Monday, October 23, 2006

A brief look at the economics of superinsulation.

First, let me emphasize that my desire to live in a super energy efficient house is not motivated by saving money. Rather, I want a house like that because I think God has commanded me to be a good steward of all of creation, including the energy to heat my house. Sometimes, obedience to God’s will brings immediate blessings, sometimes it brings burdens or even persecution. But regardless of the response of the world, obedience brings its own joy.

In this case however, I think we can have our cake and eat it too.

It is often surprising to people how little it costs for framing and insulation. One hears various numbers, but it is commonly quoted that the cost for labor and materials to frame a new house constitutes about 8-10% of the total cost. (ref: Insulation can be perhaps another 5-8% depending.

So, if you pay somebody to build you a new conventional house, and that new house cost $100,000, the framing and insulation would account for approximately 13-18,000 of the total cost. If we change the design of the house to accommodate very high levels of insulation, the framing and insulation cost will typically increase by 50 to 100%. How does that affect your total cost and mortgage payment?

If we assume worst case scenario costs for the super insulated construction, we end up with a house that cost $118,000, an additional $18,000. Not so fast though. At very high levels of insulation, you will need a much smaller furnace, less ductwork (or no ductwork-gasp!) and may get along very nicely using a big water heater for a “furnace”. If that is true, we can recoup $2-4,000 on the furnace. But let’s continue the worst case scenario analysis and assume we don’t save a penny on the furnace.

The mortgage payments on the conventional house will be:

$702.80 per month

assuming an interest rate of 5.75% on a 20 year amortization. As an aside, 30 year mortgages are as dumb as a box of rocks. Ask me why if you don’t already know.

The mortgage payment on the super insulated house will be:

$828.46 per month

with the same interest rate and amortization. The difference being $125.66 per month. Your actual monthly cash flow should be about the same, if not better in the super insulated house. North of the Mason-Dixon line (i.e., the cold states), heating bills should be ¼ to 1/3 of the regular house, and cooling bills are often trivial to non-existent. If your average monthly winter heating bill in the conventional house is $150 (conservative estimate, could easily be higher), in the superinsulated house, it will be:

0.33 x 150 = $50.00 which saves ~$100 per month.

Below the Mason-Dixon line (the hot humid states) you will save the big money on air conditioning bills.

Either way, the super house more or less pays for itself in reduced energy use even in the short term.

But I am not overly swayed by short term economics. Long term efficiencies are very convincing to me. When we consider the long run, once the mortgage is paid for, all that energy saved is essentially “free money”. Another item that is often ignored in these discussions is tax liabilities. Let’s assume we save a thousand dollars every year on energy cost. Those are AFTER TAX dollars we are saving. If you have to go out and spend those thousand dollars on natural gas or electricity, you really have to earn $1,200 or $1,400 first. Then you pay your various taxes on those earnings, then you pay your heating bill. So in reality, we are saving much more than $1,000.

We also have not mentioned anything about future energy cost. In my view of the future and energy cost, it will all become more expensive and it will do so at a brisk pace. Let’s look at natural gas prices in the recent past.

(The HTML did not like my graph, so here is a link to a graph:

Please note that this other graph uses different units, which doesn't matter. It's those spikes and general rise at the end we are interested in.)

As we observe the graph, a few things are obvious. Residential gas prices are cyclic, depending on the weather. Every minor peak is the winter price, every trough is the summer price. It’s also hard to miss that in the last ten years, costs have escalated rapidly after a long stable stretch. Just to pick out a few facts:

Gas was

$3.94 in Jan of 1981
$5.54 in Jan of 1991
$10.12 in Jan of 2001
and $14.92 in Jan of 2006

If this trend continues, the cost savings in a super insulated house will likely double in less than ten years, and then double again in less than ten years. So in 20 years, after the mortgage is paid off, the cash flow comparison of the two houses would look more like this:

Annual heating and cooling costs for conventional house:


Annual heating and cooling costs for superinsulated house:


This represents a savings of about $5,000 per year of after tax, inflation adjusted dollars. If we further assume that the house will last another 80 years and that there are no additional increases in energy cost (unlikely), this will represent a total life cycle savings of approximately:

80 x $5,000 = $400,000

Suddenly, we are not talking about just beer and pizza money any more. This could mean the difference between fixed income seniors being able to afford a house, or not. For low and middle income families, this will make the whole heat vs food issue much worse. Or perhaps they will have to choose between heat and their medications. Or heat vs retirement savings. Or heat vs a college fund for their kids. Or heat vs church giving. Do you really want to be forced to choose?

