FROM THE EDITOR
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Senior Editor Janelle Penny
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Christopher K. Ahoy President/CEO,
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Steven R. Colvin Senior Vice President of
Property Management, Boston Properties LP
Michael Delev General Property Manager, Hines
Steve Fugarazzo Manager, Facilities Engineering,
Rod Stevens Principal Consultant,
Eric A. Woodroof Founder,
As Energy Policy, Simple
Payback Is Simpleminded
The KISS saying – a.k.a. Keep It Simple, Stupid – has become widely known since its origin in the U.S. Navy as a design principle to make aircraft easily repairable under combat conditions. Like all rules of thumb, it has its limitations. Anything can be oversimplified,
and that seems to be the case with an amendment to H.R. 8, The North American Energy Security
and Infrastructure Act of 2015. The amendment would change the energy code development
process for buildings and limit the participation of the DOE.
Not only would the H.R. 1273 amendment limit economic considerations to simple payback
calculations, it would also limit these calculations to periods of three, five and seven years. The
Secretary of Energy would be prohibited from providing any technical assistance about any code
provision with a payback greater than 10 years.
As numerous articles in BUILDINGS have pointed out, simple payback is only one method –
and a narrow one at that – to evaluate the value of energy improvements. Energy consultant and
BUILDINGS contributor Eric Woodroof has noted that the simple payback calculation may not tell
the whole story, despite its frequent use as a means to seek approval from financial officers for
energy measures. Energy improvements can pay back for many years after implementation, even
throughout a building’s lifetime.
Last year, the Continental Automated Buildings Association (CABA) released a report
entitled Life Cycle Costing of Intelligent Buildings. The report explains that simple payback can
offer only a cursory view of initial costs and preliminary savings. The life of energy-saving
equipment may be much greater than 10 years, so savings accrue for long after. Initial costs and
projected savings do not account for equipment lifetime, maintenance costs or comfort factors.
Another shortcoming with simple payback is that it ignores the expense of doing nothing
– a factor that economists have repeatedly shown is more persuasive to most consumers than
the prospect of savings. If building owners look at how much money they will lose if they don’t
include an energy-saving measure, their actions may be the opposite of what they would do if
they think of the improvement in terms of simple payback alone.
Homebuilders support the amendment as a means of simplifying construction and limiting
costs for initial buyers. However, commercial building owners, even those with a very short-term
outlook, recognize that appraisers are increasingly using energy efficiency in the valuation
process and that less efficient buildings are less valuable. When we typically plan for a building
life expectancy of 60 years or more, it seems shortsighted to develop building energy codes with
a timeframe that accounts for just 15% of that lifetime. It is also wasteful to limit the DOE’s input
and its considerable expertise to evaluations of 10 years or less.
Chief Content Director