computed using a particular interest rate, minus the initial purchase price. A variation on this method is to calculate the return on investment, or ROI. This method calculates the interest rate implicit in equating the higher initial cost to the stream of energy savings over time. For example, if an efficient air conditioner costs $300 more than a less efficient model and saves $30 per year in electricity, the ROI is approximately 10 percent. For the more efficient air conditioner, there is no net savings for someone who would have to pay a credit card interest rate, but a large savings for someone taking the money from a checking account. The ROI and NPV depend both on the annual savings and on how long the air conditioner provides these savings—for example, if the building in which the air conditioner is installed will be torn down and the air conditioner destroyed in 3 years, that is the relevant period over which to calculate the return.



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