Civil Engineering Reference
In-Depth Information
19
Economic Analysis of Energy-Saving
Investments
19.1
Introduction
The economic analysis of investments is a critical step in an energy conservation
program because monetary saving is generally the main factor leading to a decision.
The same analysis can be conveniently used to choose among possibilities which
may be equivalent from a technical point of view.
The main elements of an investment are the capital cost or the initial investment,
the interest rate, the return on the investment, and the life of the investment.
There are several methods available, according to the company's internal evalu-
ation criteria for investment, not only in the energy-saving field. Depending on the
importance and on the life of the investment, the selected methods can include or
not include life cycle costing as well as more or less sophisticated approaches.
A short review of the main analytical methods applicable to energy-saving
investments is reported as follows.
19.2 Methods Not Using Life Cycle Costing
19.2.1 Payback Method
The payback period is the time required to recover the capital investment
from net cash flow.
Payback
¼
INVESTMENT/NET ANNUAL CASH FLOW
¼
I
/NACF
where investment
I
¼
the total capital cost, and net annual cash flow NACF
¼
(annual energy cost saving + other cost saving
annual additional costs) referred to
the year of the investment.
