Replacement Windows Project ROI

Last March, we upgraded our house with energy efficient triple pane windows and patio doors.  Although we expected the project to lower our energy consumption, the cost reduction was only part of the motivation.  We installed the new windows and doors to provide additional comfort and security for the family, while enhancing the house’s exterior appeal and resell value.  Since it was a substantial investment ($12k), I decided to spend some time verifying the project benefits.

When determining the return on investment (ROI) for any project, it’s important to consider both the quantitative and the qualitative benefits.  In other words, do not expect a speedy recovery of the full investment amount from the energy cost reduction alone; although that’s where I will start with my analysis.  To determine the reduction in energy consumption and to project the annualized cost savings, I decided to compare the PG&E bill for the past year (Apr 2009 – Mar 2010) against the same period 2 years ago.  Since California’s weather is pretty mild in the Summer, we do not have an air conditioner.  I was expecting the savings largely from the Winter months when the furnace is running, so I was surprised to find a consist trend of reduced energy consumption through out the year.

The chart to the right shows the monthly PG&E bill (in blue) and the year-over-year delta (in green) for the same month.  While there are some anomalies that I attribute to weather and other causes, the cumulative effect is that we saved on the average 25 to 30% per month for a total of $750 this past year.  When I project the savings over the next 10 years factoring in rising energy price (conservatively 5% increase a year), the total saving amounts to approximately $9,500.  Since the project also qualified for an one-time $1,500 federal tax credit for energy-efficient home upgrades, I expect we will reach the break-even point in about 12 years or less.

I love my new new windows and patio doors, and I would gladly pay the full value of the project for the enhanced feeling of comfort and safety alone.  They truly enhance the house’s exterior appeal and add to the architectural detail that was missing from the old, aluminum windows.  From within the house, it feels much more insulated and secure too.  The new windows significantly dampen exterior noise while the double latches provide extra protection from unwanted intrusion.  Fortunately, a typical windows replacement project like this one can increase the value of the house by as much as 56% of the project cost, according to the experts at HGTV.com.

Back to the ROI calculation, if I consider that approximately $6,700 (56% of the project cost) is recouped in the form of increased resell value and that I benefit from an one-time $1,500 federal tax credit, then $3,800 is really what I paid for the qualitative benefits.  It is also the true cost that I will need to recover from the energy savings.  Based on my assumption of $750 savings annually, with energy cost rising, I can expect to reach the break even point in 5 years.  All savings beyond year 5 are the icing on the cake.  That’s a darn good return on investment (ROI), one that makes me quite happy that we went ahead with the project last year.

The following table shows calculation for the final ROI:

To see the before and after pictures, check out my Picasa Web Album.

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