Economics of energy efficiency: Beyond ROI

See on Scoop.itGreen Building Design – Architecture & Engineering

Engineers and building owners often focus on payback periods and return on investment as economic decision-making thresholds for energy efficiency investments.

Back in the day, HVAC systems were designed to be stout, longevity was the main focus, and concepts such as operating costs and efficiencies were virtually non-existent. The driving force was purely “How much will it cost and will it last?” Interest rates and return on investments were left to the bankers and stockbrokers.

“A more sophisticated approach is present worth analysis, which establishes a present time value of all future cash flow by discounting the costs. A typical time frame used for this procedure is 20 years. …”


“Data considered as input includes the future costs of energy, future maintenance costs, replacement costs, life of the product, and future interest rates. There are some pitfalls: prediction of future energy cost is a guessing game, just like predicting stock prices. Two factors, weather and people, are not 100% predictable. Planned maintenance cost can be somewhat consistent, but one catastrophic failure will ruin the budget. In the end, the analysis produces a lifecycle value in today’s dollars. This is then compared to similar investment analyses to select the most reasonable investment. The process can be intense and the projected outcome is always subject to scrutiny.”

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