Sustainable investing
Greening your home: Three steps to get you started
Long-term trends point to an increase in global total energy demand, which will likely be accompanied by higher electricity prices and higher carbon emissions. These trends have implications for investors as well as homeowners.- Homeowners can consider three steps toward a greener and more energy—conscious home: evaluate your electricity sources, invest in energy—efficiency upgrades, and focus on your heating and cooling system.
- These considerations are timely given technological advancements across solar energy and energy—efficiency solutions, as well as federal—and state—level tax credits and other incentive systems available.
In 2022, average wholesale electricity prices were higher and more volatile than the year before in most major trading hubs in the United States, according to the Energy Information Agency (EIA). In addition to supply constraints for natural gas and limited coal availability, severe weather events caused spikes in pricing across the country.
While 2023 has seen a respite in energy prices, hotter summers and more erratic weather indicate that energy pricing volatility is likely here to stay. From an investor perspective, we see opportunities to diversify across “Greentech” or themes such as “Clean air and carbon reduction,” “Energy efficiency,” “Smart mobility,” and “Energy transition.”
The largest asset for most American households is their home. As such, we recommend that homeowners consider their home as one way to manage the impact of energy price volatility.
Residential real estate consumes 22% of electricity in the United States, according to the EIA, so managing down energy consumption at home can not only help wallets, but also the world by reducing carbon emissions. In our “Greening your home” article series, we have explored three ways in which homeowners can bring sustainability and cost efficiency to their homes.
Consider where your energy comes from
With more erratic weather events expected, switching to solar energy for residential real estate could help manage energy price volatility in the future. The switch is becoming increasingly possible, as solar generation becomes cost competitive with fossil fuels, especially when considering state- and federal—level incentives.
Depending on their location, homeowners can choose to opt for clean energy through their utility provider or by installing solar panels on their homes. According to the National Renewable Energy Laboratory, 7.5 million customers procured 192 million MWh of renewable energy through green power products from utilities in 2020. Currently, homeowners can expect to pay an average premium of around USD 0.02 per kWh. For more details, see the report “Greening your home: Where does your electricity come from?” published 27 December 2022.
Energy efficiency for your home
Whether your home is powered by renewable or fossil fuel-based energy, managing energy efficiency is critical to lowering demand and managing costs (and carbon emissions). In the report “Greening your home: How to think about energy efficiency,” published 6 September 2022, we discussed a range of energy—conscious ways to retrofit a home.
Homeowners can consider their home “outside in” and decide which improvements are likely to make a difference based on questions like the lifetime of an asset, cost, subsidies available, and technology. Options abound: from the exterior (like “cool” roofs or insulation and air sealing for the building), to the “guts” of the house (like the use of smart sensors or temperature-management systems), to the interior (like upgrading your appliances). The Home Energy Score is one tool to help you get started.
Heating and cooling
Over 50% of residential energy consumption is driven by a home’s heating and cooling system, as we discussed in the report “Greening your home: Does your heating system work for you?” published 18 December 2022.
Incentives built into the Inflation Reduction Act (IRA) can help homeowners switch to renewable energy-based heating and cooling systems from gas-based ones. A range of technologies exist from solar to geothermal to hydronic, each with its own benefits and downsides. Consider the remaining useful life of your HVAC system, your type of home, and any state or federal benefits in deciding to switch to any of these technologies.
Financing and timing your sustainable home renovation
We believe that renovations toward more efficient and sustainable homes can help manage volatility in energy costs over time, may result in savings, and are likely to benefit the environment as well. The IRA incentives for home improvements are designed to encourage a shift to more sustainable homes, making now a good time to consider if this is the right decision for homeowners.
While economics might make sense on average, every household should consider their specific situation. Areas like eligibility for tax credits at the federal and state levels, short-term costs versus longer-term savings, individual liquidity, and investment goals all should be taken into account when greening your home.
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