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  • Norbert N. Vasen

What’s wrong with Simple Payback Time (SPT)?

What’s wrong with Simple Payback Time (SPT)?

Do you use the simple payback time (SPT) to decide on Energy Conservation Opportunities (ECO)? Unfortunately, important decisions are made in this way.

Why is the SPT so bad? I learnt it from the trainers for energy experts: It is incomplete, describing only the start period of the ECO, forgetting the years thereafter, when it still adds to the savings.

Get used to better parameters and you’ll never want to turn back to the SPT. Its danger is that there is an unwritten rule that it MUST be shorter than three years, or they kill the project. And that hinders the Energy Transition!

It’s weird that an SPT of 3 years gives a return on investment (ROI) of 33%. Now, when the Government sells bonds of 10% yield, there is a run to the banks, everybody wants this bond, which yields much less than our ECO.

So which parameters are better? They are the Net Present Value and the Savings to Investment Ratio (SIR) or money machine parameter: $1 in, $N out.

This will change the amount of approved projects and nurture the Energy Transition!

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