Back

News

Keep up to date with news and events from the hot water industry.

Weekly column by EUA's Chief Executive Mike Foster

Monday 16th November 2015

What seems like an age ago, I was a lecturer in accountancy and finance – please don’t stop reading at this point – and one of my favourite topics was capital investment appraisal. Before teaching it, I had also done it for real in the car industry, so I could equip my students with practical examples of the techniques involved. So I’d start them on the journey of payback, introduce Net Present Value and Internal Rates of Return. At more advanced levels we would incorporate sensitivity analysis and risk; the impact of taxation and the management of cash flow. The economist in me would wax lyrical about opportunity costs. So what you ask?

Well, in the debate about future energy policy appreciation of these techniques is useful but so is understanding that for the most part training is limited to those with accountancy qualifications. The average homeowner is unlikely to benefit from this training. Yet, it is this group that will face the decision about future investments in their homes – be it for energy efficiency or sustainability reasons.

 

Looking just at insulation, as an energy efficiency measure, throws up some interesting figures. Based on data from the Energy Savings Trust, upgrading from no loft insulation to 270mm on a semi-detached house will save £140 a year for an initial outlay of £300. Just over a 2 year payback is a no brainer really – it would pass most objective investment decisions. Upgrading from 120mm to 270mm, saving £15 a year for an outlay of £250, payback 17 years, would probably not. Cavity wall insulation for the same property, saving £160 for an outlay of £475 seems a good decision, but external solid wall (using mid-range cost estimates) saves £260 for an outlay of £11,500 – payback of 44 years. If this was your business would you invest?

 

And that is the test the industry must apply. We can exhort consumers to save energy but the economically rational person takes one look at the numbers and says no thanks. Until products pass the same tests their manufacturers or sellers apply to their own cash, then they won’t succeed. The much loved novel “To Kill a Mockingbird” encourages us to see things from the view point of others, it is a lesson some in our industry should take heed of.

 

Best wishes, 

 

Mike Foster CE

Driving to improve standards within the domestic hot water industry