Energy savings methodology

Overview

The goal of this article is to create full transparency on how we calculate your energy savings. For most of our homeowners, energy savings are one of, if not the, most important factors for deciding which upgrade is right for them. Providing you with the right information to make a decision is core to our vision:

Vision: Our vision is to create a trusted, end-to-end experience that empowers homeowners to upgrade their homes with confidence. We will provide homeowners with the information they need, match them with the best service providers, for the most affordable prices.

The approach we took was to leverage the work done by the National Renewable Energy Laboratory (NREL - nrel.gov), which gathered energy usage from 2.3 million buildings across the country. They then used the data and created physics-based energy saving models to predict the decreases in energy used across various upgrade options, such as high efficiency heat pumps, insulation, and heat pump water heaters. We’ve taken their work and made some adjustments, detailed below, to customize the energy savings to your home.

Disclaimer: the information provided is meant to give you directionally accurate information on your potential energy savings. However, there are too many factors to model accurately for each home and other factors that are outside of our control.

Ok, let’s get nerdy 🤓

Step 1) Lookup houses similar to yours and calculate your utility costs

We start by looking up homes that are similar to yours in the NREL dataset. The primary characteristics we use are homes in the same climate zone, region of the US (i.e. northeast, midwest, etc.), square footage range, insulation levels, heating fuel (natural gas, oil, electricity), and whether you have central AC or use room ACs. The NREL provides data on how much the home uses for heating, cooling, hot water, and total energy used. They provide this data for each fuel type at 15 minute intervals. We aggregated the data into monthly amounts, which is the smallest unit of time we’ll be using for the energy model.

Ultimately, cost is most relevant to you. We need to take a couple steps to convert the data into utility costs. The NREL provides all the energy data in kWh. However, utility bills for natural gas aren’t measured in kWh, the billing unit is thousand cubic feet (Mcf). The billing unit for fuel oil is gallons. Electricity is billed as kWh so no conversion needed. Below are the standard conversion rate factors for converting kWh to the respective energy billing unit:

Natural gas to thousand of cubic feet=kwh used 0.003412
Fuel oil to gallons = kwh used 40.6

Now, we have the energy used per month converted into their relevant billing unit. Next, we need to convert the energy used into dollars. To get your local utility rates, we use the most recent data published by the US Energy Information Administration by state. The full formula is:

Monthly natural gas cost=kwh used 0.003412  local $/Mcf
Monthly fuel oil cost = kwh used 40.6  local $/gallon
Monthly electricity cost = kwh used  local $/kwh

Output:
Now we have a baseline utility cost for heating and cooling by month for the past 12 months for homes that are similar to yours.

Step 2) Adjust baseline utility costs to your home

While the baseline utility costs are based on thousands of homes that are similar to yours, each home is unique. The temperature you set when you sleep, the number of people in your home, whether you commute to work, etc. can all have a meaningful impact on your utility bills. We want to make sure we’re customizing the utility bills to your home.

To do this, we’ll give you a few ways to confirm the data. We’ll provide you with the annual costs, how many times you filled up your oil tank in the winter (if relevant), or how much your electricity bill or natural gas bill were last month. You’ll then tell us whether the baseline costs are roughly right or if they seem high or low. We’ll then use your feedback to adjust the utility cost assumptions, which will carry through to all the heating and cooling costs and savings estimates.

Output:
We’ve now customized the baseline assumptions to calculate your adjusted baseline heating and cooling utility costs by month for the last 12 months.

Step 3) Calculate the new utility costs per year if you were to upgrade your home

In 2024, the NREL published a physics-based model that leverages their dataset and calculates energy savings for specific upgrades: heat pumps, insulation, heat pump water heaters, and overall electrification measures (i.e. replacing a natural gas stove with an electric induction stove). For heat pump upgrades, we use the NREL models. For replacing the existing gas or oil system with an updated version, we have a different calculation. We’ll cover each system type:

Replacing a natural gas or oil system with a new version:

To understand the potential improvement in efficiency, we need to start with the efficiency of your current system. To calculate this we look back at the efficiency standards established by the Department of Energy when your heating system was installed. The minimum efficiency standards were 80% Annual Fuel Utilization Efficiency (AFUE) for furnaces and boilers with either gas or oil as the heating fuel. We then used research published on the performance degradation of heating systems over their lifetime. Boilers have a longer life expectancy than furnaces, therefore they have a lower compounded rate of deterioration.

With these two data points, we know the starting AFUE and how much performance has degraded over the age of the system. That gives us our starting AFUE.

To calculate the efficiency gain, some context on how AFUE is calculated. AFUE measures the amount of energy your system is wasting. If your AFUE is 55%, then you’re wasting 45% of the heat created. If you upgrade to a high efficiency furnace with a 90% AFUE rating, then you’re only wasting 10% of the heat generated. To calculate the energy savings, we use your adjusted baseline energy consumption and take the difference between the AFUE ratings to calculate your updated heating costs.

Degradation over 20 years

Central heat pumps

For central heat pumps, we use the closest energy model provided by the NREL as our baseline, which they’ve called, high efficiency cold-climate air-to-air heat pump with electric backup. We go through the same aggregation process discussed in step 1 to convert the data into monthly utility costs. We then go through two adjustments of their baseline data. We need to adjust the data using the same percentage difference you gave us to calculate your adjusted baseline utility costs. In addition, the NREL assumes an 11 Heating Seasonal Performance Factor (HSPF). We then need to adjust your energy costs based on the HSPF rating of the various equipment. For instance, if a brand has a 12 HSPF rating, then it’s more efficient than the NREL assumptions and we decrease the expected utility bills to account for the more efficient equipment.

