A big part of the cost of owning a home is what you spend on energy. Average annual energy spending in the U.S. amounts to $1,472 for electricity, $416 for natural gas, and $113 for fuel oil and other fuels. Bureau of Labor Statistics Consumer Expenditure Survey. (Your costs will vary depending on the utility costs in your area, home size, and amount of energy you use.)
The federal government encourages energy-efficient home improvement by offering tax credits for certain upgrades. For existing primary residences, energy-efficient windows and doors, furnaces, air conditioners, insulation, water heaters, roofs, and some other items, you are eligible to receive a tax credit of either 10% of the cost or specific amounts ranging from $50 to $300, depending on the improvement. The credit is currently set to expire at the end of 2021. A lifetime ceiling of $500 applies to the total value of credits that can be earned in all tax years after 2005. (The credit is a dollar-for-dollar reduction in your tax bill.)
A more lucrative tax credit for certain renewable energy systems—including solar panels, small wind turbines, and geothermal heat pumps—can be levied on new and existing residences, including second homes. Congress recently extended the tax break; you can now obtain a 26% credit for projects put into service by the end of 2022, or 22% for projects put into service by 2023.
Check for national and local incentives and rebates, too. Massachusetts homeowners, for example, can take a tax credit of $1,000 or 15% of the cost (whichever is lower) of installing solar or wind power systems. Some utility companies offer discounts on the purchase of energy-efficient appliances and equipment or other improvements. To view the incentives available in your area, enter your zip code at www.dsireusa.org and www.energystar.gov/rebate-finder.
With Earth Day around the corner, now is a good time to take a look at how you can make your home more energy-efficient. We’ve listed a number of upgrades that qualify for a federal tax credit and can pay off energy savings over time (as well as some that don’t come with a tax break from Uncle Sam but still trim your energy bills; see below). Cost estimates and tax credit amounts include installation unless otherwise stated.
Before you get started, consider investing a few hundred dollars in a home energy audit performed by a pro who will identify problem areas in your home and propose fixes. For example, with a blower door test, a powerful fan set in an exterior door frame lowers the air pressure inside the house, causing the higher-pressure air outside to flow through the openings of the house so that the auditor can see leaks. The auditors may also use infrared cameras, thermometers, and furnace efficiency meters to detect areas that need improvement. A certified auditor can be found in your area through the Residential Energy Services Network at www.hersindex.com. Your utility company may offer energy assessments or rebates for one of them.
Isolation and sealing of the air
Cost: From a few hundred dollars for basic, do-it-yourself weather stripping and caulking to a few thousand dollars or more to upgrade your home insulation.
Savings: an average of 15% of heating and cooling costs—or an average of 11% of total energy costs—for those who seal their homes by air and add insulation in attics and crawling areas or basements, according to the Environmental Protection Agency.
Tax credit: 10% of the cost of bulk insulation and air seal materials (installation costs are not eligible).
Ensuring that the inside of your home is protected from outside cold air in the winter and warm air in the summer is one of the most cost-effective ways to save energy. This is especially true in colder climates, although homes everywhere benefit from better insulation. “The more air is exchanged between the house and the outdoors, the less efficient it is,” says John Hensley, Quality Assurance Director for the Building Performance Solutions consulting and inspection company. Sealing and insulating your home may even allow you to invest in a smaller heating and air conditioning system when you upgrade your home.
Adding weather stripping and caulk around window and door trims that leak out of air is a relatively easy and low-cost place to start. When it comes to larger sealing and insulation projects—for which you are likely to want the help of the contractor—focusing on the attic, which tends to be more exposed to heat, cold, and moisture than other parts of the house, often makes sense. Basements and crawling areas are prime locations for beefing up insulation, too. And if you replace your roof and siding, you may want to add insulation to your roof or walls, says Jennifer Amann, Director of the Building Program of the American Council for Energy-Efficient Economy.
