NYC Clean Heat Destroys Property Values

PlaNYC Heating Oil Regulations are pushing buildings from #6 and #4 oil to #2 oil, natural gas, or biodiesel. Conversions are in full swing. Sadly, many of the buildings are suitable for renewable energy conversions which would produce far better results for the environment and for occupants, as well as better long-term financial results for owners. It says on the website that owners can apply for compliance waivers through NYC DEP. Owners should do this if their buildings are suitable and if they have the financial wherewithal to make that transition to a renewable solution. As long as a credible renewable solution can be found, owners are in fact placing a long-term hedge on their energy costs, and will do far better than they would going along with the conversions which the City is pushing. The typical 30% gains in efficiency are too easily wiped out by the next energy price hike.

Compound investment returns from energy independence through renewables

Not only are these conversions counterproductive as long as there is a renewable energy alternative, owners are being offered subsidized financing to make it easier to make the wrong decision, and destroy the asset value of their buildings. Having said that, there may be some buildings that realistically could not make a transition to renewable energy economically, but in many cases it is well within reach to do in buildings that are 40 units and up. (Size matters because of economies of scale). In the long run, this will produce a steady path to asset appreciation.

Presently we are in PlaNYC 2013, but it started in 2007 as Plan NYC 2030, and since then evolved to PlaNYC 2.0. Clearly this is an extraordinarily important plan, and it puts NYC in a very proactive stance with respect to climate change issues, but in this area of renewable energy, not nearly enough is being done. Most of that shortfall rests on the general confusion in our society that energy efficiency somehow is an additive phenomenon and would result in energy independence. In that context renewable energy is then relegated to a marginal role. If you were to actually do a long-term energy plan for a building, you would see this is not so, unless the building is not capable of a renewable conversion. Most of the buildings that burn #6 could do it.

The first issue is a choice of what energy system do I want? Do I make my energy (renewables) or buy my energy (subscription-based, gas, electric, oil). The two paths are to a large degree mutually exclusive, because of engineering interdependencies. One clear example, if I can go the renewable route and perhaps eventually eliminate gas for cooking, and most heating/cooling, I may be able to eventually do centralized HVAC, and choose very different replacement windows, etc.

Most importantly, the path to energy efficiency of my existing fossil fuel system is an investment in becoming a long-term consumer of gas or oil, or even biodiesel, so it is a customer retention program for the energy industry. In this case it is driven by the well intended reduction of CO2 and particulates emissions of gas versus oil, but as long as a renewable alternative exists, the latter would produce greater benefits in the long run. Successive investments in energy efficiency produce strongly diminishing returns, so a property owner paints himself into a corner financially. Once the transition to a renewable infrastructure can be made, the financial future of that building is assured, because subsequent investments will produce compounding results. The transition to renewable energy practically ensures building preservation, because of superior economic performance over time.

Underwriters risk collateral values by underwriting energy efficiency

If you check the website for NYC's Clean Heat program you will see energy efficiency as the sole qualification for subsidized financing. All the usual culprits are there, CPC, NYSERDA et al, many of whom have energy credentials, for this conversion effort is a subsidy to the energy industry to the detriment of building values. Underwriters should learn to test for the difference between energy independence (renewables) vs. energy efficiency of carbon-based energy systems, simply because of the issue of diminishing returns with the former, and compounding returns with the latter. Energy Efficiency loans are riskier than Energy Independence loans, by far. To lump them all into one category is bad for owners and bad for underwriters. Building values for buildings that are 50% or better energy independent would rise strongly over the life of the mortgage, compared to buildings that invested in energy efficiency alone.

DaBx PlaNYC 2020: the Energy independence plan

Windspeeds over NYC are higher than Chicago

With my consulting company DaBx Demand Side Solutions, we offered an alternative model to Mayor Bloomberg on July 4th 2011, which would achieve better results, and faster than the mere conversion from #6 to natural gas, and, as noted above, better financial outcomes for building owners. The plan is within reach for probably at least 50% of the building stock that is now converting to natural gas. It is more capital-intensive at first, but not much so once you evaluate it against the alternative of the forced gas conversion. The outcomes for air quality and building preservation would be far superior, not to mention public safety and national security. The conversion to gas only seems easier and cheaper in the short run, it is not if you do a 30 year energy plan for a building.

The basic model is based on understanding that in C and D class apartment buildings that are usually only 6 stories high, the old steam boilers usually provide Domestic Hot Water (DHW) through a coil in the boiler, and 30-50% of BTU output of those boilers goes to DHW. In those cases, economically feasible solutions can start from providing DHW with renewable energy, either geothermal or solar thermal. This eliminates 25-50% of CO2 and particulates emissions right away, it also gives the boilers the summer off, so it extends their useful life, and then at the time when the boiler dies from natural causes, the conversion to renewable HVAC can be completed. And yes, the famous split incentive between landlords and tenants needs to be cured.

