Comments on: What’s the Payback on Home Energy Efficiency?

By: jak42

jak42 — Tue, 21 Sep 2010 07:39:48 +0000

Allison,

Allison,

Excellent article. I try to avoid talking about payback in my blog. My preferred metric is dollars per kg of carbon eliminated. That is an indication of how economically efficient the technology is. The assumption being that you want to buy technologies that eliminate the most carbon for the money you put into them. I don't discount subsidies. The whole point of subsidies is to get the market in renewables and, maybe someday, efficiency going. So they should legitimately be included in the calculation.

By: Paul Reynolds

Paul Reynolds — Mon, 20 Sep 2010 18:39:07 +0000
Excellent points and well
Excellent points and well stated. I woould love to repost your blog post on our Blog with a link back to your site. Would that be OK with you. feel free to call if you prefer 604.742.0686

By: David Butler

David Butler — Sat, 18 Sep 2010 04:04:14 +0000
Simple payback is indeed
Simple payback is indeed misleading. As you point out in the refrigerator example, payback works best when comparing two otherwise equivalent alternatives.

To do it properly, I always nail down the non-negotiable requirements that have no financial benefit -- for example, durability, safety and comfort. Any product that doesn't meet those requirements is discarded. Only then can I evaluate the energy savings of more efficient products.

I compare the marginal cost with the present value of the energy savings using an appropriate time horizon and a reasonable discount rate (or interest rate, if financing is involved).

When comparing products with different life expectancies (e.g., a tankless water heater vs. a conventional model with glass-lined tank), I set the time horizon to the one with the shortest lifespan and set a residual value for the product with the longer life. Depending on the client's situation, I sometimes double the time horizon and include replacement costs for the shorter life product at the midway point.

This all sounds complicated but I've done this so many times that it gets to be old hat. The question must always be: Is there a less expensive way to achieve the same or better energy savings without compromising on comfort, durability and safety?

One more thing... I've seen people justify expensive energy retrofits using crazy inflation for energy costs. I don't have a crystal ball but when the primary heating fuel is electricity (e.g., heat pump), I only inflate electric rates to the point where PV may reasonably be expected to be at parity, regardless of whether PV is in the current plan.

By: Allison Bailes

Allison Bailes — Wed, 15 Sep 2010 16:59:28 +0000
Thanks, Mike. Simple payback
Thanks, Mike. Simple payback certainly has its place, but when you're talking about big expensive retrofits, even when you're paying cash, there are better ways to assess cost effectiveness (such as net present value). I'm glad to have an ally in this. Also, thanks for pointing out that GreenTech article. I responded to it this morning.

By: Mike

Mike — Tue, 14 Sep 2010 22:45:07 +0000

Thank you Allison for this
Thank you Allison for this post. I’ve long felt that the concept of simple payback has hindered the acceptance of energy retrofits in the market, see here:

http://www.demandsidesolutions.com/2010/08/upselling-just-dont-call-it-energy-efficiency/ 

I’ve been stewing over a response to this post by GreenTech where the simple payback metric is used against energy conservation measures:

http://www.greentechmedia.com/articles/read/does-energy-conservation-work-as-advertised/ 

Your post comes at a good time. This is a worthwhile debate to have.