Energy Project Financing : Resources and Strategies for Success

258 Energy Project Financing: Resources and Strategies for Success

lation in the attic of her home. The R-19 insulation costs $150 more to

install and will save approximately 400 kWh per year. If the planning

horizon is 20 years and electricity costs $0.08/kWh, is the additional in-

vestment attractive at MARR of 10%?

At $0.08/kWh, the annual savings are: 400 kWh * $0.08/kWh =

$32.00

Using present worth as the measure of worth:

PW = – 150 + 32*(P|A,10%,20)

PW = – 150 + 32*(8.5136) = – 150 + 272.44 = $122.44

Decision: PW≥0 ($122.44>0.0); therefore, the R-19 insulation is attractive.

Example 36

The homeowner from Example 35 can install R-30 insulation in the

attic of her home for $200 more than the R-19 insulation. The R-30 will

save approximately 250 kWh per year over the R-19 insulation. Is the ad-

ditional investment attractive?

Assuming the same MARR, electricity cost, and planning horizon, the

additional annual savings are: 250 kWh * $0.08/kWh = $20.00

Using present worth as the measure of worth:

PW = – 200 + 20*(P|A,10%,20)

PW = – 200 + 20*(8.5136) = – 200 + 170.27 = – $29.73

Decision: PW<0 (-$29.73<0.0); therefore, the R-30 insulation is not attrac-

tive.

Example 37

An economizer costs $20,000 and will last 10 years. It will generate

savings of $3,500 per year with maintenance costs of $500 per year. If

M1ARR is 10%, is the economizer an attractive investment.

Using present worth as the measure of worth: