A Good Bet for Michigan Homeowners: Saving Energy Now to Save Money Later

Graphic of a road leading skyward to a cloud shaped like a dollar sign

“What goes up must come down” may be a truism of the physical world, but in the world of finite energy supplies, the reverse may actually be true.

Natural gas prices have been at historic lows over the past couple of years, reaching a trough in 2012. But despite increases in production, that trend is already showing signs of reversing, with 2014 prices firmly higher than 2013 levels. The price of natural gas has been exceptionally volatile in recent weeks, and forecasts expect prices to increases significantly over the long-term. On top of this, the new federal rules on carbon emissions will likely increase demand on natural gas, driving prices up even further.

“Michigan households use 38 percent more energy than the U.S. average, according to the U.S Energy Information Administration,” says Mary Templeton, Michigan Saves’ executive director. “No one has a crystal ball, so we can’t say with certainty where energy prices will go in the future. But optimizing energy efficiency now, regardless of where energy prices are headed, makes solid economic sense for households.”

Given such volatility, some energy saved now may be a whole lot more than a dollar earned later.

“There are significant concerns about natural gas prices staying as low as they are, and with carbon regulation through the Clean Air Act on the horizon, natural gas is one tool that may be used to mitigate carbon,” says Megan Billingsley, senior research associate at Lawrence Berkeley National Laboratory, whose work focuses on figuring out how the nation will finance energy efficiency retrofits in the future. “I do not think that energy prices are going to stay this low for very long. They are cheap now, but I think there is a big question mark about what they will look like in five or 10 years from now.”

And those new carbon rules will likely have the government and utilities looking for more ways to incentivize energy efficiency retrofits as a cheaper—and possibly more effective—way to meet the new rules.

“Increasing energy efficiency is another tool that might be used to mitigate carbon emissions and their impacts,” says Billingsley.
Michigan residents are in an ideal position to realize those savings compared with states across the nation. That’s according to a new study co-authored by Billingsley, which finds that the cost of saving one kilowatt hour through utility customer-funded energy efficiency measures is lowest in the Midwest, as compared to all other regions in the nation.

Michigan residents currently spend more on energy than the national average. And according to the Energy Information Administration‘s Annual Energy Outlook for 2014, non-renewable energy expenditures are expected to increase by 2.8 percent between 2012 and 2040.

While the commercial sector will see  the biggest price increases, middle-income households have ample opportunity now to save later by hedging against future price increases, in same way that family that invested in fuel-efficient car five years ago is now saving at the tank compared with their neighbors in a gas-guzzling Yukon Denali.

Even simple retrofits such as sealing and insulation now will likely save significant amounts down the road. And deeper retrofits can have even bigger gains, especially when underpinned by basic weatherization retrofits. A layered approach can ultimately achieve larger savings.

“From the homeowner’s perspectives, there are a lot of benefits of doing a deeper upgrade,” says Billingsley. “Exactly when that pays off is a question of what measures you choose to take. Things like insulation and air sealing, especially in cold-weather climates, pay off very quickly. Then if you start to think about going from there and replacing your furnace, you will need a smaller furnace to heat your home than what you were using. And at that point, your energy costs will be significantly declined.”

And while heating and cooling no longer represent the majority sources of home energy consumption across the United States, according to a 2013 EIA report (appliances, electronics and lighting are taking up an increasing piece of the pie), they remain the big-ticket items in Michigan. So weatherization will continue to pay dividends though the Mitten State’s cold winters as compared to the typical U.S. home.

But achieving deeper retrofits can cost more up-front. The financing available through Michigan Saves enables Michigan customers to cost-effectively achieve those deeper retrofits in weatherization, heating, ventilation, and air conditioning.

“We know at Michigan Saves that our customers are able to do larger projects when they have attractive financing available,” says Templeton. “And a larger project should yield compounding savings across the years for homeowners.”

Just ask satisfied Michigan Saves customers.

“We’ve been telling our friends to get an energy assessment,” says Ruth Lumpkins of Grand Rapids, who financed energy efficiency retrofits to her home through Michigan Saves. “When you make the investment, it will save you money in the long run.”