The Cost of Doing Nothing

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It’s commonly accepted that incorporating energy efficiency in your home or office will typically save energy and money. In most cases, you’ll be able to estimate the cost-savings you’ll realize by making improvements to your energy system.

What’s more difficult to gauge is the cost associated with doing nothing to improve your efficiency.

Until now.

Christopher Russell, a business analyst and consultant, studies energy management and its impact on energy performance. The basic idea is this: you can “do nothing” and pay for excess energy, or you can pay to avoid that waste. Either way, you will pay this out-of-pocket cost. It’s a matter of deciding which costs less on an annual basis.

Here are the basics:

To put this into perspective, let’s use a general example – let’s replace an inefficient variable speed drive.

The average price of energy (price per unit) is approximately $0.05801/kWh. The total upfront cost for a new drive is approximately $4,600 – which can be quantified as $0.01461/kWh annually (or the annualized cost to avoid purchasing a unit of energy less a standard 7% cost of capital expense). The new drive is estimated to save approximately 29,299 kWh every year (volume of avoidable energy + purchases).

Because there are no additional variables to this equipment that would affect O&M expenses (no additional heating required, no water needed, etc.), that quantity remains at zero.

{[$0.05801 / kWh – $0.01461 / kWh] X 29,299 kWh } + 0 = $1,274

Click here for a direct link to this and other financial analysis tools for your reference (No password is needed, simply hit cancel to access the calculators, if prompted).

Input all of those numbers into the equation, and the annual penalty for doing nothing is about $1,200.

While this equation may seem complicated, the result is fairly straightforward. And while there may be no “upfront” cost to improving your equipment’s efficiency, keeping an inefficient drive running will cost you – to the tune of $1,200 every year.

After a few years, that can get expensive.

Using this data, you get a better sense of the sticker shock that comes with the status quo. Whether it’s several hundred dollars over the short-term, or several thousand dollars over the long-term, any delay will incur its own costs. How much you want to spend – or save – is up to you.

So now that you’ve got the equation, does it make the decision to invest in energy efficiency easier? Or do the same hurdles exist?

Article by Tim Laughlin, appearing courtesy Xcel Energy Blog.

About Author

Walter’s contributions to CleanTechies over the past 4 years have been instrumental in growing the publications social media channels via his ongoing editorial and data driven strategies. He is the founder and managing director of Sunflower Tax, a renewable energy tax and finance consultancy based in San Diego, California. Active in the San Diego clean technology community, participating in events sponsored by CleanTech San Diego, EcoTopics, and Cleantech Open San Diego, Walter has also been a presenter at numerous California Center for Sustainability (CCSE) programs. He currently serves as an adjunct professor at the University of San Diego School of Law where he teaches a course on energy taxation and policy.