Cost effectiveness and payback time

Insulating a building makes it more energy efficient. That means we need to use less energy to heat the building because less heat energy is lost to the environment. We are conserving energy and this may lead to less pollution, and help to conserve the reserves of fossil fuels.

Homeowners may install double glazing or extra insulation to reduce heat energy losses and to save money. However, these energy-saving solutions cost money to buy and install. The payback time of an energy-saving solution is a measure of how cost-effective it is.

The payback time will be shortest if the cost of installation is low compared to the savings made each year.

Calculating the payback time for domestic insulation

\text{payback~time}=\frac{\text{installation~cost}}{\text{annual~savings}}

Question

The double-glazing for a house costs £3,000 but saves £150 per year in fuel costs. What is its payback time?

\text{payback~time}=\frac{\text{installation~cost}}{\text{annual~savings}}

= 3,000 ÷ 150

= 20 years

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