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High Efficiency Air Conditioning - Return On Investment (ROI)

February 6, 2020 | Blog

Your air conditioner is broken and can’t be fixed.  Money’s tight and your air conditioning company is trying to convince you to consider purchasing a high efficiency system that is well beyond your budget.  Can you afford it?  Is it worth it?  This article will show you how to evaluate the purchase of a high efficiency system as an investment rather than another household expense.

First, consider that a basic system is a required expense.  You have to have air conditioning so the purchase of a minimally efficient (14 SEER) system is a given.  Most people will consider the rating of the manufacturer, the expected life of the new system, and the reputation of the dealer in addition to the purchase price to make an informed decision.

The dealer has offered options to upgrade the base system to a high efficiency system (16-20 SEER) that may include two-stage or variable speed air conditioners and heating units.  These systems can add from $1,500 to $8,000 to the cost of a basic system.  These upgrades reduce energy bills and increase comfort.  How do you evaluate an additional expense in terms of return on your investment?

Consider the following.  Your present system is most probably 10 SEER meaning that a new system at 14 SEER will reduce the cost of air conditioning by 40%. Since air conditioning represents 60-65% of your electricity bill, you overall bill should be reduced by 24% (40% X 60% = 24%). This savings is a given and does not apply to the savings of upgrading the base system.

Your true investment is the additional cost to upgrade to a high efficiency system and the return on this investment is the savings above and beyond the cost savings associated with the move to a 14 SEER system.

Example:  ROI of upgrading a 5 ton Trane 14 SEER, vertical, electric, single stage cooling and heating system to a Trane Tru-Comfort 20 SEER, variable speed cooling and heating system.

Additional Upgrade Cost          $8,200
Annual Utility Cost Of Existing System  2,880
Annual Utility Savings Of 14 SEER Base     691
Additional Savings Of 20 SEER Upgrade     749
Total Upgrade Savings Over 18 Year Lifespan    13,482
Less Initial Investment                   (8,200)
Return on Investment                    5,280
Annual Return                       293
Annual % Of Return                         3.6%

In this example the Return On Investment exceeds the rate of most savings accounts and money market funds.

It is also wise to consider that most high efficiency systems will significantly reduce humidity in the home making it more comfortable and reducing potential allergens such as mold.  This is a hidden benefit that can potentially reduce household and medical expenses.  A high efficiency system will also add to the appraised value of your home.

Need a new system?  Southern Air Heating, Cooling & Plumbing can help.  Need a healthier, more comfortable life?  We can change the way you feel about your home. 


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