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Rogier van Vlissingen ... Off the Grid in Five Easy Lessons #1 - 5

Burgess COMMENTARY

Peter Burgess

http://www.vliscony.com/2013/04/30/off-the-grid-easy-1/

Off the Grid in Five Easy Lessons #1

Posted on April 30, 2013

Off the grid living is easier to achieve than it sounds in many cases, but unsurprisingly, the information that your energy companies, your government, your mortgage lender, or even worse, energy efficiency or renewable energy sales people, give you, is best directed straight to the vertical file. Getting Off the Grid is about being your own boss, which in this case also happens to be the most socially responsible thing you could do. Serious green energy is generated locally and consumed locally.

Coming off the grid?

However, the slaves to the old subscription energy model are lining up on all sides to make sure that they can milk you for as much as possible for as long as possible, preferably by having you invest your dollars in becoming a better customer for them. You’ll be frittering away your money on marginal improvements: Look Ma, I’ve saved 10%.

The major mistake that real estate owners make is to be seduced by the various programs, special offers and tax incentives to make the wrong decisions, which might save them some money, but which are generally not in their best interest. Advantageous financing can only make a good project better, it can never make a bad project good. For the purposes of this discussion, an owner’s best interest should be defined as maximizing property value. To achieve that, you need to look at a long-term energy plan for the property, and to build yourself a financial model which reflects those expenditures, and allows you to experiment with variations in energy prices, and different options for generating your own green energy, and move at least partially off the grid.

What currently happens most of the time, and is–unwittingly–designed to keep you in the poor house, is that people make incremental decisions in a way that would only make sense if you were a renter, but not if you owned the property. That approach tries to justify an individual investment by the energy it saves, and it ensures that you spend a lot on equipment, without ever getting out of the hole. However, you cannot save yourself rich, and that includes energy efficiency, and you will quickly face diminishing returns on your investments. The only result is you become a better customer to your energy company, and you never even evaluate the radical option of generating your own (free!!!) green energy.

On the other hand, if you are a renter, there is not much else you can do. For you this model is fine. Trying to be rational in justifying energy-efficient choices, which means justifying equipment purchases, on the basis of the direct energy savings they produce. Interestingly, as I’ve noted elsewhere, people who use green energy tend in my experience to have lower energy bills, probably exactly because they are keen on these kinds of opportunities, not to mention that green energy is slightly more expensive, so you would tend to invest more in energy efficiency. Meanwhile, you can now join the movement and make money with referral marketing of green energy.

OFF THE GRID: THE ECONOMICS OF GREEN ENERGY

When you build yourself a model of the energy you consume in your house now at today’s prices, you will get to see the cash flows that are available to you for financing green energy options. However, rest assured that the options tend to be capital-intensive, for you are now basically investing in generating your own energy. Also, you are in most cases not coming off the grid completely but only partially. But let’s assume a case where you are using $300 worth of electricity, $75 worth of gas, and $400 worth of oil per month. That means you have $775 potentially available to finance renewable energy options, or, if the best you can do is a solution that reduces your consumption of energy in those forms by 75%, then still you would have 75% of $775 = $581.25 per month to pay for your green energy investment, or almost $7,000 per year.

OFF THE GRID: THE BAD NEWS

The bad news is that never mind how you think you are going to make your house more energy independent, even if you can fully justify it economically, you probably need some money up front, for every option you pursue is capital-intensive. Meanwhile, property owners are now starting to embrace these developments, and therefore the market will eventually penalize you if you don’t. There is a new term in town: Off-Grid Real Estate, and it will determine the value of your property more and more as time goes by. The cost of not acting will come when you sell your property. So you’ll need to tap into your savings, or make some extra money, and get ready to invest on generating your own green energy.

OFF THE GRID: THE GOOD NEWS

If you make a full plan for your property, you will start seeing the tradeoffs, and you will find that you will make different decisions in this case. For instance, greater efficiency (e.g. insulation or better windows) now pays off in reduced investment in energy plant not in savings on energy bills over time. So, whether it is wind turbines, solar panels or heat pumps, you’ll need less capacity, if you improve the envelope. But if e.g. you can come up with a plan that eliminates the burning of fossil fuel in the property, you can immediately see that you can now tighten up the envelope more, because you are reducing the need for ventilation.

This is the main reason you have to make a long-term plan, so that you can decide all Renewable Energy Sources at once. If not, you are likely to make decisions which you will later wish you had not made, because one thing locks you out from doing other things. So take your time, and in the meantime join the green energy referral marketing revolution to build up the extra reserves so you can afford to get serious about generating your own green energy and getting off the grid.

