A payback period refers to the amount of time it takes for the return on a specific investment to equal the initial amount invested. For example, if someone planning to purchase a new air-conditioning unit for their home is considering a 13 SEER* unit ($2,000) or a 15 SEER unit ($2,500), it’s important to understand that the 15 SEER unit is more efficient and will therefore cost less to operate over its lifetime. If that person chooses to buy the higher-efficiency 15 SEER unit, with a hypothetical savings of $250 in operating cost per year of ownership, the payback period for the 15 SEER unit would be 2 years. **

• 13 SEER unit = $2,000.00
• 15 SEER unit = $2,500.00
• Premium for efficiency = $500.00
• Operational savings per year = $250.00
• Payback period = 2 years

In terms of applying this example to a facility, consider the fact that any decision made in the early stages of a building’s design will have economic impacts on the overall “first cost” of the facility.

·        How many floors will our building have?

·        Will we use marble in the lobby?

·        Can we use fancy fixtures in the bathrooms?

But according to a Davis Langdon study, there was “…no significant difference in the construction costs for LEED-seeking versus non-LEED buildings…” In addition to this widely referenced report, other independent studies by the State of California and the GSA indicate that cost premiums are minimal with paybacks being immediate.

While payback periods will differ by facility, it’s important to note that first cost is only a small part of the total cost of building ownership. Cost-of-ownership studies agree that first cost only accounts for around 10 percent of all costs a building owner will spend over the life of the building. The other 90 percent comes in the form of operation and maintenance – two areas where LEED certification can save enormously. As mentioned in the example above, any additional costs for green building are generally recouped within one or two years on average, with cost savings thereafter that far outweigh traditional construction.

*SEER stands for Seasonal Energy Efficiency Ratio. The higher the number or SEER value, the more efficient the unit operates, therefore reducing the amount of energy used for air-conditioning.