How we calculate costs and savings (assumptions, sources, and caveats)

When you plan a big upgrade, the number that matters is simple.

"If I spend this much, how much do I save, and when does it pay off?"

Our tools exist to give you a clear, honest, order-of-magnitude answer to that question. They are not magic. They are structured estimates built from:

• Your bills and home details,
• Public data from agencies like the U.S. Department of Energy and the Energy Information Administration,
• Reasonable assumptions about how homes use energy,
• And simple math you could recreate yourself in a spreadsheet.

This guide explains that math, where the numbers come from, and where they can go wrong. When you understand the limits, you can use the estimates with confidence instead of treating them like a black box.

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1. What our numbers are for (and what they are not)

Our calculators and estimates are meant to:

• Help you compare upgrades, for example, "attic insulation vs heat pump vs solar."
• Show you rough payback ranges, not a single perfect answer.
• Give you a starting point for conversations with contractors and family.

They are not meant to:

• Guarantee a specific bill in year three.
• Replace a full engineering design.
• Override hard constraints like budget, comfort, or health.

If a quote from a contractor differs from our estimate, treat the gap as a signal to ask better questions, not as proof that one side is wrong.

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2. The main inputs we use

Most of the math flows from a short list of inputs.

2.1 Your bills

Your past energy use is the best window into how your home behaves today.

We ask for:

• Twelve months of electricity use in kWh,
• Twelve months of gas, oil, or propane use if you have them,
• Your total annual spend on each fuel.

This lets us see both how much energy you use and what you pay per unit.

For context, national data from the U.S. Energy Information Administration (EIA) shows typical U.S. homes use on the order of ten thousand kWh of electricity per year, with large variation by house size, climate, and heating type.

You do not need to match national averages. We only need enough history to anchor the calculations to your reality.

2.2 Energy prices

Next, we estimate what each unit of energy costs you.

In order of priority:

1. Your bills; we divide total cost by total use over twelve months to get cents per kWh, dollars per therm, or dollars per gallon.
2. Local averages, if your bills are not available; for example, residential electricity prices by state from EIA.

If we use a default, we say so, and you always have the option to edit those rates.

Right now, U.S. averages for electricity are in the mid teens cents per kWh, with some states below twelve cents and others pushing forty cents. Natural gas prices swing in a similar way across regions, and we treat them the same way; bill first, then local average if needed.

2.3 Climate and seasons

How much you spend on temperature control depends on where you live.

We pull in regional climate data such as:

• Typical heating and cooling degree days,
• Whether your region is primarily a heating climate, cooling climate, or mixed,
• The length of your heating and cooling seasons.

This helps us estimate how much of your annual use goes to space heating and air conditioning versus year-round loads.

The 2020 Residential Energy Consumption Survey (RECS) from EIA includes end-use breakdowns that show how heating, cooling, water heating, and other loads share the energy pie in different regions. We start from those patterns, then adjust based on your bills and climate.

2.4 Typical end-use shares

To split your annual energy use into categories, we rely on:

• RECS end-use tables for space heating, water heating, air conditioning, and everything else.
• Energy Saver and Energy Star guidance that explains typical shares for heating and cooling versus other uses.

A simple example for an average U.S. home in a heating climate:

• Space heating: around 40 percent of total energy,
• Water heating: around 15 to 20 percent,
• Cooling: around 5 to 10 percent,
• Lighting, appliances, and electronics: the rest.

We do not force these exact percentages on your home. We use them as a starting point, then tweak them to match your monthly bill pattern and climate.

2.5 Equipment performance and costs

For each upgrade type, we need to know two things:

• How efficiently the new equipment turns energy into comfort,
• Rough installed cost ranges.

We pull performance data from:

• Efficiency ratings such as SEER2, HSPF2, AFUE, and UEF for equipment you might install.
• Energy Star and manufacturer documentation for typical efficiency levels.

We pull cost ranges from:

• Public program data where utilities or states list typical project costs and savings for insulation, HVAC, and water heating incentives,
• Industry surveys and reports that give broad ranges for equipment and install costs.

Those cost ranges are wide; we treat them as bands, not precise price tags, and we encourage you to replace them with your own quotes as soon as you have them.

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3. How we estimate your starting point

Before we touch upgrades, we need to know where your money goes now.

3.1 Annual use and spend by fuel

We:

• Sum your last twelve months of usage and cost for each fuel,
• Convert them to annual totals,
• Compute an average price per unit for each fuel.

Example:

• 10,000 kWh per year at 18 cents per kWh -> 1,800 dollars per year on electricity,
• 600 therms per year at 1.20 dollars per therm -> 720 dollars per year on gas.

You now have a simple picture; "we spend around 2,520 dollars per year on energy."

