Are energy efficient houses and businesses worth more? The return on investment of being Green

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Energy efficient houses foreclose less, worth more

A recent study investigated the connection between energy efficiency and the ability to pay a mortgage. The study found the risk of mortgage default is one third lower for energy efficient, Energy Star rated homes.
House hunters are also willing to pay a premium price for efficient homes. A study involving an large sample of 1.6 million homes sold in California between 2007 and early 2012 showed, with all other variables constant, a green certification label on a house adds an average of 9% to its selling value.

How much extra it costs to build an energy efficient home really depends on what efficiency features are added. Builders claim the average payback of the additional building costs to make a home efficient is 3-4 years in saved energy costs. If you own the home for 4 years, you benefit from the increased property value, and reduced energy costs.

Energy efficient businesses with lower energy costs have higher profit, minimized risk

There is data to back up the financial impact of energy efficiency in the residential market, but what about businesses?

Let’s use the Retail industry as an example, which is under enormous pressure from customers to increase transparency of their operations. Energy STAR states “a 10 % decrease in energy costs has an equivalent impact on operating income as a 1.26% increase in sales for the average retail store. For Retailers operating on a slim margin, a 1.26% increase is huge.

Energy efficient businesses have usually implemented a strategic energy plan and taken steps to optimize energy and resource consumption across their enterprise. An energy efficient enterprise tends to have less waste across the organization, resulting in a more competitive, leaner company. A more efficient company has minimized its risk to outside factors such as energy price increases and lower sales figures due to changing consumer demand. The intangible benefits of increased brand loyalty and more productive employees are the icing on the cake. Energy efficient companies with sustainable practices experience reduced energy costs, reduced risk, higher profits and increased goodwill, which also translate into a higher share price and valuation.

Ensure a positive return on investment  (ROI) for your projects

In order to capture a positive ROI, each initiative or improvement needs to be reviewed carefully to ensure that the benefits outweigh the cost, taking into consideration unique situations. For a house it might mean ensuring you don’t invest more than what the market will pay a premium for, and for businesses it means weighing all factors for every initiative to ensure it makes sense for your business.

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  • Larry Furman

    11 years ago

    We have been insulated our house over the last few years. First the attic, then last October, the walls. This winter we kept the thermostat between 62 and 65, and it was hot upstairs. My heating bills were very low.

    • I did the same in my 100 year old house. It has been amazing to see the impact each upgrade has made on my energy bill.

  • Joe Parker

    11 years ago

    Building a data base on increase in value of a building from Energy Efficiency upgrades is critical, I am glad to see the data beginning to be published, I do have a concern with the continued focused on “Payback” as a measure of ROI for Energy Efficiency upgrades. A home or building is a longer term decision than 4 to 5 years and many, if not most, energy upgrades are decisions that will save money over 15+ years. Those of us in the Energy Saving products business need to shift the focus to the longer term savings. I know this analogy is not perfect but would you ask the homeowner to do an ROI on granite counter tops to calculate a simple payback on an HVAC upgrade. Simple payback can be a negative as it an evaluation of return. Even using accepted Time Value of Money analysis can distort a long term Energy Saving investment decision. We need to continue to focus on value increase for the building owner and back that up with lots of data.
    One more point, payback and ROI do not measure comfort and I believe that a more efficient building is a more comfortable building. A more comfortable building has value but is a subjective measurement and not one “green eye shade” types recognize.

  • Peter B. Meyer

    11 years ago

    what are the sources for the California study and the one from Energy STAR?

    these are very important findings for expanding the EE sector and we need to have as strong a scientific basis as possible to convince building owners and lenders. References without citations don’t cut it.


  • Josh Kammerer

    11 years ago

    Nice article! Do you have an external citation or link for this claim?

    House hunters are also willing to pay a premium price for efficient homes. A study involving an large sample of 1.6 million homes sold in California between 2007 and early 2012 showed, with all other variables constant, a green certification label on a house adds an average of 9% to its selling value

  • Thanks for your interest! Here are the references.
    The Value of Green Labels in the California Housing Market:

    Energy STAR:

  • Chris Mountain

    11 years ago

    Great article!

  • Dennis Fleege

    11 years ago

    I built a home in 2007, about 1600 sq ft. the wall are 2X6 framing with R8 closed cell foam insulation. The attic is R50 blown insulation with plastic sheet behind the drywall. The basement walls are 2X6 framing with R19 Batt insulation. High efficient gas furnace, AC and water heater. I live in Iowa and my worst heating bills for any given month are $60-$69 per month. (not on the budget plan). It’s great not to worry about high utility bills. I’m not sure at this point what the value of the home is with these features, but I’m sure I would have no problems selling this in the future with utilitie rates going up each year. I have no regrets! You must remember to add a ERV (energy recovery ventilator- air to air exchanger). The house is so tight that the person conducting the “Blower door test” had never seen such low numbers. You must have a way to get fresh air pumped through the house. I was easily able to qualify for energy rebates using high efficient insulation and lighting also.

  • Commercial energy management

    11 years ago

    There’s a lot of incentive out there to build green. Hopefully it can really change the way things are done.

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