Clear answer, explained.
Don’t rely on payback alone
Payback period shows how quickly an investment recovers its cost, but it doesn’t measure the value created over the rest of the project’s life. A project with a slightly longer payback may deliver substantially greater long-term financial returns. Learn why energy should be included in a company’s capital planning process when evaluating long-term investments.
Compare projects using the same financial framework
Commercial energy projects should be evaluated using the same criteria as equipment purchases, facility expansions and automation projects. Metrics such as IRR and NPV help decision-makers compare investment opportunities consistently and allocate capital where it creates the greatest long-term value. This approach is explored further in Energy Capital Planning: Why Your Next Capital Budget Should Include Energy.
Consider the complete business case
Financial decisions should also include lifecycle costs, electricity price assumptions, available incentives and long-term operating savings. These factors provide a more realistic picture of project performance than installation cost alone. For projects such as commercial solar, a detailed financial analysis should also consider available incentives and projected operating savings over the system’s lifecycle.
What this means in practice.
- Don't evaluate projects using payback period alone.
- Compare energy investments using IRR, NPV and lifecycle costs.
- Include incentives and long-term operating costs in the analysis.
- Evaluate energy projects using the same financial criteria as other capital investments.
Best-fit environments.
- Manufacturing facilities
- Food & beverage manufacturers
- Warehousing & distribution centres
- Cold storage facilities
- Industrial processing facilities
- Multi-site commercial portfolios