Off the Grid in Five Easy Lessons #2

Posted on May 4, 2013

Getting Off the Grid may sound easy, but it’s hard to do, and the major reason it is so hard is financial, not technological. One of the major problems is that energy efficiency and green energy are being confused in the priorities. The majority of government programs in fact are unintentional (and in some cases intentional) subsidies to the fossil fuel industry, and the vendors of energy equipment make use of the confusion to sell us all more of their energy efficiency equipment, on the pretense that it is ‘green,’ and the wrong use of energy efficiency causes the indefinite postponement of the green energy economy. We want green energy and not green paint.

Off the grid living may be a marginal phenomenon, but it If you check out the Wikipedia article in the link above, you’ll see that already in 2006 there were reports that the number of homes that were off the grid had been growing at 33% a year for 10 years. This off the grid trend is now rooted in seriously green energy, though not in all cases, and we should separate the survivalists from the regular economic approach choosing green living simply because it makes more economic sense. Today as I’m writing this, the Wall Street Journal just had a major article about Stealthy Green Homes. Off-Grid Real Estate is the thing to watch. Off the grid homes are no longer a marginal phenomenon. Anything growing at 33% for 10 years or more bears watching, and by the time WSJ reports it is becoming main stream, you can rest assured it is main stream already. The important point here is that this is mostly about new construction, and that of course gives you a lot of options to design things right from scratch. But, since there are more old homes than new ones, retrofitting is more important, and it is also more difficult.

GREEN ENERGY CONFUSION: AVOID RETROFITS THAT INVEST IN FOSSIL FUEL SLAVERY

Green Energy, not Green Paint

There is a general confusion that somehow energy efficiency and green energy are synonymous, and they are not. Energy efficiency will never add up to green energy, and if you are now consuming fossil fuel-based energy, and you start investing in energy efficiency, you are merely ensuring that you are never coming off the grid. You are merely investing your own money in becoming a better customer to your existing energy suppliers. In short, this is an issue of mixing up the priorities. The first decision is how you get your energy, fossil fuel (from the grid in the widest sense), or green energy in whatever form. Then you need to look at how you get there, and this is where efficiency comes in. With subscription fuels (fossil fuels and derivatives), efficiency pays off in reduced bills down the road, in green energy generation, efficiency pays off in reduced capital costs, because you need a lower installed capacity, and improved project returns.

STOP GOING OFF THE GRID WITH AN ENERGY STAR TANKLESS HOT WATER HEATER

The tankless hot water heaters is the poster child of the Energy Star program, and it is one of the worst investments you can make. This issue is emblematic for why efficiency should be considered second, not first. Since hot water is such a large portion of your energy bills in residential living, this is an easy target, and the federal government makes it worse by providing tax incentives for this type of Energy Star equipment, but home owners are in many cases stealing from themselves in the long run with lower asset appreciation. Assuming the tankless hot water heater is more efficient, all you are getting is lower energy bills, but you will still have energy bills. Such incremental investment in energy efficiency make you a better customer of your utility, at the cost of reduced appreciation of your major asset, your house. The shareholders of your utility thank you.

To see why, all you have to do is a 30 year CAPM evaluation of the project, which should be your planning framework for ALL energy decisions in your house. A solar hot water heater is a bigger investment, but once you take the 30 year horizon into account, you will see that it results in near ZERO energy bills for hot water (and yes, you could use a tankless hot water heater for backup, but a regular gas or electric water heater will do). Solar also has NO maintenance costs, while your tankless hot water heater probably needs to be replaced in 10 or 15 years. And by the way that backup heater does not need to be energy star rated, that’s a waste of money. You’ll use that backup heater perhaps for 15-20% of your BTU requirements for hot water.

Your tankless hot water heater may reduce your energy bills somewhat, perhaps even 15 or 20%. In other words, if you do your 30 year CAPM evaluation, you will have one or two replacements of that tankless hot water heater, and 15 or 20% lower energy consumption, but the price can still go up or down with energy prices, and the cost of the grid (the DELIVERY cost of your gas or electric) keeps rising faster than inflation. Even the best tankless hot water heater can only reduce your energy bills, not eliminate them.

OFF THE GRID WITH CAPM, NOT EQUIPMENT PAYBACK

Before you start doing anything about energy upgrades in your house, make yourself a 30 year financial model based on the Capital Asset Pricing Model (CAPM), taking energy costs into account, and then figure out exactly what your best options are. If people did their sums right and did not allow the IRS to make their investment decisions, they’d be a lot richer, and their homes worth more. Next time a visiting salesman comes to your home, if he’s pitching his latest energy-saving thingmajig with a superior payback period, and worse yet, with tax incentives, katy bar the door and do your own analysis first. He is stealing property value, value appreciation of your property, with your signature, even if he is armed with tax incentives and the blessings of the energy star program. At tankless hot water heater does not green energy make, nor will it get you off the grid.

http://www.vliscony.com/2013/05/05/off-the-grid-easy-3/

Off the Grid in Five Easy Lessons #3

Posted on May 5, 2013

Getting off the grid even partially is an obstacle course, but surprisingly, the biggest obstacle is not technology, it is financial decision-making at all levels. From the top down, with various federal programs, down to the level of the individual homeowner, there are some severe misunderstandings and pervasive analytical blunders that generally lead to inferior projects getting priority and the best projects often never being discovered. The combined result is often an unintended subsidy to the fossil fuel industry, and unintended decreases in long-term real estate values because owners fail to uncover the financially optimal decisions for their properties. Renewable energy is generally better financially because it comes with lower operating and maintenance costs, mostly negligibly low fuel costs, for backup mostly, and usually nearly little or no maintenance.

By comparison, investments in energy efficiency, as long as you’re on the grid primarily, are really not investments at all, they are about operational savings. There are many other traps, and often times they are made worse by various government programs however well intended. Not only do many programs that purport to support renewable energy barely do so, their results are often antithetical to what they claim, and the postponement of the low-carbon future is the effect. To get largely off the grid these choices need to be made very carefully.

SOLAR PV: GREEN ENERGY FOR THE POSTCARDS TO SEND TO MOM

Look ma, we’ve gone solar!

The Solar PV Model

It makes a nice postcard, but does it make financial sense? Getting Off the Grid is slowed down by solar PV compared to the alternatives, but solar PV is generally easier (read: cheaper) to install. However, Solar PV efficiency, remarkable as it is, is in the range of 15-16%, while solar thermal is up to 98% efficient, in other words, you are gaining more energy per square foot by a factor of 5 from solar thermal, and the overwhelming energy demand in residential living is thermal: Domestic Hot Water (DHW), Heating/Cooling.

The main reason solar PV gets so much press is because it is easy to deploy and because there have been a lot of tax-incentives. It may not necessarily be the most sensible investment. But everything differs from property to property based on implementation details. The principal driver for PV is that because it produces electricity, transportation is easier, but that argument may not hold water if it is installed locally for local production. Also PV has been the beneficiary of a lot of tax incentives, but for residential use, it is at best a second choice, rarely the first. In short, if you own a piece of desert in Arizona, and you need to transport the energy long distance, solar PV is a great choice. For your house, maybe not so much.

OFF THE GRID: THE SECRETS OF SOLAR THERMAL VERSUS SOLAR PV

With solar thermal, you will find conversion efficiency as high as 98%, or easily 5 times higher than with PV, but integration costs may be higher, however in most cases thermal should win out if it is properly evaluated.

The most important thing is that with solar thermal the sun’s energy is captured as heat, which is directly usable for DHW (Domestic Hot Water), as well as for heating and cooling. Perhaps even more importantly, that thermal heat can be captured and stored in the cheapest battery of them all, a hot water tank. Storing energy is the single biggest (read: most expensive) problem, and with solar thermal that problem is solved. We’re talking seriously green energy here, and a major step towards getting off the grid. You are now building an energy system. If you think about the cost of real estate, and the frequent limits on available space, that higher energy efficiency per square foot should not be underestimated.

TANKLESS HOT WATER HEATERS: THROWING OUT THE BATTERIES WITH THE BATH WATER

As a home owner, your mission is not to burn gas most efficiently, it is to increase your living comfort, as well as the value of your home. As I’ve pointed out in the previous post in this series, tankless hot water heaters, with or without Energy Star labels, seldom make any sense if you evaluate the energy infrastructure of your home properly. The example of solar thermal here makes it clear how important Domestic Hot Water can be as an energy store. Too often there are incentives, such as low-cost financing, and or tax benefits, which seduce home owners to make the wrong decisions. Domestic Hot Water as a free energy store is very valuable in the energy household of your property. Other forms of batteries tend to be expensive.

CONCLUSION

As noted elsewhere, when visiting salesmen come to your door, and try to sell you equipment based on tax incentives, and other programs, and showing you a fantastic payback period based on reducing your energy bills, katy bar the door, and go do your financial homework first. They are interested in their commission, not the value of your property, unfortunately many counter productive government and state programs seem to reward the wrong decisions, and unwittingly favor the incumbent energy providers, to the detriment of long-term real estate values.

Only by doing a proper long-term energy plan, and evaluating the alternatives, do you have a chance of making the best decision. A 30 year model is usually adequate, given the lie spans of a lot of energy equipment, not to mention the length of a typical mortgage. Start thinking of your property as (potentially) your own private energy plant. Don’t be seduced by all the incentives in the world. Remember this: advantageous financing can never make a bad project good, but it can only make a good project better.

Hopefully we will also see modifications of various program, including financing packages, which often turn on specifying Energy Star rated equipment, and very often force property owners to over-invest in the wrong parts of the plan, or make the wrong choices altogether.