Valuation of Non-Energy Benefits to Determine Cost-Effectiveness of Whole-House Retrofits Programs: A Literature Review

Jennifer Thorne Amann  

May 2006

Executive Summary

Growing anecdotal evidence and a limited amount of research suggest that many homeowners purchase whole-house retrofit services for the associated non-energy benefits (NEBs) including improved comfort, aesthetic enhancements, and better indoor air quality. Despite the value of NEBs to consumers, the cost-effectiveness tests used by many regulators to evaluate whole-house initiatives do not include the value of NEBs. This undervalues the benefits of these programs, making it harder for them to meet a target cost-effectiveness threshold. In general, regulatory agencies have been reluctant to use cost-effectiveness tests that incorporate NEBs because of the lack of consensus regarding methodologies for establishing NEB values and incorporating those values into the tests.

This report presents a review of the literature on cost-benefit tests and non-energy benefits from residential retrofits. Specifically, the review draws from information on the common cost-benefit tests used by utilities and regulatory agencies; surveys of the NEBs common to whole-house retrofits; and valuation studies that have been conducted for these programs. Resources on these topics were developed through discussions with researchers and program managers and a search of literature from relevant organizations and conferences. The report represents the first phase of a three-phase project ACEEE is conducting with support from the U.S. Environmental Protection Agency and the New York State Energy Research and Development Authority (NYSERDA). A consumer survey, final analysis, and workshop regarding recommendations for incorporating NEBs into cost-effectiveness tests will build upon the findings presented here.

A number of cost-benefit tests are used by utilities and regulatory agencies in every state to determine program cost-effectiveness. Tests that do not incorporate comfort and other non-energy benefits include the Utility Cost (or Program Administrator) Test, the Participant Test, the Total Resource Cost Test, the Ratepayer Impact Measure, and the Societal Test. Tests that do incorporate NEBs include the Public Purpose Test, the Total Market Effects Test, the Program Efficiency Test, and the Initial Cost-Benefit Test. With the exception of the Public Purpose Test, which is used to evaluate low-income weatherization programs in some states, the tests that do take NEBs into account are used for evaluation purposes only. For the tests that are widely used, it is common for program administrators and regulatory agencies to consider the results of multiple tests when evaluating program cost-effectiveness.

Studies of residential retrofit programs (including low-income weatherization, HPwES, and other home retrofit programs) have catalogued an array of benefits beyond energy savings. Benefits often relate to financial savings other than energy bill relief, comfort, aesthetics, noise reduction, health and safety, and convenience. The data and methodologies for quantifying participant NEBs are less well developed, but have been estimated at 50% to 300% of annual household energy bill savings.

Much of the data available on NEB valuation comes from studies of low-income weatherization programs. These studies provide a valuable framework for understanding valuation methodologies but their results do not adequately apply to all types of home retrofit programs. The literature suggests that it is important not only to develop a way to quantify NEBs, but to understand the benefits that consumers value most. These motivations are shown to differ according to region and economic status. More research on benefit valuation for non-low-income retrofit programs is needed.

Studies attempting to quantify non-energy benefits typically involve a combination of survey techniques and computational or statistical analysis. Findings demonstrate that consumer surveys in which participants are asked to compare or categorically rate the importance of various benefits give much more consistent and conservative results than surveys that ask participants to estimate dollar values for the non-energy benefits.

These findings, in conjunction with an understanding of the cost-effectiveness tests in use today, inform a proposed methodology for incorporating NEBs into cost-benefit tests. Possible strategies include assigning a dollar value to NEBs and either subtracting this value from participant costs or adding this value to program benefits. A third option is to discount total costs by the percentage that participants are paying for NEBs in order to isolate the true cost of energy savings. This approach may be less rigorous than attempts to establish specific NEB values, but it could provide a useful solution and minimize the time and expense of data collection. Each of these methodologies has advantages and drawbacks, and additional data is needed to aid a thorough evaluation of these approaches.

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22 pp., 2006, $16.00, A061