Simply put, your payback period is calculated by dividing the initial cost of your energy-saving project by the project annual energy cost savings. For example, if your new, more efficient piece of equipment costs $5,000 and the projected annual savings is $1,250, then your payback period is going to equal four years.
At this point the project or improvement has paid for itself, and after that you’ll be effectively saving money with each passing year. So, the shorter you can make that payback period, the more valuable your energy efficiency improvement will be. Your next question might be, how can I shrink that payback period?