Expert Advice on Green Buildings

Simple Payback Calculator: What's My Breakeven on a Green Building Project?

 
Question:

How do I calculate a simple payback for a green building retrofit project?

Answer:

In determining simple payback for a green building retrofit project, the cost of the project is the numerator and the annual savings (such as energy or electricity costs) would be in the denominator.

For instance if $10,000.00 was invested to install an energy management system, and this resulted in annual savings of $3000.00, your equation would be 10000/3000 = 3.33 (or 3.33 years to breakeven on the investment).

So the formula is: Payback (years)=Cost/Annual Savings

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Expert Advice and Comments

ROI calculator

I was looking for ROI information for Green Building, but the link you have on the home page says no such page. Thanks.

bkurczak's picture

ROI Calculator

There are a number of ways to calculate a return for your green building. The method you use depends on your audience, as well as what you intend to use the information for.

Simple Payback is what we typically use to explain the basic economic benefit to a client. Simple payback is the amount of time (typically in years) that it takes to pay off an initial investment, using the potential savings generated by that investment. This analysis does not take into consideration the "time value of money".

Net Present Value (NPV) or Internal Rate of Return (IRR) analyses are sometimes requested by more sophisticated clients because they do a better job of taking into account how money works, over time (this is an over simplification; I encourage you to research these analysis tools further if your clients require it).

RETScreen(http://www.retscreen.net/) includes a fantastic financial calculator, as well as a risk assessment calculator.

For general information on financial paybacks for LEED buildings, check out the table at the bottom of the Enermodal LEED Explained web page (http://www.enermodal.com/leed_explained.html). This is a table we developed some time ago. It has been cited (or not cited, for what it's worth) a number of times as a generalized approximation of the costs of LEED. After 76 certified projects, we can verify that the estimates are within the ballpark.

Braden Kurczak
LEED AP BD+C
Enermodal Engineering Limited
http://www.enermodal.com