THE PAYBACK PERIOD
When dealing in the renewable energy market you will hear much talk of the “payback period”. “It’s got a good payback”, “Payback is over 20 year, don’t touch it.”
What Payback Period means is the time it takes to get back the money you spent on the renewable energy system. There are a number of ways of calculating it, but generally it is :
Cost of the system less the cost of a traditional energy system divided by the annual cost saving.
Example
A heat pump will cost, say, £10,000 installed
A new oil fired condensing boiler will cost, say £6,000 installed (including fuel storage tank, etc.)
The difference is £4,000
The heat pump will cost, say, £300 p.a. to run
The oil-fired boiler will cost, say, £800 p.a. to run
The difference is £500
£4,000 divided by £500 p.a. gives a payback of 8 years.
Reasons to ignore the payback
It cannot be properly calculated as we do not know how fuel prices will rise within the life of the renewable energy equipment.
Renewable energy equipment adds value to your property which is not included in the payback calculation. - Renewable energy is the only fixture in your property that is supposed to have a payback – the bath doesn’t, nor the fireplace, nor the floor…
- Renewable energy makes your property more desirable – a feature which is difficult to value.
- Renewable energy makes you feel better – a feature that is impossible to value.
The payback period is no more than a hang over from the early days of technological development and is now used by competing manufacturers to tell you it’s OK to install their machine because you will get you money back 2 months sooner than that guy over there. The reality is that we buy things for the house because they are functional or attractive, maybe both. We buy what we can afford and generally feel good about the purchase. The same rules apply to renewable energy. Buy what you can afford and what will work and feel good about it.