The Average Crosses Once

On Monday we left an estate half told. 383 homes in an English city, compiled from the public record and priced one at a time. At today's prices, 91 of them pay back a whole home retrofit inside fifteen years. Just under a quarter of the estate.

Which leaves the question every thirty-year business case eventually has to answer. What would the price of energy have to do for the rest to follow?

We repriced the same estate to find out. It turns out the estate has no single answer waiting on a price. Its answer changes 48 times.

What the average can tell you

Read as a single row, the estate pays back in twenty-three years. Ask an average what has to change and it gives you one clean threshold: gas would have to rise about 53% before twenty-three becomes fifteen. Allow for the cost range and the same crossing sits anywhere between plus 29% and plus 77%, depending on whether the work lands at the bottom or the top of its sourced cost band.

That is a usable sentence, and it is the sentence a great many programmes are built on. It is also the only sentence an average has, and it is wrong about almost every individual home on the estate.

What the record says instead

We repriced every home under illustrative price futures, taking gas from today's rate up to double and letting electricity follow at a bit over half the gas move. These are not forecasts. They are positions, held still, used to find out which parts of this estate are actually waiting on the market.

Some of it is waiting on nothing. The 107 social-rented homes on electric heating that carried 70% of the estate's whole saving are already inside fifteen years today, at around nine years, and they stay inside in every future we priced. There is no threshold to wait for. That phase is a decision about capital, not about gas.

The first homes to move need very little. Seven more homes cross the fifteen year line at gas plus 5%, which is inside the noise of an ordinary year.

The estate's own average crosses at plus 53%, and almost nothing happens there. At exactly the price where the estate read as a single row starts paying back inside fifteen years, 276 of its 383 homes are still outside it. The average has changed its answer. Nearly three quarters of the estate has not.

Doubling the price of gas does not finish the job. Take gas to plus 120% and the count reaches 154 homes. That leaves 229 still outside fifteen years, 194 of them on mains gas. For most of this estate the gas price is not the thing that decides it.

Why steps, and not a curve

Between today and double, the estate's answer changes at 48 separate prices. 43 of those 48 are a single home, on its own, changing its mind. The typical gap between one crossing and the next is about one point of gas price.

That is what a per-home record looks like when you move the price under it, and it is why the shape matters more than any one number on it. An average slides smoothly and crosses once, so it tells you there is a moment when the estate becomes worth doing. There is no such moment. There is a queue, and the price sets your position in it.

Where several homes do cross together, it is worth being careful about why. The seven that move at plus 5% carry certificates that are identical to one another: same band, same score, same floor area, same built form, same age band, same heating. Some of that sameness will be real and some of it is the resolution of what a certificate can tell you. Either way it is the record's own coarseness showing, not a feature of the street, and better per-home evidence would spread those seven out rather than bunch them together.

Where this leaves you

Nobody sent us anything. The estate was compiled from records that are already public, and the same can be done for any place in England.

Most business cases carry a threshold somewhere, the price at which the programme turns from a carbon case into a cash one. How many of your homes actually cross there, and how many are simply the other side of an average?

About the numbers

• The estate is not named, deliberately. The finding is about how one ordinary estate behaves when the price moves, and naming it would turn it into a story about one landlord.
• Every figure is indicative, compiled from the public energy certificate register and open location data. Nothing was measured, no home was visited, and no resident information is used or inferred. None of it is an investment recommendation.
• Price futures are illustrative positions, not forecasts. Electricity moves at 0.55 times the gas move, on the basis that a majority of marginal power in Great Britain is still set by gas. Each future is held constant rather than run as a path.
• Simple payback throughout, on the midpoint of each home's sourced capital cost range, gross of any grant. No discounting, no carbon price, no maintenance difference, no residual value.
• The count of crossings is itself a function of that cost range, and the range moves it a long way. At the midpoint the estate crosses 48 times, at the low end of the cost range 66 times, and at the high end 35. The shape holds in all three. The exact count does not travel without its basis.
• The nine-year cohort payback uses all 107 homes. Twelve of them already have an air source heat pump from earlier works, and the package as priced still installs one in every home, so those twelve carry cost while returning almost no saving. Excluding them, the cohort pays back in around eight years.
• All electricity is priced at one flat rate. Most of the homes in that cohort use direct-acting room heaters, where a restricted-hour tariff is common and would change both the starting bill and the saving. It is the assumption these figures are most exposed to.