Energy independence, wind and geothermal energy

Energy independence of buildings means the building stays lit during an outage, even if only partially. The two technologies that have been underappreciated so far are geothermal and wind power. In 2008 the press practically ridiculed Mayor Bloomberg about his advocacy for wind power on buildings, but they did not understand that specific wind turbines for buildings where just starting to come to market, and the Mayor was right on target, perhaps without knowing it. Average wind speeds around NYC are higher than in Chicago, supposedly the windy city. Moreover, around buildings, wind speeds pick up dramatically, offering excellent opportunities for wind power especially in the city.

Geothermal is the most strategic technology of them all, and City Hall is only just now starting to research it. Basically a geothermal system gives you a 400% gain in BTUs, and most importantly it can act as energy storage, besides providing domestic hot water. Here is one place where compounding returns come in, for energy storage is the single biggest problem in renewable energy, but DHW ends up acting as energy storage for your building. Unfortunately most existing geothermal systems in apartment buildings were wrongly designed, as DHW only, and not for energy harvesting. Buildings need 30 year energy plans, not point solutions.

Conclusion:

PlaNYC can be much more successful if the confusion between energy efficiency and energy independence through renewables is eliminated. Better outcomes for building preservation, air quality, and economic competitiveness of the city would result. Energy efficiency of a building with a carbon-based energy system is financially inferior and prolongs the period of CO2 emissions, energy independence through renewables reduces CO2 faster.

The Irrelevance of Grid Parity

Green energy remains more talk than action, where is the green economy? We already know we do not have an energy policy, really, and for sure no green energy policy. We do have a patchwork of rules, regulations and incentives, but many of them can be counterproductive, regardless of the best intentions. If it were possible to map a cohesive and sensible energy strategy, there is an endless array of loopholes and internal contradictions that would have to be eliminated. Grid parity is being misused in a number of ways, perhaps unintentionally, but it is a concept that is widely misused if it is relevant at all. Green energy would have to be looked at as what it is, an absolute winner, and an alternative to perennial energy bills in the form of FREE renewable energy.

This blog is devoted to green energy on the grid, but even that is in a state of flux, for not everybody agrees on what is green, or renewable energy. Large hydro is taboo in lots of places, like the list of green energy for the state of Connecticut. Interestingly methane from landfills made the list. Clearly the damage to fish populations is causing big hydro to be disqualified in more and more places. There are still folks who think nuclear fission energy is green, and while they may be nominally right, because it does not produce CO2 emissions, it is hard to believe that people could be oblivious to Three Mile Island, Chernobyl, and Fukushima. Who needs that kind of green? One way or another, this blog is focused on green energy from the grid, which is at least something anyone can do immediately, and with the referral program we advocate, you can green your wallet at the same time.

Macro-economic madness: grid parity and energy efficiency

Policy makers rely on macro economists, which is as it should be. However things go wrong when the high level view of macroeconomics is used as is to drive microeconomic policy. And this is what is happening in energy on at least two fronts: grid parity and energy efficiency, which both are de facto being used, and used incorrectly, to justify the slow adoption of renewable energy. The Grid Parity Definition is simply the idea that the cost to the grid should be equal to carbon energy, but all this while CO2 emissions continue to be ignored in the equation. It will not be like that forever, and if you invest 30 year money, you might want to look ahead.

Wind Grid Parity or solar, mean that the performance numbers are evaluated in the context of powerplants, and at a wholesale, macro- level, on the grid. That may not be relevant. Both technologies however also exist on a building scale, and so do geothermal and other heat exchange technologies. Thus, if we look from the ground up, much more is possible than the macro-economists think. Also remember at the demand side of the grid, we are competing with retail prices, not wholesale!

Energy Efficiency is a secondary issue, not a primary objective, yet macro-economists are constantly telling us that energy efficiency will give us the most bang for the buck, and from their vantage point it sure seems to be so. Except it's wrong if you generalize it, and use it to drive policy. The question is: What are you making more efficient? If your point of departure is the carbon energy model, you are prolonging the tenure of carbon energy, just when even The New York Times made the catastrophic carbon levels front page news.

The fact is that energy efficiency is always an attractive investment at first, but then diminishing returns soon reveal the practical limit, and the reason why the old saying says you can't save yourself rich. Once you start on the road to energy savings in the existing model as a basis for investment, you will quickly paint yourself into a corner, for as you save, every subsequent investment has higher and higher costs, with less and less impact, and so the returns run away from you, and you are stuck unhappily paying energy bills forever. So what they were 20-30% lower when its several price hikes ago? This is a trap.

