INSIDE THE HOUSING EVOLUTION by Matthew Sachs

May 10, 2011 No Comments

Investing in Efficiency as Insurance Against Rising Energy Prices

CBC news recently reported on a study that electricity prices across the country are set to rise sharply, and that we should expect to see a rise of more than 50 percent by 2020.  While I personally feel that their estimate is optimistic, there is no doubt that energy prices have nowhere to go but up, and the only question is how quickly will it rise, and by how much.  In fact, their analysis assumes a “business as usual” scenario.  If Canada introduces any form of Carbon Tax, or Cap and Trade system as mandated by the Kyoto Accord, you can be sure that energy prices will skyrocket much higher than even the CBC report anticipates.

At Urbandale, we consider the energy saving features of our homes as a form of future-proofing, or insurance, that protects our homeowners against rising energy costs.  Certainly it costs more to build an energy efficient home- our homes cost roughly $10,000 more than a standard home.  However, even at today’s energy prices you can save approximately $950 per year, resulting in a payback of just under 11 years[1].  In fact, if you are financing your home through a mortgage (as most homeowners do) you will be saving money from the first day you move in, because your monthly energy savings will be greater than the additional monthly mortgage payments.

What the example above really represents is the minimum possible savings because the calculations assume that energy prices stay the same as they are today.  If we assume that the CBC forecast is accurate and that energy prices increase steadily from now to 50% higher by 2020, then the payback would actually be 8 years.  Of course if there’s any scenario other than the business as usual case, such as a Carbon Tax or a period of uncertainty in the Middle East (as if that ever happens!!) then the annual savings become that much more significant and the payback becomes even shorter.

No one knows for sure what the future has in store, but rising energy prices seems to be a fact of life, as certain as death and taxes.  Considering that when people buy a new home, they typically plan on living there for 5 to 10 years or longer, it only makes sense to protect yourself by insisting on energy efficiency upgrades.  When the time comes to sell, and energy prices are 50% higher than they are today, I expect that it will become very difficult to sell a house that isn’t energy efficient.

---

[1] Based off of a 2,700 sq ft house with energy usage from NRCan’s Energy Use Data Handbook.