3.2 Split by end use

Next, we estimate how much of that 2,520 dollars goes to:

• Space heating,
• Cooling,
• Water heating,
• Everything else.

We do this in three passes.

Pass 1: climate pattern

We look at:

• Whether you are in a predominantly heating or cooling climate,
• How much your bills spike in winter or summer compared with shoulder months.

This anchors the rough shape; heating heavy, cooling heavy, or high baseline.

Pass 2: apply typical shares

We apply end-use shares from RECS and DOE for homes similar to yours in region and heating type, then scale them to match your annual total.

Pass 3: adjust to your bills

We adjust those shares if the monthly pattern in your bills strongly suggests a different split.

If your winter gas use is double the regional norm while your electricity use matches it, we push more of your gas spend into space heating than the generic model would.

At the end of this step, we can say things like:

• "Out of your 2,520 dollars per year, about 1,050 goes to space heating, 400 to cooling, 450 to water heating, and 620 to everything else."

That breakdown is the backbone for every later savings estimate.

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4. How we estimate savings for each upgrade type

Every upgrade follows the same basic formula:

Annual savings = current energy used for that load x expected reduction x your energy price

The differences come from how we estimate the expected reduction.

4.1 Insulation and air sealing

For shell improvements, we lean on a mix of modeling and field data.

The U.S. Environmental Protection Agency, through Energy Star, estimates that air sealing plus added insulation in key areas can save an average of about 15 percent on heating and cooling costs, or about 11 percent of total energy costs, in typical existing homes.

We treat that 15 percent as a central estimate for homes that:

• Have older construction with limited attic insulation,
• Do not have extensive prior air sealing,
• Receive a reasonably comprehensive attic and rim joist package.

Then we build a range around it:

• Conservative: 10 percent savings on heating and cooling,
• Typical: 15 percent,
• Aggressive: 20 percent or more for very leaky homes with strong work scopes.

Example:

• If our breakdown says you spend 1,450 dollars per year on heating and cooling,
• And we apply a 15 percent reduction,
• Annual savings = 1,450 x 0.15 = about 220 dollars.

We always show this as a range, and we encourage you to compare it with any modeled savings from an energy audit report.

4.2 Heating and cooling equipment

For furnaces, boilers, air conditioners, and heat pumps, we focus on efficiency ratios and your climate.

Examples:

• Gas furnace efficiency: AFUE 80 percent vs AFUE 95 percent.
• Central air conditioner: SEER 13 vs SEER2 16 or higher.
• Heat pump: HSPF2 and SEER2 compared with your current system.

At a simple level:

New annual energy use for that load = old annual energy use x (old efficiency / new efficiency)

Then we convert the new energy use back to dollars using your fuel prices.

When we model a switch from a gas furnace to an electric heat pump, we:

• Estimate how much heat your home needs in a year,
• Apply your furnace efficiency and gas price to get "before" cost,
• Apply a seasonal efficiency for the heat pump and your electricity price to get "after" cost,
• Adjust for climate so that in colder regions, the heat pump efficiency reflects more cold-weather operation.

Official guidance from DOE highlights that heat pumps can deliver the same heating or cooling with less input energy than resistance electric systems, often two to three times as efficient, but total bill impact still depends on local electric and gas prices.

We reflect that nuance; you will see clear notes when a heat pump improves efficiency but may not cut bills in high-electricity-price regions.

4.3 Water heating

For water heating, we distinguish between:

• Standard electric resistance tanks,
• Heat pump water heaters,
• Gas water heaters.

DOE's Energy Saver materials explain that heat pump water heaters use electricity to move heat instead of generating it, and can be two to three times more efficient than conventional electric water heaters.

We apply that ratio carefully:

• If you currently use 2,000 kWh per year for hot water,
• And you move to a heat pump water heater that delivers the same hot water with one third of the electricity,
• Annual electricity for hot water drops to around 650 to 700 kWh,
• The difference times your cents per kWh gives your savings.

We cap the savings so they stay within ranges reported by utilities and state programs, which often see annual bill reductions on the order of a couple hundred dollars for typical households.

For gas water heaters, we use efficiency improvements between older baseline models and newer high-efficiency units, then apply your gas price.

4.4 Lighting, appliances, and always-on loads

For smaller loads, we use:

• Typical wattage and hours of use for lighting,
• Typical consumption for refrigerators, dryers, and other appliances based on Energy Star product data,
• Simple rules such as "old second refrigerator in the garage costs around X per year."

These estimates support checklist-level decisions, not full project planning. You use them to decide whether that old spare fridge is worth keeping, not as the backbone of a thirty-year financial model.

4.5 Solar

Solar requires more inputs, so our default estimates keep things simple and conservative.

