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[ Spotlight: Energy efficiency ]


Energy saving: doing the sums


Presenting a business case for investing in energy efficient technologies and microgeneration? The ECA provides a straightforward tool that can make the calculations easy and provide compelling financial information to your customer. PAUL REEVE and BILL WRIGHT explain


T


he ECA recently published a guide for its members on Making the Case for Energy Saving Measures. This publication explained the basic financial calculations that building services contractors can


use to support the business case for installing energy solutions. That guide has now been accompanied by an energy solutions Financial Analysis Spreadsheet (FAS), which is available to download from the members’ section of the ECA website (in the Environment and Sustainability downloads folder) The FAS is already being used by ECA registered members to help them talk to clients, and even some domestic customers, about the financial benefits of installing a range of energy saving measures and renewables. The FAS enables contractors to carry out various financial calculations that present figures for payback, return on investment (ROI), net present value (NPV) and internal rate of return (IRR) The spreadsheet uses information that should


be readily available, for example, the value of the installed measure and the energy savings per year. These figures can simply be inserted, together with estimates of the inflation figure or ‘discount’ value used by some accountants. The spreadsheet will then automatically calculate payback time, NPV, and IRR and can also give an indication of asset depreciation.


28 ECA Today March 2013


The power of easy financial communication should not be underestimated


If contractors want to calculate savings and


payback times, then the energy usage of the existing equipment can be inserted into the spreadsheet along with the energy usage of its replacement. These figures, together with the cost of energy, unit cost, inflation figures and cost of maintenance, will help ECA registered members to illustrate the financial benefits of the measures. Here, we take you through some of the basics


of energy saving calculations, explaining several key terms and calculations that can be useful for both electrical contractors and customers – enabling clear, quantifiable savings to be calculated and presented in an easy-to-understand way.


Basic energy saving accounting Simple payback A financial appraisal of energy efficiency or microgeneration measures is often based on simple ‘payback’. Essentially, the question is: ‘If I install measures that lower my energy bill, how long will it take for my energy savings to exceed the up-front cost?’ It’s a fair commercial question, though providing an answer requires consideration of many factors, such as variable energy prices, actual usage, and maintenance and product performance. In the world of simple payback, however, the


cost of energy under prospective new energy measures is simply compared to the cost of energy for the current existing (or alternative) energy measures, and a calculation shows how long it takes for the expected cost savings to recoup the capital outlay. When inflation is low, this can give a fair, and highly communicable, estimate of the financial viability of the investment. At its most basic, the calculation is:


Capital cost (Identified net savings) = payback in years


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