Deep Retrofit: Life Cycle Cost Benefits Analysis
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Jan W Bleyl looks at the life cycle cost beneifts of deep retrofit, how to communicate these beneifts and the impact of policy.
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Deep Retrofit: Life Cycle Cost Benefits Analysis
- 1. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 1 Task 16 ”Energy Services” www.ieadsm.org 16 Deep Retrofit Conference, Ireland, 14 June 2018 Deep Energy Retrofit: Life Cycle Cost Benefits Analyses and ‚Multiple Benefits‘ on Project Level Jan W. Bleyl (Austria), with co-authors: Markus Bareit (Switzerland), Miguel A. Casas (Belgium), Souran Chatterjee (Hungary), Johan Coolen (Belgium), Albert Hulshoff (Netherlands), Rüdiger Lohse (Germany), Sarah Mitchell & Mark Robertson (Canada), Diana Ürge-Vorsatz (Hungary)
- 2. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 2 Outline 1. (Motivation, questions and goals) 2. (Method of approach) 3. Case study: Office building deep energy retrofit dynamic investment analyses 4. ‚Multiple Benefits‘ of building DER on project level 5. Valuation of ‚MPBs‘ 6. Discussion and conclusion
- 3. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 6 Is building Deep Energy Retrofit a stand alone business case based on Energy cost savings alone?
- 4. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 7 Office building case study: Deep Retrofit to ‘Passive House‘ Standard Floor area: 1.680 m2; Heat + electricity baseline: 45,000 EUR/a CAPEX (for energy retrofit only): 560,000 EUR = 330 EUR/m2 (+ ‚Anyway cost‘: 170 EUR/m2 ) After DER: Heat cost savings: 88%, electricity cost savings: 17% Source:[KEA+PassiveHouseInstitute2015]
- 5. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 8 -600.000 -500.000 -400.000 -300.000 -200.000 -100.000 0 100.000 200.000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 EUR total investment project cash-flow (P-CF) equity cash-flow (E-CF) debt cash flow cumulative project cash-flow cumulative equity cash-flow Source:[Bleyl2018] DER case study LCCBA: Net project & equity cash flows (annual and cumulative); KPIs Key performance indicators (KPI): - IRR: P-CF: 1,9%, E-CF: 0,8% - NPV: P-CF: -0,06 Mio. EUR, E-CF: -0,08 Mio. EUR - PBT: P-CF: 21 years, E-CF: 24,2 years
- 6. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 9 -2,0 -1,5 -1,0 -0,5 0,0 0,5 1,0 1,5 2,0 2,5 3,0 -50.000 -40.000 -30.000 -20.000 -10.000 0 10.000 20.000 30.000 40.000 50.000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DSCREUR/a principal payments interest payment Cash Flow Available for Debt Service Debt Service Coverage Ratio Source:[Bleyl2018] Financing: Debt service, CFADS, DSCR, LLCR key figures: - effective interest rate debt capital: 2,52 % - loan sum: 0,41 Mio.EUR - interest sum: 0,12 Mio.EUR - Loan Life Cover Ratio: 1,18
- 7. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 10 Sensitivity of project IRR to relative change of input parameters -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 70% 80% 90% 100% 110% 120% 130% internalrateofreturnprojectcashflow change in comparison to the initial value investment costs (CAPEX) subsidies/construction cost grants operating costs (OPEX) project duration saving revenues price increase factor baseline equity interest expectation WACC Source:[Bleyletal.2017]
- 8. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 11 Additional revenues from Multiple Project Benefits (MPB)?
