Howard University Invest in An Energy Saving Measure & Projected Energy Essay

Howard University Invest in An Energy Saving Measure & Projected Energy Essay

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The decision of whether to invest in an energy-saving measure is made on the basis of the length of time for it to pay for itself in projected energy (and thus cost) savings. The easiest way to reach a decision is to calculate the simple payback period by simply dividing the installed cost of the measure by the annual cost savings and comparing it to the lifetime of the installation. This approach is adequate for short payback periods (less than 5 years) in stable economies with low interest rates (under 10 percent) since the error involved is no larger than the uncertainties. However, if the payback period is long, it may be necessary to consider the interest rate if the money is to be borrowed, or the rate of return if the money is invested elsewhere instead of the energy conservation measure. For example, a simple payback period of five years corresponds to 5.0, 6.12, 6.64, 7.27, 8.09, 9.919, 10.84, and 13.91 for an interest rate (or return on investment) of 0, 6, 8, 10, 12, 14, 16, and 18 percent, respectively. Finding out the proper relations from engineering economics books, determine the payback periods for the interest rates given above corresponding to simple payback periods of 1 through 10 years

 

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