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Faizan
One of the most effective ways for property managers and energy engineers to improve the energy efficiency of a building's envelope is to install window film. Window film makes glass more energy efficient, at a much more affordable cost than new windows or other glazing improvements.
Of course, there is a wide variety of energy efficiency improvements to choose from, everything from photovoltaic solar power systems to building insulation. One of the best ways, from a financial perspective, to evaluate a particular energy saving technology is to determine the payback period.
The estimated payback calculation is an excellent decision making tool for evaluating competing energy saving technologies. It's pretty basic - indicating how fast the money spent be returned.
How to calculate payback
There are several ways to calculate the payback of your energy improvements, ranging from the simple up to the relatively complex. The primary difference is between them are the assumptions incorporated into the calculations. Adding assumptions and variables makes the calculations more complex, but sometimes is necessary to get an accurate estimate. The two most useful ways to determine the payback period...
1. Simple Payback
2. Cash Flow Analysis
Both methods provide a reasonable estimate of the payback without getting overly complex
Simple Payback Analysis
The primary benefit of simple payback analysis is that it is simple while still providing useful information. To calculate the simple payback, simply divide the cost of the improvement by the estimated savings to yield the payback period. For example, if you spend $500 to install energy saving measures that save $150/year the payback is a little over three years, $500/$150 = 3.33. Energy savings after this period is pure profit.
Of course, this leaves out a lot of variables that can impact the actual realized savings. Variables like maintenance costs, energy cost increases and inflation are not taken into account, but the method has the advantage of being quick, simple and easy to understand.
Cash Flow Analysis
Cash flow analysis is the next step up in terms of complexity. Taking more variables into consideration, things like maintenance, energy cost increases and inflation, cash flow analysis gives a truer picture of the payback, especially when these costs are high. This type of analysis is best done with a spreadsheet program to simplify the calculations.
To determine payback using cash flow analysis the initial cost of the improvement is combined with the estimated maintenance costs, including an estimate of any increased costs over the expected life of the improvement as well as with an estimate of energy cost increases over the same period.
Of course, there is a wide variety of energy efficiency improvements to choose from, everything from photovoltaic solar power systems to building insulation. One of the best ways, from a financial perspective, to evaluate a particular energy saving technology is to determine the payback period.
The estimated payback calculation is an excellent decision making tool for evaluating competing energy saving technologies. It's pretty basic - indicating how fast the money spent be returned.
How to calculate payback
There are several ways to calculate the payback of your energy improvements, ranging from the simple up to the relatively complex. The primary difference is between them are the assumptions incorporated into the calculations. Adding assumptions and variables makes the calculations more complex, but sometimes is necessary to get an accurate estimate. The two most useful ways to determine the payback period...
1. Simple Payback
2. Cash Flow Analysis
Both methods provide a reasonable estimate of the payback without getting overly complex
Simple Payback Analysis
The primary benefit of simple payback analysis is that it is simple while still providing useful information. To calculate the simple payback, simply divide the cost of the improvement by the estimated savings to yield the payback period. For example, if you spend $500 to install energy saving measures that save $150/year the payback is a little over three years, $500/$150 = 3.33. Energy savings after this period is pure profit.
Of course, this leaves out a lot of variables that can impact the actual realized savings. Variables like maintenance costs, energy cost increases and inflation are not taken into account, but the method has the advantage of being quick, simple and easy to understand.
Cash Flow Analysis
Cash flow analysis is the next step up in terms of complexity. Taking more variables into consideration, things like maintenance, energy cost increases and inflation, cash flow analysis gives a truer picture of the payback, especially when these costs are high. This type of analysis is best done with a spreadsheet program to simplify the calculations.
To determine payback using cash flow analysis the initial cost of the improvement is combined with the estimated maintenance costs, including an estimate of any increased costs over the expected life of the improvement as well as with an estimate of energy cost increases over the same period.
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