Use of simple payback hides risks of energy projects

//Use of simple payback hides risks of energy projects

Use of simple payback hides risks of energy projects

Simple payback is a misleading financial ratio.

Conventional wisdom says that short payback is a sign of a better project. Wrong.

Getting your money back is not a goal of an investment.  The goal of investment is to make invested money make more money with minimum risk.

Simple payback does not even consider risk of not getting money back, forget making more money for the years to come.

The only guaranteed way to never lose your money is to not invest it all (put inflation aside for a moment). This is not how business works, right?

Seek to minimize risk, not to shorten promised return.

How to reduce risks of investment into energy efficiency project?

  1. Use proven technologies.
  2. Hire reputable vendors.
  3. Contract M&V to consultants independent from vendors.
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