Nest Thermostat ROI & Installation

I’m pretty sure everyone is familiar with the Nest thermostat and the company’s sales pitch.  But I’ll humor those of you that may not be: Nest promises to save you money by reducing heating and cooling costs by “learning” your daily schedule and adjust your heating or air conditioning when you aren’t in the house. According to the Nest website:

 “Because the Nest Thermostat learns how and when to keep you comfortable, it knows how and when to save energy. To prove it, we looked at energy bills of real people in 41 states before and after they got Nest Thermostats. Then we watched the data roll in from two independent studies – from real homes with real families and real thermostats. The results were clear: on average the Nest Thermostat saved 10-12% on heating and 15% on cooling. Based on typical energy costs, we’ve estimated average savings of $131 to $145 a year. That means the Nest Thermostat paid for itself in under two years.”

The site provides a detailed white paper outlining their calculations as well as a slick calculator based on where you live to estimate your potential savings:

Potential Nest Savings
Potential Nest Savings

Aside from the savings, Nest also layers slick techy functions on top where you can control the thermostat remotely, adjust your schedule, and see pretty reports all from your smart phone.

Cool iPhone Things image05

Now I’m a gadget head and the cool features were more than enough to make want one but I have resisted for the past several years since we already had programmable thermostats and I never believe company provided information that their product will save you money, even with fancy white papers. The $250 ($180 on sale) price tag was just too expensive of a gamble.

 The Real Return on Nest

But recently they have made a big push rolling out “Rush Hour Rewards”. This is a program where they have partnered with local energy companies to offer rebates to customers that will let them adjust the thermostat during peak energy hours. The Nest site describes it like this:

 “Rush Hours typically happen on very hot summer days or very cold winter days - usually about 6-12 times a season. But this number depends on the overall weather patterns for the season and your Nest energy partner. Typically, you won’t get more than one Rush Hour in a day or Rush Hours for more than three days in a row, and there are rarely more than a dozen Rush Hour days per season (winter or summer).”

The natural response is that you don’t want to just fork over control to your utility company but here is the most important part:

 “You also stay in control and can change the temperature any time during a Rush Hour.”

So what do you get in return for allowing them to “influence” your thermostat? Well that varies by participating utility company but my local company is offering $100 electric bill credit when you enroll your Nest Learning Thermostat (maximum of two) in Rush Hour Rewards. After the first year, you get additional $40 credit on their electric bills for each subsequent year they participate in the program.

Considering a Nest thermostat can be purchased for $245 on Amazon or roll the dice and find them in the $180 range on eBay that seems to be a pretty good return. Sign me up, I’m sold.

Installation Troubles

Now I’m pretty handy and have replaced several thermostats in the past, usually converting an old school version to a programmable so I didn’t think installation would be any problem. Boy was I wrong.

My current house which was built in 2014 had one of these newer thermostats which uses only three data wires to the thermostat and then has a remote wiring hub that wires everything back to the units:

Original Setup
Original Setup

Since the new unit requires five wires back the unit I knew I was in trouble. Still I pressed on.

Up into the attic and I took apart the remote unit to see:
image01

At this point I realize I’m in over my head.

Although I consider myself as DIY as they come, I called in the pros. I have a great HVAC guy who came out rescued me while also allowing me to watch and ask questions. This was super important since I wanted to install another Nest (remember my electric provider will give you credits for TWO).

He basically bypassed the entire board you see above and wired the thermostat directly to the HVAC units. The other hitch, and I’m really happy he was there to show me, was my unit had an overflow cut off that had to be Daisychained to the power wire.

Here is the nice, clean HVAC board:

Inside the HV Unit
Inside the HVAC Unit

And all though hard to see, to the left of this picture is the daisychained overflow cut off power wires:

The attic is dark, give me break
The attic is dark, give me break

So there was an extra $120 installation cost on this but I can confirm that after this lesson I was able to install the second Nest with no problem.

Also confirmed already is the initial $100 credit from my electric provider, it showed up on my very next statement without issue. Now we’ll have to wait and see if the Nest Forecast cost savings materialize but either way, I love the techie features!

