Learn how to determine the time it takes to recover the cost of energy-efficient HVAC upgrades, and what factors to consider when choosing the best option.

Innovative Ideas and Innovations: Advanced Control Systems: Implement smart HVAC control systems equipped with sensors, machine learning algorithms, and predictive analytics to optimize energy usage and enhance efficiency. These systems can adjust heating, cooling, and ventilation settings in real-time based on occupancy, weather conditions, and other factors, maximizing energy savings. Energy Recovery Ventilation (ERV) Systems: Install ERV systems that capture and transfer energy between incoming and outgoing air streams, reducing the need for heating and cooling. These systems improve indoor air quality while minimizing energy consumption, resulting in significant cost savings over time.

How can you determine the payback period for energy-efficient HVAC upgrades?

If you are a facilities engineer, you may be interested in upgrading your HVAC system to improve energy efficiency and reduce operating costs. However, before you invest in new equipment, you need to know how long it will take to recover your initial expense. This is called the payback period, and it is a simple way to compare the benefits and costs of different energy-efficient HVAC options. In this article, you will learn how to calculate the payback period for energy-efficient HVAC upgrades, and what factors to consider when making your decision.

1 What is the payback period?

The payback period is the time it takes for the savings generated by an energy-efficient HVAC upgrade to equal the initial cost of the upgrade. For example, if you spend $10,000 on a new HVAC system that saves you $2,000 per year on energy bills, the payback period is five years. The shorter the payback period, the more attractive the investment. The payback period is a simple and intuitive measure of profitability, but it does not account for the time value of money, the life span of the equipment, or the maintenance costs.

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2 How to calculate the payback period?

To calculate the payback period for an energy-efficient HVAC upgrade, you need to know two things: the initial cost of the upgrade and the annual savings from the upgrade. The initial cost includes the purchase price of the equipment, the installation fees, and any other upfront expenses. The annual savings are the difference between the energy costs before and after the upgrade, adjusted for inflation and energy price changes. You can use this formula to calculate the payback period:

Payback period = Initial cost / Annual savings

For example, if you spend $15,000 on a new HVAC system that saves you $3,000 per year on energy bills, the payback period is:

Payback period = $15,000 / $3,000

Payback period = 5 years

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Matt Huffman, LEED AP, BEAP

Outreach for ComEd Industrial Systems Program
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Two other important things to consider are the incremental cost payback, and utility program incentives/rebates. Incremental cost payback looks at the cost difference between "like-for-like" and high efficiency equipment. Let's say it costs $5,000 more to get high efficiency equipment and it saves $2,500 per year in energy costs. In this case, the incremental cost payback is is $5k/$2.5k, or 2 years. Many electric and gas utilities offer incentives for customers to install higher efficiency equipment. The details will be different for each utility, but any incentives or rebates available can dramatically reduce the payback period and make a project much more attractive.

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3 What are the advantages of using the payback period?

The payback period is a useful tool for comparing different energy-efficient HVAC options and choosing the one that suits your budget and goals. It can help you identify the most cost-effective upgrade that meets your energy efficiency standards, estimate how long it will take to recover your investment and start saving money, communicate the benefits and costs of the upgrade to stakeholders and decision-makers, and prioritize upgrades with the shortest payback periods and highest returns.

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Matt Huffman, LEED AP, BEAP

Outreach for ComEd Industrial Systems Program
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I've noticed that simple payback period is a great way to get a project "noticed" by management and possibly approved. If the payback period looks good, then management or the CFO can take a closer look at Net Present Value (NPV) or other financial metrics.

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4 What are the limitations of using the payback period?

The payback period is a simple and easy way to evaluate energy-efficient HVAC upgrades, but it also has some limitations that you should be aware of. These include not accounting for the time value of money, the life span of the equipment, the maintenance costs, and the residual value of the equipment. Additionally, it does not take into consideration any environmental or social impacts that the upgrade may have on your facility and community.

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5 How to improve the accuracy of the payback period?

The payback period is a good starting point for evaluating energy-efficient HVAC upgrades, but it should not be the only factor in your decision. To improve the accuracy and reliability of the payback period, you can use realistic and updated data on the initial cost and annual savings of the upgrade, adjust the annual savings for inflation and energy price changes, compare the payback period with other financial metrics such as net present value, internal rate of return, and life cycle cost, and consider the qualitative aspects of the upgrade, such as comfort, safety, and reputation.

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6 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?

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Innovative Ideas and Innovations: Advanced Control Systems: Implement smart HVAC control systems equipped with sensors, machine learning algorithms, and predictive analytics to optimize energy usage and enhance efficiency. These systems can adjust heating, cooling, and ventilation settings in real-time based on occupancy, weather conditions, and other factors, maximizing energy savings. Energy Recovery Ventilation (ERV) Systems: Install ERV systems that capture and transfer energy between incoming and outgoing air streams, reducing the need for heating and cooling. These systems improve indoor air quality while minimizing energy consumption, resulting in significant cost savings over time.

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How can you determine the payback period for energy-efficient HVAC upgrades?

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1 What is the payback period?

2 How to calculate the payback period?

3 What are the advantages of using the payback period?

4 What are the limitations of using the payback period?

5 How to improve the accuracy of the payback period?

6 Here’s what else to consider

Facilities Engineering

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How can you determine the payback period for energy-efficient HVAC upgrades?

1

2

3

4

5

6

1 What is the payback period?

2 How to calculate the payback period?

3 What are the advantages of using the payback period?

4 What are the limitations of using the payback period?

5 How to improve the accuracy of the payback period?

6 Here’s what else to consider

Facilities Engineering

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