Solar Power comes with a 30 year trail without bills

Green energy investments always start with a large investment, but they produce a long tail of zero energy bills and low maintenance costs to the extent of whatever portion of your demand they can replace, and now successive investments should gradually decline. Therefore, if you pick the right opportunities, and you do a proper 30 year comparison on a net present value basis (the Capital Asset Pricing Model), you are likely to find a higher value added to your property, than by a smaller energy efficiency investment. Not only that, if you get your engineering right, subsequent investments can produce synergistic effects, and compounding returns instead of the diminishing returns of the energy efficiency case.

Grid parity amounts to obfuscation, for it looks at when is green energy competitive with carbon energy in the current system. Long before grid parity is reached there are niche opportunities where renewable is economical before it is generally the case. Anyone who can read energy price forecasts can determine when it is worth putting on a hedge, and generating your own FREE renewable energy is definitely a hedge against energy price inflation. You can invest into an environment of rising prices, even if it is touch and go today, for with every passing year that investment will look smarter.

It always happens on the margin: off the grid

Net-zero homes are happening, and homes are coming off the grid, even existing ones. The numbers may still be small, but any marginal phenomenon that shows 30+% growth for a decade or more is worth watching. Some people may have a survivalist agenda, and pursue going off the grid for ideological reasons, but the majority of cases are economically sound. So much so that it behooves everyone who owns property to seriously look into their options, and once you can find one project to start your move to energy independence, it becomes easier and easier. Only you do need to make a long-term energy plan to prevent one investment from locking out another over time. Mistakes are expensive.

Any economist should be paying attention to what happens on the margin, and net zero homes and buildings are growing fast, and even retrofits are starting to happen. Besides technology is advancing all the time and in many situations newer wind turbines optimized for building mounted installation, are making Wind Energy more powerful than solar, and at least as competitive. Any building owner should look at all Renewable Energy Sources, not just one.

When Energy Star is Counter Productive

Energy Star is a powerful label. It does a lot of good for simple decisions, such as a kitchen appliance (as long as manufacturers are not gaming the system). Yet it is frequently used in counterproductive ways when it comes to more complex decisions, and, the program itself is counterproductive if it focuses on energy efficiency alone, such as it does for buildings.

Energy star appliances

Provided you have good data on the actual consumption of appliances--which has not always been easy--the Energy Star idea makes decisions easy. You know you want a refrigerator, you expect it to live 15 years, and you live in NY, so you look at the price forecast, and you see that the reference case from the US Energy Information Administration forecasts flat electricity rates for the next 15 years, evidently the spike from a few years ago is behind us. If I look at my bills, my rate per kWh may average (all in) 35 cents per kilowatt-hour. And so, if one fridge burns 100 kWh more per year than the other, then I stand to save $35/year for 15 years. So far, so good. As long a the data is real, it is easy. The only real issue then is about the quality of the disclosures.

Energy star appliances as components in a building project

It gets more complex when Energy Star components are specified for building projects, as happens when lenders, or the IRS, have this in their specifications. All with the best intentions, of course. However, it leads to sub-optimal choices in many cases, because for a building what really matters is the performance of the whole project, not just of the component.

My favorite example is the tankless hot water heater, which is being heavily pushed on consumers, but frequently is the worst possible choice. Yes, if the only thing you could ever do was to heat hot water with gas, more efficient is better. But the truth is that you have options like solar thermal and geothermal and both can produce a substantial amount of free BTUs for your hot water (and maybe HVAC as well). If you do a proper 30 year net present value analysis, the systems with free energy (renewable), may outperform the system that merely offers energy efficiency, because you continue to have energy bills even if you reduce consumption by 20% compared to your previous heater. That still leaves 80%, plus you probably need to replace that heater at least one time in the 30 year period. In the renewable case, your energy bills might be reduced to 15-25% of what they were before, just for backup, or complementary heat. Now if there are incentives in place which favor one over the other, and get people to make worse decisions, that's not good.

If you need a water heater for backup in a solar or geothermal install, an Energy Star rated 98% efficient heater with heat recovery (from the flue gas) may be the worst option, because not only is it much more expensive, but it will need to be replaced probably twice during the 30 years, because the heat recovery system will tend to become corroded when that heater is not running flat-out most of the time. You will get condensation, and maintenance nightmares. But the construction finance, or the IRS (tax incentives) specify that the components must be Energy Star, so your accountant wants to force you to use Energy Star equipment, when you know it will be a headache, and less economical in the long run. In short, in this case the Energy Star system might have made sense if it was a primary system, but it definitely is counterproductive as a backup system.

