ASHRAE LV-11-C067-2011 Life Cycle Cost Analysis Is it Worth the Effort .pdf

1、Aaron Buys, Michael Bendewald, and Kendra Tupper are consultants at Rocky Mountain Institute, Boulder, Colo. Life Cycle Cost Analysis: Is it Worth the Effort? Aaron Buys Michael Bendewald Kendra Tupper, PE Affiliate Member ASHRAE Affiliate Member ASHRAE Associate Member ASHRAE ABSTRACT Design teams

2、often consider life cycle cost analysis (LCCA) important for both new and retrofit building construction projects but rarely implement it, often because they perceive it to be “not worth the effort.” Is an LCCA worth the effort? This paper can help you answer this question for yourself. It is import

3、ant to know what the benefits are, and to be clear about what constitutes the effort. The paper demonstrates that, when used in place of a simple payback approach, an LCCA can lead to far more effective energy-efficiency recommendations. In addition, the paper provides an overview of how to do an LC

4、CA, including non-conventional LCCA steps called “establishing the baseline” and “bundling measures.” A simple payback underestimates the value of an energy-efficiency investment because it only accounts for annual energy cost savings and capital cost. It ignores other significant costs and benefits

5、 (rebates, maintenance savings, avoided immediate and future capital investments, etc.) as well as savings that accrue beyond the timeframe of the simple payback period. Because the inclusion of these additional cash flows can significantly alter the decision to include or exclude a particular measu

6、re, a simple payback metric is not ideal. In sharp contrast, a comprehensive LCCA gives decision-makers the full financial implications of various design decisions to make better decisions. The most time intensive part of an LCCA is gathering the data inputs. The paper explains how to collect this d

7、ata in the most efficient way. Also, the paper presents a case study of how RMI gathered this data for a small, retail building. The effort to collect data for this project is significant, but perhaps not as large as one would expect. INTRODUCTION Life cycle cost analysis (LCCA) is a financial tool

8、that uses discounted cash flows to evaluate a project given a set of constraints, which include time period and discount rate. LCCA takes into account all possible cash flows and generates financial metrics: net present value (NPV) and internal rate of return (IRR). In the context of building design

9、, the design team uses LCCA to evaluate energy efficiency measures (EEMs), conventionally only considering capital and energy costs, although other costs such as operation for more information see the “Trapelo Road” case study at www.10xe.org. The method of selecting measures using a bundle approach

10、 is not as obvious as the conventional approach of selecting all measures with an acceptable simple payback. One should start by determining the synergies between EEMs. Often, a few EEMs bundled together to reduce loads will affect the capital cost and energy savings of an HVAC measure. It is import

11、ant to capture such a synergy in at least one bundle, which could be called the “minimum energy use” bundle. After accounting for synergies, you may find a list of EEMs that have minimal impact on others. In this case, you can sort the measures by NPV from most positive to most negative; then, selec

12、t additional measures until the NPV of the bundle is near zero or otherwise acceptable. After making a preliminary bundle of measures, you should resize the mechanical systems, and re-evaluate the energy operating cost savings and capital cost of the bundle. This re-evaluation will not require as mu

13、ch as effort as was required to create the initial estimates, because you can combine measures with relative ease using parametric runs in energy modeling and revise the initial cost estimates without much added effort. Create two or three alternative bundles for evaluation. It is often useful to cr

14、eate packages that satisfy specific goals, 544 ASHRAE Transactionssuch as optimizing NPV or minimizing fossil fuel consumption. You can also consider non-quantitative benefits (see above) and carbon emissions reduction. It is important to not create many more than three bundles, as it is easy to ove

15、rwhelm the client with too many options. It is possible to create preliminary bundles that may include alternative daylighting schemes or HVAC systems, with the expectation that some of the schemes and systems could be mixed and matched by the client to create a new bundle. If such mixing and matchi

16、ng does occur, it is important to ensure that valuable synergies between measures are not lost. ADDITIONAL EFFORT OF LCCA Clearly, the life cycle cost analysis outlined above requires more effort than a simple payback calculation. However, the magnitude of this additional effort is not as large as o

17、ne would expect at first glance. The largest efforts required in the process are usually the energy modeling and capital-cost estimating both of which are often required for a simple payback anyway. Additional cost estimating of business-as-usual costs (the “baseline”) will require some additional r

