How do you figure payback?

Tony Conner_2

... will cost $10,000, material & labour. If you can save $10,000 in the first year on fuel, that's a one year payback. If you save $5,000 a year, that'll be a two year payback, and so on. Things can change on you, though. If fuel prices suddenly rise, paybacks can show up much faster. If they plunge, what originally looked like a two year payback can suddenly stretch out to much more.

For most businesses, a 3 year payback is the longest they'll consider. In practice, even that is stretching it.

Unknown

How do you figure payback?

The High Efficiency Payback thread got me thinking. How are you figuring payback?

I tend to look at the price difference between two systems. For example the 83% vs. the 95% system. How long will that cost difference take to payback?

Unknown

I understand that line of thinking. But what if you have to install a boiler because the old one is shot. Does anyone aproach the customer with the new std 83% will cost 8,000.00 the new 95% will cost 10,000. Then look at the payback on the price difference?

Robert O'Brien

I don't know

"For most businesses, a 3 year payback is the longest they'll consider. In practice, even that is stretching it."
But to me a 33.3 % tax free ROI looks pretty good compared to the .5% in a money market!

Unknown

You could look at it that way if both replacement boilers had the same life span. But what if the 83% boiler lasts 30 years and the 95% boiler lasts only ten?

Robert O'Brien

Yes

but the 95% boiler modulates and has ODR, so the savings is way beyond the 12% AFUE difference

Unknown

then look at

Then the fuel savings over 30 years will more than pay for the 95% upgrade even if you look at including the repalcement 95%.

I think in that case you should be looking at how much more the 80% will be costing you in its 30yrs life.

Your savings compounds as the price of fuel goes up.

Tony Conner_2

There's...

... a number of factors financial people consider. I'm not a financial guy, so the term "simple payback" was used for the time frames for people outside of the accounting depts. Some years there's loads of capital money for longer paybacks, some years anything over 6 months or a year won't see any money. But the one constant has always been, if it won't pay back in 3 years or less, you're wasting your time pitching it to the money people.

Unknown

True, but you also have to balance the future replacement cost against the fuel savings. Lets say for example that you really achieve an actual 30% fuel savings per year with the 95% boiler. Assuming a base fuel cost of $2000 per year, you would save $600 per year with the modcon. Also assume fuel cost doubles over the course of 10 years, so over those 10 years you would have saved an average of $9000. You spent an extra $2000 for the 95%, so your net savings is $7000.

Unfortunately at the end of the ten year period, the modcon is now shot and needs replacement, while the 83% boiler is still humming along. Even if the cost of replacement stayed constant (which it won't) you are now paying an extra $10000 for another boiler which more than cancelled out your savings and left you $3000 worse off.

My poinnt in all this is that unless the design life of modern high efficiency boilers is increased, the assumed savings will be more than eaten up by premature replacement costs.

Perry_5

That's only true if you have the money in hand...

The equations change substantially if you have to borrow the money. Then the cost of financing has to also be considered.

Perry

Unknown

replacement.

is it gonna cost you $10,000 to replace the same exact mod/con. I have three unions(gas, supply, return), flue and fresh air pipe, electic connection, condinsate line.

No system modification needed like the original convert.

How do you know that you are not gonna get 20+ years out of the Mod/Con? You don't.

Perry_5

What makes you think that..

What makes you think that you'll have available or even want the original mod/con in 10 years.

Now maybe the modification to the system is not a severe as the original conversion; but, my guess is that you will be modifying the systems again.

As far as projected cost. A simple replacement of a "low cost" standard CI boiler with minimal piping and a few Ft of flue vent is already substantially well on the way to that $10,000 quoted. Toss in an extra couple thousand for the new mod/con over the CI boiler and add in 10 years of inflation and I see it as a realistic number. I base that on the quotes I got in 2006 on my boiler replacement project - and you never saw easier access.

