Hello. I am trying to calculate my break-even point on replacing my primary heat source from oil to air-source heat pumps. Let's assume my assumptions are correct, and I'm assuming I'm going to save about $1500 a year by switching from oil to heat pumps, and my upfront cost of installing the heat pumps is $7,500. (Keep in mind this $1500 savings includes the increase in my electric bill.). Obviously, the simplest way to look at break-even point would be to say that it will pay for itself in exactly five years. However, if you factor opportunity costs into the equation, the break-even point would be much different. For example, assuming a 7% rate of return on $7,500, that works out to $525 a year, so perhaps I should be subtracting that amount out from my yearly savings and re-run the numbers... i.e. annual REAL savings would be $975). If I use this number it would take about 7.7 years to break even. I guess another way to ask the question is this: Would you say any up front cost that saves less than 7% (of the upfront cost) per year is definitely not worth it because it would never pay for itself? Is there a savings percentage you might use to say it is worth it if you want a reasonable break-even period? Like It must be over X? Say 12% or something (because that really is a 5% savings rate per year)? Struggling to figure out if it is worth it.
Thank you!