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Energy Efficiency Modeling: A Rebuttal

In the May/June Readers Forum, Matt Golden framed his concerns about energy modeling and disclosure. I’d like to take this opportunity to point out some misconceptions and incorrect assumptions made in that letter.

I agree with the assertion that energy disclosure is an important missing piece to the puzzle of home buying. Residential energy modeling is essential, not only to establishing the appropriate real energy costs at the time of sale for a home, but in remediating the high cost of the energy footprint of residential structures. Mr. Golden’s statement, however, that “no study has demonstrated the relative value of different approaches” is simply false. The 2010 RICS report out of the Netherlands¹ demonstrates, “Homebuyers are willing to pay a premium for homes that have been labeled as more energy efficient.” The report is based on the sale of more than 30,000 homes with energy labels. The average premium was 2.8%, with a 12% premium for the most efficient homes. Important to note was that the 12% premium easily eclipsed the present day value of utility bill savings (7.2%), meaning “Homebuyers are willing to pay a premium for homes that have been labeled as more energy efficient.” In addition, the relationship between market value for energy efficient homes can be demonstrated through the “Value Beyond Cost Savings: How to Underwrite Sustainable Properties” done by the Green Building Finance Consortium, which has provided over 400 pages of detailed guidance for underwriters. A key takeaway from that report is “To date, most sustainable property investment decisions have been based on simple-payback or simple return on investment analyses that factor in development costs and operating cost savings, but fail to properly consider revenue and risk implications.”

In fact homes that have been green certified average a 5 to 9% higher resale value than those homes that have not. Those outcomes required several years of data on thousands of homes before a clear analysis could be made. A similar amount of time will be required in analyzing the energy efficiency labeling relationship to market value.

The concern that asset ratings will produce erratic results because they are producing two different results is a misapprehension. If we use the auto industry as a comparison of energy efficiency ranking, it would fair to say that the occupant of any particular vehicle will most certainly change the actual outcomes in terms of miles per gallon efficiency. Prius drivers range from the clubs attempting to achieve the highest mpg ranking on their displays to the lead-footed. This does not nullify the value to the car buyer of the mpg ranking system. It still provides a fair and accurate baseline to measure their purchase against a car that has a different mpg rating.. There is no reason a similar standard cannot be employed for homes.

As for picking any two labeling methods based on good/fast/cheap requirements, there exists a demonstrated method, that would enable simple, accurate and fast disclosure ratings using Michael Blasnik’s SIMPLE algorithm. The DOE’s Home Energy Score is also striving to fill this gap. It is easy to agree that a $500 rating will make it difficult to move the market in a positive direction, but that price point is not the only one available. Embedding scoring into a home performance analysis allows for scoring to be performed at a marginal cost, which is basically just the cost of QA. Providing the score separately from a home performance analysis provides the opportunity for professionals to insert their expertise on more homes than they would otherwise reach. These are real opportunities for contractors to use their skills to deliver more value to homeowners and move the market towards greater energy efficiency.

Energy Use Disclosure
Simply disclosing the previous years’ utility bills has its own inconsistencies. You need accurate homeowner behavior to remove behavioral effect on bills, and accurate homeowner behavior is hard to come by. The suggestion to normalize energy use by square footage undermines Mr. Golden’s assertion that BTU/sf is meaningless. Our research for the Energy Trust of Oregon led to the following simple suggestion: portray a home’s performance as its estimated annual energy use. That’s what the Energy Performance Score (EPS) is; an estimate of total annual energy use at the home, plus the associated carbon emissions. Interestingly this label allows homeowners to make direct comparisons to their utility bills where they can see whether their bills are higher or lower than predicted for their home.

HES and EPS
Most importantly I want to point out some glaring errors in the statements that Mr. Golden makes in reference to the EPS label. EPS is not reliant on a Btu/ft2 but simply total annual energy and the associated carbon emissions for the fuel mix of that particular home. To suggest that the EPS label based on Blasnik’s SIMPLE uses “little or no performance testing” is simply false. Blower door tests are required in the audit process for EPS labeling, and duct blaster use is optional, both of these are obvious forms of performance testing. Also, both HES and EPS utilize the home’s actual attributes to model energy use; they just focus on the attributes that have the greatest effect on use in order to provide both simplicity and ease. It is true that HES currently provides an API and EPS will provide one within the coming months as well. If you’re discussing adoption within the marketplace then it is fair to assume that IP should be protected as well. Suggesting that proprietary programming developed at individual and organizational expense should suddenly become open source is contrary to a market-driven approach.

Finally, when Mr. Golden suggests that EPS or HES cannot generate work scopes or savings predictions, he is absolutely mistaken and it seems he is unfamiliar with the tools in their current states. Although EPS delivers an energy label, it also allows users to develop proposals that have specific scopes of work and allows for calibrating to utility bills. EPS Auditor software both generates scopes of work and relays potential energy savings to the homeowners and contractors. The information provided in EPS reports clearly aligns energy bills with the outcomes of the audit and analysis. It also provides information against state mandates related to residential energy efficiency for those individual programs, so the consumer understands the impact of their choices on the larger market and the utility can clearly map upgrades against goals. HES is working to deliver similar functionality through its HES-Pro integration.

Summary
It is my firm belief that providing energy labels to homeowners is the right thing for contractors to do. There is more value at stake for a homeowner making energy improvements than just lower utility bills or comfort. When the labeling task is blended with the contractor’s typical workflow, the costs are low, but the benefits accruing to a homeowner could be high. The Netherlands study showed a premium of 5% above the utility savings for the most efficient homes. That’s the equivalent of $10,000 in higher valuation for a $200,000 home!

To be effective these home energy efficiency rating systems need to be credible; the software, the individuals, and most importantly the label’s local sponsoring organization. BPI 2400 is a good start for calibration and NREL is working on a standard to compare modeling software to actual data. The industry already has a growing set of credentials for professionals; and homeowners tend to look to endorsements by local utilities or governments for a credibility check. The pieces are in place, so let’s keep working on what’s important: delivering energy savings and delivering value to homeowners.

¹ On the economics of EU energy labels in the housing market. Dirk Brounen, Erasmus University, The Netherlands; Nils Kok, Maastricht University, The Netherlands. RICS Research, June 2010. P.23.

About the Author

David Heslam

David Heslam manages the Energy Performance Score (EPS) and Existing Home programs at Earth Advantage Institute. He led Earth Advantage's involvement in the 2008 EPS pilot study funded by Energy Trust of Oregon. David brings 14 years of residential construction experience to this position, including 9 years as founder/owner of Coho Construction Services, Inc., an award-winning green building firm in Oregon. He has a BS in Economics from Carleton College in Northfield, MN. Prior to working in the field of construction, David was a health economics researcher at the Urban Institute in Washington, DC.