Perry

Unknown

fuel savings chart.(revision)

check this out. you can play withe the numbers, no one knows what gas is gonna do.

top chart savings with mod/con

bottom savings with 80%.

Unknown

if the inital cost of the two systems had a $3,000 diff. then the mod/con would pay diff. in 4 years based on chart posted.

Unknown

so why do u want ...

So why do you want to stick with the standard CI boiler after 30 yrs?

Unknown

so why do u want ...

So why do you want to stick with the standard CI boiler after 30 yrs?

Perry_5

I wouldn't - but...

I actually would like to see most buildings retrofitted with highly efficient mod/con boilers in the future.

But, I do recognize the concept of payback as an important starting point. Whatever you do most often does afterall have to make some realm of financial sense long term. It is part of what drives me to not say "all buildings" as there are some buildings where the heating system is not used enough - or there are other historic reasons - to leave well enough alone.

What I do object to is what appear to be lower quality relatively short lived mod/cons; and the concept I seem to pick up from some that any mod/con is the way to go.

To me it is very easy to justify a good mod/con and the appropriate reworking of the heating system to maximize efficiency if the mod/con has an expected life of 15 - 20 years. Short of that and I think you have some difficulties: both on the payback equations and on the resulting perception of these kinds of systems.

The title of the thread is primarily on payback, and my previous answers were focused only on that. I would hope that people could see beyond that a bit.

There is a non-financial benifit to reducing energy usage beyond the concept of payback. How much are most people willing to accept?

There is also the "green" concept on total resource utilization. It takes far less resources to manufacture and install a quality system up front than it takes to keep producing replacements and junking short lived items. Again, I would hope that most people would be willing to pay more than just payback on that.

I actually think that a good portion of customers could be encouraged to install more expensive equipment beyond payback on the general societal benefits of reduction of energy usage and total resource usage.

Now will that be 5%, 25%, 50%, etc premium above payback. I don't know. But most people are in fact going to start with the concept of payback even if they don't have it all defined exactly.

But, to really make this work long term is all contingent on the equipment lasting long term as well. Otherwise, people will revolt. It is easy to demonstrate the value of equipment that last a long time (even at its higher cost). Then the arguments for societal and green overall consumption effects can be applied to the emotional side.


Perry

Unknown

How do you figure payback?

“How do you figure payback?” is the topic. So how do you figure it on your end?

My point is to have an open minded discussion on different ways you can approach how you figure payback.
It is one thing to figure payback when you have to replace a boiler that is inop. vs. trying to justify the replacement of an existing boiler just to upgrade.

Just trying to see the different approaches contractors use to sell and/or justify cost of upgrades.

Darrell_7

No savings at all unless the entire system is designed to support full modulation and condensing. To simply wedge a very high efficiency boiler in where a less efficient boiler used to be will not realize the savings that are often used to peddle the thing to an uninformed customer.

And, why is it so wrong to consider the expected life span of the equipment? Why is it so wrong to factor that into the real cost of any system?

Darrell_7

There is also the factor that a simpler system is going to be paid for with my own money. Whereas, in many cases the more comlex, and ostensibly more efficient, system will be paid for, at least in part, by somebodies else's money.

bob_46

Figures lie and liars figure

Designing and installing systems is a lot easier than this payback scenario stuff is. If you buy a new house you are paying principal and interest on the original boiler for??? 30 years? If mod/cons last 10 years?? you are paying for the third boiler while your still paying for the first one. Of course in the U.S. the average house changes hands every 7 years. What if instead of one 100K mod/con you buy 2 50K cast iron and lead lag them? Do they last 60+ years? I think we should have a Wall Street investment banker/economist figure this out for us. They get Nobel prizes pipefitters don't.

Steve Garson_2

I'm a finance guy and as much as I love the idea of a 90%+ boiler, if it's estimated to last ten years, I would go with an 82% cast iron boiler. Now if energy prices go sky high, I might feel differently.