Debt interest cash flow in Simple Payback Period

In a residential PV system model I checked the cash flows in the Payback Period Calculation in the Send to Excel with Equations spreadsheet. The cash flows in the Payback Period Calculation do not inlcude either Debt interest payment or the value of tax deductions on the debt interest. This doesn't appear to agree with "A Manual for the Economic Evaluation of Energy Efficiency and Renewable Energy Technologies", NREL/TP-462-5173, which states that SPB includes "nondiscounted incremental investment costs (including incremental finance charges)".
The formulae in the spreadsheet are a little complicated because of the use of subtotals, but the debt interest payment and the tax savings are both included twice in the total, once as a + cash flow and once as a - cash flow, cancelling them out of the total.

Dear Tom,

Your observation that SAM takes debt out of the payback period calculation is correct.

That is based on our interpretation of the description in the manual, which says that that simple payback a) does not take into account the time value of money (p. 57) and, b) is not suitable for evaluating the impact of debt and taxes on a project's feasibility (p. 56). Specifically, on p. 56, it says: "SPB is not recommended when evaluating alternatives involving financing and tax features because their inclusion complicates the analysis and looses (sic) the advantages of simplicity."

The definition you quote for incremental investment cost is a unclear because "including incremental finance charges" does seem to imply that it includes initial investment costs related to debt, but the definition of incremental net annual costs does not specifically mention debt payments or interest.

In any case, the payback period as SAM calculates it should be considered a rough metric of a project's feasibility. The other metrics (NPV, LCOE, monthly savings) are probably better metrics to use for evaluating the project.

Best regards,
Paul.

Thanks for your interpretation. I noticed the ambiguity in the description. I'll let the customer decide which way they want it calculated. One customer wanted to see the effect of borrowing.