Is cheap energy the enemy of efficiency?

• Author: Rettig, Molly
• Position: ENERGY

In 2008, the price of oil hit $140 a barrel, double what it had been just a year before. The impact was felt throughout the country, and especially in Alaska, where we rely on oil in so many ways. The state budgeted $300 million to help Alaskans make their homes more energy efficient. Across the state, many residents started retrofitting their homes and burning more wood to save money.

Today we have a different problem. A barrel of oil is going for about $50. It's been two years since prices crashed, and it's starting to feel like $2-a-gallon heating oil is the new norm.

In this environment, how does one make decisions about cars, heating appliances, and houses, decisions that will affect pocketbooks long into the future? In other words, does energy efficiency make sense in a time of cheap energy?

Life-Cycle Costs

First of all, this is Alaska. Due to climate, remoteness, and a host of other factors, Alaskans spend more than twice as much on energy as the average American. For example, Minneapolis, one of the coldest cities in the Lower 48, has a heating demand similar to Ketchikan, one of the warmest cities in Alaska. On top of that, more than half the homes in Alaska were built during the pipeline boom of the 1970s and 1980s; today they are aging, inefficient, and under-ventilated.

Second, we have no idea what the future will hold. A house should last sixty years or more. Such a long-term investment demands a long-term view of all the costs associated with it.

We call this the life-cycle cost of a house. It includes not just the cost of buying or building a home, but also what one spends heating and maintaining it over the life of the structure.

But how do we know what energy costs will be in the future? We don't have a crystal ball, but we can look at projections from the experts.

Increase Wall System R-Values

How can one plan for such an unknown? Let's look at a couple scenarios.

For the sake of comparison, we'll take a standard 2,000-square-foot house in Fairbanks with 2x6 stud walls insulated with fiberglass batts. This wall system has an R-value of 19 and is very common in Alaska. It also has a conventional oil boiler and an electric hot water heater.

If heating oil is $2 a gallon, annual heating costs will be approximately $2,500. At $4 a gallon, the costs jump to $5,000.

Now take the same house and retrofit it with an additional four inches of EPS foam on the outside of the walls. This wall system has an R-value of 35, nearly twice...