Solar Assistance:

Return on Investment

Determining the Economics of Solar Heat as a Long-Term Solution for Public Energy Assistance in the Midwest

With the help of the Lindbergh Foundation, Hunt Utilities Group, Clean Energy Resource Teams, and Wes Min RC & D, RREAL was able to examine the costs and benefits of utilizing direct solar air heating systems for public energy assistance in the Midwestern United States. What shows below is an abbreviated version of the study. If at any time you would like to request the full document, including literature cited, please contact info@rreal.org.

We first identified five problems this study sought to address:
1. Low income families cannot afford winter home heating bills;
2. Existing federal subsidy programs which help low income families pay their heating bills spend a small portion of their annual budgets addressing long-term solutions to fuel poverty;

Since 1981 the Federal Government has made available varying amounts of legislated grant dollars for home energy assistance benefiting needy households. This program, called the Low Income Home Energy Assistance Program (LIHEAP), has two major components: 1. Heating or Fuel Assistance (families receive assistance in paying their heating/fuel bills); 2. Weatherization (families receive assistance in improving the efficiency of their homes). Fuel Assistance is a very important program, but unlike weatherization it does not provide a long term solution to the persistent problem of fuel poverty.

From Table 1 below, it is apparent that various LIHEAP programs balance the trade-off between serving more clients and providing a greater percentage of annual energy consumption offset.

Table 1. Upper Midwest Comparison of LIHEAP Programs 2002

State Avg Annual energy bill* Avg LIHEAP payment % of annual energy bill # eligible served % eligible served Total LIHEAP appropriations (mill.)
ND $1320 $417 32% 16,927 21.9% $11.3
SD $1419 $616 43% 16,150 25.3% $9.4
NE $1177 $158 13% 64,622 73.5% $16.8
MN $1409 $420 30% 137,554 36.8% $68.6
IA $1381 $288 21% 83,226 43.1% $32.2
KS $1350 $336 25% 34,413 21.3% $15.3
MO $1273 $185 15% 146,531 60.7% $41.1
IL $1321 $459 35% 209,171 26.5% $105
MI $1381 $226 16% 353,929 31.9% $99.4
IN $1250 $250 20% 187,330 44.5% $47.6
OH $1415 $192 14% 437,712 53.7% $94.5
US avg $1309 $254 21.8% 4,400,000 13.5% $1,800

*includes electricity, hot water, space heating and cooling; it is unclear from the state data whether this is the average annual energy bill of low-income households generally or LIHEAP recipients specifically – US data specific to LIHEAP households.

3. Poverty levels are rising; the elderly and fixed income population is increasing;

4. Fuel prices are growing at a rapid rate;

For winter 2008-09, “experts expect average home energy prices to increase 17 percent this winter compared to last year, with heating oil soaring 30.1 percent above last year’s prices.  In addition, climbing jobless rates have contributed to a 9.5 percent increase since last year in the number of people unable to pay their energy bills.”

Figure 1.

5. Annual environmental effects of residential home heating are substantial for space heating alone.

Heating and cooling combined account for the largest energy consumption in US households annually, with heating being the largest factor in the Upper Midwest with long, cold winters (Figure 2).  More than half of energy consumption in residences is utilized for space heating.

Figure 2. Percent of Total U.S. Residential Site Energy Consumption by End Use

As space heating is the most significant portion of residential annual energy consumption, it also figures heavily in the annual pollution emissions resulting from a given household.  Table 2 reflects the annual pollutant emissions for given fuel types as a direct result of space heating for Minnesota-based LIHEAP eligible households.

Table 2.  Average Annual Pollutant Emissions in Pounds as a direct result of space heating for  Minnesota LIHEAP recipients

Pollutant Fuel Oil Propane Natural Gas Electricity*
CO2 7,708 6,735 5,666 30,994
NOx 6.242 7.210 7.259 92.47
SO2 0.098-0.123 1.03e-08 0.290 109.4
PM-10 orPM-filterable 0.138 0.206 0.090 34.84
VOC 0.192 0.257 0.261 47.91
CO 1.728 9.780 1.161 472.8
Hg Negligible Negligible Negligible 5.163e-04

In light of these problems, we hypothesized that an investment in solar heating systems would address long-term solutions to persistent fuel poverty and should be investigated as an alternative to the existing system of emergency assistance; and that these systems would also have the benefit of reducing environmental impact with respect to home heating.

Results

We decided to first test the hypothesis that solar heating systems could reduce carbon and other pollutant emissions.