Energy star - Battle of the Buildings

At the building level the problem with the energy star approach really comes to the fore. Now it is all about majoring in a minor. Much ado about nothing. Whatever you want to call it. The major is Energy Generation, the minor is energy efficiency. When you major in a minor, you miss your objective. In this case the most energy-efficient solutions is often the worst one in the long-term. Energy Independence was the goal, and you focused on saving a nickel. You may win a prize, but the long-term value of your asset, your building will be depressed, if you chose energy efficiency of a carbon based energy infrastructure over a (more expensive) renewable energy solution that brings you energy independence. The reason is simple the 30% more efficient building will still use 70% of what it used before, and be subject to energy price swings as before. One or two price hikes can wipe that out. And the next investment in energy efficiency will run into a wall of diminishing returns, the next 10% of savings will likely cost more than the first 30%. To begin with the 10% savings off the original will now only be 7%, and it is a project you had on your original list, but you did not choose it, because you could get 30% from other sources. But now you've painted yourself into a corner.

If you can do one renewable project in that same building, and you are doing a proper 30 year financial analysis, you have now permanently replaced xyz amount of BTUs from renewable sources, and you still have all your options open. This is the beginning of

Only free energy is really free

energy independence. Now if there is a price hike, you may decide to do more insulation, and the result will be that your original investment, which was covering 30% of the BTU load, now will cover 50% of the BTU load, so you are getting compounding returns on your subsequent investments. The building that started on energy efficiency without first doing the make or buy decision about energy sourcing (from the grid or from renewables) can only get 7% improvement from his next investment, but you can get 20%.

In short, the two investment paths are explosively divergent, and in the end the building that  went for energy efficiency and won a prize will pay for their foolishness with lower building values. The whole problem starts with looking at energy efficiency at one point in time, versus looking at a 30 year time horizon on a CAPM basis (NPV analysis). Counterintuitively, the EPA is sponsoring energy INefficiency and capital destruction by foolishly promoting energy efficiency at ONE point in time. What is needed first is a proper make or buy decision - renewables versus the grid. Building owners may get to be on TV with their buildings for being so efficient, but they'll pay for it in lower building values.

Energy independence vs energy efficiency

To summarize, buildings are assets that last a long time, and they are complex energy systems which must be completely understood from the supply and the demand side before you can see what your best options are. Energy Efficiency of an existing carbon-based energy system may be your only option, but you can only make that decision by doing the 30 year economic analysis first. If renewables are an option at all they provide a long-term investment path with superior returns, and a realistic hedge against energy prices. Therefore they will provide for dramatically superior building values.

The upshot is: Energy Efficiency by itself achieves the opposite of Energy Independence in a Carbon-based system, and the Energy Star program is seriously counterproductive in these cases.

Off the grid in four easy lessons #4

Off the grid is a direction not a destination, and the principal instruments to get there are financial analysis and economic modeling, not technology. So never mind the government has no energy policy, just a rag-tag group of programs and incentives that tend to confuse people more than help towards a solution. Never mind that utilities and oil companies do everything they can to seduce real estate owners to remain happy carbon customers till the cows come home with all kinds of energy efficiency solutions. It is up to the property owner to make sense of them, and the principal tool you have is the Capital Asset Pricing Model, aka CAPM and once you start studying it, and looking into the various technology options you may have regardless of what your starting point is, you will be amazed. Research CAPM, study Internet resources, including CAPM Free Questions.

Energy Efficiency and equipment payback - the trap to be avoided

To recap from earlier posts: energy companies (utilities, oil companies, etc.), and vendors of equipment will inevitably try to get the attention of real estate owners with investments in  energy efficiency, which are to the benefits of their shareholders, and NOT of the real estate owners. The nature of energy efficiency is that the first investment always looks very good, and typically offers outsize returns (on the basis of payback), and 99.99999% of owners do not stop to think that they are committing to an investment path that perpetuates their indentured servitude to carbon energy. The vendors capitalize on these insights by selling their "solutions" based on marginal analysis of energy savings, always showing a wonderful payback for their equipment, and waiving around Energy Star labels, tax incentives, or other subsidies. If they are successful, you've invested your money in remaining the customer of your energy company forever. This is voluntary vendor lock-in. Various tax incentives, but also NYSERDA, Energy Star, CPC, PACE, and most mortgage providers will steer you wrong because their programs are useful only if your own CAPM analysis says so. Don't run your financial future based on someone else's say so.