- 9. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 12 ‘Multiple Benefits of Energy Efficiency’ (IEA 2014) Source:[IEA2014]
- 10. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 13 Classification of multiple benefits according to primary beneficiaries [Source:Bleyletal.2017basedonLazar&Colburn2013] => „Multiple Project Benefits (MPB)“
- 11. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 16 Results: Monetarily valuated Multiple Project Benefits (MPB) Multiple Project Benefits of DER Range EUR/ (m 2 * y) NPV: EUR/m 2 Property develop. Occupant -owner Lessor -owner Lower 10,4 219 219 219 Upper 20,8 439 439 439 Lower 1,2 25 25 -25 Upper 6,4 134 134 -134 Lower 100 [100] [100] Upper 260 [260] [260] Lower 0,3 6 6 6 Upper 3,8 79 79 79 Lower 2,1 44 44 44 Upper 3,0 63 63 63 Lower 16,8 354 354 354 Upper 16,8 354 354 354 Lower 16,8 157 157 [157] Upper 16,8 157 157 [157] Lower NPV: 100 780 69 554 Upper NPV: 260 1092 197 738 Totals 5a. Energy cost savings project term (25 years) - - 5b. Add. energy cost savings over techn. lifetime (40 y.) - - 3. CO2 savings (6 - 79 EUR/t) - - 4. Maintenance cost savings (2.1 - 3 EUR/m2/y) - - 2b. Building sales price increase (2.5% - 6.5%) 100 - 260 2a. Rental income increase (1% - 5.3%) - - Beneficiaries Valuation Different owner perspectives Tenant 1. Work productivity increase (0.57% - 1.14%) - - Source: [Bleyl et al. 2017]
- 12. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 17 Multiple Project Benefits of DER Range EUR/ (m 2 * y) PV: EUR/m 2 Lower 10,4 219 Upper 20,8 439 Lower 1,2 25 Upper 6,4 134 Lower Upper Lower 0,3 6 Upper 3,8 79 Lower 2,1 44 Upper 3,0 63 Lower 16,8 354 Upper 16,8 354 Lower 16,8 157 Upper 16,8 157 5a. Energy cost savings project term (25 years) 5b. Add. energy cost savings over techn. lifetime (40 y.) 3. CO2 savings (6 - 79 EUR/t) 4. Maintenance cost savings (2.1 - 3 EUR/m2/y) 2b. Building sales price increase (2.5% - 6.5%) 100 260 2a. Rental income increase (1% - 5.3%) Valuation 1. Work productivity increase (0.57% - 1.14%) Pecuniary values of DER MPBs 2 Metrics: EUR/m2 => per year & PVs of P-CF Annotations: Conservative values! Present values (PV) of project cash flows (P-CF) over 25 years; 1,5%/year price increase; 3% WACC as discount rate. To compare: CAPEX (for energy retrofit only): 330 EUR/m2 Source:[Bleyletal.2017]
- 13. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 18 Valuation Multiple Project Benefits of DER Range PV in [EUR/m 2 ] Property develop. Occupant - owner Lessor - owner Lower 219 219 219 Upper 439 439 439 Lower 25 25 -25 Upper 134 134 -134 Lower 100 100 [100] [100] Upper 260 260 [260] [260] Lower 6 6 6 Upper 79 79 79 Lower 44 44 44 Upper 63 63 63 Lower 354 354 354 Upper 354 354 354 Lower 157 157 [157] Upper 157 157 [157] Lower 100 780 69 554 Upper 260 1092 197 738 Totals 5a. Energy cost savings project term - - 5b. Add. energy cost savings over techn. Lifetime - - - 3. CO2 savings - - 4. Maintenance cost savings - - 2a. Rental income increase - - 2b. Building sales price increase Beneficiaries Different owner perspectives Tenant 1. Work productivity increase - - Pecuniary values of DER Multiple Benefits and accountability to different stakeholders Source:[Bleyletal.2017]
- 14. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 19 SEAI: Discussion and conclusions (1/2) 1. Beyond ‘engineering economics’: LCCBA cash flow model results provide solid grounds for DER business case analysis, project structuring, financial engineering … 2. Also supporting policy design, marketing and bridging the ‘language gap’ to investors are important applications. 3. Bad news: CFs from future energy cost savings are not a stand-alone and bankable business case (not even with 25 years investment horizon). 4. Good news: CFs can co-finance investments substantially (up to 85% in case study; OPEX to CAPEX) => rather small co-financing needed => Narrative: “the glas is almost full – just from future savings”
- 15. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 20 SEAI: Discussion and conclusions (2/2) 5. DERs generate tangible and quantifiable benefits on the project level (MPB), e.g. DER office building retrofit: Higher rents & real estate values, lower maintenance cost & CO2 savings and higher work productivity … 6. These MPBs can offer meaningful contributions to make DER business cases (very) attractive 7. MPBs can help to identify strategic allies for DER project development and programs 8. Residential Sector: Preliminary Lessons learned … MPBs: Increased Comfort, building value, health … 9. Outlook: Similar analyses for residential sector in Ireland?
