We’ve been meaning to replace our furnace—an old oil heater that was converted to gas back in the 70s—for years. It’s big, it’s ugly, and worst of all, it’s inefficient—so we pay much more for heat than we’d like, even in Seattle’s relatively mild winters.
But new furnaces don’t come cheap. In fact, some back-of-the envelope calculations a few years back convinced me that it could take nearly a decade before the savings on our gas bills paid for the up-front costs of a new furnace.
In theory, of course, that’s still a pretty good investment. After 10 years, we’d stop paying for the furnace, and it would start paying us.
But in practice, we never seemed to be able to save up the cash. Maybe it’s my upbringing (my dad was hilariously stingy) but I hated the thought of going into debt, and paying interest and financing costs, just to buy an appliance.
On reflection, though, the fact that we waited to buy a high-efficiency furnace proves one thing: I’m a dolt. You see, if I had financed the furnace—i.e., bought it on credit, or taken out a homeowners loan to pay for it—the amount that we saved on utility bills each year would have just about equalled our annual payments. Which means that I could have had a nifty, high-efficiency furnace years ago, without paying a bit more for heat (utilities + financing costs) than I did with our old clunker. Less climate-warming emissions, no extra costs.
I think there’s a general principle in play here. Consumers (like, er, me) are generally pretty foolish about energy efficiency investments. We pinch pennies on the purchase price, even if it means that we overspend on energy over the long haul. Most businesses—even energy intensive industries—do the same thing.
But if there were an easy way to finance energy efficiency investments—say, a loan fund that would let homeowners and businesses use energy savings as collateral—then virtually everyone would win. Consumers would spend less on energy; manufacturers would see their sales shift away from cheaper models to more expensive ones; and the loan fund itself could turn a steady profit. Oh, and we also might not heat up the planet so fast…
Dave
Doesn’t the same hold true for a new solar installation (obvioulsy, depending on where you live and the various subsidies offered)? Why isn’t everyone taking out home equity loans to install net-metered solar power?
Matt the Engineer
My view: because electricity is too cheap. At a monthly bill of around $80, it would take 21 years to pay off the $20,000 solar system – assuming you can generate all of your energy needs with this system. If you use borrowed money to pay for this, that time will more than double. Considering the lifespan of a solar system is around 30 years, it just doesn’t pay for itself.That being said, it’s a great deal if you care about the environment and don’t live in the Northwest (where our electricity is mostly hydroelectric and renewable). Instead of paying $80 a month on coal, you’re spending around $85 a month on sunlight.It’s also a great deal for anything less expensive than solar (really the gold standard when it comes to green). More efficient equipment, CF bulbs, better insulation, better windows, etc. can all have much shorter payback periods than 20 years.
Clark Williams-Derry
Yeah, small photovoltaic is still fairly pricey here—especially given the low cost of electricity in the region. But there are lots of things besides furnaces that’d be cost effective to finance, I’m sure. Insulation, perhaps; maybe fridges. The bigger gains, though, would probably come from having developers, condo associations, building & factory owners, & other bigger energy users take out loans. Lower transaction costs, higher leverage.
Rob Harrison AIA
Paul Horton and Dave Murray of the Energy Outreach Center in Olympia wrote on article on the economics of “payback” ‘long about 1992 as I recall. Still applicable, I have it reproduced on our website with their permission, here:Invest in Efficiency.Isn’t it odd though. Do you know of any other type of investment that gets as much “how long before I get my money back” scrutiny? What’s the payback period on your car, for example?
Anonymous
well I *need* my car but i don’t *need to upgrade to solar. (assumptions all of course). And I think people do more of this kind of thinking now that gas costs are rising. Funny how when prices rise, people get smarter about consumption? Guess we need to have the real price of gas be factored in, which includes wars for it, etc. Anyway:The problem as I see it is that the payback (here in the NW) is worse than other areas. Why? Not strong enough solar falling this far north, coupled with cheap hydro power. My idea, which isn’t unique, would be to mandate that all folks living below, let’s say the Mason Dixon line (drawn all the way west), would have to have solar on their homes by, oh, 2015. Then have the feds subsidize (on a sliding scale based on ability to pay), the costs of installation. (this is done for many things, like septic tank replacement in the Puget Sound basin). This would all be done to offset the costs (maybe the needs) for more centralized power plants, similar to changing out light bulbs in all homes. Someone should pencil in the cost and benefit on this. This could drive better solar panel costs for all, reduce the need for centralized coal and hyrdo plants, as well as greenhouse gases. Additionally, it would provide jobs for tens of thousands of installers. Any problems with this idea?
kcharm
What about the costs of going into debt? Our society, in some people’s opinions, is teetering on the edge of a serious problem because of debt loads. If we were to enter a depression, and thanks to all of the folks who bought homes because the interest rates were low who couldn’t afford their ballooning mortgage payments we may, the heavy debt loads relative to the value of the dollar would more then offset any energy savings one might enjoy as a result of purchasing a more effecient appliance.Personally, the only thing I will ever finaince again in my life is a house and an education. If I can’t pay it off in a month, it doesn’t get purchased even if the long term savings seem to make sense.
Clark Williams-Derry
Yeah, maybe. Like you, kcharm, I reflexively hate debt. Except for my house, I’ve got none. (Then again, that’s a big exception. The mortgage is a huge amount of debt.)Except that, in the case of my furnace, my discomfort with debt essentially made sure that I was spending way more than I had to—and worse, that meant that I was unnecessarily spewing carbon into the atmosphere at a frightening pace!So I realized that by avoiding “debt” I was actually creating an atmospheric debt—one that my grandchildren will repay. That struck me as irresponsible, and completely unnecessary, since by going into “debt” I’m saving so much money on utility bills that I’m more than making up for my utility payments.