EFFECT4buildings Financial calculation tool

Published on 18 November 2020

Finland

About this good practice

The Interreg project EFFECT4buildings has developed a toolbox of financial tools and instruments for implementing more energy efficiency measures in buildings. The target group is building managers.
The profitability of an energy efficiency investment is crucial and it requires comprehensive justification and clear calculations with easy understandable visual charts. The most common method for financial calculations of energy measures, also in energy audits, is the payback method. This method does not take aspects of technical lifetime and profitability demand in consideration. 2 financial calculation tools, has been developed, together with training material.
Planning a new energy efficiency investment benefits from estimating its life cycle costs. It can be done using cash flow analysis, by predicting all costs and benefits during the investment’s life cycle. For the investments with long life cycle, it is beneficial to use discounted cash flows, which called Net present value.
Alternative economic method is Internal rate of return. Internal rate of return is the discount rate, which makes investments net present value to 0. IRR is the very useful method for decision makers to estimate profitability of investment.
These methods are particularly suitable for choosing solutions that may have different initial investment costs, operating, maintenance and repair costs, and possibly different technical lifetime.
Calculation tools are available in Excel and web format.

Resources needed

Calculation tools are easy to use and don’t require special resources.

Evidence of success

Tools have been tested also by recalculations of proposed energy efficiency measures in energy audits. It shows that pay-back-time disregards the technical lifetime of the investment. Investments with longer lifetime will benefit from using the net present value method. In many cases using internal rate of return will make more measures profitable than using only pay-back-time would make.
It should be a new standard for presenting measures in energy audit reports in all countries.

Potential for learning or transfer

The tool has been developed with the aim to make them possible to adapt in all (European) countries. The potential for transferring best practise to other regions is supported by clear guidelines, templates and training materials.