax and Gary M. Kaye
Builders and developers have a healthy skepticism about change. “If it ain’t broke, don’t fix it” could well be the motto of the housing industry. Many of today’s stick built construction techniques are little changed over the past century. While these methods still work, they are wasteful in terms of both energy and materials use. There has been growing publicity about the environmental advantages of so-called green building but the perception has been primarily about the environmental and not the economic advantages of these residences. The public image of these homes has had more to do with the so-called “Prius Effect,” the social and moral high ground for being in the avant-garde. But while the argument for the economic payback of the Prius may be questionable, zero energy homes have a positive economic payback beginning with the first day of occupancy.
Zero energy homes are not independent of the existing electrical grid. They are designed to be cost effective for the owner, generating their own energy when the sun shines, and selling back the excess to the local utility. The owner will purchase power on days that are overcast or inclement. At the end of the year the expectation is that a properly designed “zero energy home” will net out at a zero or close to zero energy bill can be anywhere from zero percent to twenty percent of average regional energy costs, depending primarily on the home’s specific usage (a huge display of Christmas lights for a month will mean all bets are off), as well as weather patterns in any given year.
Using Department of Energy estimates in New England, one of the more challenging climates for energy efficiency, current pricing and energy consumption models suggest that the average energy bill for a 3,000 square foot home in 2007 will be approximately $4,000 per annum. Pending electric rate increases, including a 50% increase already approved for one Connecticut utility suggest this figure could be even higher. And even though the dramatic rises in oil and natural gas prices have eased in recent months, the uniform prediction is for long term increases in the prices of all fossil fuels.
The same sized house constructed as a zero energy home is estimated to deliver overall energy bills averaging anywhere from $0 to $800 per annum, depending on the energy usage habits of the homeowners. On a monthly basis there may be significant variations in energy use, but regulations in most states allow for homeowners with positive energy output to carry forward credits for their own energy production to be used as an offset against months with higher electricity consumption. Unfortunately, in a number of states, overall positive energy production may not be monetized in excess of net zero, effectively allowing utilities to take that excess as “free” electricity which they can then resell without any additional benefit to the energy producing homeowner.
Obviously, there is a price for achieving zero net energy status. Most energy savings (more than 30% on average) can be created without the addition of active solar elements such as photovoltaic panels or solar thermal systems. The key to achieving these intermediate results is in the creation of a tight envelope, taking advantage of solar orientation, properly insulating walls and roofs, and other passive design techniques. In order to make the proper decisions about what technologies and construction techniques will have the best cost vs. benefit ratio for a given climate zone, a builder should employ architects who have the ability to perform energy modeling, airflow analysis, and other predictive analysis. Each decision (i.e. how much insulation to be used in a wall) must be quantified by the architect and passed along for the builder’s acceptance and implementation. A well trained builder and architect can achieve these high levels of energy savings while adding only roughly $10,000 to the overall design and construction cost.
By creating a tight and energy efficient home at the outset, it is much easier to scale the appropriate size of solar thermal and photovoltaic system arrays. Other systems, such as ground source heat exchange can also be installed, depending on the specifics of the site and needs of the customer. A prototypical 3,000 sq. ft. home could require additional systems costs of $25,000 for a photovoltaic array, and $10,000 to $15,000 for other active and renewable systems (such as ground source heat exchange, solar thermal, etc.). This brings the total cost for zero energy systems, both active and passive to about $50,000 per home.
Taken as a standalone number, that figure may be daunting for production builders. But viewed in the context of the total cost of ownership, the figure is a bargain. At present, there are many state, federal and utility company incentives for renewable energy production and energy efficient homes, in many cases totaling $20,000 or more. As you can see in the example below, even if only the Federal rebates for solar and solar thermal are applied ($4,000), a zero energy home is still able to save the home owner money from day one. The increased down payment for a zero energy home could be $9,200. Yet, if the zero energy home generates energy savings of $3,200 a year, the increased down payment will be fully amortized within 6.5 years. On a monthly basis that means a roughly $117 savings that can be applied to the mortgage. Beyond that, the zero energy home protects the homebuyer from future increases in energy costs (see Figure 1).
While the increased home cost could also mean higher valuations and thus higher property tax bills, many locales already offer a twenty year property tax exemption for the increased value of renewable energy equipment (unfortunately ground source heat exchange systems generally do not qualify). This exemption should further serve to assure homeowners that they will not be penalized for the higher value of the zero energy home.
In addition to the incentives enumerated above, zero energy homes also qualify for federally approved Energy Efficient Mortgages, which also help the homebuyer offset any initially higher price for the home.
Sales Price vs. Home Cost
For the developer, the biggest challenge to building zero energy homes may not be the upfront cost; it is how to explain to the potential buyer the cost advantages as opposed to the higher sticker price. In some ways this is not unlike the common argument made in automobile acquisition. To buy or to lease? To purchase or to finance? The majority of Americans finance their automobiles either through loans or leases. For them, the monthly payment is generally more significant than the sticker price of the car. The same argument can be effectively used by developers and production builders. Homebuyers, unless buying with all cash, are likely to be carrying a mortgage of from fifteen to thirty years duration. For the vast majority, three major factors add up to the total monthly ownership cost: mortgage payment, property taxes, and operating expenses (including utilities, insurance, and maintenance). The zero energy home virtually eliminates the anticipated and unanticipated fluctuations in energy costs. It means consumers can buy their energy instead of renting it. In some ways it is not unlike the differences between a fixed rate mortgage and an adjustable rate mortgage. With a fixed rate mortgage, you know exactly how much you’ll be paying every year for the life of the mortgage. With the zero energy home, you know just how much you’ll be paying in energy bills for the time you’re in that home. Purchase your energy from the electric company or the oil company and you have no way of controlling future costs. This is likely to be especially important to aging baby boomers who are planning for retirement on a fixed income. The zero energy home can offer them at least one element of financial security in an uncertain world.
Selling Zero Energy to Builders and Developers
Evidence from a recent surveys indicates that consumers as a whole are embracing the zero energy concept faster than builders and developers. Builders question whether a higher sticker price will put them at a competitive disadvantage, especially in today’s tight market. The comment is often, “well if I give a buyer the choice between an energy efficient house and granite counter tops, they always take t the granite.” But it may be that builders aren’t getting the wrong answer to the energy issue, they are asking the wrong question. The question should be, “would you like to save $4000 a year on your energy bills, increase your home’s resale value, and qualify for a bigger mortgage with your same income? . Beyond that, homebuilders and developers need to reframe their entire marketing approach in much the same way that selling automobiles has evolved over the past generation.
A generation ago, most automobile marketing was predicated on the purchase price. But as sticker prices rose, more Americans turned to financing and leasing to acquire new cars. Today sticker price is almost never mentioned in advertising. Interest rates and lease payments are the numbers in car ads. In order to make the zero energy case, homebuilders need to make the same fundamental change in their marketing. When a zero energy home is sold on the basis of total monthly cost of ownership instead of sticker price, the case for zero energy is compelling, and what was a potential cost liability actually becomes a significant market advantage over the stick built home down the block. Saving the planet is good. Saving thousands over the lifetime of your house is persuasive..
Public Perceptions, Private Benefits
Increasingly, from large cities to tiny hamlets, planning boards and other local regulators are looking at the environmental impact of new building, including energy consumption. Cities like Boston and Washington, DC are already proposing regulations that will impose energy efficiency guidelines on new commercial construction. It may be only a matter of time before various levels of government begin setting energy efficiency standards for residential construction as well. In particular look for energy guidelines to be attached to federally backed mortgages, as well as to programs such as affordable housing and public housing.
The process of winning approval for new development is already challenging enough. The addition of “green” criteria could make it even more difficult. But those same planning boards and Zoning Boards of Appeal that can be obstructionist are showing signs of being somewhat more favorably disposed to new development that offers “green” enhancements. These can be in so-called “low impact” development, primarily on-site storm water management, or through minimal generation of construction site wastes, or, through energy efficient design that reduces the carbon footprint of new homes. Anecdotal evidence indicates that being proactive with appropriate permitting authorities can reduce the time needed for permitting and assuage a portion of potential local opposition to new projects.
Market research data developed in a recent industry survey suggests that zero energy design will become the norm, rather than the exception within the next six to twelve years. Local pressure for “Green Building” could push up that timetable. For the developer looking at projects today that may not be completed for half a dozen years or more, this is added reason to incorporate zero net energy design in the planning process.
From the public perspective, zero energy homes are an attractive feature that respond to growing environmental sensibilities, and, at the margin, may well help with project approvals. From the private perspective, zero energy design offers tangible tax credits and other financial incentives to the builder and buyer today and substantially reduced operating costs for the lifetime of the home.
David Wax is the CEO Independence Energy Homes, Incorporated.
Gary Kaye is publisher of Zero Energy News
