Window Film Energy Savings – Calculating Payback Periods

One of the most effective ways for property managers and energy engineers to improve the energy efficiency of a building envelope is to install window film. Window film makes glass more energy efficient, at a much more affordable cost than new windows or other glazing improvements.

Of course, there are a wide variety of energy efficiency improvements to choose from, from solar photovoltaic systems to building insulation. One of the best ways, from a financial perspective, to evaluate a particular energy saving technology is to determine the payback period.

The estimated recovery calculation is an excellent decision-making tool for evaluating competing energy-saving technologies. It’s pretty basic: it indicates how quickly the money spent is paid back.

How to calculate recovery

There are several ways to calculate the ROI for your energy improvements, from the simplest to the relatively complex. The main difference between them is the assumptions built into the calculations. Adding assumptions and variables makes calculations more complex, but sometimes you need to get an accurate estimate. The two most useful ways to determine the payback period …

1. Simple amortization

2. Cash flow analysis

Both methods provide a reasonable estimate of return on investment without becoming overly complex.

Simple payback analysis

The main benefit of simple payback analysis is that it is simple and at the same time provides useful information. To calculate simple payback, simply divide the cost of the upgrade by the estimated savings to get the payback period. For example, if you spend $ 500 to install energy-saving measures that save $ 150 / year, the payback is a little over three years, $ 500 / $ 150 = 3.33. The energy savings after this period is pure profit.

Of course, this omits many variables that can affect the actual savings made. Variables such as maintenance costs, energy cost increases, and inflation are not taken into account, but the method has the advantage of being quick, simple, and easy to understand.

Cash flow analysis

Cash flow analysis is the next step in terms of complexity. By taking more variables into account – things like maintenance, energy cost increases, and inflation – cash flow analysis provides a more realistic picture of payback, especially when these costs are high. This type of analysis is best done with a spreadsheet program to simplify calculations.

To determine the return on investment using the cash flow analysis, the initial cost of the improvement is combined with the estimated maintenance costs, including an estimate of any cost increases over the expected useful life of the improvement, as well as with an estimate of energy cost increases over the same period.

For example, when examining the costs associated with replacing an HVAC system with a newer and more energy efficient system, using a simple recovery would not be enough, as HVAC systems involve regular maintenance that is necessary to guarantee life. useful of the system. Because maintenance is critical and subject to cost increases over time, this must be factored into the payback calculation to provide a true picture of potential savings, or lack thereof.

Now let’s look at an example using window film, an energy efficiency improvement that has virtually no associated maintenance costs. Assume a window film installation that requires an investment of $ 385,000 that generates annual savings of $ 168,000. With a simple payback equivalent to 2.29 years and virtually no maintenance costs, there are very few things that significantly impact the payback period. Energy costs will increase over the life of the window film, but they will tend to decrease the payback period as the savings achieved will be greater than the initial estimate.

When it comes to maintenance, the window film does not require any, but its lifetime will require replacement due to damaged window film and for updates associated with tenant improvements. The cost of these replacements should never exceed 0.5% – 1% of the total number of windows in a building. Again, the impact of this on the savings made is negligible.

Here is a story that will illustrate the practicality of using these two methods to calculate the payback period versus other more complex methods.

A bag of gold was placed on a table in a room. Two people, an engineer and a scientist, were told to enter the room and try to get the gold. The only rule was that each time they moved towards the gold, they could only travel half the remaining distance between themselves and the gold. The scientist decided to leave, declaring that “if you can only get close to half the remaining distance, you will never get there. It is impossible.” The engineer, on the other hand, just took two steps, said, “Close enough for an engineering approach,” grabbed the gold and left.

The payback calculations look a lot like the example from history. You can make more and more refinements and assumptions, but in the end most of the time you can determine a viable recovery using the simple recovery method, which can be done on the back of an envelope. However, if you can, and especially when there are large variable costs, use the cash flow analysis method to include some of these costs.

The conclusion

We live in a world of financial constraints, requiring sound financial reasoning to make a particular investment, so we need to do some basic math to make sure we were smart about how we spent our money. For maximum efficiency and effectiveness, the focus should be on investments that offer rapid payback, which can usually be adequately determined with the simple payback method or, when maintenance costs are high, with cash flow analysis. a little more complex. Both methods are useful tools for the power manager.

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