Central heat pump with backup

If you want a central heat pump, but to keep a backup gas or oil system, then we use the NREL upgrade labeled, ENERGY STAR air-to-air heat pump with existing system as backup. We then go through the same adjustments for the heat pump costs, but keep the same efficiency rating as your current system. If you choose to also upgrade your existing system, then the calculation is the same for replacing your natural gas or oil heating system, but the savings are only applied to when you would use the backup system.

Insulation:

We always recommend pairing a heat pump with insulation. The NREL provides a separate energy model we then apply to each option if you choose to also add insulation above the level of your local building code.

Ductless heat pumps (mini splits):

To calculate ductless heat pump energy costs we used the same calculation as the central heat pumps with one exception. Ductless mini splits are more efficient because the heating and cooling elements are in each room, which allows them to avoid distribution losses. For context, all efficiency ratings (AFUE, HSPF, SEER) all calculate how efficient the equipment generates heating or cooling. However, after the heating is generated, it needs to travel through the distribution system, (ductwork, baseboards, or radiators) to the room. Inevitably there are efficiency losses. To calculate these efficiency losses, we referenced a study published by the Department of Energy stating that the average home loses 25%-40% through distribution losses. We took the average between the range (32.5%) and decreased the expected utility costs for this upgrade by that amount.

For climate conscious homeowners, ductless mini splits are the most efficient heat and cooling system. In addition, they often have better efficiency ratings. However, they often have a higher upfront cost than central systems.

Air conditioning

For air conditioning, the calculation is the same as the above, but we use Seasonal Energy Efficiency Ratio (SEER), instead of HSPF. HSPF measures heating efficiency for heat pumps, while SEER measures cooling efficiency.

Output:
Monthly utility costs for each upgrade option available so you can compare the energy savings over the course of the year.

Example: here’s the monthly utility costs for a home in Massachusetts with oil, central AC, 2,000 sqft, and insulation that’s up to the building code. You can see that there are savings associated with a standard efficiency furnace (80% AFUE), but even more for a ductless heat pump.

Step 4) Calculate utility costs over the lifetime of the system

A new heating and cooling system should last 15-20+ years. It’s a long term investment and to make an informed decision, we need to look at the energy savings over the lifetime of the system. However, this brings up some complications, like what is the future cost of energy. If we knew the future price of energy then we’d be sitting on a beach somewhere (who are we kidding, we love what we do). We know that energy prices will increase so we used the EIA data(footnote 2) and the went back to 2015 prices and calculated the compounded annual growth rate (CAGR) to create an assumption for the average increase in energy prices per year. We then calculated these by geography.

We then used the CAGR and the most recent energy prices in your location to forecast the energy price increase over the next 20 years.

Full disclosure: energy prices are volatile. Here’s a comparison of NY gas and electric prices since 2015. They are consistently going up, but depending on the month and year, they can go up or down by a large margin.

Output:
Energy costs for each upgrade option for the next 20 years.

Step 5) Calculate the energy savings and payback, and environmental impact

• Calculate the savings by subtracting the forecasted energy cost per year from the adjusted baseline
• Calculate the payback by taking the price after rebates for each upgrade option and subtracting the savings by each. The payback year is the first year the savings are greater than the cost.
• 20 year savings are just adding the energy savings per year
• Monthly savings are taking the annual savings and dividing by 12. The actual monthly savings will vary based on the season.

This brings us to our last step where we bring it all together. To calculate your expected energy savings, we subtract your energy savings each year from your adjusted baseline energy costs.

While energy savings are important, they are most useful when compared to the upfront costs to determine the payback. To calculate the payback, we take the price after rebates and subtract the aggregate savings per year. The payback year is the one where aggregate savings are greater than the upfront cost.

Important: we did not put in an additional cost assumption for insulation. If you are installing insulation in conjunction with your upgraded system, then you should add that cost to the price after rebate to find your payback.

Do you remember that example we gave of a home in Massachusetts? Take a look below to see how the options compare. Both of those paybacks are great with exciting first year savings. If you look at the 20 year savings you can really see how the benefits of a more efficient system can really compound over time.

Lastly, while the savings are impressive in year one, where you can really tell the difference between fossil fuels and heat pumps is in the metric tons of CO2 saved. We used the EPA’s greenhouse gas calculator. Heat pumps are dramatically more efficient than gas or oil systems because they move air, rather than generating energy to condition the air. Heat pumps usually have a better ROI than gas systems, but if you’re looking to have the biggest impact on the climate then gas or oil systems don’t even come close to the benefits of a heat pump.

References

1. NREL: End-Use Load Profiles for the U.S. Building Stock
2. US Energy Information Administration: https://www.eia.gov/
3. NREL: Public datasets: https://resstock.nrel.gov/datasets#end-use-savings-shapes
4. Residential End Uses: Historical Efficiency Data and Incremental Installed Costs for Efficiency Upgrades, 2017, Navigant Energy, commissioned by the US Energy Information Administration.
5. Impact of building envelope and mechanical component degradation on the whole building performance, 2017, by Georgios Eleftheriadis, Mohamed Hamdy
6. NREL Public Datasets, ResStock Dataset 2024.2, Technical Documentation, https://resstock.nrel.gov/datasets#end-use-savings-shapes
7. Department of Energy, Office of Building Technology, State, and Community Programs Energy efficiency and Renewable energy, Improve the efficiency of your duct system
8. EPA, Greenhouse Gases Equivalencies Calculator - Calculations and References, https://www.epa.gov/energy/greenhouse-gases-equivalencies-calculator-calculations-and-references