How to Save Money on Home Energy

Although you can do many free or inexpensive things in and around your home to upgrade its energy efficiency, there are times when purchasing or upgrading something in order to save money on your utility bill can make sense. Think of this as "investing in energy efficiency."

Here's an example: If your refrigerator is 15 years old or older, replacing it with a new one could reduce your energy bill by five dollars or more every month: 60 dollars a year. If that new refrigerator costs $600, you're getting a 10 percent return on your money -- much more than banks are paying on savings, checking accounts, or even certificates of deposit. And the extra bonus is that money "earned" on energy savings isn't subject to state or federal income tax. A 10 percent, tax-free return on a moderate investment? That beats leaving potentially savings-producing money like this in a bank account (where returns are low -- and also taxed).


When you invest money and time in projects like replacing windows and updating plumbing, the benefits begin immediately and keep paying off every day for the life of the house. You may save hundreds of dollars in utility bills. In this article, we will show you how to update your heating and cooling equipment, major appliances, and windows to better conserve energy and save more money. We'll also discuss how you can find a good contractor if you need help with some of these projects. Let's start by assessing your heating and cooling bills to determine the efficiency of your current home systems.

Figuring Out the Heating Payback

You've heard and read all the stories in the news about rising energy prices, and you're wondering if buying a new furnace, boiler, or air-conditioning compressor is worth the money. The short answer is that the higher energy prices go, the shorter "payback" time you'll see if you do decide to purchase new and more efficient heating and cooling equipments.

The longer answer is that it is impossible to put a firm dollar figure on exactly how much you might save by upgrading. There are too many variables -- the most important (and lately the most volatile) being the fluctuating price of heating fuel. Geographical location is also a very important factor -- and how the seasonal weather situation shapes up in your section of the country -- as is how frugally you already live in your home.

Calculating What You Pay Now

To get a quick read on some of the potential savings you could realize by upgrading your heating and cooling equipment, you can do a calculation using your previous utility bills. Though crude (and based on any fluctuation from the previous year's fuel costs), it will, at least, give you an idea about how much you could save and whether the expenditure is worth considering in your particular circumstance.

The first task is to find out how much you spent on gas and electricity the previous year during the months when you weren't typically using gas, oil, or electricity to heat or cool your home. Your lowest utility bills of the year will usually be in the spring and fall. Find a few bills from these months and average them together to come up with a "typical" no-heating and no-cooling expense month. This will give you a "base load" figure. In other words, this is what you typically spend every month for water heating, cooking, clothes drying, lighting, and other uses that do not involve turning on the major heating and cooling equipment. Multiply the base load figure by 12, and the sum is your yearly base load rate for gas, oil, and electricity.

Next, add up an entire year's worth of bills; say from December of one year to December of the next year. Subtract the yearly base load rate from the yearly total bill, and what is left over is what you spent on heating and cooling during that year. You can further refine the process by breaking down the calculations into separate gas, oil, or electricity categories.

With these numbers in hand, you'll be better able to decide whether or not it makes sense to upgrade to higher-efficiency mechanical equipment.

Efficiency Ratings -- What Do They Mean?

Furnaces and boilers are categorized by their "annualized fuel-utilization efficiency" rating, or AFUE. You'll see those rating numbers, expressed in percentages, when you research heating equipment or talk to a contractor about having new equipment installed.

As an example of how the AFUE ratings could have an effect on your heating bill, say your present forced-air gas furnace is 15 years old and is operating at about 75 percent efficiency (considered to be standard for that era). Your utility bill for the entirety of last year was $2,000. Your base load rate for gas and electricity was $80 per month, or $960 for the year. That means you spent about $1,040 to heat and cool your home last year ($2,000 for the entire year's bills minus $960 base load).

Of that $1,040 about 70 percent, or $728, was spent on natural gas, while $312 was for electricity. So, it cost approximately $728 to heat your home last year.

If you have a 95-percent-efficient furnace installed to replace your 75-percent model, you should save about 20 cents per gas-heating dollar or about $146 over the course of one year. Since super-high-efficiency furnaces cost about $1,000 more than the standard units, it would take almost seven years to pay that amount back based on energy savings alone ($1,000 divided by $146 equals 6.8 years).

However, here's the big variable that calculation does not take into account: increasing gas prices. We now know that global atmospheric and political conditions can throw even the best price predictions for a loop. If fuel prices increase, the savings will be larger and the pay-back time shorter. And even if gas prices don't go up, a tax-free "return" of about 5 percent per year (say, $3,000 for a new furnace, yielding about $146 in energy savings a year) isn't too shabby an investment. Also, the blower-fan motors in new furnaces use electricity more conservatively, so you'll reduce electrical consumption, contributing to the savings.

Homeowners who live in colder locations use more heating fuel and thus can realize faster payback periods. Those who live in climates that require more cooling than heating will benefit more from high-efficiency air-conditioning units than they would investing in higher-efficiency heating equipment.

In the United States, about 75 percent of residential heating is delivered through forced-air systems, and the average age of those furnaces is 17 years, while 25 percent are more than 20 years old. Since the average yearly utility bill is about $1,500, there is reason to consider an upgrade if you have an older furnace.

In the next section, we will discuss how furnaces operate, and why the newer ones are more efficient.