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How to calculate whether it is financially worth installing a domestic renewable energy solution

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There are many renewable energy options for domestic property these days allowing you to heat your home, hot water and generate your own electricity, but they are all expensive.   Manufacturers also have lavish claims for how much you will save.   Reducing carbon emissions is important, so this kind of technology is very important to our future, but if the financial return is inadequate, you may get better return for your money and the environment by simply insulating your loft.  Here are some simple steps to calculate the financial viability of and energy project.

  1. Find out the likely useable energy you will be able to harness in kWh, for photovoltaic’s and a wind turbines this will be electrical energy, and with a heat pump or solar hot water with will be direct thermal energy.
  2. Determine the cost of that energy from the electricity grid or the gas supply or for any other fuel you may use for heating.  There is a graphic in for most fuel types giving the current fuel price per kWh.  
  3. All you do now is multiply the fuel price per kWh that you are replacing by the usable energy you are harnessing in a year.  
  4. This will give you your annual energy saving.
  5. The final step to estimating a payback time is to divide the cost of the equipment by the financial value of the energy saving per year.
**

As an Example

You may consider installing solar cells on your roof.   With all the sunlight availability calculations, and the efficiencies of the solar cells considered you may work out that your system can produce 2000kWh per year, which you can store easily for use later.  If Electricity costs 0.12 pounds (or dollars) per kWh then you would be saving 240 pounds per year.  The system cost you, fully installed, 15000 pounds, the installation would take 62.5 years to payback the investment.

Heat pumps is another very interesting one, have a look at this:-

Doing this type of calculation can very quickly tell you what it is sensible to invest in to get the most out of your money and to save the most energy.  There are those who would like us to ruin ourselves financially to save 1g of CO2


**Some Assumptions:-
Does not consider maintenance costs,
Excludes finance and alternative investment considerations

 

How to calculate the energy payback time when investing in new equipment.

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If you are considering investing in new technology in your house with a view to saving money on your energy bill, you should do the calculations to make sure it is really worth doing.  Here are some simple steps to deducing if it worth doing on cost grounds alone.

  1. Find out the power consumption of the device in kilowatts (kW).
  2. Estimate how long the device will be used for each day.
  3. Multiply the power consumption by the number of hours, to get the energy use per day in kilowatt hours (kWh).
  4. Multiply this by the number of days in a year (365).
  5. This will then give you the energy use of the device for the year.
  6. Repeat the above with the old device you are replacing.
  7. Subtract the new device energy use from the old device energy use.
  8. Calculate the cost of this energy, For example the average UK cost of electricity is abot 12p per kWh, in the US it is about the same in cents.   The average UK gas price is about 3p per kWh, there is a full listing here.
  9. So all you do now is multiply the cost of the saved energy by the cost per unit.
  10. Don’t forget to get the units right, 12 cents is 0.12 dollars.
  11. The final step to estimating a payback time is to divide the cost of the new device by the financial value of the energy saving per year.
**

As an example

You are buying a new refrigerator, and the power consumption of the old unit is 0.05kW, a refrigerator is on all day, so its energy consumption is 0.1 x 24 hours, giving 1.2 kWh, it is on all year, so for the year this is 438 kWh, with an electricity cost of 0.12 Pounds (use your currency unit, e.g. Dollars or Euros), this would cost 52.6 pound per year to operate.
The new fridge power consumption is 0.04kW, and using the same method, this costs 42.05 pounds per year to operate, so the cost saving per year in energy bills is 52.6 - 42.06 = 10.54 pounds.   If the fridge costs 200 pounds then on purely energy cost grounds the investment will take 19 years to pay back.

You can also use this method to calculate whether it is worth buying the more expensive energy saving model.  We should all try to save energy, but manufacturers charge an unnecessary premium for the energy efficient badge, and are often deceiving customers making them spend much more for little energy saving gain.  Forewarned is forearmed!

**Some Assumptions:-
The old equipment is discarded,
Does not consider maintenance costs,
Excludes finance and alternative investment considerations

 
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