18、esearch and consultation. The discounted cash flow analysis required by the LCCA to calculate financial metrics can be very time intensive if produced from scratch, but there are many software tools available that are built specifically for life cycle cost analysis that reduce this effort considerab

19、ly. Once the individual measure analysis is complete, bundle analysis is simple because the majority of the data has already been compiled. The additional resources required for LCCA will depend on the scope of the project being evaluated, but in general, the cost of professional design services is

20、very small relative to the life cycle costs of a building on the order of 0.2% of total cost of ownership, including personnel costs and assuming a design fee of 10% of construction costs (Public Technology, Inc. 1996). Considering all the added benefits of LCCA and bundling, the increase in buildin

21、g life cycle cost efficiency is well worth a small increase in design services. TAKING THE LCCA STEPS: FICTIONAL EXAMPLE The following is an example of how a simple payback metric can lead to a different, less financially sound answer than a comprehensive life cycle cost analysis. Consider the repla

22、cement in January 2011 of an old 500-ton centrifugal chiller that runs for the equivalent of 2000 full load hours per year. We will assume the following project requirements: Table 1. Project Requirements for Simple LCCA Category Value Timeframe 10 yearsDiscount Rate 8% Electricity Rate $0.12/kWh De

23、mand Charge $10/kW/mo (for 8 months out of the year) The key to establishing the baseline in this example is to estimate the remaining life of the chiller and account for the capital expense required to replace it at the end of its useful life. Suppose the chiller is estimated to have a remaining li

24、fe of 5 years, after which it will no longer function. In 2016, the baseline will need to include the cost of a replacement chiller, which we will assume to be ASHRAE Standard 90.1 compliant. Now that the baseline has been established, the measure must be defined. Table 2 lists the critical informat

25、ion: Table 2. Chiller Data Category Baseline Existing Chiller Baseline Replacement Chiller New Efficient Chiller Efficiency 0.65 kW/ton 0.577 kW/ton 0.50 kW/ton Year Service Starts 2011 2016 2011 Year Service Ends 2015 2020 2020 2011 ASHRAE 545Electricity Used (kWh/yr) 650,000 576,557 500,000 Demand

26、 (kW) 325 288.3 250 Electricity Cost ($/yr) $78,000.00 $69,186.88 $60,000.00 Demand Charge ($/yr) $26,000.00 $23,062.30 $20,000.00 Capital Cost n/a $230,000 (RS Means) $287,500 (25% premium) We will also assume that replacing the old chiller now with an efficient chiller will save $5,000/yr in maint

27、enance for the first 5 years. The savings end at year 6 because at that point the old chiller will be replaced. The LCCA yields the annual discounted cash flows, shown in Table 3. Table 3. Discounted Cash Flows Over Time 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Capital -$287,500 $0 $0 $0 $0

28、 $156,534 $0 $0 $0 $0 Electricity Savings $24,000 $22,222 $20,576 $19,052 $17,641 $8,336 $7,719 $7,147 $6,618 $6,128 Maintenance $5,000 $4,630 $4,287 $3,969 $3,675 $0 $0 $0 $0 $0 Sum -$258,500 $26,852 $24,863 $23,021 $21,316 $164,871 $7,719 $7,147 $6,618 $6,128 As one can see, the annual savings are

29、 large for the first five years and reduce significantly after the installation of the code-compliant chiller. Also, the discounted cost of this chiller can be clearly seen in 2016. Summing up the discounted cash flows results in a net present value of $30,034 (ROI of 10.8%). Now lets do the same an

30、alysis using a simple payback approach. We divide the capital cost of the efficient chiller ($287,500) by the reduction in annual energy cost ($104,000 $80,000 = $24,000) to get: Simple Payback null$nullnullnull,nullnullnull$nullnull,nullnullnull/nullnullnull12.0 years If the decision criterion for

31、this measure was simple payback period, the client would not accept it because the payback period is greater than the timeframe of the analysis. However, the more comprehensive LCCA shows that when all cash flows are accounted for, the project has a positive net present value and makes financial sen

32、se. We can see the fallacy of simple payback is that it considers only the initial capital of the replacement chiller and the annual energy savings, while it ignores the baseline condition of the current chiller, which will require replacement and additional maintenance. TAKING THE LCCA STEPS: REAL

33、PROJECT EXAMPLE This section provides an example of using the LCCA method described above in an actual project. The example illustrates how establishing the baseline and bundling measures can lead to far different results for manageable added effort. In 2009, an RMI-led team conducted a deep energy

