An energy investment's **Simple Payback Period** is the amount of time it will take to recover the initial investment in energy savings, dividing initial installed cost by the annual energy cost savings. For example, an "energy-saving" measure that costs $5,000 and saves $2,500 per year has a Simple Payback of $5000 divided by $2500 or 2 years.

Simple Payback | = | Cost | $5,000 | = | 2 years | |

------------ | ------------ | |||||

Savings | $2,500/year |

While Simple Payback is easy to compute, its weakness is that it ** fails** to factor in: the

**time value of money**,

**inflation**,

**project lifetime**or

**operation**, and

**maintenance costs**. To take these factors into account, a more detailed Lifecycle Cost Analysis must be performed. Simple Payback is useful for making "ballpark" estimates of how long it will take to "recoup" an initial investment.