1. Keep power and energy separate
Power is a rate; energy accumulates over time. A constant 2 kW input running for 100 hours uses 200 kWh. A nameplate rating may not be the average operating input, so a measured or appropriate effective value is preferable when estimating consumption.
For equipment delivering mechanical or thermal output, identify whether the entered power is already input power. Applying an efficiency adjustment to an input rating again would count the conversion loss twice.
2. Compare the same useful service
Suppose a building needs an entered 12,000 kWh of useful heat annually. At 90% boiler efficiency, fuel input is 13,333.33 kWh. At a fictional fuel rate of $0.07 per input kWh, energy costs about $933.33.
A heat pump with an entered seasonal COP of 3 uses 4,000 kWh of electricity for the same useful heat. At a fictional $0.20/kWh, energy costs $800, a $133.33 difference before fixed and other costs. COP is useful heat divided by electrical input, not a percentage boiler efficiency.
3. Test the tariff and operating assumptions
At $0.25/kWh electricity, the same heat-pump case costs $1,000 and exceeds the example boiler energy cost. The engineering relationship did not change; the entered tariff changed the financial result.
Include applicable fixed charges, billable demand, peak/off-peak energy shares and taxes only as the model defines them. Do not assume a fixed connection charge disappears when a piece of equipment uses less energy.
4. Separate gross saving from net saving
An energy reduction valued at a tariff is a gross operating saving. Added maintenance, subscriptions, consumables or fixed charges may reduce it. Compare rounded plan totals on a common annual basis.
A constant-price scenario excludes fuel-price changes, degradation, weather variability, service interruptions and changing operating hours unless you explicitly model them. A catalogue efficiency value may not describe seasonal performance at your site.
5. Read simple payback within its limits
Simple payback is upfront incremental cost divided by positive annual net saving. No positive net saving means no finite positive simple payback under those assumptions. Upfront cost and savings must describe the same proposed change.
Payback excludes the time value of money and benefits or costs after the recovery point. Use a discounted cash-flow model when timing, financing, replacements, residual value or different useful lives matter. A calculated payback is not a guaranteed saving or investment recommendation.
Use the calculators
- Equipment Electricity Cost
- Heat Pump vs Boiler Cost
- Motor Efficiency Savings
- Savings Project Simple Payback
- Time-of-Use Electricity Cost
More energy & utilities calculators · Methods, sources and testing