Everyone wants to get something for nothing. With a retrofit, you can.
Here at TAF we often promote the benefits that arise from a building energy efficiency retrofit, like:
- Improvements to indoor environmental quality and comfort
- Health benefits
- An increase in the value of the building
- Savings on utility bills
- Reduced carbon emissions
- The project’s positive cash flow nature
One benefit that does not get a lot of press is the fact that there is no cost to reduce the carbon. Say what, one might ask; how can that be? It costs money to perform an energy retrofit.
But that’s not the right way to look at the situation. Let me explain. I’ll use a real-world example of a recent comprehensive energy retrofit we were involved with. The building owner undertook a $2 million energy retrofit with a payback time of less than six years and an estimated energy costs savings of $365,000 per year – with no government incentives provided to reduce the capital cost. Let’s look at the stats:
- The life of the project is shorter than the useful life of the equipment of 12 years
- Maintenance costs specific to the equipment are $15,000 a year
- The internal rate of return is 12.75%
- The net present value (NPV) of the cash flows is approximately $425,000
- The carbon emissions reductions total 722 tonnes a year or over 7,200 tonnes over 10 years
In this example, the project was estimated to generate a positive cash flow. That can only mean the there is return of the capital and a return on the capital. Indeed, the project is on target to create a positive financial return – the inflows are greater than the outflows – with results having been verified for three years now. With a positive financial inflow, only one conclusion can be reached: the reduced carbon cost the investor nothing. In fact, there is a return per tonne reduced of $59 ($425,000/7,200) – the inverse of cost!
This example continues to prove the strong business case for building energy retrofits. They offer strong financial, environmental and social benefits.