We use:

• Typical annual solar production per kW of panels in your region,
• Your roof size and basic shading input,
• Your electricity price,
• A net metering or export credit assumption based on current local policy.

Production per kW in the U.S. often runs in the 1,100 to 1,600 kWh per year range, depending on location and tilt.

We multiply:

System size (kW) x annual kWh per kW x value per kWh

Then adjust the value per kWh based on whether exported energy gets full retail credit or a lower rate.

Our default solar assumptions lean cautious; policy and rate structures change, and we do not want to promise payback periods that evaporate with one tariff update.

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5. Money metrics we show

Once we have annual savings, we combine them with project costs.

5.1 Upfront cost

We start from:

• Your entered quotes, if you have them,
• Or cost ranges from public program data and industry surveys.

We always encourage you to replace our default costs with your actual quotes as soon as possible; cost can swing more than savings.

5.2 Incentives, tax credits, and rebates

When we show "net cost," we:

• Subtract tax credits such as the federal Energy Efficient Home Improvement Credit or Residential Clean Energy Credit when they apply,
• Subtract state or utility rebates if you tell us which ones you plan to claim.

We treat incentives as one-time reductions in project cost, not as ongoing savings.

5.3 Simple payback

The core measure is:

Simple payback (years) = net project cost / annual bill savings

If a project costs 4,000 dollars after incentives and saves 400 dollars per year, simple payback is 10 years.

This ignores energy price inflation, maintenance, and equipment lifetime. It is crude on purpose. You use it to compare projects on the same footing, not as the only financial test.

5.4 Longer horizons

Where it helps, we also show:

• Ten-year and twenty-year bill savings at today's prices,
• A rough internal rate of return range if the project has consistent annual savings and a known lifetime.

We do not assume wild energy price growth. By default we either keep prices flat in real terms or apply a gentle escalation close to long-term historical trends from EIA, where residential electricity prices have risen a couple of percent per year on average after inflation, with large year-to-year swings.

You can raise or lower that escalation in your own analysis if you have a strong view of future prices in your area.

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6. Where our estimates can be wrong

Any numeric estimate can be wrong in both directions. We want you to know where.

6.1 Your behavior changes

If you install a high-efficiency heat pump, then start heating parts of the house you used to leave cold, your comfort improves, but your savings shrink.

If you improve insulation, then start keeping the house warmer in winter and cooler in summer, the same thing happens.

We cannot see your future thermostat choices, so we assume your comfort level stays roughly stable.

6.2 Install quality

You do not get the same results from:

• A carefully scoped attic air sealing job with blower door guided work,
• And a quick "blow some insulation in the attic" visit.

You do not get the same results from:

• A heat pump sized using a proper load calculation,
• And one sized with a rough rule of thumb.

We assume competent installation by contractors who follow basic proven approaches and manufacturer instructions. If install quality is poor, savings will be lower, and comfort may not improve.

6.3 House quirks and hidden problems

Every house has surprises.

• Hidden moisture issues.

• Knob and tube wiring that limits insulation.

• An undersized or poorly laid out duct system.

• A building shell that behaves very differently from the typical homes used in models.

An energy audit and good contractor can surface many of these risks before you commit. Our tools cannot catch all of them.

6.4 Rate structures and policy changes

If your utility uses:

• Time-of-use rates,
• Demand charges,
• Seasonal price bands,

then when you use energy matters as much as how much you use.

We base savings on your average price per unit. That hides a lot of detail. If your rate plan punishes evening usage or has steep demand charges, ask your utility or an advisor to pressure test any upgrade that may shift when you draw power.

Policy changes can also move the goalposts:

• Net metering rules for solar,
• Future incentives,
• Building performance standards in some cities and states.

We do not bake in speculative policy changes. Our numbers reflect current public rules when we last updated the model.

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7. How to use these numbers in real decisions

The safest way to use our estimates is as decision tools, not verdicts.

Use them to:

• Rank projects; "if I have 5,000 dollars this year, which 2 or 3 upgrades give the strongest long-term value?"
• Frame questions for contractors; "your quote assumes 40 percent savings, but most data I see suggests 15 to 25 percent; what is different about my house?"
• Explain tradeoffs to family; "insulation has a slower payback than the water heater but improves comfort everywhere and lets us downsize equipment later."

After you finish a project, compare:

• The before and after bills, normalized for weather when you can,
• The actual savings with the estimated range.

If they line up, your trust in the next set of numbers goes up. If they do not, adjust your expectations and inputs in the tool.

Good planning does not require perfect forecasts. It needs numbers that are grounded in real data, transparent about their limits, and easy to adjust. That is what our cost and savings estimates are designed to give you.