Energy Retrofits Will Have a Shorter Payback Period with Incentives

chkzhao
Nov 5
2 min read

Energy Retrofits example from a typical multi-residential building

Energy retrofits can significantly lower electricity and gas consumption — often by 30% or more.

In Canada, the financial case for energy efficiency is even stronger thanks to government incentives and utility rebate programs such as Enbridge Gas incentives, the 30% F

ederal Investment Tax Credit and the Independent Electricity System Operator (IESO) Save on Energy Retrofit Program.

These incentives help building owners offset a large portion of their upfront costs. As a result, projects that used to take 7–10 years to pay back can now achieve returns in under five years

Reducing Energy Costs with Incentives

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In this article, we will analyze how the payback period of an energy efficiency project improves when the incentives is considered.

Reducing Building Emissions While Saving Energy

To get an accurate calculation of how much a building retrofit can save, you need

professional energy consulting services. However, a simplified example can illustrate the impact of incentives, consider a 16-storey multi-residential building in Ontario with an area of about 270,000 ft²:

Annual energy consumption 2,000,000 kWh of electricity and 350,000 m³ of natural gas.
Average utility rates at $0.18 / kWh and $0.45 / m³ and total annual utility cost is approximately $517,500.
The company who owns the building is considering an energy retrofit that will achieve savings of 110,000 kWh of electricity and 90,000 m³ of natural gas per year, equivalent to about $60,000 in annual utility savings.
If the project costs $430,000 without incentives, the simple payback is 7.1 years.

However, once the Enbridge incentive and IESO Incentive are applied, the total project cost is reduced to $301,000, shortening the payback period to 4.9 years with an annual ROI of around 20 %.

Why Incentives Matter

Payback period = Investment Cost ÷ Annual Savings

When incentives lower the investment cost, the denominator (savings) stays the same—so the project pays back faster.

In this example, we assumed the energy retrofit was completed just before 2025, when new efficiency and emissions standards take effect. Based on energy savings alone, the simple payback of the project is about 7.1 years.

However, when we consider both avoided costs (like emission penalties or carbon-related fees) and available incentives, the financial outlook improves significantly.

Enbridge incentives reward upgrades that improve natural-gas efficiency (such as boilers, heating loops, or hydronic systems.
IESO Save on Energy Retrofit Program provides financial incentives for upgrading lighting, HVAC, and control systems, covering up to 50 % of eligible project costs.

When both are applied, the project’s annual ROI rises from 15.3% to 17.6%, and the payback period shortens to less than 5 years.

Comparing Long-Term Performance:

Scenario	1) No Retrofit (Yr)	2) After Retrofit (with incentives)	3) Saving (Yr)
Electricity Bills	$360,000	$340,200	$19,800
Natural Gas Bills	$157,500	$117,000	$40,500
Total Annual Cost	$517,500	$457,200	$60,300

Over a five-year period, this building would save roughly $300,000 and nearly $1.2 million in lifetime savings over a 20-year equipment cycle thanks to the combined effect of reduced energy use and available incentives.

After the payback point, the annual savings become pure profit that can be reinvested, used to cover loan payments, or allocated to other building improvement projects.