Justifying Energy Efficient Upgrades

Energy Efficient Construction
Environmental Design Consulting
Green Building and Development Techniques

Energy efficient upgrades or new construction are just like any other business investment and must not only pay for themselves over the useful life of the improvement but also provide a return to the purchaser in order to justify the initial capital outlay. There are many energy saving techniques on the market that will simply never pay for themselves, will pay for themselves if installed efficiently, may be the wrong improvement on a given structure, is overkill for a specified application or is simply not effective for the given purpose. However, the problem is typically that most contractors are determined to sell their product to anyone regardless of effectiveness as that is their living. Stories abound of energy efficient improvements that will never recoup their initial investments and leave the buyers holding the bag. It doesn’t even matter if it’s a proven technology like geo thermal heat pumps, which cost a substantial amount more than standard heat pump applications, and which will never pay for themselves in certain applications. Thus they can be an inefficient upgrade and an economic waste. This is one example of many that we have learned over the years and can define based on a project by project analysis. This one example would save the uniformed purchaser tens of thousands of dollars.

All energy efficient upgrades should have a simple payoff for these improvements between 2 to 6 years on most depreciable assets and less than 20 on durable improvements. Simple payoff is for simplicity and does not take interest expense into consideration so actual payoff is a longer period.

Costs can increase substantially with the greater the desired energy savings, however a 50% reduction in energy consumption can be achieved for a small increase of 2% to 5% above standard construction costs. However, the greater the energy savings after this point escalates costs exponentially to a point of diminishing returns and thus a loss on investment. However there are many improvements that more than offset the increased mortgage payments and thus actually provide a cash flow back to the owner in long term savings.

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