Return on investment relative to R values

[Nik Gregg]

Hi All

I’ve been asked a number of times, from lots of home owners, if I increase my insulation above the minimum R value, whats the return on investment?

Is there any data on this?  Is there a simple way of responding to this?  A few years back, it was mentioned that R4.0 was a good level, about that R.O.I was severely diminished?

I realise this may be a ‘how long is a piece of string’ question, but would be interested in any thoughts.

Cheers – Nik

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[Sally Blackwell]

Nik, I’m pretty sure the technical manual developed for the HEAC at least touches on this. I haven’t looked at the manual for years though so my memory is hazy. Jo Wills or Phil Squire will be able to direct you to it.
Cheers

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[Paul Hansen]

Gleb from Insulpro is a wealth of knowledge in this area as well. he once drew a graph for me describing decreasing benefit relative to R-value. This was not a ROI  point of view, but more that in a temperate climate of the Far North his argument was that once we went over a R3.6 type value the thermal benfit nearly started to flatten out at the top of the curve if this makes sense. High thermal value in the first part of the curve up to R2.8, slowing to R3.2 flattening out after R3.6. This would not be relative to a colder zone 2 – zone 3 house.

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[Norman Smith]

If you take a narrow view of diminishing returns on ceiling insulation product then installing 50mm is all you would do, or even only 25mm. However, taking into account transaction costs such as labour (whether the home owners or someone paid) the cost for installing R1.0 or R4.0 is virtually identical so you are only paying the marginal cost of materials.  And of course than is only part of the story when calculating ROI over the product life cycle, projecting energy cost increases etc.

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[Vicki Cowan]

There is some data on this in some of the Beacon research reports which I could pull out for you Nik.  But as Paul says it will vary by location.

But I have to completely agree with Norman – once you’re insulating there’s no cheaper time to maximise the amount – especially when you consider that over time the product R value undoubtedly reduces – if it’s something like macerated paper, then that degradation curve is very fast.  We’ve all seen ceilings that were  “insulated” where all the loft has gone, rats have ripped it apart, blown in products have ended up at one end of the house etc.  They might have had (unlikely) acceptable installed R values but 10-20 years later are virtually ineffective.

Also I have to say insulation is not a product you should be looking for a return on investment for.

I don’t think EECA and Treasury have done us any favours here by focussing on that aspect.  People don’t ask what the return on investment is for their granite sinkbench, family holiday to the Gold Coast, or pretty much any other purchasing decision – from the mundane to the expensive – Auckland is full of heat pumps that have a very poor return on investment because they are almost exclusively being used for cooling. And the winter temperatures are so mild that the payback period if they are used for heating is decades beyond the expected life of the appliance. But people still buy them.

A good level of insulation needs to be regarded as a basic requirement in a house – you don’t live in a house without a front door, a toilet or a roof, you shouldn’t live in one without decent insulation.  That’s why its mandatory in the Building Code.

So yes I could give you some data- send me an email to remind me, but remember using it just perpetuates this focus on the what I think is the wrong thing.

Sorry for the rant – you got me on a Monday morning!

 

 

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[Nik Gregg]

Hey Team – thanks for the wisdom and thoughts.

Paul – makes sense.  Godfrey had mentioned to me, that in our part of the country R4.0 was the point of diminishing returns.

Norman – good thought re ‘return on labour’.  Like this.

Lois – thanks – will email you.  The reason I was looking at ROI, was not to argue the case for insulation, I agree, that’s a given.  It was to argue the case that the standards are a minimum and that homes should be considering insulating well above the standard.  There, this begs the question, what is the ideal, and if I go above the minimum, how do I measure its performance.

Interestingly, found a document endorsed by EECA, written by CCANZ, designing comfortable homes 2nd edition.  This has some interesting calculation on heating assumptions for minimum levels of insulation, vs R3.6 and R5.0.

Thanks again for your thoughts – much appreciated.

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[Fred Braxton]

Good discussion! A picture from Albrecht Stoecklein that really struck me and that I’ve found helpful: An investment in home sustainability has more than one return. The monetary ROI may be 3% (and of course no two economists would agree how to calculate it); but then there’s the return in comfort of another 3%; and a 3% return in the feel-good/futureprofing factor. So a 9% return! Not “scientific” but neither is economics, and it’s convincing for many clients.

Re futureprofing: If adding ceiling insulation to a house with single glazing and no wall insulation, plan to do it only once. To add more insulation than strictly necessary may not be justified in the conventional sense even though the marginal cost is small,  because the extra benefit is outweighed by the significant heat losses through glazing and walls. But if at a later date the windows get improved and/or the walls get insulated, then having a higher level in the ceiling does become justified.

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[Phil Squire]

Hi folks

Yes we do have a graph in the HEAC manual (per kind favour of Ian McChesney).

But the ROI I do think has some relevance. Unlike a granite bench top or holiday to the Gold Coast, you may well be investing for financial considerations (e.g. a lower energy bill, or the same energy bill for more comfort). Money invested for pleasure or status doesn’t usually expect a financial return – there’s not a lot of joy (apart from us energy geeks) from the knowledge that there’s R4.0 rather than R2.8 in the ceiling.

