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Assessing the Cost Effectiveness of Energy Efficiency

Topic Overview

When deciding whether to undertake an energy saving improvement, a Grantee/owner will want to justify the cost of purchasing and installing the new equipment. While the potential to reduce energy costs is often the most compelling reason a Grantee or an owner might undertake an energy efficiency method, the ability to reduce operating costs while addressing capital improvement needs is also of importance. For example, by replacing an old inefficient furnace with a new energy efficient furnace, an owner addresses a capital improvement need while reducing energy costs.

After completing this topic, you will be able to:

  • Explain HUD's energy guidelines;
  • Define payback period;
  • Calculate the payback period of an energy efficiency measure; and
  • List the various methods one can use to calculate the relative cost effectiveness of installing various types of energy efficient equipment.

Specifically, this topic will cover:

  • Energy Advisor. HUD has established guidelines to assist HUD grantees to determine whether a particular energy efficiency measure is cost effective.
     
  • Payback Period. The most commonly used method of measuring the cost effectiveness of energy efficiency measures. Explains how to determine the payback period for a project.
     
  • Payback Period Calculation Introduction. Explains how to calculate the payback period of purchasing a new furnace.
    • Payback Period Example 1. A calculation of the payback period of replacing a broken furnace with a new energy efficient model.
    • Payback Period Example 2. A calculation of the payback period of replacing a working inefficient furnace with a new energy efficient model.
       
  • Key Points to Consider. Outlines the important items to take into consideration when assessing if an energy efficiency measure is cost effective
     
  • Other Methods to Assess Cost Effectiveness. Describes other methods that can be used to determine if an energy efficiency measure or project is cost-effective.