3. Investment (or payback) models

The decision to invest in an energy saving program will be driven by a cost analysis. How quickly will the cost of the investment be recouped?

Roll your mouse over the image below to see what you should consider:

Examples of paybacks

The Coles Supermarket Group in Victoria now saves $1,000,000 annually after the implementation of a new lighting system. The payback period is less than two years.

The Ford Motor Company of Australia Ltd is saving $22 000 per annum since upgrading their cooling system to use a Variable speed drive control. The payback period is 1.2 years.

Since upgrading a number of compressed air systems, Holden Engine Operations is saving $388,000 per annum at its Port Melbourne manufacturing complex. The payback period is less than two years.
(Extract: Energy and Greenhouse Management Toolkit, State Government of Victoria)

Payback Period = [Cost of energy saving asset]/[Annual cash flows]

= [Cost of energy saving asset]/[Change in operating costs+increased revenue]

Example: It is predicted that an energy reduction program will cost $7000 to implement and saves annually $2000 in capital costs and $5500 in running costs, what is the approximate simple payback period in years?

Payback   =              $7000 / ($2000 + $5500)
=              $7000 / $7500
=              0.93 years