3 - Explanation of the Tables and their Use

Abstract

The cost-effectiveness of an energy saving investment is assessed by comparing the capital cost with the sum of the annual savings that is expressed in present value terms. If this sum, over a specified number of years, is greater than the capital cost, then that means the measure is cost-effective over that period of time. The difference between capital cost and present value is known as the net present value. If a measure's net present value is positive, then that means it is cost-effective and the larger the net present value the more cost-effective it is. However, when its net present value is zero, then that means a measure breaks even and the period, over which it does so, is called the break even time. The calculation of present value, net present value, and break even time could be very tedious. However, mathematical formulae can be derived that allow to tabulate the summations of present value over many years and for a very wide range of interest and fuel price inflation rates.