Energy STAR vs Conventional Appliances: Technology Comparison & Cost Analysis (Refrigerators)

Historically, advances in technology have made it possible for modern consumers to perform daily tasks more rapidly and efficiently. In the present technological age, innovation extends to energy conservation. As a typical consumer may be well aware, such innovation often means higher prices. However, in the case of appliances which run on minimal energy, advertisements claim that higher purchase prices will be justified by long-term monetary savings resulting from lower energy bills. This report investigates the veracity of this claim. Generally, the findings in this report are that it depends.

The ENERGY STAR program pioneered by the United State Environmental Protection Agency is a voluntary green-labeling program that helps consumers identify energy-saving appliances. Nevertheless, ENERGY STAR does not indicate to consumers whether a higher purchase price for the efficient appliance will be justified by subsequent energy savings.

There are several variables which may justify spending more for energy conserving appliances. It seems uncommon practice for a consumer to thoroughly evaluate factors which affect their purchase, making it possible to spend more money despite the mindset of saving money. The goal of this report is to identify and evaluate the variables, or varying scenarios, that potentially sway the smart purchase decision in the case of ENERGY STAR refrigerators. Thus, the decision can be tailored to a specific type of individual or household.
The ideal refrigerator for any given consumer depends on the habits and preferences of that consumer including: time value of money preferences, food storage habits, and energy prices. A cash flow diagram is a tool used to depict the monetary gains and losses involved in an investment and will be a practical means to showcase both the initial costs and long-term maintenance costs for either type of refrigerator as influenced by each of the three criteria introduced.

This report uses cash flow diagrams to investigative the sensitivity of a refrigerator purchase option to these three parameters. Graphs are also included which will take the costs shown in the cash flow diagrams and display how many years it will take for the higher initial purchase price of the ENERGY STAR refrigerator to be justified by its lower maintenance costs, called the break-even point. The analysis also involves calculating the net present value, a term used largely in business, for both an ENERGY STAR appliance and a conventional appliance; and involves calculating this net present value, also, as influenced by the different circumstances mentioned.