Rates of return are used to measure the investment performance of most assets, includingstocks, bonds, and mutual funds, as well as the cost of borrowing money. The exception isinvestment in energy efficiency proposals, where simple payback is too often used to supportrecommendations that involve thousands or even millions of dollars. In any competition forcapital investment funding, proposals that rely on simple payback measures may be at adisadvantage because their performance is not measured by the same yardstick used for otherinvestment opportunities. Think of it this way: Who evaluates a mutual fund’s performance byits simple payback?Part 1 of this discussion presents a realistic energy improvement proposal. We discuss itsinvestment performance in general terms. Part 2 offers a series of technical explanatory notes tosupport the Part 1 discussion. Overall, we seek clarity on a few points. What’s wrong withsimple payback? And if rates of return are a better tool, can that be proven? What’s thedifference between economic and financial performance, and how are these demonstrated for anenergy efficiency investment? What exactly are the financial consequences of ignoring energyimprovements? The findings from these questions should assist anyone who attempts todemonstrate the investment value of energy improvements, therefore convincing more businessleaders to accept energy solutions of all description.
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