34、efficiency retrofit of a 20,000 square-feet retail store in a hot and humid climate. Using the LCCA method we describe above, we found that the store could save 72% of its annual utility cost and surpass the clients hurdle rate of 20% IRR by 6%. If we had not established the baseline, the project IR

35、R would have been cut to 19%, forcing the removal of one or more cost-saving measures in order to meet the hurdle rate. And if we did not bundle the measures, the utility cost savings would have dropped to 55% equivalent to a staggering 60% increase in the clients utility bill. Were these benefits o

36、f establishing the baseline and bundling measures worth the effort? Establishing the baseline During the audit conducted at the outset of the project, we interviewed the building owner about planned renewal projects. As one may expect from the owner of a smaller commercial building, there were no pl

37、ans. Thus, during the audit, we made our own assessment of equipment and components that were nearing the end of their lifecycle, in need of repair, or simply not up to current codes. We later confirmed this assessment with the general contractor and the owner. We considered items for the baseline t

38、hat were directly linked to energy use as well as those that were not. We 546 ASHRAE Transactionsexamined everything from paint on the walls to the rooftop units. This is because we would later do integrative design, where EEMs can range from interior finishes to less-tonnage, super-efficient coolin

39、g units. We used our own collective professional experience as well as published sources to anticipate business-as-usual replacements, as shown in Table 4. Six out of the eight rooftop units (RTUs) were 78 years old and in poor condition. While RTUs can last up to 20 years, these were clearly not go

40、ing to last that long due to a growing frequency of breakdowns. In addition, one RTU was grossly undersized and responsible for an uncomfortable office space. If it were to be replaced with no changes to the load, the 5-ton RTU would need to be replaced with an 8-ton unit, therefore requiring additi

41、onal structural support. The built-up roofing was 40 years into its roughly 3050-year lifecycle and thus seemed ready for replacement. We also recommended smaller items such as a broken condensate removal system and a thermostat, despite their comparatively minor cost. The windows had roughly 10 yea

42、rs left in their lifecycle and would have been included in the baseline, but given the short, 10-year LCCA analytical period requested by the owner, they did not qualify. During a meeting to discuss possible efficiency measures, the owner and his general contractor (with whom he valued a trusting re

43、lationship) both confirmed our assessment that the RTUs were due for replacement, and that the one RTU would require additional structural support. They also confirmed the minor items. The general contractor thought the roof probably had a few more years left, but since other disturbance would be ta

44、king place in the building anyway for the RTU replacements, he advised the owner to move the roofs replacement cycle up. We accounted for this move by defining in the baseline a roof replacement in 5 years. This conversation with the owner and general contractor was honest and benefitted from our pr

45、ofessional experience and published data. Table 5 presents the mutually agreed-upon baseline. Bundling measures After the team developed EEMs and estimated their utility cost savings and capital cost, we calculated a simple payback for each. Next, we bundled the measures. The team considered non-qua

46、ntitative benefits as well as overarching IRR to select measures. By selecting a bundle of measures, we were able to account for reduced loads on the HVAC equipment and implement measures that did not reach a 20% IRR on their own. Daylighting EEMs were very attractive to the client because he felt h

47、is products looked better in daylight. However, the daylighting EEMs only had a 10% IRR. Moreover, after taking into account the greatly reduced lighting power density (LPD) provided by the lighting designers, the daylighting had an even lower IRR. Despite the low IRR, we still managed to justify th

48、e daylighting EEMs financially in addition to justifying them by their non-quantitative benefits. Two very cost-effective measures helped finance the less cost-effective daylighting and other EEMs. The first cost-effective measure was the lighting retrofit, which was a complete redesign for a 30% IR

49、R. This high IRR was accomplished simply through good design techniques and an inefficient existing system. The second measure was the replacement of air Table 4. Anticipated business-as-usual replacements Building component Age (yrs) and Condition Expected service life (yrs) Source RTU air conditioners 78, poor 15 Ch 36, ASHRAE Handbook 2007Built-up roof 40, fair 3050 Kirk and DellIsola 1995 Condensate removal; t-stat N/A, Items are broken N/A N/A Windows 30, fair 40 Kirk and DellIsola 1995 Table 5. Replacements defined in the mutually agreed-upon baseline Building c