Building Control

[d49xc]

A simple payback calculation is indeed at current prices.
Once you get into proper discounted cash flow project analysis you do indeed take account of the cost of the capital upfront and the likely revenues going forward for a conventional project (savings in this case) at each year.
For a conventional project there would be a decommissioning end phase to be costed in and maybe a mid way maintenance/upgrade to be done.
This DCF calc ends up arriving at a sum called a net present value, Basically what is your future project and income streams from it worth to you in today's money terms. If positive then the project is worth doing and if negative then not. As ever in such calcs the rate of discount chosen (interest rate basically) can heavily affect the viability of the project.
Alternatively the analysis can be done where the discount rate is adjusted up and down until the net pres' value becomes zero with the resulting "interest rate" being internal rate of return for the project.
As I recall from doing these the likely cost of any mid way maintenance/repairs/essential upgrade/unavailability of essential spare part was a significant potential project killer.

General rule of thumb if the project is worth doing on a simple payback then it will be even better under DCF, however some projects which fail the payback may still be viable under a proper full DCF calc.

 

[Flyfisher]

It can be a tricky calculation, or probably more accurately, 'judgement'. For example, if someone is near retirement and their income is likely to drop, it might be worthwhile to make the capital investment while income is relatively high in return for fuel savings later when income is relatively low and fuel costs are likely to be increasing faster than general inflation. In such circumstances, payback period may be less important than reduced energy costs.