The State of California, along with the other US states, offers rebates on the purchase of energy efficient household appliances, including refrigerators. The payback period for these green refrigerators is the amount of time it takes before a homeowner covers the expenses of their new refrigerator and starts gaining money.

A green refrigerator is sold at a retail store, such as Best Buy or Sears. The customer receives a rebate that the merchant turns in to the state government agency in charge of the environmental rebate program, so there is a deduction included in the purchase price. The customer also pays money to transport the new refrigerator home and have it installed.

So you add up the initial costs:

Refrigerator $1000

State Rebate ($200)

Installation $50

So the total purchase and installation cost is $850.

Next, add the operations expenses and energy savings each year. An Energy Star qualified refrigerator reduces energy consumption by at least twenty percent. Because of the additional cost for powering other appliances in the house, the savings from purchasing an Energy Star refrigerator may be a lot higher. Using the Energy Star Calculator and California’s average power rate, the site shows a cost reduction from $183 a year to $58 a year for a typical California refrigerator, an average annual savings of $125. Refrigerators don’t last forever, so the payback period includes the refrigerator’s depreciation cost. This requires estimating the refrigerator’s normal lifetime. Since we are buying a new 2010 refrigerator for $1000 sticker price, it’s a quality product, so we’ll use 20 years as the lifetime. Dividing $850 by 20 we get a straight line depreciation of $42.50.

Operation costs and savings:

Energy Savings $125

Depreciation ($42.50)

So the total savings each year is $82.50.

Dividing the initial refrigerator cost, $850, by the savings in energy bills, $82.50, provides the payback period, 10.3 years. The homeowner breaks even after 10.3 years, but the refrigerator usually lasts for 20 years. Multiplying the savings of $82.50 by the remaining lifespan, 9.7 years, gives the homeowner a total power bill reduction of $800.25 when buying a refrigerator through the California program. This calculation assumes energy costs remain the same, so if they increase each year, the refrigerator buyer will save more over time.