The morning after effect comes in when you want to do the next "investment," which is worse but you'll probably still do it. Some day you'll have to realize that diminishing returns mandate that you'll never ever find another investment as good as the first one. The cynic might say these are not investments at all, but operational savings. Even various form of PPAs offered by energy companies tend to suffer the same analytical defects and will benefit the shareholders of the energy companies more than the home owner. Caveat Emptor!

Off the Grid with CAPM

Getting Off the Grid starts with the one and only thing that every property owner should do first, last and in between: make a 30 year financial model of your property, and use it to model your own strategic energy plan, always comparing the base case as the investment in energy efficiency based on the existing infrastructure, with the alternative case using green energy. Again, energy efficiency will never get you off the grid, green energy will, if you figure out the right way of implementation. The first decision is a make or buy decision about energy: should you buy it on a subscription basis, or generate your own. Watch values of net zero properties for reference.

It is never ever what the salesmen will tell you, nor should you let yourself be confused by tax incentives, NYSERDA programs, PACE and/or other energy efficiency finance. They will all steer you wrong, to the detriment of the long-term value of your asset, your property. Study the energy economics of your property first, before you figure out what incentive programs are to your long-term advantage. You will repeatedly find that financing mandates, e.g. of Energy Star equipment, may benefit the energy industry more than it benefits you. Don't buy it unless it actually helps improve the long-term value of your property. Financial sanity starts with CAPM!

Your CAPM Badge

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To build up capital reserves for your energy investments join the green power referral marketing revolution: GoGreenGetGreen

OFF the Grid: The basic assumptions about the relevant cash flows

Here is a list of the major cash flows and assumptions you need to document:

1. For starting asset value use Zillow, or a similar service.
2. Identify ALL forms of energy you use - it may be two or three.
3. Make a 12 month model so you start to see seasonality, you will therefore have 360 cash flow periods.
4. Track both consumption and pricing.
5. Notice that in deregulated states it probably makes sense to split the cost of delivery and supply. In many cases, certainly in NYC, delivery is 65% of your utility cost per kWh or per Therm, and rising inexorably ABOVE the rate of inflation. For my gas it is 95%, because I use so little of it.
6. Identify specific inflation rates for all your energy component costs and rates.
7. Track reasonable assumptions for maintenance (i.e. annual costs, but also periodic replacements, such as a boiler or water heater that may last 10 or 15 years).
8. Make a base case (A) based on your existing energy mix, with incremental investments in energy efficiency. You will start to see how these investments will get wiped out by ongoing price hikes, let alone spikes such as have happened from time to time.
9. Make a case B based on renewable energy. Try to identify the rationale for a strategy to eliminate one fuel completely (oil or gas), or as near as you can get to it.

Experiment with such a model until you are comfortable. Until you are, you are not ready to begin shopping for energy solutions.

Off the Grid: Sane assumptions for getting there

As much as possible try to think of projects to coincide with maintenance things you'd have to do anyway. In other words, if in five years you would have to replace your boiler, that may be the timing for switching to geothermal, or solar thermal, or some other combination, and you may only need a very small boiler for backup. Or, if your roof needs to be replaced that may be a time to improve on insulation, and/or solar or wind installations. You do not want to install a set of solar collectors with a 20-30 year life expectancy on a roof that only has 5 years of life left in it.

Avoid tankless water heaters like the plague. Domestic Hot Water storage is a very efficient energy store, you may need it in your design later on.

CAPM: valuation issues

Study the energy independence profile of homes in your area. With net zero homes and buildings growing, energy costs will increasingly become important in valuation. If a few homes in an area are energy independent or close to net zero, that will start to diminish the values of all other properties.

Be prepared to learn a lot. Both good and bad. The renewable energy path is more capital-intensive, but it will increase your property value more. You will find opportunities with compound returns because of synergies. Keep studying what is going on in your market, and never ever listen to a sales rep coming with payback periods, and various incentives. He or she is stealing the value of your home.

Off the grid in four easy lessons #3

Getting off the grid is a direction, and it does not have to be an absolute destination, not everybody can have a net zero house, particularly on a retrofit basis, but the goal is to spring free of the trap of burning fossil fuel, and paying for energy ad infinitum on a subscription basis. That slavery is symbolized financially by the fact that if you start making your fossil fuel-based (subscription) energy household more efficient, you are in effect ensuring that the value of your property remains dependent on fossil fuel - you never get out of the hole. With every dollar you invest, you are making it harder to switch to renewable energy. Effectively, you are cementing your dependence on the fossil fuel system, and its predictably unpredictable price hikes, with every dollar you "invest," and the long-term value of your property remains hostage to external fuel supplies and pricing. Therefore, as long as there is a renewable energy alternative, that should have top priority. Off-Grid Real Estate is easier if you build it from scratch, but on a retrofit basis, the design objective becomes simply making a long-term green energy plan, based on a proper financial model of your property, and planning your investments in such a way that you gradually slip out of the noose of carbon energy and build up the long-term value of what is for most people their major asset in life, their house. Your journey to net zero has begun. The design goal here should be anything over 50% energy reduction, which cannot usually be done with energy efficiency.

