Energy Cost and Payback Period Calculator

What is a payback period?

An energy efficiency investment (insulation, a heat pump, solar panels, an efficient motor) costs money up front and then lowers the energy bill every year. The payback period is the time it takes for the accumulated savings to cover the investment.

Simple payback = investment / annual net saving

The annual saving is the energy saved (kWh) times its unit price. If an investment of 60 000 saves 5000 kWh a year at 3 per kWh, the annual saving is 15 000 and the simple payback is 4 years.

The time value of money

A hundred today is not worth the same as a hundred in five years. The discount rate accounts for this: the present value of an amount S received t years from now is S / (1 + i)^t. Adding the present values of all years and subtracting the investment gives the net present value (NPV). A positive NPV means the investment beats putting the money to work at the discount rate.

The discounted payback period does the same sum cumulatively and is always longer than the simple one. The internal rate of return is the rate that makes NPV zero: read it as the yearly return of the investment.

Example

An investment of 10 000 saves 2500 a year, with an 8 percent discount rate and a 10 year life. Simple payback is 4 years. Discounted payback is 5.0 years. Net present value is 2500 × 6.710 − 10 000 = 6775. The internal rate of return is 21.4 percent.

What if energy prices rise?

As energy gets dearer the same kWh saving is worth more money. The tool applies price escalation as a fixed yearly rate. Consistency is what matters: if your discount rate includes inflation, enter escalation including inflation too.

CO₂ saving

Every kWh saved also avoids the carbon dioxide that would have been emitted in producing it. The annual saving is kWh × emission factor. The factor depends on the energy source: use the official national factor for grid electricity and the fuel's factor for fuels.

Limits

This tool is for a simple, regular cash flow. With loan repayments, tax and subsidies, mid life equipment replacement, performance degradation or residual value you need a detailed cash flow table.