I could use the techniques used by the slippery insurance/investment industry to make this look wildly “over the top” superior to conventional housing. Rather than just computing everything in today’s dollars and ignoring inflation and interest, we could take that money that we save on energy costs and put that in a nice moderate growth fund and end up with some silly big number like $10,000,000 after 80 years.

But that is speculative, which is really a euphemism for gambling. If you want to invest the money, I’m fine with that. You will probably do very well. But the real point is that in real dollars and real buying power, without any compound interest smoke and mirrors, the superinsulated house beats the conventional house with a big stick, repeatedly. Wouldn’t you like to pass that on to your kids?

When cast in these terms, we suddenly see why this is a stewardship issue. We are all given stewardship over a limited amount of resources. Those who use the resources wisely will end up having many more options in how they use those resources.

There are other issues that can sway the balance in favor of superinsulation. If you can do some or all of your own work, the economics becomes overwhelmingly favorable to the superinsulated house. These houses are almost universally more comfortable to live in. Cold corners, cold floors, and cold rooms are a thing of the past. At high levels of insulation, the thermostat setting has less and less influence over how much you save by turning it down. It’s the law of diminishing returns. As a consequence, you can now keep it at 70F all winter if you like and walk around in shorts and a tee shirt without wasting abhorrent amounts of energy and money.

This is not theoretical. When I finally got my house in Ontario Canada closed in and insulated, we were definitely in winter. I was working on finishing the interior, drywall and whatnot. Every single day that was sunny, the furnace did not run during the day and it would be toasty warm, even on bitterly cold days in January. Visitors were often amazed to find me working in just shorts, or maybe shorts and a tee shirt, despite the winter weather. Most had never experienced that luxury due to the cost of fuel.

One gentleman in particular was doubtful that he could even get his house that warm, even running the woodstove full blast all day long. He lived in an old farm house without much/any insulation. He reported that they burned about 14 cords of wood every winter, which is an enormous pile of work and expense. It was still cold. His house is the antithesis to mine.

Of course, if you work at it, you can find some circumstance where you don’t actually save any money. Perhaps the remodeling to install that much insulation is fairly expensive. Perhaps you end up with a general contractor who is unfamiliar with the framing techniques to achieve these r-values. The work goes slower, the labor costs go up, the materials cost from waste goes up, and you end up way over budget. Perhaps the starting house is reasonably well insulated to start with, giving less room for improvement and savings.

Perhaps you build or remodel and end up with your dream superinsulated house, only to discover that you have to move in two years because of a job transfer. Don’t despair yet. The resale value on a superinsulated house with a demonstrated track record of low fuel bills will definitely bring a higher price. But whether you recoup all of your additional investment or not depends on 27 other factors that we have little or no control over.

In the long run, none of the economic issues really matters because this is not about the money. Saving money in the long run is just a nice byproduct. The goal is to be frugal with the energy we are given out of respect for God and respect for our kids and grandkids. I would do it even if I “lost” money.

Finest regards,

troy and christina

Friday, October 13, 2006

Olympic barrel wrestling...

I am happy to announce that actual progress was made on the farm house. We now have almost fully functional heat, which is a good thing in October. Shortly after moving in, I fired up the boiler to see if it worked at all. The boiler itself came on when the thermostat called for heat, so that was a good sign, but the heat didn’t seem to make it out to the hot water baseboards. So I shut it down and left it, heat not being a critical issue in July.

By October of course, it had moved up many rungs on the list. I was afraid it would take major surgery and big bucks to get it back online, but the fix was pretty easy. The pipes were at least half full of air. This may have been due to neglect, which would have fit right in with the PO’s (previous owner’s) style. Or it could have been a technical difficulty. All boilers have some provision for make-up water. For various reasons like the solubility of air in cold water vs hot water, they all tend to get a bit of air in the system. Ours has some kind of valve for adding water, but either it’s broken, or I don’t understand how it works.

Work-arounds are my specialty. I found a spigot on one of the lines, and two bleeder valves upstairs. I made up a special chunk of garden hose that was female on both ends that allowed me to hook a garden hose up to the spigot and add water to the system that way. After several iterations of filling and bleeding air, the system took off like gangbusters and we now have heat in most rooms.