The energy efficiency trap and the green energy answer

Prioritizing energy efficiency projects is a trap, because of diminishing returns. Salesmen for various energy efficiency technologies, or even for renewables, will try to sell you their equipment on the basis of a payback period, never mind if it makes sense for the value of your home. They come waving Energy Star labels and tax incentives or other programs in your face, but their interest is selling their wares, not increasing the value of your property. That part is your responsibility. The first "efficiency" investment may be $3,000 with a 3 year payback, and you think great, this reduces my energy bills by 15%, fantastic. Then the next best opportunity is $10K with a 6 year payback, based on another 15% reduction. By this time your bills are 85% of what they were, so now your overall reduction is another 13% off the original at best. And the next investment you can find is another $15K, which would reduce the remaining 72% of your bills by another 10% (or 7% off the original), and the payback now is 15 years, and you judge it not to be worthwhile. So if you're lucky you've reduced your energy bills by 28% until the next price hike, and then you can start all over again. You keep paying your oil bills or your utility bills stay in hock to carbon fuel. This is called diminishing returns, ever bigger investments for ever lower returns. Your goal is walking away from you, and your investment path amounts to capital destruction in terms of the value of your property. There is another dimension to the efficiency trap: The Efficiency Trap: Finding a Better Way to Achieve a Sustainable Energy Future. The perverse side effect is that if a resource becomes more efficient, people use more of it. So again, don't start making a fossil fuel system more efficient, but first pursue green energy alternatives to make your property energy independent. OFF THE GRID: HEAT PUMPS AND OTHER MULTIPLIERS In green energy,

Green Energy is Power

the basic technologies most people are familiar with are wind turbines, solar PV, and solar thermal, but another important technology is heat pumps, starting with geothermal. A good geothermal heat pump may have a Coefficient of Performance of 4.0 (COP), and it could handle HVAC and Domestic hot water pre-heat, and possibly a snow-melt system, or heating your pool water. If you can power it with wind energy or solar PV, you win big, for again it produces four times the heat output of what it uses. If you must use power from the grid, perhaps you can put it on time of use. More and more wind turbines are coming to market which are suitable for mounting on buildings. Other great adjuncts to help you towards net zero, are heat exchange ventilators. The more you can eliminate combustion from your house, the tighter you can make it, and heat exchange ventilation can retain the heat or cooling, and still provide fresh air. Try to eliminate gas or oil from the house entirely, that will allow you to tighten up your building envelope. Cook with electricity, not gas. The old standbys are insulation, windows, roofs, etc. Notice that in the renewable energy model, improvements to the building envelope reduce the installed generating capacity, and tend to reduce your up front capital requirement, while in the carbon energy model they pay for themselves over time from energy savings.

Towards net zero: Breaking dependence on fossil fuel

What matters in a retrofit is that you have a long-term plan, based on a 30 year model of your property, in which you can compare the various options. Net zero does not have to be an absolute goal, but avoid the investment trap of energy efficiency if you can help it at all. If you are methodical about the steps you follow, the payoff will be breaking the 50% barrier of energy reduction and eventually coming closer and closer to net zero, and you are adding to the value of your property as you go along. Most importantly, with a green energy investment plan, you will end up finding synergies and compounding returns, so that two components which might individually seem unattractive, might provide superior returns when put together, such as the heat pump with the wind turbine, etc.

Off the grid by plan, not by accident

When you set up your model, use the original condition as a starting point, and systematically compare an alternative A and B, in which A is the efficiency model, and B is the green energy/net zero model. Use 30 year cash flows, and include maintenance, replacements, fuel costs and so on. Alternative B is the renewable energy model. Try to see if you can eliminate one fuel from your house entirely (oil or gas). In a green energy model this will have a multiplier effect, because you are eliminating a major source of indoor air pollution. Notice that the renewable energy project will be more expensive up front, but the reduction in your energy bills will be far greater, and, you may have serious synergies between different aspects, a heat pump run on the grid may be expensive to run, but run on 70% wind or solar it may be a winner. Synergies like this will move you off the grid gradually and propel you towards net zero. There is a reason utilities and oil companies like you to invest in energy efficiency, and even offer cheap financing and other incentives: they retain you as a customer. Every step towards energy independence increases the value of your home. 

