How to calculate energy efficiency savings

Energy efficiency measures of all sizes can help you save money and protect against rising utility costs. However, your long-term energy efficiency savings generally depend on your property's current efficiency, your electricity rates, and the financial incentives available in your area.

Your property's current efficiency

Understanding your property's current efficiency is perhaps the most essential consideration when upgrading the energy systems of your home or business. If you have appliances that are 20+ years old, drafty windows, or a furnace or central air conditioning system needing replacement, you can see significant energy efficiency savings by making updates. Even if your home or business doesn't require substantial upgrades, energy-efficient appliances can still offer net savings in the form of reduced energy bills.

Electricity rates

The more you pay for electricity, the more you can save by implementing energy-efficient measures at your property. Energy efficiency projects can reduce electricity bills across the country. Still, people who live in regions with high electricity rates and those with high heating and cooling needs, like the Northeast and southern California, will realize the most savings.

Financial incentives

Federal tax credits for energy efficiency expired at the end of 2016, but you may be able to access state, local, or utility rebates that will decrease your out-of-pocket costs for energy efficiency projects. The specific incentives vary from program to program but could include reimbursements for purchasing new energy-efficient appliances, air conditioning systems, or furnaces; recycling old appliances; and upgrading leaky windows or insulation. Many programs also offer low- or no-interest energy efficiency loans.

Energy-efficient products can result in immediate and significant utility bill reductions as soon as they are installed. Due to the passive accumulation of savings over the product's lifetime, consumers essentially enjoy an "implicit return" from their investments in energy efficiency that is unique in that it increases over time due to rising energy costs. In addition to supply and demand, energy prices depend on external developments in environmental regulations and fossil fuel prices.

Energy-efficient products and services can cost more than conventional ones, but the electricity savings from energy-efficient measures should eventually offset their extra cost. To calculate the time it will take to break even on energy-efficient purchases, you need to know the product's type and specific energy requirements and the cost and energy requirements of a comparable conventional product. Your home's features and the electricity cost where you live will give an even more accurate picture.

Below are two common energy efficiency upgrades that property owners can make for their home or business. In each example, we compare the lifetime cost of buying and using a new non-Energy Star-rated product against a new energy-efficient ENERGY STAR product.

These calculations assume an electricity rate of $0.12 per kilowatt-hour (kWh) and a 3% annual electricity rate increase.

Energy efficient vs. conventional refrigerator

By purchasing an Energy Star-certified refrigerator rather than a non-energy efficient refrigerator, you could save $135 over your refrigerator's 12-year lifespan.

Energy efficient vs. conventional central air conditioning system

By purchasing an ENERGY STAR certified central air conditioner rather than a non-energy efficient central air conditioner, you could save $1,680 over its 18-year lifespan.

Your savings will be even more significant if you switch out older appliances and heating & cooling systems for energy-efficient products. For example, a fridge manufactured in 1990 uses 1,100 kWh per year – more than three times as much as an energy-efficient fridge manufactured today. Assuming you pay $0.16/kWh for your electricity, you could save $120 on your electric bill by making that simple switch. To get a fully customized understanding of the opportunities for energy-efficient upgrades, consider getting a home energy audit for your home or business.

Energy efficiency measures can help insulate your home against rising electricity prices. To take it a step further, consider installing solar panels on your property to generate your own renewable electricity.

Installing solar panels on your roof is the best way to ensure that your electricity prices will remain stable over the next 20+ years. In 2023, it costs $20,650 on average to install solar in the U.S., a considerable decrease from the more than $50,000 price tag of 10 years ago.

As with energy efficiency, significant solar incentives are available to help homeowners and businesses switch to renewable energy. Most notably, the federal investment tax credit (ITC) for solar reduces your total costs by 30 percent.

You can go solar with a $0 down solar loan and pay off your system in seven years or less, at which point you’ll enjoy free electricity for the remainder of your solar panels’ 25+ year lifetime. In many cases, solar energy savings reach tens of thousands of dollars. When you pair solar with energy efficiency measures, you’ll be even less reliant on your utility for your electricity needs.

Savings with a solar energy system

Going solar can bring your utility electric bill down to $0. Over a solar panel system’s 30-year useful life, this can translate to tens of thousands of dollars in savings. Calculating your savings from investing in solar is as simple as subtracting the amount you pay for solar from what you would have paid for electricity otherwise.