When you intend to pursue a commercial project or renovating an entire building to save energy, you do not want to make the investment before you are certain of the payoff. One of the most important factors to consider is the ROI on the capital invested. The payback period refers to the time it takes for the cash flow generated from the investment to cover the initial outlay.
The 1st step to energy savings is to upgrade your HVAC system. Upgrading your HVAC system can provide a range of benefits including increased employee productivity, maintenance cost savings, and time savings for staff who no longer have to deal with tenant or customer complaints. Over time, the system will also move the company towards achieving its corporate sustainability objectives.
There are several options available if you are looking for engineering, software and equipment firms. Given how much technology disruption is in the space, you must be careful with your capital outlays as you will not always get what you pay for. Depending on equipment and installation costs, you could find efficient cutting-edge solutions that may be cheaper to install in competition with industry standard energy management solutions that are less efficient.
There are several factors that impact the calculation of payback which varies depending on the utility provider and state. These include interest rates, energy prices and the availability of energy efficiency reimbursement programs.
The Simple Repayment Period Determination for HVAC Retrofits
- Average current energy payment (either per year or per month) vs. projected energy payments for a given timeframe with the retrofit. The average sum also needs to be adjusted to take into account seasonal and weather variations.
- Subtracting the payment estimate from what you currently pay should give a figure of the energy savings for the period.
- If you are using a one-month timeframe, you should multiply the figure by 12 to get the estimate of yearly savings (S).
If that set period is one month, multiply it by 12 to find your estimated annual savings (S).
The initial value (Vi) of the capital outlay for the retrofit.
With all the components for calculating the payback (P) on the upgrades to your HVAC system, the equation should look like this:
P = Vi / S
Other Metrics to Take into Consideration
These figures may also be used to determine the upgrade’s net present value (NPV). Moreover, you need to take into consideration how much value the retrofit will add to the net operating income. You will typically get more significant and positive impacts on net operating income if the retrofit results in higher energy cost savings alongside facility management efficiency, and productivity gains.
Perhaps you invested in an energy management system (EMS) in the recent past, but the payback period is too long that it is not providing benefits for the business as fast as you need. Measures such as advanced lighting retrofit, or a strategic HVAC upgrade are known as energy conservation measures (ECM). These may help optimize an EMS with an extended repayment period.
Studies Demonstrate the Effectiveness of HVAC Upgrades
According to research, you stand to achieve more energy savings annually with building control and smart HVAC upgrades if your building uses a lot of energy. A study by Oregon State University showed a strong correlation between energy costs savings, building energy use, building square footage and the efficiency of energy management solutions.
In 2011, CB Richard Ellis and the Institute of Environment and Sustainability of the UCLA collaborated on a study to look into challenges and trends in retrofitting commercial buildings in an effort to increase energy efficiency in buildings.
The study established that up to 18 percent of all energy consumption in the United States is by commercial real estate. It also found that energy saving upgrades could significantly reduce consumption. According to research, insulation, HVAC, solar and lighting upgrades are among the cheapest in terms of financial outlay. Going by square footage, HVAC upgrades cost the most to install though they have higher potential energy saving once proper optimization of insulation is done.
Ongoing report analytics indicate that energy efficiency retrofits should pay back the cost of the investment in between three to five years.
Getting three years or less of the capital invested back needs transparent metrics and honest conversations with the contractor. Still, there are many HVAC upgrading solutions that will make it easier to achieve the objective. Nonetheless, it is important to take into consideration the capabilities, compromises, benefits, and life expectancy of the systems you intend to invest in before making the commitment.