Residential Energy and Cost Analysis Methodology

The U.S. Department of Energy (DOE) evaluates published codes to help states and local jurisdictions better understand the impacts of updating residential energy codes. A methodologyhas been established for evaluating the energy and economic performance of residential energy codes and standards and proposed changes thereto. This methodology serves to ensure DOE proposals are both energy efficient and cost-effective.

The DOE methodology contains two primary assessments:

  1. Energy savings
  2. Cost-effectiveness

Energy and economic calculations are performed through a baseline comparison, modeling changes between representative building types. National energy savings are reported, in addition to economic metrics by state and climate zone. In considering cost-effectiveness, longer term energy savings are balanced against additions to initial costs through a life-cycle cost perspective. These first costs are referenced in the DOE Residential Cost Database, which serves as a supporting tool for the analysis.

Energy Savings

Energy is modeled using the DOE EnergyPlus™ software for two residential building types:

  1. Single-family: A two-story home with a 30-ft by 40-ft rectangular shape, 2,400ft2 of floor area excluding the basement, and windows that cover 15% of the wall area, equally distributed on all sides of the house.
  2. Multi-family: A three-story building with 18 units (6 units per floor), each having conditioned floor area of 1,200ft2 and window area equal to approximately 10% of the conditioned floor area, equally distributed on all sides of the building.

In addition, DOE also examines variations by heating system and foundation type. This results in the analysis of multiple unique scenarios across each climate zone. The DOE EnergyPlus software covers almost all aspects of residential envelopes; heating, ventilation, and air conditioning; water heating; and lighting systems. In some cases, alternative methods are used to more accurately portray the effects of a given change.


The DOE methodology accounts for the benefits of energy-efficient home construction over a 30 year analysis period, balancing initial costs against longer term energy savings. DOE evaluates energy codes based on three measures of cost-effectiveness:

  1. Life-Cycle Cost: Full accounting over a 30-year period of the cost savings, considering energy savings, the initial investment financed through increased mortgage costs, tax impacts, and residual values of energy efficiency measures.
  2. Cash Flow: Net annual cost outlay (difference between annual energy cost savings and increased annual costs for mortgage payments, etc.).
  3. Simple Payback: Number of years required for energy cost savings to exceed the incremental first costs of a new code.

Life-cycle cost is the primary measure by which DOE assesses cost-effectiveness of residential energy codes. These savings assume: initial costs are mortgaged, homeowners take advantage of mortgage interest deductions, and some components retain a residual value after the analysis period.

Table 1. Summary of Current Economic Parameter Estimates
Parameter Current Estimate
Mortgage Interest Rate 5%
Loan Term 30 years
Down Payment Rate 10% of home price
Points and Loan Fees 0.7% (non-deductible)
Discount Rate 5% (equal to Mortgage Interest Rate)
Period of Analysis 30 years
Property Tax Rate 0.9% of home price/value
Income Tax Rate 25% federal, state values vary
Home Price Escalation Rate Equal to Inflation Rate
Inflation Rate 1.6% annual
Energy Prices and Escalation Rates Latest national average prices based on current Energy Information Administration data and projections; price escalation rates taken from latest Annual Energy Outlook.