Payback Period = Cost of Improvement / (Kilowatts Saved * Cost Per Kilowatt)
The way in which this calculation is typically done may not include the following considerations:
- Most of our energy is still produced using fossil fuel, and the cost per kilowatt can be expected to escalate steeply.
- The total kilowatts saved by an energy efficiency improvement includes not only the watts saved directly by the new equipment, but also those saved by reducing the load on the air conditioning system because wasted watts generate heat.
- Reducing the air conditioning load can save money in two ways. It can definitely reduce the cost of operating the existing equipment by saving energy. And it might also reduce the cooling capacity required in (and the cost of) new equipment.
- When the energy efficient improvement involves replacing equipment that is toward the end of its useful life, we should not use the entire cost of the new system in calculating payback, but only the difference between the cost of the efficient system and a less efficient one.
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