90 Primrose Hill Road
Rhinebeck, NY 12572

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What's The Payback?

01.03.09
Determining the payback for any particular energy improvement could be considered a simple math calculation; divide the cost of the energy improvement by the cost of energy it replaces. For instance, if an improvement cost $20,000 and it reduced energy consumption by $3,000 per year, then the payback can be said to be 6.6 years.

However this is too simplistic as it does not take into account the cost of money or the escalating cost of energy. I do not believe that determining payback helps in deciding if an energy improvement should be done, even on a strictly financial decision path.

Buildings are an investment. Energy improvements are a permanent part of that investment, therefor the financial implications of the improvement should be examined when determining the value of an energy improvement. The question that should be asked is, how does this compare to other investment opportunities?

If you have investments that are making a 2% return per year, after expenses, and you are in the 50% tax bracket, then you need $75,000 invested to have $1000 to pay for your energy use. If you spend $75,000 on energy improvements that save $5,000 per year in energy, you just increased your income from that $75,000 500%. This return is guaranteed and it will go up over time as energy prices go up.

Examine energy improvements as investments. Look at the cost of money and the expected escalation of energy prices. Add to this a volatile market for money and energy and your investment in energy improvements looks even better. Think about it, a guaranteed return on your investment, elimination of marketplace volatility, increased value of the investment overtime and it is as liquid as your investment in the building. Where are the negatives? I do not know of any except that by not investing in energy improvements you leave yourself open to market volatility and still have to make the expenditure for the energy year after year with no return at all.








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