Off the grid in four easy lessons #2

Getting off the grid even partially is an obstacle course, but surprisingly, the biggest obstacle is not technology, it is financial decision-making at all levels. From the top down, with various federal programs, down to the level of the individual homeowner, there are some severe misunderstandings and pervasive analytical blunders that generally lead to inferior projects getting priority and the best projects often never being discovered. The combined result is often an unintended subsidy to the fossil fuel industry, and unintended decreases in long-term real estate values because owners fail to uncover the financially optimal decisions for their properties. Renewable energy is generally better financially because it comes with lower operating and maintenance costs, mostly negligibly low fuel costs, for backup mostly, and usually nearly little or no maintenance.

By comparison, investments in energy efficiency, as long as you're on the grid primarily, are really not investments at all, they are about operational savings. There are many other traps, and often times they are made worse by various government programs however well intended. Not only do many programs that purport to support renewable energy barely do so, their results are often antithetical to what they claim, and the postponement of the low-carbon future is the effect. To get largely off the grid these choices need to be made very carefully.

Solar PV: green energy for the postcards to send to mom

Look ma, we've gone solar!

The Solar PV Model

It makes a nice postcard, but does it make financial sense?  Getting Off the Grid is slowed down by solar PV compared to the alternatives, but solar PV is generally easier (read: cheaper) to install. However, Solar PV efficiency, remarkable as it is, is in the range of 15-16%, while solar thermal is up to 98% efficient, in other words, you are gaining more energy per square foot by a factor of 5 from solar thermal, and the overwhelming energy demand in residential living is thermal: Domestic Hot Water (DHW), Heating/Cooling.

The main reason solar PV gets so much press is because it is easy to deploy and because there have been a lot of tax-incentives. It may not necessarily be the most sensible investment. But everything differs from property to property based on implementation details. The principal driver for PV is that because it produces electricity, transportation is easier, but that argument may not hold water if it is installed locally for local production. Also PV has been the beneficiary of a lot of tax incentives, but for residential use, it is at best a second choice, rarely the first. In short, if you own a piece of desert in Arizona, and you need to transport the energy long distance, solar PV is a great choice. For your house, maybe not so much.

Off the grid: the secrets of Solar Thermal versus Solar PV

With solar thermal, you will find conversion efficiency as high as 98%, or easily 5 times higher than with PV, but integration costs may be higher, however in most cases thermal should win out if it is properly evaluated.

The most important thing is that with solar thermal the sun's energy is captured as heat, which is directly usable for DHW (Domestic Hot Water), as well as for heating and cooling. Perhaps even more importantly, that thermal heat can be captured and stored in the cheapest battery of them all, a hot water tank. Storing energy is the single biggest (read: most expensive) problem, and with solar thermal that problem is solved. We're talking seriously green energy here, and a major step towards getting off the grid. You are now building an energy system. If you think about the cost of real estate, and the frequent limits on available space, that higher energy efficiency per square foot should not be underestimated.

Tankless water heaters: throwing out the batteries with the bath water

As a home owner, your mission is not to burn gas most efficiently, it is to increase your living comfort, as well as the value of your home. As I've pointed out in the previous post in this series, tankless water heaters, with or without Energy Star labels, seldom make any sense if you evaluate the energy infrastructure of your home properly. The example of solar thermal here makes it clear how important Domestic Hot Water can be as an energy store. Too often there are incentives, such as low-cost financing, and or tax benefits, which seduce home owners to make the wrong decisions. Domestic Hot Water as a free energy store is very valuable in the energy household of your property. Other forms of batteries tend to be expensive.

Conclusion

As noted elsewhere, when visiting salesmen come to your door, and try to sell you equipment based on tax incentives, and other programs, and showing you a fantastic payback period based on reducing your energy bills, it's katy, bar the door, and go do your financial homework first. They are interested in their commission, not the value of your property, unfortunately many counter productive government and state programs seem to reward the wrong decisions, and unwittingly favor the incumbent energy providers, to the detriment of long-term real estate values.

Only by doing a proper long-term energy plan, and evaluating the alternatives, do you have a chance of making the best decision. A 30 year model is usually adequate, given the lie spans of a lot of energy equipment, not to mention the length of a typical mortgage. Start thinking of your property as (potentially) your own private energy plant. Don't be seduced by all the incentives in the world. Remember this: advantageous financing can never make a bad project good, but it can only make a good project better.

Hopefully we will also see modifications of various program, including financing packages, which often turn on specifying Energy Star rated equipment, and very often force property owners to over-invest in the wrong parts of the plan, or make the wrong choices altogether.

