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Calculate rate of return and increase in building value
We have created calculators that let you simultaneously calculate three of the most common financial measures when considering an energy retrofit. (Click here for a discussion of all the financial measures you can use to measure the viability of an energy retrofit). As well, we have created a calculator that shows the increase in building value that will result from investing in an energy upgrade.
Internal Rate of Return
The first measure is Internal Rate of Return (IRR). This measure essentially shows you the return that an alternative investment would need to produce to be the equivalent of investing in an energy-saving upgrade. So if your IRR is 10%, the alternate use of your capital would have to return better than 10% to be financially competitive. Or you may want to set a “hurdle rate” for your energy saving investment and then use IRR to see if the upgrades you are considering can clear that hurdle.
Return on Investment:
Essentially, your net gain from your investment in improving your energy efficiency. Again, this can be compared to your potential ROI from other uses of your capital.
Simple Payback:
The number of years it will take to earn back the capital invested in your upgrade.
The Calculators
There are three variations of our financial return calculator:
Version 1 – Use this version if you know (or can estimate) the annual dollar savings from your energy upgrades and you know the dollar cost of the upgrade.
Version 2 – Use this version if you know the efficiency gain that will result from your energy upgrade, the annual fuel cost before upgrading, and the cost of the upgrade.
Version 3– Use this version if savings will vary year-to-year or if you want to escalate savings over time to reflect rising gas and electricity prices.
Increase in building value calculator
The increase in cash flow created by energy savings can have a direct impact on the value of your building. This calculator shows you what an energy retrofit can add to the value of your building based on the increase in net operating income and the cap rate.
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