Air conditioning and heating
Cost: Approximately $5,000 to $12,000 for upgrades to both heating and cooling systems, depending on the size and efficiency of the units.
Savings: replacing a heat pump or air conditioner that is more than 10 years old with a high-efficiency unit can save up to 20% on heating and cooling costs, according to Energy Star. Certified gas furnaces are up to 15% more energy efficient than standard gas furnaces and can save up to $85 a year in energy costs.
Tax credit: up to $300 for qualified central air conditioners and air-conditioning heat pumps; up to $150 for qualified gas, oil, or propane furnaces and boilers.
If your heat pump or air conditioner is more than 10 years old, or if your furnace or boiler is more than 15 years old, it should be replaced. In addition to choosing an energy-efficient unit, “one of the most important things is to make sure that the contractor comes out and does a full assessment of your current equipment needs rather than just saying that you have a 4-ton system and need to replace it with a 4-ton system,” says Amann. To start with, your current unit may not have been sized or installed properly.
A professional should ensure that your new system is of the right size for the ductwork and coolant lines connected to it, says Hensley. If you’ve made other upgrades to make your home more efficient, such as putting in new windows or adding insulation, this may also affect the size of the equipment you need.
A professional can help guide you through the best options for updating your heating and cooling system, and whether switching from one type to another makes sense. You might want to consider replacing both your air conditioning and heating system with an air-conditioning heat pump that can generate significant energy savings. (We’re not talking about underground, geothermal heat pumps, which can cost $10,000 or more for installation.)
Air-source heat pumps use the surrounding air to heat and cool your home, so they rely on electricity to move heat rather than generate it, making them highly energy-efficient. Historically, these heat pumps have been best suited to warm and moderate climates. But, thanks to technological advances, they are becoming a more feasible option in areas where temperatures often dip below freezing. According to Northeast Energy Efficiency Partnerships, when an air-source heat pump replaces heating and cooling units in the Northeast and Mid-Atlantic regions, annual average savings of $459 compared to electrical resistance heaters and $948 compared to oil systems.
Windows is Windows
Cost: Replacing all the windows in your home is one of the most expensive improvements on our list, but savings on energy bills and increased comfort make it worth considering. Double-hung frame replacement windows can range from $400 to $1,600 or more per window (including installation) depending on the brand and whether you choose vinyl or wood. Vinyl windows cost less and require less maintenance, and the frames can be filled with foam insulation.
Savings: replacing single-pane windows with Energy Star-certified windows can save you from about $100 to almost $600 per year in household energy bills for a medium-sized home, according to estimates by D&R International, an environmental consulting firm.
Tax credit: 10% of the cost of any Energy Star certified window (not including installation) up to $200. Energy Star skylights and doors are also eligible for a 10% loan.
Look for the Energy Star label, which means that the products comply with the energy-saving criteria set by the Environmental Protection Agency. In the case of windows and doors, the key performance parameters are U-factor and Solar Heat Gain Coefficient (SHGC), according to Enesta Jones, senior EPA press officer. U-factor is a measure of the heat flow through the product (insulating power) and SHGC is a measure of the amount of heat from the sun that passes through the window. Skylights, or tubular daylight fixtures that collect sunlight on the roof and transmit it to the home through a diffuser lens, use the same technology as energy-efficient windows, and natural light in your home.
All Energy Star windows, doors, and skylights save energy (and help the environment), but the standards vary from region to region. Windows that meet the Energy Star specification in the southern U.S. generally cost less than windows that meet the standard in the northern U.S. that require more expensive glass. To find your area, go to www.energystar.gov and search for the “climate zone.”
Heaters for water
Savings: Energy Star’s gas storage water heater uses 10% less energy than the standard model, and a family of four can save hundreds of dollars in energy costs over their lifetime, according to Energy Star. A family of four can save as much as $3,750 with an electric heat pump water heater.
Tax credit: up to $300 for gas, oil, propane or electric heat pump water heaters.
