Greater electrical demand requires local utilities to build more power plants. Excess demand during peak hours causes utility grids to overload, causing brown-outs that plague many cities. And through it all, America’s utility costs continue to rise. It is evident that consumers need energy solutions that offer greater security and financial benefits.
Therefore, it should come as no surprise that demand for green building is gaining momentum across the country. The US Green Building Council (USGBC) recently reported that the Leadership for Energy Efficiency Design (LEED) Certifications for green homes more than doubled since 2012.
Many people notice the physical disadvantages of an inefficient home; it’s either uncomfortably cold or hot, but they often don’t recognize the economic disadvantages. Greening up existing properties, and constructing or purchasing new green homes now provide transparent economic returns that were not available in the past. Pre-conceptions and fragmented mis-information have confused many consumers and real estate professionals.
First of all, savings on utility cost reductions realized by higher-building performance can’t be translated using a simple interest calculation. Many high-performance homes are near-net zero (i.e., they produce close to or as much energy as they are using) or at least 50 percent lower in utility costs than conventional homes. This translates to a much higher cost benefit and should reflect the future value and present value of those savings. For example, without factoring inflation and utility price increases, the future value of $150 monthly energy savings translates to $61,655 in savings over 20 years at a 5% interest rate. If you factor the increase in utility prices and inflation, it translates to an even higher savings; and over a 10 year period the savings are still cost-efficient. When analyzing savings, you need to consider the capital cost of improvements over time– and how long it would take to recover the savings. In many cases, it’s a no-brainer, especially when comfort is also a factor.
Another great example of how energy savings can be recognized is in the appraisal valuation. The present value for the example above is $22,278, which should support a value increase or a green premium. Again, these savings represent the necessary information that building owners need to assess and compare green properties with conventional homes they may be considering purchasing or renovating.
If some of the energy savings were applied to the loan balance you could save even more. An extra $50 a month paid on a $200,000 30-year mortgage @ 5% could reduce the interest on the loan as much as $47K and shorten the loan by seven years. Other benefits are more obvious; i.e., energy efficient properties tend to be more durable, have healthier indoor air quality, and many owners report that they are quieter and feel more comfortable and pleasant.
A 2012 research study conducted with an unusually large sample of 1.6 million homes sold in California between 2007 and early 2012, documented that a green certification label on a house adds an average of 9 percent to its selling value. Green homes are selling for more, holding their value longer and in greater demand in many regions around the country.