Energy conservation and sustainability projects are not created equal. They vary widely in implementation cost and return on investment. Some rely on federal or state subsidies to make them affordable. Others are less expensive and provide a more immediate return.
Though it is difficult to compare “apples to apples” across different types of energy projects, the table below illustrates average payback periods for common projects.
Factors such as the size of the project, local cost of energy, and specific equipment implemented affect project results. However, the table above provides a reasonable “rule of thumb” for time you can expect to earn back your investment through reduced energy costs.
Let’s take a closer look at each type of energy project in the table above and further explain the data.
Poplar Network, a resource provided by the U.S. Green Building Council, educates and connects builders and other professionals to sustainability research and training materials. A recent article provides insight into the cost and payback of wind turbines. (Small Wind Turbine: What Is the Payback Period? https://www.poplarnetwork.com/news/small-wind-turbine-what-payback-period)
Here is an excerpt from the article:
A 5kW small wind turbine would cost about $20,000 (5 kW x $4,000). With electricity costs of $1,340 per year, it would pay for itself in 14.9 years.
A 10kW turbine would cost about $40,000. With electricity costs of $1,340 per year, it would pay for itself in 29.9 years.
A 15kW turbine would cost about $60,000. With electricity costs of $1,340 per year, it would pay for itself in 44.8 years.
It’s important to note that small wind turbines have a lifetime of about 20 years, which means that some of these payback periods are longer than the product’s actual lifetime. That means that the wind turbine would have to be replaced before it paid for itself in energy generation.
In the table above, I chose to use the smallest wind turbine payback period, 14.9 years, for comparison. It is important to note, however, that wind payback period is highly variable based on where the turbine is placed. Payback in a good wind location may be much shorter, while payback in a poor location may never be achieved.
One other note on wind power is that it is often subsidized by federal and/or state incentives. In spite of these incentives, wind power makes up a very small portion of U.S. power supply.
Newsweek Magazine recently reported, “Over the past 35 years, wind energy – which supplied just 4.4% of US electricity in 2014 – has received US$30 billion in federal subsidies and grants. These subsidies shield people from the uncomfortable truth of just how much wind power actually costs and transfer money from average taxpayers to wealthy wind farm owners, many of which are units of foreign companies.” (True Cost of Wind Power, https://www.newsweek.com/whats-true-cost-wind-power-321480)
Each year, Solar Power Rocks analyzes solar data in all 50 states to determine the most solar-friendly states in the U.S. They consider the cost of solar systems, incentives that reduce cost, and energy savings generated by solar systems in each state.
In 2016, the average payback time for a 5kW solar system across all 50 states was 12 years. Massachusetts had the fastest payback at 4 years, due to big incentives and high energy costs. Arkansas had the longest payback at 18 years. (How Long Does It Take Solar to Pay Itself Back? https://www.solarpowerrocks.com/affordable-solar/how-long-does-it-take-solar-to-pay-itself-back/)
In 2017, Solar Power Rocks added a factor to their calculation to represent solar panel degradation (decreased efficiency over time). This added about 1 year to the payback period across the board, for an average payback of 13 years. (2018 State Solar Power Rankings Report, https://www.solarpowerrocks.com/2018-state-solar-power-rankings/)
To give solar projects the benefit of the doubt, I used 12 years payback time in my table at the top of this article.
Energy Performance Contracts — HVAC Upgrades
The U.S. Department of Energy’s Technical Assistance Team worked with Lawrence Berkeley National Laboratory (LBNL) and the National Association of Energy Service Companies (NAESCO) to develop a series of fact sheets to assist American Reinvestment and Recovery Act (ARRA) grantees and end-users in benchmarking energy efficiency upgrade costs and expected annual savings. The values reported represent typical project costs, savings, and economics for ESCO projects in the LBNL/NAESCO project database. The LBNL/NAESCO Project Database, funded by the U.S. Department of Energy, is the largest database of ESCO project information in the world with more than 3,600 projects.
