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# Performing A Life Cycle Cost Analysis

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Selecting the Most Cost Effective HVAC Design based on a Life Cycle Cost Analysis

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### Performing A Life Cycle Cost Analysis

1. 1. Performing aLife Cycle Cost Analysis
2. 2. What is a Life Cycle Cost Analysis?• Compare the cost of different equipment, fuel types, and etc from inertia installation to end of service life.• Comparison includes first installation cost, life time maintenance cost, life fuel cost, replacement cost.
3. 3. Why Perform a Life Cycle Cost Analysis• The owner asks you compare the costs of different HVAC systems. Packaged RTU’s vs. central plant fed AHU’s.• Justify additional cost of Energy Saving Technology (energy recovery device, heat pump chiller, solar, and etc.)• Owner is required by law to perform a LCCA (government projects)
4. 4. Terminology• Net Present Value (NPV) – Value of Money at Year “0”• Adjusted Internal Rate of Return (AIRR) - % return on investment• Savings to Investment Ration (SIR) – dollar for dollar return• Simple Payback method (SPP) – first cost over savings• Time Value of Money (TVOM) – Change in the value of money over time. The US Dollar loses value over time.• Cash Flow Diagram
5. 5. Simple Payback Method• Easy method to determine return on investment for simple projects.• SPP = Initial Cost / Annual Savings• Example: \$3000 to install an energy recovery wheel in a restroom exhaust system. Will save \$800 in annual energy costs.• SPP= \$3000/\$800 = 3 yrs 9 months
6. 6. Detailed Analysis Consists• First Cost (Installation cost)• Maintenance Cost• Energy Cost• Inflation• Discount Rate (Owner’s Cost to Borrow Money)
7. 7. Cash Flow Diagram
8. 8. Which Chiller Should Be Installed?• 100 Ton Chiller at 0.9 kw/ton or• 100 Ton Chiller at 0.6 kw/ton at \$18k premium• Electricity Costs: \$0.08 / kwh with 3% Annual Inflation.• Assume Service Costs are the same with both Chillers.• The Customer’s Discount Rate is 5%.• Either chiller will run 2000 hrs per year.• Which chiller is most cost effective after 10 years?• What is the Net Present Value (NPV) of the investment?
9. 9. Annual Energy Costs 0.9 kw/ton Chiller 0.6 kw/ton Chiller• Annual Energy Consumption • Annual Energy Consumption is 2000 hrs x 100 tons x 0.9 is 2000 hrs x 100 tons x 0.6 kw/ton = 180,000 kwh kw/ton = 120,000 kwh
10. 10. COST OF ENERGY CONSUMPTION OVER TIME ENERGY ANNUAL ENERGY COST ANNUAL ENERGYYEAR COST 0.9 KW/TON 0.6 KW/TON COST DIFFERENCE (\$ / KWH) CHILLER CHILLER 1 \$0.08 \$14,400 \$9,600 \$4,800 2 \$0.08 \$14,832 \$9,888 \$4,944 3 \$0.08 \$15,277 \$10,185 \$5,092 4 \$0.09 \$15,735 \$10,490 \$5,245 5 \$0.09 \$16,207 \$10,805 \$5,402 6 \$0.09 \$16,694 \$11,129 \$5,565 7 \$0.10 \$17,194 \$11,463 \$5,731 8 \$0.10 \$17,710 \$11,807 \$5,903 9 \$0.10 \$18,241 \$12,161 \$6,080 10 \$0.10 \$18,789 \$12,526 \$6,263
11. 11. SIMPLE PAYBACK ANALYSIS• SPP = FIRST COST / ANNUAL SAVINGS• SPP = \$18,000 / \$4800/YR• SPP = 3.8 YEARS
12. 12. \$6262 \$6080 \$5245 \$4944 \$5092 \$4800\$18,000
13. 13. Convert Future Savings into Present Day Values• Determine the Net Present Value of the Investment (NPV)• Use Owner’s discount rate (cost to borrow money)• NPV = Present Value (PV) savings or loss minus PV of First Cost Investment
14. 14. ANNUAL ENERGY COST DISCOUNT YEAR PRESENT VALUE DIFFERENCE FACTOR 1 \$4,800 0.9524 \$4,572 2 \$4,944 0.9070 \$4,484 3 \$5,092 0.8638 \$4,399 4 \$5,245 0.8227 \$4,315 5 \$5,402 0.7835 \$4,233 6 \$5,565 0.7462 \$4,152 7 \$5,731 0.7107 \$4,073 8 \$5,903 0.6768 \$3,995 9 \$6,080 0.6446 \$3,919 10 \$6,263 0.6139 \$3,845 \$41,988NPV = \$41988 - \$18,000 = \$23,984SIR = \$41988 / \$18000 = 2.33Adjusted Internal Rate of Return (AIRR) = [(1+d)x(SIR)^(1/n)]-1 = [(1+.05)x(2.33)^(1/10)]-1 = 0.14 OR 14%