The payback period is the time it takes for an energy-efficient HVAC or water heating investment to be recovered through energy savings. It is calculated by dividing the upfront cost by the annual savings from lower utility bills. A shorter payback period means a faster return on investment.
/ˈpeɪbæk ˈpɪəriəd/
The payback period is the time it takes for an energy-efficient HVAC or water heating investment to be recovered through energy savings. It is calculated by dividing the upfront cost by the annual savings from lower utility bills. A shorter payback period means a faster return on investment.
How is payback period calculated?
Divide the net upgrade cost by the expected annual energy savings.
Source: The Cooling Company
Upgrade cost divided by yearly savings equals payback period.
After installing a high-efficiency heat pump, a homeowner estimates a five-year payback based on reduced energy bills.
Include rebates, tax credits, and incentives in your calculation to shorten the payback period.
“Include rebates, tax credits, and incentives in your calculation to shorten the payback period.”
Payback period is a common financial metric used across many industries to evaluate capital projects.
Is a shorter payback always better?
Generally yes, but comfort, reliability, and environmental benefits also matter.
Do rebates affect payback period?
Yes. Incentives reduce upfront cost and shorten payback.
Does payback period include maintenance savings?
It can if you factor them into the annual savings estimate.
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