Calculating Costs and Savings


Knowing how much it costs to operate a product is the first step to understanding what the potential for savings is. The annual cost of operating any electric item (whether it=s a light bulb, refrigerator, etc.) can be calculated as follows:

((((Daily Hours x 365) x Watts) / 1000) x Rate per kWh) = Annual Electricity Cost

Divide by 1000 because electric rates are set per kilowatt hour, which is to say per thousand watt hours. The national average rate per kWh is $0.08 in the United States.

Annual Savings

While it is interesting to know how much energy it takes to run an item, energy efficiency is about savings. To calculate savings, the most obvious method is to subtract the annual electricity cost of the new product from the annual electricity cost of the existing product. However, a quicker way is to insert the wattage difference between the two products in the “Watts” part of the formula below.

((((Daily Hours x 365) x Watts Saved) / 1000) x Rate per kWh) = Annual Electricity Savings

For example, A75" would be used if a 100 watt incandescent bulb is to be replaced by a 25 watt compact fluorescent. ((((6 x 365) x 75) / 1000) x $0.08) = $13.14 Annual Electricity Savings

Lifetime Savings

To calculate the savings over the expected lifetime of the new product (in the case of many compact fluorescent bulbs, 10,000 hours is often the rated lifetime), in place of ADaily Hours x 365" insert the rated life (in hours) of the product (e.g., 10,000).

((((Rated Lifetime) x Watts Saved) / 1000) x Rate per kWh) = Lifetime Electricity Savings

Example: ((((10,000 x 75) / 1000) x $0.08) = $60.00 Lifetime Electricity Savings


As energy efficient products tend to cost more than conventional technologies, a common question is how quickly the savings will cover the product=s purchase price. By calculating the payback, we can determine at what point this will occur through the realized electricity savings. The formula follows.

Cost of Energy Efficient Product / Annual Electricity Savings = Simple Payback

For example, is the energy efficient product costs $15.95, and the calculated Annual Electricity Savings is $13.14 (see above for formula), the simple payback is 1.2 years.

Simple payback does not take into account compounded savings, discount rates, or inflation rates, all of which play a role in calculating the precise payback over many years or decades.


The Federal Energy Management Program (FEMP) offers energy cost calculators on a number of items, including appliances and lighting technologies. http://www1.eere.energy.gov/femp/procurement/eep_eccalculators.html


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