What is Payback Period?

Payback Period is the length of time to recover the cost of an investment in a project. The calculation is used to determine whether to undertake the project, which could be an energy saving or energy efficiency related project. The longer the payback period the less attractive the project investment. In terms of energy saving, payback period measures the time to recover the cost of the investment from the save energy or reduction in energy bills.

Payback Period is an investment guideline tool with one downside. The calculation does not take into account the time value of money. For this aspect to be covered Net Present Value (NPV) is a more accurate investment comparison calculation.