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In its recent report ‘Unlocking the Energy Efficiency in the U.S. Economy’, McKinsey estimates that the residential sector accounts for 35% of the end-use energy efficiency potential. Improvements in existing non-low-income homes offer largest savings potential within this sector, with low-capital maintenance including HVAC equipment maintenance offering 60% of the potential in this cluster for 49% of the cost.

Having carried out an analysis of energy efficiency opportunities that simultaneously indentifies the barriers and reviews possible solution strategies, the McKinsey ‘Unlocking the Energy Efficiency in the U.S. Economy’ report estimates that taking a holistic approach to stimulate demand for energy efficiency would yield gross energy savings worth more than $1.2 trillion, well above the $520 billion needed through 2020 for upfront investment in efficiency measures. Such a programme is estimated to reduce end-use energy consumption in 2020 by 9.1 quadrillion BTUs, roughly 23% of projected demand, potentially abating up to 1.1 gigatons of greenhouse gases annually.

Overall, the residential sector accounts for 35% of the end-use efficiency potential, the industrial sector 40% and the commercial sector 25%.

Energy efficiency in the residential sector

Relative to a business-as-usual forecast, deploying all Net Present Value (NPV) positive energy efficiency improvements in the residential sector would reduce its energy consumption in 2020 by 28%, saving the U.S. economy an estimated $41 billion in annual energy costs and avoiding some 360 million tons of CO2e emissions in that year. The upfront investment associated with this level of improvement – involving efficiency upgrades for 129 million homes, their appliances and HVAC systems, and 2.5 billion electronic devices – would necessitate some $229 billion in incremental investment and provide present value savings of $395 billion.

McKinsey organized the efficiency potential in the residential sector into five clusters depending on the dominant barriers to energy efficiency and selected attributes of energy consumption. The five clusters included, existing non-low-income homes, existing low-income homes, new homes, electrical devices and small appliances and lighting and major appliances (including water heaters, dishwashers, clothes washers, clothes dryers, refrigerators, freezers and cooking equipment).

‘Existing non-low-income homes’ offer largest savings potential in the residential sector

According to the study, heating and cooling the 55 million single family, 12 million multi family and 3 million manufactured existing non-low-income homes in the U.S. consumes 3.3 quadrillion end-use BTUs of energy in the 2020 reference case. This cluster offers the largest savings potential in the residential sector, accounting for 41 percent (1,300 trillion BTUs) of total residential end-use potential in 2020. Low-capital maintenance, includes installing programmable thermostats, sealing home air leaks and ducts, and performing HVAC equipment maintenance. These measures offer 60 percent of the potential in this cluster for 49 percent of the cost.

Home energy assessments, creative financing solutions, monetary incentives, and mandatory upgrades were identified by McKinsey as possible solution strategies to address key barriers within this cluster.

Labeling, incentives and standards could improve major appliances efficiency

Lighting and major appliances, which include water heaters, refrigerators, freezers, clothes washers, clothes dryers, dishwashers, stoves and ovens, is the cluster that constitutes 30% of 2020 residential consumption. The lighting and major appliances cluster accounts for 11 percent of total residential potential in 2020 (340 trillion end-use BTUs). 96% of appliance potential is from replacement purchases, with four percent driven by new appliance purchases. Total incremental capital required to purchase higher-efficiency appliances between 2009 and 2020 would be $11 billion and provide present value savings of $42 billion at an average per MMBTU cost of $4.50. Water heating constitutes 50% of consumption in this cluster and 13% of potential.

Labeling, monetary incentives and mandatory standards were identified by McKinsey as possible solution strategies to address key barriers such as lack of consumer information and quality trade-offs.