How to Evaluate and Explain ROI for HVAC Equipment
HVAC (heating, ven- tilation, and air con- ditioning) systems have a greater im- pact on guest com- fort than any other building system. While guests won’t tolerate a stuffy room, lodging man- agers can’t afford
unsatisfied customers and unruly costs derived from inefficient energy generation. Taking action to upgrade HVAC systems in today’s hotels and lodging facilities can help cut energy costs and improve guest comfort—thus increase profit.
HVAC upgrades provide several benefits for hotel operations, including enhanced guest comfort, decreased energy con- sumption, higher reliability, longer equip- ment life, and overall cost reduction. Ad- ditionally, HVAC systems provide many options for increasing energy efficiency – programmable thermostats, room oc- cupancy sensors, variable speed blowers, low pressure-drop air filters, and high ef- ficiency chillers and boilers. The most en- ergy efficient systems are combined heat and power (CHP) and combined cooling, heating, and power (CCHP) systems that combine an electric generator with a heat- ing or heating and cooling system that uses the generator’s exhaust heat to pro- vide extremely high fuel efficiencies, thus
er property upgrades and improvements.
The effective and simple ROI model for HVAC upgrades shared in this article will help decision makers better understand and trust ROI information commonly pro- vided by equipment suppliers.
Evaluating ROI for HVAC Equipment Using Payback Model ROI is a performance measurement that evaluates the profitability of an invest- ment. It is calculated by dividing the mon- ey returned on an investment (savings or profit) by the cost of the initial investment. ROI is calculated and expressed in many ways; different investment types use differ-
By Marc Rouse
Distributor Development Manager Capstone Turbine Corporation
nificant up-front capital costs (equipment and installation) and value of the capital equipment depreciates over time (equip- ment life). A payback model compares the total cost of an installation against the pre- dicted cost savings, calculating how many years it will take the installation to pay for itself. For example, an HVAC system with a “payback of 4.5 years” means the system will have saved enough in energy or main- tenance costs over 4.5 years to cover the initial cost of the install. Most likely, the life of the HVAC system will exceed its pay- back period, so from the breakeven point forward, the installation continues to gen- erate savings. At this point, savings can be viewed as profit in the form of decreased
“Most likely, the life of the HVAC system will exceed its payback period, so from the breakeven point forward, the installation continues to generate savings.”
ent models, and calculations can become more complicated when more variables are considered, including tax rates and risk.
For simple investments, such as a savings account, the ROI represents the percent- age yield on the savings account. Using a simple percentage ROI allows decision makers to compare multiple investment al- ternatives to determine what option is most suitable for their application.
“More efficient HVAC systems can reduce enough costs to completely pay for the upgrade, and then continue to provide significant annual savings over time.”
opportunities to reduce energy costs for building climate control.
While most HVAC upgrades can be justi- fied by improved reliability and promised guest comfort advantages alone, In many cases, return on investment (ROI) of HVAC system upgrades actually outperforms oth-
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This article will explain the simplified model for the purpose of understanding how to evaluate ROI of an HVAC investment to compare it to other investment options.
The payback model is most commonly used to express ROI of an HVAC system because these systems typically have sig-
Payback ROI also can be expressed as a percentage yield on the capital investment, which is very useful for situations where an investor has the option of placing this money in an alternate investment (property purchase, advertising campaign, savings, etc.), as it allows various investment types to be compared.
HVAC upgrades often are required for more than just financial reasons. The pay- back model is the easiest tool to calculate other upgrade advantages – taking credit for extended equipment life, reduced costs from increased efficiency, and reduced op- erating and maintenance costs. For exam- ple, the payback model can justify the pur- chase of more expensive HVAC systems by proving how higher upfront cost provide a faster payback or better economics in the long run. For a limited facility upgrade bud- get, the projects with the fastest payback should be captured first.
How to Estimate the ROI of your HVAC Regardless of the sophistication of the
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