When thinking about the payback period for your upgrades, the simple payback is one of the easiest way to look at your investment.
Simple payback is the length of time it takes to recoup the initial investment of the energy upgrade. The basic formula for calculating payback period is:
Payback period (in years) = cost of upgrade / energy savings per year
There are a few factors that should be considered when thinking about simple payback:
- The life span of the product will determine for how long you will benefit form energy savings before having to replace it.
- Changes to utility rates will affect the amount of money you save on energy costs.
Upgrades that typically have the fastest payback period are lower cost home energy improvements such as high efficiency aerators and shower heads, draftproofing, lighting, and adding insulation to previously uninsulated exterior walls. However, often it can be a wise financial investment to undertake higher cost home energy improvements that have a longer simple payback – but will save you more each year and over the lifetime of the improvement. While not as straight forward as simple payback – higher cost home energy improvements may have a strong return on investment.
Did you see a building science or energy efficiency term you did not understand? Check out our glossary.