Here is a summary of simple payback period data for major and minor HVAC projects completed by ESCOs for each type of facility, with links to the original fact sheets:
Federal Government Facilities: Major HVAC 7.0 years, Minor HVAC 6.6 years (http://eta-publications.lbl.gov/sites/default/files/esco-fed-gov-facilities.pdf)
Healthcare Facilities: Major HVAC 6.5 years, Minor HVAC 6.9 years (http://eta-publications.lbl.gov/sites/default/files/esco-healthcare-facillities.pdf)
Higher Education: Major HVAC 8.1 years, Minor HVAC 6.9 years (https://www.energy.gov/sites/prod/files/2014/06/f16/postsecondaryprojectperformancebenchmarks.pdf)
K-12 Schools: Major HVAC 10.4 years, Minor HVAC 9.5 years (https://www.energy.gov/sites/prod/files/2014/06/f16/k12schoolsprojectperformancebenchmarks.pdf)
Public Housing Facilities: Major HVAC 7.7, Minor HVAC 8.6 (http://eta-publications.lbl.gov/sites/default/files/esco-public-housing-facilities.pdf)
State and Local Government Facilities: Major HVAC 8.2 years, Minor HVAC 7.7 years (http://eta-publications.lbl.gov/sites/default/files/esco-state-local-gov-facilites.pdf)
Note that data above represents simple payback time with no financing charges included, though often ESCO projects are paid for over time and include significant finance charges. In my table at the top of this article, I chose to simplify the data above to an average payback period of 8 years.
ESCO projects are becoming more common as facilities struggle with achieving their energy goals. However, these projects often fall short of customer expectations. Schneider Electric, a leader in energy management and building automation, explained that customers often have a 2- to 5-year payback expectation based on an initial energy audit. But once the ESCO adds in a performance guarantee, installation, project management, financing, and other fees, the payback period typically doubles. (Top 5 Reasons Why ESCOs Have Failed to Realize the Full Potential of Energy Efficiency – Part I, https://blog.schneider-electric.com/energy-management-energy-efficiency/2014/01/29/top-5-reasons-escos-failed-realize-full-potential-energy-efficiency-part/)
LED Lighting Retrofit
Switching to LED lighting is a common and effective energy-saving initiative. But it requires quite a bit of manpower, and it can interfere with facility operations during implementation.
Schneider Electric has posted a detailed approximation of LED retrofit payback period for a 25-fixture system. Their calculation takes into consideration equipment costs, labor costs, and electricity costs. Once again, financing costs are not included.
This is a small-scale example, and several assumptions have been made. For example, the author assumes the lights will be on 8 hours a day, 5 days a week, for a total of 2,080 hours per year. He notes that longer hours would shorten the payback period. Other factors such as local electricity prices and local labor costs would also affect the payback period.
But in this example, which is the most detailed explanation of LED retrofit payback period I could find, the payback period works out to about 6 years. (What’s the ROI on LEDs? https://blog.se.com/energy-management-energy-efficiency/2014/01/29/top-5-reasons-escos-failed-realize-full-potential-energy-efficiency-part/ )
Integrating room schedules to HVAC controls to automatically control heating and cooling based on individual room schedules can significantly reduce energy use. Most larger facilities run HVAC systems based on daily building schedules. As a result, classrooms, conference rooms, theaters, auditoriums, church sanctuaries, and many other spaces are often being heated or cooled while they are empty. Events2HVAC eliminates this energy waste.
Events2HVAC is a relatively new solution developed in the past 10 years. It is a simple software integration that requires no hardware to install or wire – just some space on a local server or virtual machine. This keeps the cost of Events2HVAC much lower than other solutions; and most facilities have the expertise on staff to implement this solution without hiring outside labor.
The typical payback period for Events2HVAC is 6 months to 1 year. Data has been provided by colleges and universities, K-12 schools, government agencies, and churches using this solution. (Click on Case Studies at the top of this blog to see examples.)
As with all other energy solutions, the local cost of energy and other factors will affect the payback period of each Events2HVAC project. But reducing the run-time of your HVAC equipment is a natural and simple way to decrease your energy use. This solution is the “low-hanging fruit” that is easy to implement and will quickly affect your bottom line. Because it significantly reduces the demand for energy, it will also decrease the number of solar panels or wind turbines needed to power facilities. For this reason, Events2HVAC should be implemented prior to “green” energy generation solutions.
Contact firstname.lastname@example.org to schedule an online demo or learn more about Events2HVAC.