Sticking with the age-old metric of simple payback often stops projects in their tracks.
Take the next step and provide a more complete view of the project’s value. Evaluating additional financial viability indicators can put a project back in the running.
While there are a number of financial indicators that can be used to sell energy projects, one of the most straightforward to explain is the savings to investment ratio (SIR). It represents the number of times you recover the initial investment over the full life of a project. This can be the key to demonstrating a project’s full financial value.
Unlike simple payback, the SIR considers all of the returns from the project over its lifetime and takes into account both the cost of capital invested and inflation—showing your customer a full picture of what they are getting for their financial commitment.
The formula is:
In the example below, $4,200 is invested in an energy project, but it generates $1,800 in savings each year of the project’s ten-year lifetime. After converting inputs to present value, this project delivers a SIR of 3.2. (While any project with a SIR over 1.0 is viable, the higher, the better.) In other words, over the project’s life, this customer will get back their money more than three times over.
|Cost & Incentives
Save on Energy Incentive
Net Project Cost
Annual Energy Savings
Total Annual Savings
Inflation Rate for Energy
4 per cent
10 per cent
Savings to Investment Ratio
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Incorporating incentives into your financial analysis can increase the project’s demonstrated financial value, and better the chances that your customer will make the upgrade. Third-party incentives will also lend credibility to your project proposal—so it pays to do your homework. Save on Energy has a variety of programs that increase the viability—the SIR—of the project you are pitching.