Payback Period

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The payback period is the most commonly used measure to assess the cost effectiveness of incorporating energy efficiency into rehabilitation decisions.

When determining the payback period of an energy efficiency method, the following information is helpful:

• Purchase price of the measure;
• Installation cost of the measure;
• Cost of energy (e.g. residential electric rate in cents per kilowatt hour); and
• Amount of energy saved by using the energy efficiency measure.

Specifically, the payback period is the amount of time it takes for an energy efficiency measure's energy cost savings to cover its purchase, installation, and operating costs.

If an energy efficiency measure will not result in enough energy cost savings to pay for its purchase, installation, and operating cost within the life of the measure, it should not be installed. Operating costs may include periodic replacement of parts, e.g. filters or belts. To estimate a simple payback period for a particular energy measure, a payback period calculation can be used. However, precise payback calculations for energy efficiency measures can be obtained using a computer and the specialized software packages discussed later in this module.