NPV and equivalent annual cost (EAC)
The engine always calculates two MAC figures: net present value (NPV) MAC and equivalent annual cost (EAC) MAC. The default display is EAC. Lowest-MAC first uses EAC so a short-life asset is not penalised.
Discount rules
The discount rate is a real rate. Costs stay in constant currency. Do not add a separate inflation layer.
The present year is the projection start year. Capital occurs in the action start year. Each later cash flow is discounted back to that present year.
Annual operating cost stops after the action end year. Capital remains a one-off in the start year. Cash flows after 2050 are truncated. This is a conservative assessment.
NPV MAC and EAC MAC
NPV MAC equals minus the final cumulative cash flow, divided by discounted lifetime abatement.
EAC converts that NPV cost into an equivalent yearly cost over the action life. EAC MAC then divides that yearly cost by average yearly discounted abatement.
Use EAC to compare a 5-year LED with a 25-year solar array. NPV MAC over a long horizon makes the short-life project look dearer per tonne.
Pathway greenhouse gas totals stay in physical tCO₂e. They are not discounted. Only the financial MAC discounts future abatement at the same real rate.
Example: short-life LED versus long-life solar
Change the real discount rate and the LED life. Solar life stays at 25 years. Watch NPV MAC and EAC MAC move.
Related: MAC curve and Pathway Solver.