Last night I was chatting with my Dad who was looking at double glazing. And I was using the ROI route. Because they are in the lower north island and have excellent curtains and are typically gone for 6-8 weeks over the winter, investing in efficient heating would give a better ROI. They don’t need sound insulation and could better put their dollars into draughtproofing etc.

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[Vicki Cowan]

The main problem with telling people that investing in the thermal envelope in their house will save them money, is that in almost every circumstance it doesn’t!  So the ROI is theoretical not real – its almost always based on assumptions around whole house heating that aren’t real but work well in the modelling software.

There are a lot of  thick research reports which have looked at this issue -most recently the Warm Up NZ Evaluation.  There are two main reasons why little actual energy is saved:

-most people don’t heat our houses enough, so when people get a better thermal envelope – and find their house is easier to heat, they do exactly that.  Which delivers some good health benefits, so is a positive, but no money is saved.

-people who do heat their houses enough find it’s easier to heat, and kinda like it being even warmer = comfort creep.  This seems to be a particular problem when heat pumps are combined with better thermal envelopes – the WUNZ work showed that for many higher income households when they got insulation + a heat pump they used more electricity and no extra health benefits above just the insulation.

As a practical example in my own home I have thick (about R4.6) ceiling insulation, underfloor insulation, double glazing with low e, argon etc in about half the house, and just insulated the walls of my bedroom and lounge .  I haven’t saved any money on heating costs, but it’s much cosier in my house, and our health is a lot better.  So what’s the return on investment?  I’m with Fred on the 3% better health and 3% warmer so we can enjoy rather than exist in our house in winter.  But we haven’t saved any hard cash so the economists would tell us it was a bad investment.

 

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[Ian McChesney]

Nik’s question, and the breadth of comment offered, to me point to the need for a better framework to guide our responses to such issues.

The ROI (or value for money) question is always relevant to ask in my view. Most of us would want to know how the benefits of that extra expenditure on insulation stack up alongside alternative ways of spending that money – be it other energy efficiency features, heat pumps, granite sinkbenches or whatever.

Insulation reduces the rate of heat loss in proportion to the inverse of the insulation R value. So, by my reckoning, for example, compared to the heat loss reduction one would get from R5 ceiling insulation, you would achieve over 75% of that benefit with R1.5, and 90% at R2.5.

Diminishing returns set in at quite low R values. I would agree with Norman to a point – that if you have made the decision to insulate the marginal cost of the extra insulation may well be relatively small. But that’s not the only consideration. If you already have 100mm of ceiling insulation, for example, is it worthwhile putting more in? In my assessment the marginal benefits of doing so may be highly dubious in many situations, especially when other more compelling uses for that expenditure exist.

I may sound heretical here but twice in the last two years (for myself and another family member) I elected not to re-insulate and get a heating subsidy (when they existed) through WUNZ:HS, and instead purchased just heat pumps at the market rate. I determined that the marginal benefit to be gained from the extra cost of $3-4,000 from top-up ceiling insulation and replacing underfloor insulation (that would have been required in order to gain the $500 heating subsidy) was a relatively poor investment compared with the approx. 3:1 COP gain from decent heat pumps.

Having experienced both increased levels of comfort and reduced electricity costs I am certain that if the investment had been on the extra insulation rather than the heat pumps the level of benefit would have been far reduced.

I am thus critical of the WUNZ:HS requirements for the absolute priority afforded to insulation, and most particularly the top-up requirements ( and now of course the heating grants being discontinued). I do not think this arrangement is giving us the best value for money or the best outcomes for low income households.

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[Norman Smith]

So what’s the thermal mass in granite sinkbenches again?

No but seriously. Ian raises an interesting issue when he talks about “….the need for a better framework to guide our responses to such issues……”

Its pretty obvious there is no single answer to the original question. So is it possible the wide range of perspectives and responses – i.e. no framework – has added to all our knowledge?

I’ve found it informative, Norman

 

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[Sally Blackwell]

Hi guys

I’ve seen your responses pop into my email as they’ve been written but have just had a chance to read through them all in order. A lively discussion!

One of the things we identified at the workshop in Wellington last Thursday was that we wanted to create some “products” for advisors through the Hub. For instance, a useful syntheses of best practice (and practical know how) on particular issues. We thought developing one of these would be an experiment in itself in terms of how we collaborate, ensure and agree best practice, and resource it, that would inform future planning and decision making for the Hub initiative. We had a few ideas about topics but I don’t think we had firm agreement. It seems to me this could be a lively and useful first cab off the rank. One thing I’ve seen emerge of the past few months is a common call for decision-making frameworks not just on this particular issue but on others. I hope that we can channel some time and energy into this through the Hub.

This will no doubt fall out of the discussions and decisions we now need to have following on from the workshop. I will be writing up the key discussion points and actions from the meeting this week and will circulate ASAP, so hopefully more on this soon.

Sally

 

 

alked about at the workshop in Wellington last Thursday was using the process of de

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