Saturday, March 28, 2009

Home Energy Audits: An Investor's Experience

Wealth accumulation is not unlike trying to fill a bucket. As investors, we seek ways to fill that bucket with cash flow. But leaks in that “bucket” will offset the inflow. A dollar lost has the same value as a dollar added.

If you’re like me, you reacted to last year’s stock market melt down by looking for alternative investment opportunities. Being the energy geek I am, I finally decided to take my own medicine and look at energy losses right under my own roof. As an investment, this opportunity is neither high-tech nor foreign-based. There is no shady middle-man. My best investment opportunity in 2009 comes from tapping into the annual cash flow that I currently spend on my home’s gas and electricity consumption. In other words, it comes from “fixing the holes in my bucket.”

We secured a home energy audit last February. This is an exercise that inventories energy use, losses, and potential remedies for reducing utility bills. We purposely sought an energy auditor that had no commercial interest in providing the recommended improvements. Note that the audit itself “fixes” nothing. Instead, it yields an inventory of improvements, ranked in order of their savings potential.

We found that our house leaks THREE TIMES as much air as it should. This was the volume quantified by the auditor’s “blower door test,” and shown graphically with infrared camera images that help to pinpoint the sources of heat loss. Heat loss is due to a combination of air leaks and lack of thermal insulation. Losses are especially evident around the sill where the house frame meets the masonry foundation. Attic space is equally important. Poor-fitting windows, doors and other penetrations to the house’s external walls can also contribute to losses. Results like ours are not at all unusual for houses built before the energy crises of the 1970s.

In our case, we’re looking for an estimated $560 savings on our annual outlay of over $2,600 per year on gas and electricity. We expect the biggest impact to be on wintertime use of natural gas. The investment should be about $1,375. The first $375 covers the energy audit, while I’m budgeting $1,000 for insulation, caulk, weather-stripping, and other materials. The labor will be my own, and I’ve got the whole summer to work on it. We expect to be in this house for at least another 15 years, so the 2.5 year simple payback is perfectly acceptable. The return on investment is a whopping 40 percent. Compare this to a 2.5-year certificate of deposit, which right now earns about 2.75% APR.

I’m comparing these results to annual returns on stocks, which we are told is eight percent on average—a return that was nowhere to be seen in 2008! I’m not at all worried about investment risk. We will always need energy. Energy improvements to my house will save even more money as energy prices trend upward. Another benefit is reducing the size of the furnace when it’s time for a replacement. That’s because the house won’t be leaking three times the normal volume of air.


At 7:18 AM, Anonymous Anonymous said...

In a time of declining quarterly values on one's investments, this seems like a very useful investment that will continue to pay off! Why don't we all do it?
a) we're not handy
b) we don't know how to find a good auditor
c) general inertia
d) who knows????

At 6:52 PM, Anonymous Mike Rogers said...

Good post and analysis. We're hearing from a lot of folks using similar logic--efficiency improvements can be a great investment will a low risk return that beats the stock market (certainly easy over the last year!). Regarding the home energy audit, it’s important to get the right audit–accurate and actionable and looking at the right things like duct leakage, air infiltration, and equipment efficiency and combustion safety and an analysis of utility bills. For a bit more background on audits and additional links, follow my post at

Thanks and good luck!


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