If you have any questions, please post and ask, I’d be happy to offer any advice I can.

 

Tankless Hot Water Heaters: Is the return there?

Last week, BOBVILA.COM via Zillow posted an article Tankless Water Heaters: When, Why, and How to Buy One and it made me think back to the decision my wife and I made on one about two years ago.

The article gives a general overview of tankless units, the pros and cons, etc and cites some numbers regarding the possible savings. But nowhere does it calculate your actual return on making the investment. Do the cited cost savings really justify the initial cost? A tankless water heater is not cheap and at the end of the day all you’re getting is the same hot water from either source.

The article implies there are real, hard saving but reading other articles such as this 2008 one by Consumer Reports called “Tankless water heaters, They’re efficient but not necessarily economical” seem to question the actual return.

Almost two years ago now my wife and I were going through the process of building our home and picking out the various upgrades we wanted and the the tankless hot water heater was major topic. The builder wanted $1,729 to install the Rinnai RL94iN Natural Gas Tankless Water Heater. This was a large line item so we began wading through all the information and I started whipping up some spreadsheets.

Estimating costing savings for a hot water heater is a tricky issue since it’s based on several variables including energy costs, water usage, and the temperature of the water being fed into your house. The Consumer Reports article cited above includes their estimate of the average savings as $70-80/month. This is an old article however (6 years old at the time of our decision) and the technology surely has changed.

The Rinnai website has it’s own customizable calculator as well which calculated my estimated savings by switching to their RL94iN to be $160/month. Using this number of course is fraught with issues as well since it is being provided by the very people trying to sell you something. Just a slight conflict of interest…

So what to use in my analysis? I decided to split the difference and use $120/month, the average between the CR number and the Rinnai number.

Notes on the analysis:

The useful life of a tankless unit is estimated at 20 years compared to 10 years for a tanked unit. My house would have required two units so by choosing a tankless until, the estimated savings in year 10 are increased by $800 ($400 x two units).

My decision was also for new construction so the initial outlay was financed, spreading the cost of the tankless unit over the entire mortgage period (30 years). Given that the mortgage term is longer than the useful life, there will be payments in the future when benefits will not be received. To adjust for this, the future value of the $1,729 note at the end of each duration of my analysis is assumed to be paid.

The financing rate as well as the discount rate for the Net Present Value calculation was my mortgage rate of 3.25%.

Lastly, I just wanted to know how it would all work out if I didn’t finance the heater and instead purchased it upfront so the analysis was repeated.

Conclusion:

The return works out great if you finance it and keep the unit and the house for the entire 20 years:

5 Year

10 Year

20 Year

MIRR

-37.4%

-2.3%

7.6%

NPV

($1,159.11)

($157.09)

$510.32

Note: MIRR is the Modified Internal Rate of Return and takes the IRR one step further to assume cash flows received are reinvested at a certain rate of return. This is what you should always be using. Find out more here.

But the return decreases quickly. If you are only keeping your home ten years or less, it’s terrible and the breakeven seems to be right around 13 years which just so happens to be the average length of home ownership in the USA (see my LED light article for citations here).

The results are roughly the same if the unit is purchased upfront, although worse in the shorter durations and better at the longer ones:

5 Year

10 Year

20 Year

MIRR

-18.0%

2.4%

4.7%

NPV

($1,146.09)

($132.97)

$516.65

The entire spreadsheet can be found here: Tankless Unit IRR & NPV

So what did we do?

Our youngest child is 3 so we are planning to stay in the this house for at least 15 years. We also appreciated the smaller amount of space that tankless unit takes up so we decided to roll the dice on the tankless unit. Only time will tell if we will actually remain the house beyond the 13 years needed to break even but no doubt this is a risky bet. I think that for most people a tankless hotwater heater remains a poor choice compared to the cheaper older technology.

We have been happy with the performance however, we are right on line for the size of unit we have give the number of people we have in the house but we have yet to have any issues with the unit not keeping up with the demand for hot water.

Choose the lower upfront cost of the tanked unit, bank the difference and don’t expose yourself to the risk of not staying in the house long enough to see your MIRR on the tankless unit.