Heating water uses a significant amount of energy in many homes—an average of 12% of residential energy consumption, according to Energy Star. It is the second-highest component of residential energy bills in most climates, after heating and air conditioning, and may be the largest energy user in mild climates, says Amann.
New gas water heaters are considerably more efficient than previous versions and can save you about $25 a month if you replace an older model, says Hensley. And the tankless water heaters are worth a look, even though their upfront costs are higher than the tank heaters. They heat water on demand rather than heat it regularly in a tank, which means that it can be around 24 to 34% more efficient than conventional tank heaters, according to the U.S. Department of Energy.
You can see significant energy savings by switching to a water heat pump. “If you’re in a home with an electrical resistance water heater, a heat pump water heater will be a beneficial investment for you in almost every situation,” says Amann. They usually cost at least $1,200 without installation, compared to just a few hundred dollars for a standard electric heater. But they’re using about a third of the electricity, she says. Because the heat pump uses the air that surrounds it to heat water, you can’t put it in a tight space, such as a small closet. But in most homes, it should be a viable option.
Roofing Cost: about $120 to $150 or more per 100 square feet of asphalt shingles. Metal roofing can cost between $200 and $900 per 100 square feet. With installation, the total cost may be between $5,000 and $15,000 or more.
Savings: Approximately 7% to 15% of total cooling costs, according to the Cool Roof Rating Council.
Tax credit: 10% of the cost of certified metal and asphalt roofs with pigmented coatings or cooling granules to reduce heat gain (installation costs are not eligible).
“Cool roofs” reflect sunlight more effectively than standard roofs, reduce heat absorption, and potentially lower surface temperatures by 50 degrees or more. Energy Star certified roof products may reduce peak cooling demand by 10% to 15% in the hottest months. On the downside, cool roofs may increase heating costs in winter, although “this annual heating penalty is usually small compared to annual cooling savings, because roofs in cold climates tend to get much less sunlight in winter than in summer,” according to the Cool Roof Rating Council. Using cool materials often makes the most economic sense if you have a flat roof because of the distribution of heat beneath it in your home.
White roofs are the most reflective, with the greatest potential for energy savings. But you may be able to find quality materials in darker, more traditional colors. Asphalt roofs cost less than metal roofs, but metal is more durable and potentially longer than asphalt roofs for decades.
Cost: an average of $2.81 per watt, according to Energy-Sage. Many homeowners set up a system of about 8 kilowatts, for a total of $22,480 in advance of tax credits and other incentives.
Savings: up to 100% of the cost of your electricity bills. Coupling the cost of installing solar power on your energy bills usually takes anywhere from 5 to 12 years.
Tax credit: 26% for solar projects put into service by the end of 2022 or 22% for projects put into service by 2023.
Harnessing the sun’s rays to power your home has become a more attractive prospect thanks to falling prices for solar panels, as well as tax credits and other breaks that take a significant portion out of the bill. The 26% federal tax credit would reduce the average price of $22,480 for installing an 8-kilowatt system to $16,635. Your state, locality, or utility company could offer more incentives.
In deciding whether and how to install solar panels, you have a few key considerations, says Vikram Aggarwal, CEO, and founder of EnergySage, an online marketplace where homeowners can collect bids from solar energy installers. First, you need somewhere to put the panels. Most homeowners install them on their roof, but those with a lot of land can put them in their backyard. If you want to place panels on your roof, you must have enough space to accommodate them and receive adequate sunlight, with minimal blockage of trees or buildings. The panels are usually installed on the south-facing side of the roof.
You also need to evaluate the size of the system you’re going to need, based on your electricity consumption. Generally, a smaller system can be used in a sunny climate than for a similar home in areas with less sunlight. EnergySage has a calculator to help you judge how large a system you may need and how much you can save by installing solar panels.
