Page 37 - Money in Energy
P. 37
Money in energy -Investment Opportunities and risks 2010
project evaluation for investment decision. NPV with a proper discount rate is a criterion, when
the discount rate reflects the true opportunity cost of capital .
Simple Payback Method
Payback Period - A common and simple way to evaluate the economic merit of an investment is to
calculate its payback period, or break-even time. The payback period is the number of years of
energy-cost savings it takes to recover an investment's initial cost. To determine the payback, the
investor first estimates the total initial cost, annual energy-cost savings, and annual operating
costs. Dividing total initial cost by the difference between annual energy-cost savings and annual
operating costs gives the payback period .
The payback period is the amount of time (usually measured in years) to recover the initial
investment in an opportunity. Unfortunately, the payback method doesn’t account for savings that
may continue from a project after the initial investment is paid back from the profits of the
project, but this method is helpful for a “first cut” analysis of a project. If annual cash flows are
equal, the payback period is found by dividing the initial investment by the annual savings.
Payback Period= Initial Investment Cost (in years) Annual Operating Savings .
Annual Operating Savings= Annual Energy Cost Savings – Annual Operating Costs
Annual electric savings are the retail value of electricity from the system that you would have
otherwise bought from the utility company. It is determined that by multiplying the retail cost of
electricity given on your electric bill by the number of kilowatt-hours supposed to produce in a
typical year.
Financing Methods
The financing methods for energy projects are:
Project Finance
Balance Sheet Finance
Sale and Lease Back
37 Etree Projects Consultants Pvt Ltd.
project evaluation for investment decision. NPV with a proper discount rate is a criterion, when
the discount rate reflects the true opportunity cost of capital .
Simple Payback Method
Payback Period - A common and simple way to evaluate the economic merit of an investment is to
calculate its payback period, or break-even time. The payback period is the number of years of
energy-cost savings it takes to recover an investment's initial cost. To determine the payback, the
investor first estimates the total initial cost, annual energy-cost savings, and annual operating
costs. Dividing total initial cost by the difference between annual energy-cost savings and annual
operating costs gives the payback period .
The payback period is the amount of time (usually measured in years) to recover the initial
investment in an opportunity. Unfortunately, the payback method doesn’t account for savings that
may continue from a project after the initial investment is paid back from the profits of the
project, but this method is helpful for a “first cut” analysis of a project. If annual cash flows are
equal, the payback period is found by dividing the initial investment by the annual savings.
Payback Period= Initial Investment Cost (in years) Annual Operating Savings .
Annual Operating Savings= Annual Energy Cost Savings – Annual Operating Costs
Annual electric savings are the retail value of electricity from the system that you would have
otherwise bought from the utility company. It is determined that by multiplying the retail cost of
electricity given on your electric bill by the number of kilowatt-hours supposed to produce in a
typical year.
Financing Methods
The financing methods for energy projects are:
Project Finance
Balance Sheet Finance
Sale and Lease Back
37 Etree Projects Consultants Pvt Ltd.
