As energy engineers, we have become very good at showing the financial benefits of energy conservation measures (ECMs). Back in the early 90’s, when I started in this industry, we almost exclusively used Simple Payback, the time it took for the savings to match the cost. If a project cost $10,000 and the annual savings were $2,500, it was a 4 year Simple Payback.
Simple Payback is a terrible tool for selecting the best ECMs. For example, if one ECM has a 2.5 year payback and a second ECM has a 3 year payback, and you couldn’t afford to do both, you’d pick the shorter payback. But what if the longer payback ECM was also replacing an old piece of equipment, reducing maintenance or improving occupancy comfort? Because of this, it is important to incorporate all benefits (or costs) into the financial analysis.
Over the years, we have built more sophisticated models that account for:
- Avoided capital costs such as replacement of a boiler with a condensing boiler.
- Avoided (or additional) maintenance costs.
- Cost to borrow (or cost of not doing something else with the money).
- Equipment life.
- Utility escalation costs.
- Tax benefits.
Now, we talk in terms of Net Present Value (NPV), Internal Rate of Return (IRR), increased property value, etc. We show charts that include 20 years of savings, costs and avoided costs that give a much truer picture of the financial benefit.
Should we stop there?
What about other advantages?
Additional benefits of energy conservation (or costs) to people in the building are often very difficult to quantify. They include:
- Higher productivity.
- Improved health. (fewer sick days)
- Improved air quality.
- Reduced exposure to volatile energy costs.
- Improved rentability/increased rental fees
- Societal benefits such as:
- Reduced local pollution.
- Lower GHG emissions.
- Reduction in load on the grid.
These additional benefits would surely result in more ECMs making environmental sense. They may also change our focus. For examples, some studies show increased productivity when ventilations are higher than required by ASHRAE 62. Perhaps using more energy (in conditioning of outdoor air) would have positive savings when accounting for productivity increases.
It is our responsibility to show building owners the true picture of ECMS by internalizing all costs into our model. The owner will then be able to better decide what ECMs to undertake.