How can you prioritize energy-efficient upgrades based on ROI?

1 What is ROI and how to calculate it

ROI is a ratio that expresses the net benefit of an upgrade divided by its total cost, which can be expressed as a percentage or a decimal. To calculate the ROI of an energy-efficient upgrade, you need to estimate the upfront cost of the upgrade, including materials, labor, and installation fees; the annual energy savings from the upgrade based on expected reduction in energy consumption and current or projected energy prices; the lifespan of the upgrade; and the maintenance cost of the upgrade. The formula for ROI is (Annual energy savings x Lifespan - Upfront cost - Maintenance cost) / Upfront cost. For example, if an upgrade costs $10,000 and saves $2,000 per year in energy bills, then the ROI after one year is 20% or 0.2.

2 How to compare different upgrades based on ROI

Once you have calculated the ROI of each potential upgrade, you can rank them from highest to lowest and prioritize the ones that have the best return. However, ROI is not the only factor to consider when making your decisions; you need to take into account the payback period, environmental impact, and operational impact of the upgrade. A shorter payback period means a faster return and less risk of losing money if the upgrade fails or becomes obsolete. A higher environmental impact means a greater contribution to sustainability and social responsibility. And a higher operational impact means a better quality of service and customer satisfaction. To weigh these factors, you can use a scoring system or a matrix to assign a value to each upgrade. For example, you can give each upgrade a score from 1 to 10 based on its ROI, payback period, environmental impact, and operational impact, then add up the scores to get a total value. Alternatively, you can use a matrix to compare each upgrade against each other based on these criteria and choose those that perform well on most or all of them.

3 How to budget for energy-efficient upgrades based on ROI

Once you have prioritized your energy-efficient upgrades based on ROI and other factors, it's time to plan how to finance them and allocate your budget accordingly. You could use your own capital or cash flow, apply for grants, rebates, or incentives from government or utilities, take out a loan, a lease, or a performance contract from a bank or vendor, or implement a revolving fund. It's important to evaluate the pros and cons of each option and choose the one that suits your needs and goals. Furthermore, you should monitor and track the performance and results of your upgrades, adjusting your budget and priorities as needed.

4 How to communicate the value of energy-efficient upgrades based on ROI

Finally, you need to communicate the value and benefits of your energy-efficient upgrades to your stakeholders, such as your management, staff, customers, and partners. You can demonstrate how your upgrades will save money, reduce emissions, and improve performance by using ROI and other metrics. Additionally, stories, testimonials, and visuals can be used to illustrate the impact and outcomes of your upgrades. To communicate the value of your upgrades, you can use a variety of channels like reports, presentations, newsletters, blogs, and social media posts that show data and analysis. Additionally, awards, certifications, labels, events, workshops and webinars can be used to recognize the excellence and leadership of your upgrades as well as showcase best practices and lessons learned. By communicating the value of your energy-efficient upgrades based on ROI, you can build trust, credibility and support for your projects while inspiring others to follow your example.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?