For reasons that are obscure to me, one of the upstairs bedrooms has no baseboard radiators (they are really convectors, but nobody uses that word which is a pity). Maybe the kids liked it a bit chilly in the winter. It's also the room that's painted electric orange with butterflies and it had a lock on the outside of the door. We may never really know what went on in that room, hopefully.

I invented a new Olympic sport while moving stuff in and out of the basement. Well, maybe it’s not quite Olympic caliber. Perhaps it is more like one of those goofy strongman competition sports. OK, being totally honest, it’s more like a “sport” you would end up seeing on Worlds Funniest Home Videos. By now you should be realizing that I tried a stupid stunt and almost broke my neck in the process. I am happy to report I was unsuccessful in that respect.

It all started innocently enough. I was moving possessions from the trailer into the basement. I got the idea that, hey, every trip out I could remove some junk/crap that needs throwing away. You know, efficiency and all that. One of the things that had to go was the “wood stove” that was in the basement. By wood stove, I mean the 55 gallon steel drum that had a primitive door and a primitive flue pipe bolted on. Primitive is really a kindness when describing this contraption.

It was still about 1/3 full of ashes, and the remaining space crammed with beer cans, jetsam and insulation scraps. I strapped it to my nice two wheeled dolly and determined to heave it up the stairs myself. I am moderately stout, and it wasn’t that heavy right? So I’m working my way up the stairs slowly and carefully. About 2/3 of the way up, I notice that somehow, every time I jerk it up one more stair, it drops a nice little pile of ashes on the stair.

I was pretty sure I had strapped the door shut, so I was puzzled by this. While carefully balancing the monster, I craned my head around to get a better look. To my horror, I realized that those corrosive ashes had destroyed about half of the joint where the bottom attaches to the drum and could fail catastrophically with one more good jolt, dumping ashes everywhere.

What to do, what to do? I decided that if I very gently raised it up the last three stairs, it would hold. And since I’m so athletic and coordinated and lucky, this should be no problem. In hindsight, I realized that this assumption was like the young innocent girl who decides to find out what that scary noise was down in the basement of a B-class horror flick. "DON’T DO IT!!", you should be yelling about now.

Essentially, I tried to raise it over each stair in slow motion, using exquisite control, avoiding the sudden jolting that would cause the whole precarious mess to fall apart and come crashing down. The first stair went well. The second stair, I hesitated just a fraction of a second, and it slipped back down and hit the stair with a jolt. This surprised me and pulled me off balance. In a tiny fraction of a second several things happened.

1. I discovered that a healthy slug of adrenaline takes 20 years off of a 46 year old male in terms of physical strength and agility.

2. The drum, the dolly and I ended up just a hair’s breadth away from tumbling down the stairs.

3. The base of the drum came off the dolly and hung up on the edge of the stair by the hair of its chiny chin chin.

I was prepared to let the whole thing fly down the stairs to prevent the breaking of my own neck or other major bones, but that turned out to be unnecessary. With heroic effort, I got the drum wiggled back on the base of the dolly, got it tied on tighter and successfully negotiated those last couple of stairs without further excitement. Thankfully, no video cams were about to record my prowess for posterity.

The other progress is that I got the north room in the basement cleaned out. I removed the old pressure tank and the crusty dirty rotten shelves. When they put the new well in, they just abandoned the old galvanized pressure tank and pushed it over to the side, still full of water. It was a heavy pig, and I couldn’t get any of the rusty plugs out, so I ended up drilling a hole and draining the water that way. I also removed all the old nasty shelving from that room. It has been reduced to kindling now. I felt a little bad cutting it up with the circular saw, as they were made out of who-knows how old 1” x 18” boards. Next time you go down to the lumber yard, ask for some twelve foot one by eighteens and see what they say.

The rarity of lumber like that is due to the loss of old growth big trees. Now, most of the 2 x 4’s and whatnot come from managed plots of rapid growth softwood. On the whole, this is a good thing as they are theoretically renewable and sustainable, but nobody wants to wait for the trees to get big enough to make two by twenties, or one by twentyfours. Plywood is a more efficient way to make wide boards these days.

We caught a second rat in the new sump pit. I guess they jump in for a drink because they are thirsty from eating the rat poison and starting to hemorrhage inside. Then they can’t crawl back out and can only tread water for so long. I feel zero sympathy.

After asking my wife if she wanted to remove the soggy carcass this time, we determined that this is man-work, which I don’t really mind. In truth, it was a squirrel, but they are just rats with fluffy tails, and every bit as destructive.

Finest regards, and see you next time.


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