To make a smart financial decision about your cooling infrastructure, calculating the Return on Investment (ROI) for a new industrial chiller is crucial. A new, energy-efficient chiller isn’t just an expense; it’s a strategic investment that can significantly reduce operational costs and improve a company’s bottom line over its lifespan. For businesses in South Africa, where energy and water costs are rising and reliability is key, this calculation is more important than ever.
Here’s a comprehensive guide on how to calculate the ROI when investing in a new industrial chiller, ensuring you have all the data you need to make a well-informed decision.
What is ROI and Why It Matters for a Chiller Investment?
ROI, or Return on Investment, is a performance measure used to evaluate the efficiency of an investment. It’s calculated by dividing the net profit from the investment by its total cost. The result is typically expressed as a percentage or a ratio.
The formula is:
ROI=(InvestmentCostNetProfit)∗100
For a new industrial chiller, the “Net Profit” isn’t just revenue; it’s the total financial return from the new unit, primarily from operational savings and increased productivity. A positive ROI indicates the investment is profitable, while a negative ROI suggests it’s not.
7 Key Components to Factor into Your ROI Calculation
To get an accurate ROI, you must consider all the costs and all the potential returns.
Total Investment Cost (Initial Outlay)
This is the “Investment Cost” part of the formula. It’s more than just the purchase price.
- Chiller Purchase Price: The cost of the new unit itself.
- Installation and Commissioning: Labor, piping, electrical work, and startup services.
- Ancillary Equipment: Costs for new pumps, valves, cooling towers (if applicable), or water treatment systems.
- Training: The cost to train your staff on the new system’s operation and maintenance.
- Decommissioning: The cost of safely removing and disposing of the old chiller, especially if it contains phased-out refrigerants like R22.
<hr>
Total Financial Return (Annual Savings & Gains)
This is the “Net Profit” part, calculated on an annual basis. 6. Energy Savings: This is often the largest factor. A modern, high-efficiency chiller can use significantly less electricity than an older model. To calculate this: * Find the power consumption (in kW) of your old chiller and the new chiller. * Multiply the difference in power consumption by your operating hours per year. * Multiply that by your average industrial electricity tariff (e.g., R1.50 – R2.50 per kWh, depending on your municipality and tariff structure). 7. Water Savings: Crucial in South Africa. If you are replacing a water-cooled chiller with a new, air-cooled or closed-loop system, you will see substantial water savings. * Estimate the annual water consumption of the old system (e.g., from cooling tower evaporation and blowdown). * Multiply this by your industrial water tariff (e.g., R30 – R50 per kilolitre, or more depending on your usage tier). 8. Reduced Maintenance Costs: New chillers require less frequent and less intensive maintenance. You’ll save money on parts, labor, and emergency call-outs. 9. Decreased Downtime and Increased Productivity: Fewer breakdowns mean more uptime for your processes, preventing costly production halts and lost revenue. 10. Refrigerant Cost Avoidance: South Africa, as a signatory to the Montreal Protocol, has a phasedown plan for ozone-depleting refrigerants like R22. The cost and availability of these refrigerants are becoming a major issue. A new chiller using modern refrigerants eliminates this future financial and regulatory risk. 11. Tax Incentives & Rebates: Look for government or utility-run energy efficiency programs that may offer incentives or tax deductions for new, high-efficiency equipment. For example, Eskom’s Distribution Demand Management Programme (DDMP) may offer rebates for verified demand and energy savings.
A Step-by-Step Chiller ROI Calculation
- Determine Annual Savings: Sum up the annual savings from energy, water, maintenance, and reduced downtime.
- Total Annual Savings = Energy Savings + Water Savings + Maintenance Savings + Downtime Savings
- Calculate Net Present Value (NPV) of Savings: Since money in the future is worth less than money today, you may want to use a discount rate to account for inflation and the time value of money, especially for a long-term investment.
- Determine the Investment Cost: Sum up all the costs from the initial outlay section above.
- Calculate the Payback Period: This tells you how long it will take for your savings to equal your investment.
- Payback Period (Years) = Total Investment Cost / Total Annual Savings
- Calculate the ROI: Use the ROI formula. The “Net Profit” is the total savings over the chiller’s expected life (e.g., 15 years) minus the initial investment.
A Practical Example for an SA Business
Let’s assume a manufacturing plant in KwaZulu-Natal is replacing a 15-year-old, 100kW chiller with a new, high-efficiency 100kW chiller.
- Old Chiller: Consumes 100kW, operates 6,000 hours/year.
- New Chiller: Consumes 70kW, operates 6,000 hours/year.
- Initial Investment Cost: R850,000 (Purchase + Installation).
Calculating Annual Savings:
- Energy Savings:
- (100kW – 70kW) * 6,000 hrs/yr = 180,000 kWh/year saved.
- 180,000 kWh * R2.00/kWh (average industrial rate) = R360,000 in energy savings per year.
- Maintenance Savings:
- Assume a reduction of R30,000 per year on average (fewer repairs, parts).
- Total Annual Savings:
- R360,000 (Energy) + R30,000 (Maintenance) = R390,000 per year.
Calculating the ROI:
- Payback Period:
- R850,000 / R390,000 = ~2.18 years. The initial investment is recovered in just over two years.
- ROI over 15-year lifespan:
- Total Savings over 15 years: R390,000/yr * 15 yrs = R5,850,000.
- Net Profit: R5,850,000 – R850,000 = R5,000,000.
- ROI: (R5,000,000 / R850,000) * 100 = 588%.
Partnering with a Specialist
Accurate ROI calculations depend on precise data. A specialist industrial chiller provider like LiquiChiller can provide the necessary technical data on modern, energy-efficient units. We can assist you in conducting a comprehensive energy audit to determine your current consumption and project future savings, ensuring your financial forecast is as accurate as possible.
