# Equivalent energy price: Is it cheaper to save energy than to buy it?

Calculating the equivalent energy price is descriptive and well suited for evaluating the cost effectiveness of long-term measures on buildings. It compares whether it is more inexpensive to generate one kilowatt hour through using oil, gas, wood, district heat, or other energy sources or to save it through modernisation measures on the building.

The determination of the equivalent energy price, i.e. the “costs for one saved kilowatt hour of delivered energy”, is based on the equivalent annual cost method. Eval-uation of the efficiency takes place by comparing the costs per consumed kilowatt hour of delivered energy to the costs per saved kilowatt hour of delivered energy. If these costs are lower, the measure is advantageous. The amount of the costs per saved kilowatt hour of delivered energy can also be interpreted as a limit for the amount of the energy costs. If the energy costs reach this level, the planned measures are cost efficient (break-even energy price).

It is possible and useful to use average energy costs for the period under consideration or future expected price levels as an evaluation standard in addition to the cur-rent costs for the consumed kilowatt hour of delivered energy. These may be varied according to individual estimates without requiring new calculations.
The "costs of the saved kilowatt hour" are not useful in the case of a change of energy source (e.g., from oil to pellets) and is only suitable to a limited extent for comparing alternatives from an optimisation point of view. In these cases, it is therefore better to calculate the net present value or the annuity.

Calculating the costs per saved kilowatt hour of delivered energy

• Step 1 – Determining the savings of delivered energy:
The determination of the energy savings is independent on the chosen method of efficiency calculation. Different calculation methods are described under the menu item Energy savings. The result is a value in kilowatt hours per year (kWh/a).
• Step 2 – Determining the investment costs for the measure(s):
The determination of the modernisation costs is independent on the chosen method of efficiency calculation. Different procedures are described under the menu item Modernisation costs. Cost functions for frequent measures are summarised under the menu item Examples of modernisation. One must differentiate between the full costs and the energy-related additional costs of a measure.
• Step 3 – Determining the annual investment costs:
In order to be able to compare the costs of the energy modernisation with the annual energy savings, it is necessary to calculate the annual costs. The costs per year are determined under the assumption that the measures are financed through a loan. The duration of the loan either corresponds to the lifetime of the measure or to a general recommendation/specification. Often the timespan is assumed at 20-30 years. The assumed or actual financing conditions are expressed through an interest rate in %.
The annuity factor can be determined from the interest rate and duration or from the Annuity factors table (in german only). If the construction costs are multiplied by this factor, the annual costs throughout the duration are given in €/a. In doing so, follow-up costs for maintenance and repair must be taken into consideration. The calculation follows this formula:
Total annual costs of the measure (€/a) = investment costs (€) * annuity factor (1/a) + follow-up costs (€/a)
• Step 4 – Determining the costs of one saved kilowatt hour of delivered energy:
The costs for the saving of one kilowatt hour of delivered energy are sometimes also referred to as the equivalent energy price and are calculated as follows:
Equivalent energy price (€/kWh) = total annual costs of the measure (€/a) / annual savings of delivered energy (kWh/a)
If the measure is performed as part of a maintenance measure ("coupling principle"), then the total costs are limited to those costs saved through the energy improvement.
The costs of one saved kilowatt hour of delivered energy are given in €/kWh. Conversion to cents per (saved) kilowatt hour of delivered energy facilitates the comparison to common energy price specifications. Additionally, the "costs for one saved kilowatt hour of delivered energy" indicate at what price for delivered energy a meas-ure can be regarded as economically efficient.
• Step 5 – Selecting the comparative figure:
The current or future financial effort for the provision of one kilowatt hour of delivered energy is used as the comparative figure. It may be estimated or calculated. For grid-bound energy (e.g., gas, district heat), the kilowatt-hour-rate and the (basic-) kilowatt-rate have to be considered. The average future price for one kilowatt hour of delivered energy can be calculated from the current energy price and a so-called mean value factor. This can be determined using the interest rate, duration, and future energy price increase or from the Mean value factors table (in german only). The result is a comparative figure in cents / (consumed) kilowatt hour of delivered energy.
Average energy price (€/kWh) = current energy price (€/kWh) x mean value factor
The average future energy price can also be determined without calculation and according to estimates of the building owners.
• Step 6 – Comparison and evaluation:
The financial expense for the saved kilowatt hour can be compared to the price of the used (consumed) kilowatt hour of delivered energy. If the costs for the saved delivered energy are lower than the expected costs for the consumption of delivered energy during the period under consideration, then the modernisation is economically efficient. Furthermore, the "costs for one saved kilowatt hour of delivered energy" indicate at what price for delivered energy a measure can be regarded as economically efficient.