Simple payback is capital cost divided by annual savings. The formula is trivial. Everything interesting is in the two inputs, and most retrofit proposals get the second one wrong.
We work a complete example below on published Indian prices, then list the four items a simple payback leaves out.
Step 1: define the duty, not the plant
Take one load. A plant-wide number cannot be verified and cannot be approved.
For this example: a hot water duty of 500 kW, running 6,000 hours a year, at an output temperature of 70°C. Heat is supplied today by a gas-fired boiler.
Annual useful heat is 500 kW multiplied by 6,000 hours, which is 3,000,000 kilowatt-hours of heat.
Step 2: price the heat you buy today
A gas boiler runs at about 85% efficiency. PNG for industrial users in Gujarat was ₹68 per standard cubic metre in June 2026. Gross calorific value is near 9,500 kcal per standard cubic metre.
Convert. One kilowatt-hour is 860 kcal. A standard cubic metre delivers 9,500 kcal gross, and 8,075 kcal after the 85% boiler efficiency. That is about 9.39 useful kilowatt-hours per standard cubic metre.
So delivered heat costs ₹68 divided by 9.39, which is about ₹7.24 per useful kilowatt-hour.
Annual fuel cost for the duty is 3,000,000 multiplied by ₹7.24, which is about ₹217 lakh. The fuel-by-fuel comparison behind this step is set out at heat pump against a boiler.
Step 3: price the same heat on a heat pump
The duty is 70°C output from a warm source, so a COP near 3.5 is a reasonable working figure. Confirm it with the supplier at your actual source and output temperatures before you build a case on it.
Electrical input is 3,000,000 divided by 3.5, which is about 857,000 units.
On the Maharashtra HT-I energy charge of ₹8.44 a kVAh for FY2026-27, that is about ₹72 lakh.
Add the demand charge. Maharashtra HT-I is ₹650 per kVA a month. A 500 kW thermal duty at COP 3.5 draws about 143 kW, so roughly 160 kVA at a 0.9 power factor. That is about ₹12.5 lakh a year.
Total running cost is about ₹85 lakh, against ₹217 lakh on gas. The annual saving is about ₹132 lakh.
Step 4: divide
Simple payback is capital cost divided by ₹132 lakh. If the installed project costs ₹2 crore, payback is about 18 months. If it costs ₹4 crore, payback is about three years.
Capital cost is the input we have deliberately left open, because it moves with capacity, output temperature, heat source and tie-in scope. Ask for it as an installed figure and not as a machine price.
The four things simple payback leaves out#
The sanctioned load increase. Moving heat from fuel to electricity raises connected load. In Maharashtra, an HT application fee is ₹2,660, and a service connection at 11 kV to 1,000 kVA is ₹2,38,110 overhead. A metering cubicle with CT and PT at 11 kV is ₹91,500.
The security deposit. Maharashtra sets security at twice the average billing cycle and recalculates it annually. A heat pump that adds ₹6 lakh to the monthly bill triggers roughly ₹12 lakh of additional deposit. Gujarat is harsher, computing the deposit as if it were a new service for the entire load.
Accelerated depreciation. The Income Tax rules allow 40% first-year depreciation on qualifying energy saving equipment, and heat pumps are named in Appendix I, item 8(ix). That pulls the cash benefit forward and is the one omission that works in the project's favour.
Power factor. Maharashtra bills HT-I per kVAh and not per kWh. A large compressor pulls the power factor down, so an APFC panel sized alongside the machine can pay for part of the installation.
What the hurdle rate should be
Indian buyers commonly state a preference for one to three years. A World Bank study across 224 Indian small and medium units found realised payback averaging 44 months.
Treat the stated preference as a screening filter and not as a hurdle rate. A project at 30 months is normal for this class of equipment.
Before accepting a supplier's saving figure, check it by the method Tetra Heat Pump's case studies apply to its own four projects.
Where the calculation breaks
The whole result turns on the COP, and the COP turns on the output temperature. At a 60 to 70°C duty, the numbers above hold. At 120°C, measured Indian performance runs nearer 2.0 to 2.26, and the saving falls with it. At COP 2.5 against today's gas price it is still around 53%.
One case reverses. Against delivered coal at ₹6,000 a tonne, heat costs about ₹1.94 a useful kilowatt hour, which a heat pump does not beat on grid power. A coal plant switches for compliance, air quality, labour and customer audit reasons. A payback model claiming a fuel saving there will not survive review.
Running it on your own numbers
Four inputs drive everything above: load in kilowatts, running hours, fuel price and electricity tariff. A calculator that takes those four and returns the saving is at tetraheat.com.
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