Our Long-Term, Life-Cycle Analysis:

Short-term investing:

For the short-term investor, the “payback” is 9 years with the subsidy. The return on investment is 14% with the subsidy. This is attractive compared to the City’s cost of borrowing at about 2%. This is how an investor in the stock market thinks.

Long-term investing:

The long-term investor thinks differently in terms of “Life-cycle.”

Consider our proposed net-zero energy design for example.

We can think of four accumulating “city bank accounts:” one for the capital cost, the subsidy, the utility cost savings, and the maintenance costs savings. Each “bank account” will receive “deposits” that grow with inflation and with “interest on interest” even after the “payback.”

The key assumptions are inflation at 1% p.a., the long-term cost of capital at 2% p.a., the reduced annual and replacement maintenances for indoor geothermal equipment. After 1 year, these accounts accumulate to -$170,000. After 9 years, the accounts reach a total of $0 indicating the “payback.” This is how a short-term investor thinks.

Here is how a long-term investor thinks. After 100 years, the utility savings reach $9.5 million, the maintenance $1.3 million, the subsidy $2.1 million, and the incremental capital -$3.5 million. Therefore, the life cycle value totals $9.4 million.

For a City with a sustainable, long-term view, the decision has a high life cycle value.

Conclusion

This net-zero energy is worthwhile both financially and environmentally for both the short-term and long-term investor..