It’s Payback Time, Or Is It?

There’s such a thing as asking the wrong questions. My grandfather would agree. When he returned home a few years back and told my grandmother that he’d bought a car, the only question that she asked was “what colour is it?” Given that he had spent hours researching and selecting the perfect car, this question frustrated him.

Anyone working in the sustainable industry will also have experienced their fair share of the ‘wrong questions.’ In particular, we all come up against the obsession with payback periods. If you introduce a new renewable energy or energy efficiency product, it’s likely that the first question you’ll face is: “how soon will my investment pay for itself?”

At first sight, asking the payback question seems sensible. If your organisation is going to fork out a significant amount of money, you want to see that money back… right?

Yes, of course, if the product in question is a financial investment, then you will consider its success in terms of its financial returns. If you buy shares, you want them to go up in value; if you open a bank account, you want to see interest on your savings. But it’s incredibly rare to see other products valued in terms of their payback.

To revisit the car example: most people spend hours researching the purchase of a new car, making a whole range of decisions about what size to buy; which make and model; petrol or diesel; engine size; interior – and yes, even the colour. They choose cars based on a whole host of qualities, like style, comfort and speed. But one question you’re unlikely to hear at the dealership is “at what point will I make a return on my investment?” The concept of calculating the point at which the savings from an engine with greater fuel efficiency will pay back the original cost of the car is somewhat alien to us.

If someone plants a vegetable garden, they are unlikely to calculate how many free vegetables they will have to eat before the initial investments of seeds, tools and fertiliser are paid back. Similarly, it’s unlikely that many will have asked, in the course of family planning decisions, about the time it will take to make back the £222,458 cost of bringing up a child in the UK.

The truth is that there are a whole host of reasons why you might want to install energy efficiency or renewable energy measures. To make a decision about whether to install solid wall insulation purely on the basis of payback periods is to completely miss a whole variety of other benefits that the measure may bring, including improved air tightness, fewer draughts, increased soundproofing, a more attractive finish, less condensation and mould and improved internal comfort for owners or tenants.

Incentives like the feed-in tariffs haven’t helped the cause. Yes, they have brought down the payback period of renewable energy technologies like solar PV, solar thermal and wind turbines. But in the midst of our manic recalculations of the payback periods of these renewable technologies every time the tariffs change, we’ve forgotten that organisations have been installing these technologies for decades to lower their impact on the environment, reduce their reliance on the national grid and protect themselves from inevitable energy price rises.

Renewable energy offers a sound financial investment opportunity. And advances in technology, like the introduction of solar PV-T will make this opportunity increasingly attractive. But just like the colour of the car, the payback period of any technology should be just one of many factors in your procurement decision.

Article Source: