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Ifma presentation

  1. 1. LIFE CYCLE COSTING For Facility Design, Construction , Operations and Maintenance David Katz, MBA, BA Sustainable Resources Management Inc. Tel: 416 - 493 - 9232 Fax: 416 - 493- 5366 Email: dkatz@sustainable.on.ca 5/14/2010 1
  2. 2. AGENDA • Economic Standards for Life Cycle Costing –ASTM and NIST • What costs must be considered • Data Sources: project specific and public predictions • How to assess the accuracy of your LCC • Making unavoidable assumptions • What uncertainties will remain and how to mitigate them • Energy Pricing and other Policy changes such as GHG • Economic and Financial considerations • Financing and Tax considerations • Programs and software available 5/14/2010 2
  3. 3. WHAT IS LIFE CYCLE COSTING Definitions: LCC are summations of cost estimates from inception to disposal for both equipment and projects as determined by an analytical study and estimate of total costs experienced during their life. Objectives to using life cycle costing: The objective of LCC analysis is to choose the most cost- effective approach from a series of alternatives so the least long-term cost of ownership is achieved. 5/14/2010 3
  4. 4. LCC for Facility Investments Typical problems that LCC can resolve: Having lower life cycle costs provides the incentive to overcome the lower first cost or budgetary restrictions. Capital Asset valuations that look at the revenues and the operating costs are improved by having the lower operating costs of better facilities. Making repairs to existing equipment versus advancing the purchase of new better performing equipment 5/14/2010 4
  5. 5. Application to design and construction process LCC analysis has many applications in the capital asset, buildings and infrastructure projects that use the design and construction process. Choosing the appropriate materials and costing out the operating and maintenance cost of different alternatives provides the design and construction professional the ability to include the owner’s financial criteria as part of the process. 5/14/2010 5
  6. 6. DATA REQUIREMENTS FOR LIFE CYCLE COSTING Developing design alternatives The LCC analysis is a comparative process of significantly different alternatives in order to provide meaningful results. While repeating previous designs and just bringing them up to current regulatory codes may provide a capital asset that can be accurately priced as a base case, innovation in technology and new materials should be used to develop alternatives. This may require a design Charrette that brings together all major stakeholders so that they can suggest the things they would like to see incorporated and for what reason. 5/14/2010 6
  7. 7. Estimating the cost inputs Life Cycle Costing incorporates both Life Cost Planning, which occurs during development, and implementation of that plan by Life Cost Analysis as the asset is used or occupied. Cost inputs are required for each cash flow item at today’s prices. These can be recent purchases or past payments that can be updated to current prices. 5/14/2010 7
  8. 8. Selecting the economic parameters Life Cycle Costing incorporates both costs that occur today and those that will be paid for in the future. Cash flows that occur in the base year are at current prices however future costs may escalate due to inflation and real price increases, and implementation of Life Cost Analysis requires the discounting of the future cash flows to reflect the Time Value of Money. Economic parameters such as the real inflation of the major cost factors such as energy and the general inflation that will impact all recurring operating expenses will allow for cash flow items to be priced in the future years they occur. These cash flows are then discounted by the cost of money to calculate the net present value for the the alternatives. Definitions –compounding, discounting, equivalency, current and constant dollars and present value 5/14/2010 8
  9. 9. Forecasting future economic scenarios Life cycle costs for assets will be impacted by the economic scenarios that occur in the future due to their long life. Current prices for energy and maintenance may not reflect the future costs due to inflation and real price increases, and Future Energy and Environmental regulation compliance costs can have volatile patterns that are not predictable. Economic parameters such as the real inflation of energy and general inflation rates are linked to the economic and monetary policies of the central banks. Discount rate policies and foreign exchange variations can all influence the cost of money used to calculate the net present value for the the alternatives. 5/14/2010 9
  10. 10. CALCULATING LIFE CYCLE COSTS Time value of money Calculating present values Use of financial tables Cash flow versus formula method of calculation, equivalency, cash flow diagrams, gradients, delayed costs, terminal values, Effect of mortgages, depreciation and taxes, externalities such as environment and sustainability Sensitivity analysis Risk/probability 5/14/2010 10
  11. 11. EVALUATING AND PRESENTING THE RESULTS Evaluation approaches Total present value Net present value Simple payback True payback Equivalent uniform annual cost Rate of return KWH savings/investment dollar 1. Savings/benefit to investment ratio 2. Graphic analysis 5/14/2010 11
  12. 12. Life cycle costs highly influence by capital funds available and cost of those funds and others. LCC shows the tradeoffs in capital and operating and repair costs. LCC influenced by terminal values if different for major components. LCC can show benefit of advancing planned replacements if PV paid for by lower operating and later future repair costs. Financing and financial and tax incentives impact LCC Outsourcing and performance contracting can reduce risks 5/14/2010 12
  13. 13. Cost and Policy Uncertainties Energy and Climate Change issues • Major changes in gas and electricity markets have made the costing on maintenance and equipment operations more complex • Energy costing methodology for true energy cost has both supply and demand side implications • Utility Costs – Market Prices and new contracts • Demand Management – Historical approach especially in US where Demand Charges can be more than 50% of electricity bill • Real Time Pricing and Demand Response Programs • Demand Management Today and Future Carbon issues 5/14/2010 13
  14. 14. • Major changes in gas and electricity markets have made the costing on maintenance and equipment operations more complex Demand side was domain of engineering and operations Supply side was the responsibility of procurement and purchasing Integration of supply and demand is critical to control your total energy picture. New pricing regimes and equipment technologies can offer new opportunities and contribute to lower carbon footprint as well. 5/14/2010 14
  15. 15. • Energy costing methodology for true energy cost has both supply and demand side implications Example of absorption chiller and centrifugal chiller used to show the past engineering method based on stable energy input prices is no longer applicable Recent Programs launched by Ontario Power Authority with BOMA include Fuel Switching with incentives for Peak reduction. Thermal Storage using ice can be economic Deep lake cooling are options for those in downtown. 5/14/2010 15
  16. 16. Demand Management Today and Future Carbon issues Power monitoring systems are available to support manual load curtailment. Automated systems are also an option with greater analytics and output control New Clean energy Programs offer on site generation contracts that provide capacity payments and incentives while meeting the local loads. New carbon tax and/or cap and trade programs will add new complexities to the total life cycle costs of major maintenance decisions with large energy component. All these options require the integrated approach to supply and demand. 5/14/2010 16
  17. 17. • Utility Costs – Market Prices and new contracts Both gas and now electricity are deregulated for commercial and industrial sectors. Real Time Pricing is now more volatile and affect the risk profile. Options include commodity portion price protection, Weather derivatives, and other peak and volume pricing schemes. • Demand Management – Historical approach especially in US where Demand Charges can be more than 50% of electricity bill Past practices to start generation during the traditional peak periods has to be reevaluated. New rates for transmission, distribution affect options and are now unbundled from the commodity portion for energy. 5/14/2010 17
  18. 18. Real Time Pricing and Demand Response Programs Demand Response Programs offer incentives to shift loads and respond to DR signals in GRID stresses situations. Hourly Price skyrockets when all the interconnected markets are stretched due to weather, storms, and large generation plant outages. Demand Response payments can buy the upgrades to the control systems that will produce the demand response but also offer other operational benefits that lower life cycle costs. 5/14/2010 18
  19. 19. Demand Management Today and Future Carbon issues Power monitoring systems are available to support manual load curtailment. Automated systems are also an option with greater analytics and output control New Clean energy Programs offer on site generation contracts that provide capacity payments and incentives while meeting the local loads. New carbon tax and/or cap and trade programs will add new complexities to the total life cycle costs of major maintenance decisions with large energy component. All these options require the integrated approach to supply and demand. 5/14/2010 19
  20. 20. Financing Options Self – Finance – Your cost of money Toronto Atmospheric Fund – Financing Lease or Rent – Subject to Restrictions Low interest loans – Banks and Credit Unions Energy and Facility Service Companies using Performance contracts Carbon Credits and other Trading Schemes 5/14/2010 20
  21. 21. Federal Programs Available Natural Resources Canada's Office of Energy Efficiency now offers the ecoENERGY Retrofit Incentive for Buildings, the commercial/institutional component of the ecoENERGY Retrofit financial incentives for existing homes, buildings and industrial processes. If you have not yet started a new energy efficiency project, you could receive the lesser of $10 per gigajoule of estimated energy savings or 25 percent of eligible project costs. Website: http://oee.nrcan.gc.ca/commercial/financial- assistance/existing/retrofits/index.cfm?attr=0 5/14/2010 21
  22. 22. Provincial Programs Available Ontario Power Authority – New Construction Program will build on CBIP concept of energy modeling and payment or Low rate interest to facilitate better energy performance. Demand Response 3 – contractual agreement for 100 or 200 hours – incentives paid to schedule by term and amounts. ERIP – Local distribution company programs 5/14/2010 22
  23. 23. Other Programs Available Renewable and Clean Standard Offers Toronto Better Building Partnership Toronto Atmospheric Fund – Financing BOMA Toronto – CDM OPA for Continuous Commissioning and Next Gen Building Automation Tax credits and Class 43 Accelerated Depreciation on qualified equipment 5/14/2010 23
  24. 24. Educational Programs and Software for LCC Sustainable Resources Management – 2 - 3 day LCC General course or applied to specific types of projects. LeapFrog Energy – Renewable Energy Technology Screening Tool RETScreen 1-2 day course and consulting Robert P. Charette, P.E. CVS PQS –Concordia University Expert on LCC for buildings- Recent CaGBC course and LCC for PWGSC Life Cycle Costing for Facilities –Dell”Isola and Kirk – RSMeans text and LCC software download from website. ASTM Standards for LCC and NIST LCC manual Excel and other spreadsheets have LCC modelling capabilities 5/14/2010 24
  25. 25. Contact Info David Katz, MBA, BA Sustainable Resources Management Inc. 6 Morning Gloryway Toronto, Ontario Canada M2H 3M2 Tel: 416-493-9232 Email: dkatz@sustainable.on.ca www.sustainable.on.ca In association with www.energymanagementtoronto.com www.centennialcollege.ca/cei/ibex 5/14/2010 25

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