Terms and definitions

Annual Energy Savings

Annual sum of money savings generated by the investment, for instance costs saved for heating

Annual Revenues

Annual sum of money generated by the investment, for instance electricity sales

Capital Costs

The sum of the different type of costs related to the considered investment


The monetary value of an asset decreases over time due to use, wear and tear or obsolescence. This decrease is measured as depreciation

Discount Rate

Rate used to discount future cash flows in order to obtain their present value. The rate generally viewed as being the most appropriate is an organisation´s weighed cost of capital

Utilities normally use discount rates ranging from 3% to 18%, for public sector it is tenable to set this rate around the lower limit.

Discounted Payback Period

Based on the same rationale as Simple Payback Period; the difference is represented by the fact the net cash flows are discounted in order to account for the time value of money

IRR - Internal Rate Ratio

Rate of return used in capital budgeting to measure the profitability of investment. It represents the discount rate at which the NPV of an investments becomes zero.

In other words – it is the interest rate which will make the total of the future cash flows exactly equal to the original investment.

NPV - Net present Value

Discounted cash flow reflecting the time value of money.
It represents the sum of the present values of the individual cash flows of a project; its calculation depends on the selected discount rate as well as on the length of the calculation period.
The general rule for NPV is:

NPV > 0 – project favourable for investment

NPV < 0 – project not favourable for investment

Operational & Maintenance Costs

Annual operational costs including salaries, maintenance, fees, energy costs  etc.

Simple Payback Period

The time in years for a project cumulative annual savings to equal its upfront costs

Weighed Cost of Capital

A company's weighted average cost of capital is the average interest rate it must pay to finance its assets, growth and working capital. It is also the minimum average rate of return it must earn on its current assets to satisfy its shareholders or owners, its investors, and its creditors.