Overall costs will typically be the lowest and the most cost-effective with the solar power system you purchase. With a lease, you are hosting a solar power system and sending a fixed monthly payment to the solar company. With the Power Purchase Agreement (PPA), you pay the company for the electricity generated by the system you are hosting. A lease or PPA may not have an upfront cost for you, but you don’t get a tax credit because you don’t own the system.
Alternatively, you can finance a loan from a solar system. Tapping the home-equity line of credit (recent average rate of $30,000 line of credit: 4.73%, according to the bank rate) is often a good option. Or you may be able to obtain a solar loan from your installer or from a bank or credit union. Online lender LightStream recently offered rates ranging from 3.99% to 14.49% over a period of 24 to 36 months for a solar loan of $10,000 to $24,999, or 6.99% to 16.29% over a period of 73 months to 84 months.
Certificates of Solar Renewable Energy or SRECs enable homeowners in certain areas—including Maryland, Ohio, Pennsylvania, and Washington, D.C.—to sell their solar energy systems to utility companies. Every 1,000 kilowatt-hour of electricity your system produces is one SREC. Every SREC can be worth anywhere from about $10 or $20 to a few hundred.
Is the wind turbine the right one for you?
The potential for wind power is not limited to massive wind farms scattered across the U.S. plains or clusters of windmills in farmer’s fields. In fact, the federal government is offering a tax credit of 26% through 2022 (and 22% in 2023) to those who install a small wind turbine at their residence. But unless you have a lot of land, consistent winds, and significant cash to invest, the wind energy system probably doesn’t make sense.
Generally, you need at least one to two acres of clear land to build a wind turbine. Buildings and trees should be placed upwind and at least 30 feet higher than any object within 300 feet, according to the U.S. Department of Energy. Many towers are at least 80 to 100 feet high. This may be a problem if your community has zoning requirements that restrict the height of residential properties structures. Your region must have average wind speeds of at least 10 miles per hour to power the turbine.
A turbine that can produce 10 kilowatts of power, could supply enough energy for a 2,500-square-foot house using about 2,000 kilowatts of electricity per month. For that, you could pay up to $50,000 before tax breaks or rebates.
Other ways to trim your bill for energy
These environmentally friendly products are not eligible for a federal tax break but check EnergyStar.gov or your utility provider for rebates.
Although compact fluorescent lights (CFLs) and light-emitting diodes (LEDs) can initially cost a little more than standard light bulbs—usually $2 more for each CFL and $4 more for LEDs—they will ultimately save you money as you spend less on your energy bill. They also last longer than incandescent bulbs. The Department of Energy says that households that replace incandescent bulbs with Energy Star bulbs in the five most widely used fixtures can save $75 annually.
Energy Star Appliances
Energy Star-rated appliances are another great way to reduce your energy bill. For example, using soil sensors, improved water filtration and more efficient jets, the latest Energy Star dishwashers (from about $700 to $2,000) will save an average of 3,870 gallons of water over their lifetime. The most efficient Energy Star appliances list is https://www.energystar.gov/products/most_efficient.
Even switched-off electronics use electricity when plugged in, typically accounting for as much as 10% of your electricity bill, according to the National Renewable Energy Laboratory. A power strip ($10 to $15) allows you to easily turn off plugged appliances, reducing the use of “vampire” energy. Smart power strips, such as timer power strips or motion-sensor power strips, can be switched off automatically.
Smart thermostats, such as Google Nest and Ecobee, which cost between $130 and $250 (check your energy company for discounts), let you control and schedule your heating and cooling settings using voice control or an app. Many smart thermostats also come with motion sensors to help you optimize your energy use. If you don’t want to link your thermostat to your Wi-Fi (some homeowners have reported being hacked), you can start saving with a simple programmable model (about $20 to $150).
Home Power Monitor
Try a home energy monitor to get a bead on your home energy use. It will provide details on your energy use and advice on how to save. Some energy monitors, such as the Sense Energy Monitor, also allow you to monitor the energy generation of solar panels. Costs: $299.