- 16. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 21 Literature reference and webinar Bleyl, Jan W. et al. Building Deep Energy Retrofit: Using Dynamic Cash Flow Analysis and Multiple Benefits to Convince Investors in ECEEE Summer Study, paper ID 6- 369, Belambra Presqu'île de Giens, France June 2017 also accepted for publication in Energy Efficiency Special Journal 2018 Leonardo ENERGY Webinar: https://www.youtube.com/watch?v=j3 44zdQTL4I&feature=youtu.be
- 17. Jan W. Bleyl – Energetic Solutions and co-authors For requests: EnergeticSolutions@email.de 18-06-20 Slide 22 Task 16 ”Energy Services” www.ieadsm.org 16 Thank you! Questions, remarks and collaborations welcome! Task 16 Operating Agent contacts: Jan W. Bleyl – Energetic Solutions Lendkai 29, 8020 Graz, Austria Tel: +43 650 7992820 Email: EnergeticSolutions@email.de En er get ic Sol ut ion s Jan W . Bl eyl
Editor's Notes
- Other figures in plenary: 140 billion EUR/year
- from the perspectives of potential investors, building users and financiers
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- Account for LCCB (incl. o&m, recapitalization in year 15): Is this economically viable? positive P-CF of EUR 145,000 Is this financially viable? => Analyse KPIs: Despite positive cumulated CFs of the case study, the business case appears not to be attractive to investors. Appraised by the economic and financial KPIs based on DER energy cost savings CF, it will be difficult to attract private sector investments. This is due to negative NPVs, long payback periods, low IRRs of P-CF and E-CF, project risks, and liquidity shortfalls in early project years. Levelized Cost of Heat Savings: 100 EUR/MWh Good news: future energy cost saving CF may be viewed as a highly potent source for co-financing DER investments. Facts: Results of the LCCBA CF analysis are displayed in Figure 2. The analysis of the project CF over 25 years results in accumulated energy cost savings of EUR 810,000 resulting from an investment of EUR 550,000, and maintenance costs of EUR 120,000. The result is a positive P-CF of EUR 145,000, with an internal rate of return of just 1.9%, a negative NPV of EUR -62,000, and a dynamic payback period of 21 years. For the equity-CF an IRR of 0.8% results with a payback period of 24 years; discounted at 4.5%, the NPV of the E-CF is -77,000 EUR (Figure 2).
- Financing structure: 75% debt capital (20 years term with an effective interest rate of 2.52%) and 25% equity with a yield expectation of 4.5% for the Weighted Average Cost of Capital (WACC) calculation. No subsidies were accounted for to avoid distorting the results. Explanation: DS obligations: principal (constant) and interest payments on outstanding capital) CFADS (dents are planned replacements (recapitalizations) LLCR: 1,18, but DSCR, annual CFADS Right Y-achses: Ratio of CFADS and DS obligations: >1 only after year 10, >1,2 only after year 14 Analyses Not enough CFADS in first ten years (however later yes) Grace periods needed in first years Financing of the investment is modeled with a mix of 75% debt capital (20 years term with an effective interest rate of 2.52%) and 25% equity with a yield expectation of 4.5% for the Weighted Average Cost of Capital (WACC) calculation. No subsidies were accounted for to avoid distorting the results. CAPEX is refinanced from the future savings cash flow over a 25-year project term.
- The sensitivity analysis in Figure 3 shows the influence of a percentage change of selected input parameters on the project IRR Investment costs, followed by saving revenues, project duration, and baseline price development, are the most sensitive to relative changes of input parameters. For a break-even with the WACC (NPV = 0), the CAPEX would need to be decreased by 11% or the savings increased by 10%, respectively a 13% longer project duration.
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- Nicht energetische Benefits der Gebäudedämmung (z.B. Komfort-, Produktivitäts- oder Wertsteigerung) sind grundsätzlich anerkannt und stellen zusätzliche Mehrwerte dar, die bei Sanierungsentscheidungen berücksichtigt werden sollten.
- Explaine 2 axes Expalin approaches and examples
- Introduce metrics: Specific 1. EUR per m¥ and year; 2. NPV/m2 Compare orders of magniture Compare with CAPEX
- substantially different benefit values for different beneficiaries (split incenctives) On the other hand, the lessor-owners appear to have very small benefits, because of low rental premiums (even smaller than sales premiums). The same applies to property developers, where price premiums for DER buildings are not sufficiently reflected in market prices, probably due to a lack of LCCBA assessments on the buyer side of the market. In both cases, the ‘split incentive’ dilemma is apparent, because investors do not capitalize from OPEX reductions of building occupants. From this perspective, it would be justified to allow building owners in regulated markets to charge higher rents in return for investments in tenant’s OPEX savings. => guaranteed OPEX reductions, as applied in performance-based energy services, could be helpful
- Currently, low interest rates provide a huge opportunity for capital-intensive programs. However, for a meaningful DER implementation strategy including private sector financial engagement, policy makers would need to define clear and mandatory goals (e.g. minimum renovation rates), remove barriers to private sector involvement (e.g. revise EUROSTAT accounting rules for public debt, increase investment security) and structure policy frameworks that allow ‘internalization’ of MB values into the business case (e.g. creating economic incentives for a wider range of impacts, taking measures to raise EU ETS prices, allowing investors to capitalize from OPEX reductions, e.g. through higher rents) in order to achieve 2050 climate goals. Another important issue to foster investors’ appetite is the streamlining of due diligence processes as requested by EEFIG and implemented by the Investor Confidence Project or the SEAF. Also, reducing CF risks by agreeing on simplified M&V procedures would decrease investors risk perspectives.