Building renovations can significantly reduce energy consumption and greenhouse gas emissions. However, the first step is to find the most appropriate energy efficiency measures. As each building is unique, the same technology can have very different results when used across multiple properties. Energy consultants recommend implementing several measures at the same time, as those with a quick payback can help pay for measures with a longer payback.
The New York Urban Green Council analyzed the typical payback period for several energy efficiency measures:
- Lighting retrofits, ventilation upgrades, and building controls tend to have the quickest payback periods in office buildings, 2 to 3 years on average.
- Engine replacements, heating upgrades, and air conditioning upgrades have a slightly longer payback period, typically around 5 years.
- Major HVAC upgrades, renewable generation, and building envelope improvements have the longest paybacks, 7 to 8 years on average.
These are just average values, based on data from New York buildings that assess their energy consumption. In real projects, some energy efficiency measures can achieve a payback period of just a few months, while others require more than 10 years to recover the initial investment.
Identify the most effective energy efficiency measures for your building.
What is a combined payback period?
The payback period of energy efficiency measures is often calculated individually. However, you can also add up all initial costs and annual savings to determine the payback period for an overall energy efficiency project. This is called the combined payback period.
With a combined payback period, measures with a longer payback period can be financially justified. As an example, suppose a building owner is considering the following improvements (costs and savings are assumed for demonstration):
|
Building upgrade |
Initial cost |
Annual Savings |
Payback period |
|
Led lightning |
$100,000 |
$60,000 |
1.7 years |
|
Lighting controls |
$6,000 |
$5,000 |
1.2 years |
|
Variable speed drives for motors |
$40,000 |
$16,000 |
2.5 years |
|
HVAC system upgrade |
$800,000 |
$100,000 |
8 years |
|
solar power system |
$250,000 |
$50,000 |
5 years |
|
Totals and combined return |
$1,196,000 |
$231,000 |
5.2 years |
In this case, the HVAC upgrade alone has an 8-year payback period, but the overall project has a combined payback period of just over 5 years. In this case, the overall project may cover its initial cost more quickly than just the HVAC upgrade.
Building owners often use loans to cover the costs of building improvements. This eliminates the initial cost and the loan is repaid with the savings obtained. However, the same principle applies: expensive measures with a longer payback are easier to finance when combined with other measures with a shorter payback.
Suppose a loan is used for the measures in the example above, with an annual interest rate of 3% and a repayment period of 10 years.
- A loan of $1,196,000 would result in annual payments of $138,584. These payments can easily be covered with savings of $231,000, resulting in net savings of $92,416 with zero upfront cost.
- An $800,000 loan for the HVAC upgrade resulted in annual payments of $92,698. With $100,000 in savings, you only have $7,302 left after paying off your debt.
Even when loan financing is used and the repayment period is zero, energy efficiency measures with longer repayment periods can be combined with others to facilitate project financing.
Reducing emissions from buildings with combined energy efficiency measures
Buildings can save more energy by implementing more energy efficiency measures, and this is critical for New York City buildings that must reduce their emissions under Local Law 97 of 2019. However, the potential savings Energy resources are limited when building owners only choose upgrades with a quick payback.
For example, if a building owner only implements energy efficiency measures with a payback period of less than three years, there will be few options other than LED lighting and automatic controls. These measures alone will reduce total consumption by a small percentage, as HVAC systems consume more energy in residential and commercial buildings.
- For example, LED lighting can reduce lighting expenses by more than 50% in many cases.
- However, if lighting represents only 16% of a building's energy consumption, this measure will save only 8% of total consumption.
Energy efficiency upgrades can be more effective if they follow a whole-building approach rather than implementing individual measures as separate projects. Energy modeling software is a powerful tool for decision-making: it analyzes how different measures interact and allows quick comparison of different alternatives. In the traditional approach, energy efficiency improvements are analyzed individually and assuming a typical building – estimated savings often differ from the actual savings achieved.
