Accounting methods for new-technology non-utility energy installations

Abstract

Inflation of energy costs, until 1973 an unimportant factor in determining the overall rate of inflation in the economy, promises to become a major influence in determining future price increases as society moves towards the use of nonfossil and synthetic fuels. Since the conventional interest rate is effectively indexed to inflation, and since the energy costs in question are strongly capital-intensive, a snowball effect seems inevitable. A mortgage-repayment formula is suggested that has obvious importance when used in an inflationary environment, since it reduces the initial impact of new-technology energy costs compared with formulas used in conventional accounting. In addition, it is advantageous for technologies requiring longer write-off times, and may be particularly useful for small non-utility (e.g. solar) energy installations.