According to field data, the average Solar System delivered an average of 15% reduction in energy consumption related to space heating. Although output was less than expected, these results still amount to average pollutant reductions related to fuel type indicated in Table 3 below.  While the worst pollution results from the production of electricity, 28% of LIHEAP recipient households use it as a source of heat. Thus the weighted average reflects significantly less pollutant emissions reduction over electricity.  With a claimed system life expectancy of 15-30 years, pollution prevention effects accumulate significantly.

Table 3.  Average Annual Pollutant Reduction, in Pounds, with installed Solar Heating Systems for LIHEAP recipients based on heating fuel type.  Weighted average is for fuel type consumed by LIHEAP recipients.

Pollutant Natural Gas Electricity Fuel Oil Wood LPG LIHEAP weighted average
CO2 822 4,495 1,118 1,649 921 1,374
NOx 1.05 13.41 0.905 NA 1.05 2.02
SO2 0.004 15.87 NA NA 0.004 12.30
PM-10 0.013 5.05 0.011 NA 0.013 0.62
VOC 0.038 6.95 1.33 NA 0.038 0.94
CO 0.168 68.57 1.73 NA 0.168 8.46
Hg Negligible 7.489e-05 Negligible 30.25

The second case tested in our hypothesis was that solar heating would significantly reduce fossil-fuel based energy consumption. Field data results with an average of 100,232Btus/ft2 saved with a solar air heating system.  As some of the field data was collected from older models of air heaters, through increasing system size and by using the latest technological innovations in solar air heat, predicted performance of systems increases to 112,500Btus/ft2 saved annually with a solar air heating system. Based upon installed system cost of $4800 and assuming a system size of 80 square feet, return on investment predictions follow in Table 4.  Systems evaluated do not have storage capacity.

Table 4.  Economic Indicators for Solar Air Heating Systems

Fuel Source Payback Years Simple Payback Years Return on investment Monetary Savings in 2007 prices Monetary Savings in Projected 2015 prices
Propane 12 10 8.6% $302 $544
Fuel oil 17 13 6.2% $210 $375
Natural Gas 22 16 5.6% $150 $263
Electricity Doesn’t 18 - $222 $255

The third case tested in our hypothesis was that installing solar heating systems on low-income households would reduce fuel assistance program dependency. Monetary savings in 2007 prices are reflected in Table 4 above. By replacing propane with a solar air heating system, we come close to reaching the average annual Midwestern LIHEAP fuel assistance expenditure.  However, results from displacing natural gas are not so favorable, at less than half the average annual LIHEAP expenditure.  Although electricity has a long payback period, it also has the second highest monetary savings experienced in the first year.

Follow-up interviews also need to be performed with previous recipients of solar air heating systems to determine whether or not they are still accessing fuel assistance, or if as postulated, the systems indeed reduce fuel assistance program dependency.

The fourth case tested in the hypothesis was that fuel prices are growing at an unprecedented rate (Figure 2). Extensive economic analysis was conducted to determine an effective way of predicting the future, after various inadequacies were seen with existing models.  Resulting predictions simply based future predicted prices on prices over the past 15 years.

The fifth case tested in our hypothesis was that the use of solar air heating in energy assistance programs is more cost effective to state and federal governments than conventional energy assistance. We have seen from Table 4 above that the benefits enjoyed through deploying a solar air heating system depends on a variety of factors, from what fuel type is being displaced to future fuel prices. However, when compared directly with the payback achieved from fuel assistance ($0), an investment in solar air heating systems makes economic sense.

Solar gives an economic return on investment exceeded only by weatherization, although solar potentially has greater longevity and possibly greater payback (Table 5).

Table 5.  Payback Comparisons

Heating bill reduction method Initial cost Years until savings exceed cost Years savings will last
Weatherization* $3,000 8-12 15
New HE furnace** $6,000 20 20
Fuel Assistance (Midwest average) $322 0 (No savings) 1
Solar Air Heat $4,800 12-22 20+***

*Using 20-30% energy reduction rate on a $1,000 initial annual heat bill.

** Assuming a 95% efficient furnace replacing a 70% furnace on a $1,000 initial annual heat bill.

***The industry standard for warranty period for solar air heat collectors is 10 years.  Different collector manufacturers make various claims about the actual life span of their product, up to 50 years.

Because solar is a site-specific technology, each home must be analyzed to determine effectiveness of the solar system. It is important to note that it is not possible to provide all current LIHEAP recipients with solar systems as a replacement for fuel assistance. However, in many cases it makes sense and does provide relief for the homeowner’s pocketbook as well as associated environmental benefits.


Again, if you would like to request the full version of this document, please contact info@rreal.org .