The average U.S. home uses 10,800 kWh of electricity per year, or 11,500 in Indiana (EIA). Our annual usage is 5,000 kWh / year in a 1970's 2,000 sq ft home with 4 people. I'm not entirely sure what we're doing, because we cook, shower, compute, do laundry, use central A/C, and all that without any thermostat fights or extreme measures. I have a 2nd fridge and a chest freezer in the garage. We do, however, use natural gas for cooking, hot water, and space heating.
In the world of renewable energy, it is well-established advice to think "efficiency first." If your goal is reduce actual environmental pollutants (sulfur oxides, nitrous oxides, lead, carbon dioxide, methane, particulates, etc) associated with fossil fuel combustion, it doesn't matter to the planet one iota whether a given unit is offset by production from a solar panel or reduced by efficiency measures. The result - avoided pollution - is precisely the same in the real world.
So reducing our electric-related emissions (which, in Indiana, are still substantial) still further could work one of two ways (or both). Here we imagine a drop from 5,000 to 3,000:
Everyone appreciates the concepts of economics and budgeting, so let's consider the financial side. The well-worn concept of "low-hanging fruit" applies. When you're starting at the metaphorical apple tree, pick that which is within reach first before you get the ladder.
For our baseline conditions, consider that each marginal 1,000 kWh (each box in the image) costs about $130. At the bottom you see a monthly charge of $14/month for being hooked up to the grid... that won't change yet. So total annual costs at $818/year.

For efficiency, the boxes (1,000 kWh) at the top of the stack will be the easiest and cheapest to knock out first.
Consider a home that replaces just eighteen 60W incandescent bulbs with simple LED bulbs from Wal-Mart or Lowes that are now only $1.50 each (true story). The LEDs put out the same light while only drawing 9 W. They run for 3 hours a day. Those 18 bulbs alone - costing a grand $27 - will save an entire 1,000 kWh block of energy each year. Your $27 investment yields $130 per year and pays pack in 76 days (27/130*365). Yes, that's an investment return of 480%. You know all those dumb credit card games you play trying to get 5% back instead of 1%? The "high-yield" bond fund with 5% dividends? Try 480%. Stop the games, go do some LED shopping, then come back and finish this blog post.
$130 a year to buy all kinds of Play Stations and Beanie Babies! This is fun! On to the next block.
Returns aren't quite as juicy here. But it behooves us to run the numbers... because most people don't.
We already know solar is going to be more expensive at this point, so we'll ignore it for now. To accumulate another full 1,000 kWh in efficiencies, we're going to have to bundle several things:
a) You switch all the rest of your lights to LEDs, but there are more specialty bulbs and you only use some areas very infrequently. You pay a buddy to help with the wiring. 600kWh/year saved, but at the cost of $300.
b) It's hard to calculate in real life, but to reduce your A/C load in the summer, you get meticulous about weather-stripping and leak-sealing, you blow an extra layer of insulation in the roof, as well as install a smart thermostat, to save 250 kWh/year at the cost of $300.
c) You have a fridge replacement due, and decide to move up to the Energy Star-rated one, saving 150 kWh/year, but costing $200 more.
So we have the next 1,000 knocked off, but at a much more substantial price of $800.
You are saving another $130 each year, so your payback for this suite of upgrades is $800 / $130 = 6.2 years. In other words, the annual return on that $800 investment is something like 16% (1/6.2). Note: you don't get your capital back with this investment. So it's not something that will make you rich tomorrow, but the upgrades will keep on delivering dividends, which only increase in value when the utility inevitably raises the rates.
At this point, any low or even medium-hanging efficiency "fruit" has been eaten. Good job!
We are now up against some serious limits. Much of the energy usage of a home is predestined when the layout and siting of the building was completed. You can't tilt your house 40 degrees to get more optimal solar exposure. You can't shrink the square footage just because the kids moved out. When LEDs are replaced with an even newer tech, you are only going to drop from 9 watts to 2. Top tier fridges are already down to 425 kWh/year.
Let's just make up a number... I'm going to have to drop $5,000 to get consumption down to a pretty sick 2,000 kWh/year. I'd have to spend all my time running around unplugging things. Even I don't enjoy doing that!
For those counting at home, that's a 38 year payback.
Ok, time to look at solar!
Last winter, I got actual quotes from local providers for a less-than-ideal roof in a not-the-sunniest part of the country in a poorly-incentivized state. After the 30% federal tax credit the cheapest system penciled out to about $1,700 per kWh produced, or $130 in savings in year one. Assuming utility prices continue to go up at a modest rate (let's say 3% each year) you actually recoup $1,700 faster than "n=1700/130" so it's more like a 10 year payback. I've already seen solar prices come down this year so I would expect if I inquire again in 2017 the payback would be around 9 years.
(All of the solar numbers above hinge on the continued legislative support for net metering).
The social cost of pollution that you are avoiding with each box a real thing too. Even though attempts to precisely quantify such costs are doomed to have extremely wide standard deviations, the true price is certainly non-zero. It is the price you and I pass on to everyone else (externalized/socialized costs)... in the form of coal ash ponds, heavy metal deposition in poor and minority communities adjacent to plants, rising seas levels from warming water, etc. For CO2 emissions alone, a median value I found at one point was $42/ton [citation needed], putting Indiana’s coal-heavy electricity exerting an additional cost of $38 per 1,000 kWh annually. If in the right ballpark, these invisible costs are >1/4 of the actual sticker price. If we internalize the costs that we’ve been pushing off on taxpayers and poor people, our payback comes down around 8 years.
Simple payback isn’t everything either. There are additional years of nearly free electric production with an array that could be warrantied for 25 years. There is the documented social phenomenon that solar panels are actually contagious, putting a higher value on arrays erected by earliest adopters. There is also local economics, resilience, and aesthetics to consider. This analysis is far more analytical and logical than almost anyone would do (probably even myself).
By using a combination of both efficiency and renewables in proportions that made sense, we came to a cost-effective solution for systematically reducing the negative effects related to our energy production and consumption.
In the next post, we'll take a look at electrical savings beyond your individual meter... and CO2 reductions more holistically.