Off The Grid In Four Easy Lessons #1

Getting Off the Grid may sound easy, but it's hard to do, and the major reason it is so hard is financial, not technological. One of the major problems is that energy efficiency and green energy are being confused in the priorities. The majority of government programs in fact are unintentional (and in some cases intentional) subsidies to the fossil fuel industry, and the vendors of energy equipment make use of the confusion to sell us all more of their energy efficiency equipment, on the pretense that it is 'green,' and the wrong use of energy efficiency causes the indefinite postponement of the green energy economy. We want green energy and not green paint.

Off the grid living may be a marginal phenomenon, but it If you check out the Wikipedia article in the link above, you'll see that already in 2006 there were reports that the number of homes that were off the grid had been growing at 33% a year for 10 years. This off the grid trend is now rooted in seriously green energy, though not in all cases, and we should separate the survivalists from the regular economic approach choosing green living simply because it makes more economic sense. Today as I'm writing this, the Wall Street Journal just had a major article about Stealthy Green Homes. Off-Grid Real Estate is the thing to watch. Off the grid homes are no longer a marginal phenomenon. Anything growing at 33% for 10 years or more bears watching, and by the time WSJ reports it is becoming main stream, you can rest assured it is main stream already. The important point here is that this is mostly about new construction, and that of course gives you a lot of options to design things right from scratch. But, since there are more old homes than new ones, retrofitting is more important, and it is also more difficult.

Green energy confusion: avoid retrofits that invest in fossil fuel slavery

There is a general confusion that somehow energy efficiency and green energy

Green Energy, not Green Paint

are synonymous, and they are not. Energy efficiency will never add up to green energy, and if you are now consuming fossil fuel-based energy, and you start investing in energy efficiency, you are merely ensuring that you are never coming off the grid. You are merely investing your own money in becoming a better customer to your existing energy suppliers. In short, this is an issue of mixing up the priorities. The first decision is how you get your energy, fossil fuel (from the grid in the widest sense), or green energy in whatever form. Then you need to look at how you get there, and this is where efficiency comes in. With subscription fuels (fossil fuels and derivatives), efficiency pays off in reduced bills down the road, in green energy generation, efficiency pays off in reduced capital costs, because you need a lower installed capacity, and improved project returns.

Stop going off the grid with an energy star tankless hot water heater

The tankless hot water heaters is the poster child of the Energy Star program, and it is one of the worst investments you can make. This issue is emblematic for why efficiency should be considered second, not first. Since hot water is such a large portion of your energy bills in residential living, this is an easy target, and the federal government makes it worse by providing tax incentives for this type of Energy Star equipment, but home owners are in many cases stealing from themselves in the long run with lower asset appreciation. Assuming the tankless hot water heater is more efficient, all you are getting is lower energy bills, but you will still have energy bills. Such incremental investment in energy efficiency make you a better customer of your utility, at the cost of reduced appreciation of your major asset, your house. The shareholders of your utility thank you.

To see why, all you have to do is a 30 year CAPM evaluation of the project, which should be your planning framework for ALL energy decisions in your house. A solar hot water heater is a bigger investment, but once you take the 30 year horizon into account, you will see that it results in near ZERO energy bills for hot water (and yes, you could use a tankless hot water heater for backup, but a regular gas or electric water heater will do). Solar also has NO maintenance costs, while your tankless hot water heater probably needs to be replaced in 10 or 15 years. And by the way that backup heater does not need to be energy star rated, that's a waste of money. You'll use that backup heater perhaps for 15-20% of your BTU requirements for hot water.

Your tankless hot water heater may reduce your energy bills somewhat, perhaps even 15 or 20%. In other words, if you do your 30 year CAPM evaluation, you will have one or two replacements of that tankless hot water heater,  and 15 or 20% lower energy consumption, but the price can still go up or down with energy prices, and the cost of the grid (the DELIVERY cost of your gas or electric) keeps rising faster than inflation. Even the best tankless hot water heater can only reduce your energy bills, not eliminate them.

Off the grid with CAPM, not equipment payback

Before you start doing anything about energy upgrades in your house, make yourself a 30 year financial model based on the Capital Asset Pricing Model (CAPM), taking energy costs into account, and then figure out exactly what your best options are. If people did their sums right and did not allow the IRS to make their investment decisions, they'd be a lot richer, and their homes worth more. Next time a visiting salesman comes to your home, if he's pitching his latest energy-saving thingmajig with a superior payback period, and worse yet, with tax incentives, katy bar the door and do your own analysis first. He is stealing property value, value appreciation of your property, with your signature, even if he is armed with tax incentives and the blessings of the energy star program. A tankless hot water heater does not green energy make, nor will it get you off the grid.