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EDITORIAL

Home Energy Magazine Online July/August 1997

EDITORIAL

Energy Conservation: A Great Investment Again

If you read only the news headlines, it's easy to believe that investments in energy conservation have gone the way of the dodo bird. The price of energy, be it electricity, gas, or oil, has been stable (or falling) and shows no sign of an increase in the foreseeable future. Deregulation of the utilities may also continue to put downward pressure on energy prices.

At the same time, the prices of the two key inputs to most conservation measures, labor and materials, have increased. These higher costs and lower savings make for lower returns on investment. So what makes conservation investments worth reconsidering? The answer, in a word, is interest.

In the last few years, interest rates have plummeted from the highs of the 1980s, when certificates of deposit and bonds offered consumers more than 15%. Today, if you have the extra money to invest, you will be lucky to get more than 5%. And while you may have made a killing in the stock market before, putting your money there now is not as lucrative a prospect for the long haul. In general, nonspeculative investments, like bonds, have entered a period of low returns where 8% sounds good.

Meanwhile, there's still a lot of conservation out there that can earn a 20% return on investment. You probably have your own list, but here's a sampling of ours. (We used typical conditions in these calculations. Savings in your region will vary.)

Conservation Measure	Typical Annual Return on Investment
Early retirement of a refrigerator	>100%
Low-flow showerhead	50%
Air conditioner or heat pump efficiency upgrade (at time of replacement)	30%
Replacing an incandescent light with a CFL (four hours of use/day)	25%
Window upgrade (when replacing)	22%
Window upgrade (replacement)	20%

Of course, investing in energy conservation is not identical to buying stocks or bonds. Some of the differences favor conservation measures and others don't. For example, conservation measures reduce costs, while the interest and dividends from stocks and bonds increase income. Uncle Sam taxes increased income but ignores reduced costs, so energy conservation looks even better after taxes.

Obviously, conservation investments are not liquid like stocks--they are true investments and not just short-term parking places for cash. They also involve a few more hurdles than simply depositing money with a broker. Some of these hurdles are trivial, such as replacing an old refrigerator with virtually any new one, but others require more research.

The bottom line is that many conservation investments look very attractive in our new, low-interest environment. Saving energy may not be in the headlines, but it should be in the minds of savvy investors.

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