Life Cycle Costing for HVAC Systems

Technical Development Program COMMERCIAL HVAC APPLICATIONS Life Cycle Costing for HVAC Systems PRESENTED BY: Colby Fischer Copyright Carrier Corp. 2005

Objectives 1. Understand why Life Cycle Cost studies are often required and valuable 2. Gain new perspective on the difference/importance of energy modeling vs equipment ratings 3. Understand the time value of money and its role in life cycle costing 4. Learn about various analysis tools available and the basic differences between them

Menu Section 1 Section 2 Section 3 Section 4 Introduction Procedure Break Energy Modeling & Equipment Ratings Summary

SECTION 1 LIFE CYCLE COSTING FOR HVAC SYSTEMS Introduction

Life Cycle Costing Life Cycle Cost Analysis (LCC) - An economic technique used to compare various design alternatives by projecting (discounting or compounding) all initial and incremental associated costs over the economic life of the project, (also called the "Life Cycle Period"), to a common period of time.

True Costs ALL THE COSTS OVER THE LIFE OF THE SYSTEM Life Cycle Cost

Time Value of Money Discounting ò 10 1 2 3 6 7 8 9 4 5

Bringing Cost To the Present Study Period Operating Cost Investment Cost First Cost Replacement Cost Replacement Cost Operating Cost + OM&R Cost Residual Value

Time Value of Money MARR (Minimum Attractive Rate of Return) Example: 10% MARR, 2% annual Escalation 5,000/ YR in initial energy costs 5 Year Life Cycle Period Year Energy Costs Present Value 1 5,000 4,561 2 5,100 4,377 3 5,202 4,059 4 5,306 3,764 5 5,412 3,490 Total: 26,020 20,251

Life Cycle Cost of Systems Two Approaches: Compare to the base Difference from the base Energy Operating, Maintenance & Repair First Cost System 1 2 3 4

Key Points: Used as comparative technique Does not determine absolute costs in the future Life Cycle Studies Not all costs need to be included

Why Life Cycle Cost Analysis? Mandates by Federal and State Governments ASHRAE Energy Code directs users to evaluate the impacts and optimize the options Trends toward sustainable building design Even private corporations seek to make the best decision based on more than first cost Can be used to determine profit potential or ROI

Why Life Cycle Cost Analysis? The building market today view buildings as profit potential NOI - Net Operating Income = Rents all costs to operate the building (vacancy, operation, energy, taxes) NOI influences building value Most of all: A tool to demonstrate value

SECTION 2 LIFE CYCLE COSTING FOR HVAC SYSTEMS Procedure

Life Cycle Cost Analysis Steps Define the project (goal) Determine Analysis Method Determine Life Cycle Period Collect Data Analyze Recommendation Section 2 Life Cycle Costing Procedure

Define the Project What is the goal? Describe the project New construction, renovation, repair Determine the design goals Comfort, occupancy, energy sources, cost, etc. What are the alternatives? Different types of systems? Different types of efficiency tiers? Repair or replace? List all the feasible alternatives Section 2 Life Cycle Costing Procedure

Determining the Life Cycle The first big step = Not too long Not too short Just right Consider: How long will the owner keep the asset? What study periods are required by owners? What is the life of the investment? Do alternatives have different life cycles?

Choosing Equipment Life Table 1, Estimated Service Life of Various System Components Equipment Median Equipment Median Equipment Median Years Years Years Air Conditioners Air Terminals Air-cooled condensers 20 Window 10 Diffusers, grills, and registers 27 Evaporative condensers 20 Residential single or split package 15 Induction and fan-coil units 20 Insulation Commercial through the wall 15 VAV and double-duct boxes 20 Molded 20 Water cooled package 15 Air washers 17 Blanket 24 Heat Pumps Ductwork 30 Pumps Residential air-to-air 15 Dampers 20 Base-mounded 20 Commercial air-to-air 15 Fans Pipe-mounted 10 Commercial water-to-air 19 Centrifugal 25 Sump and well 10 Rooftop air conditioners Axial 20 Condensate 15 Single-zone 15 Propeller 15 Reciprocating engines 20 Multi-zone 15 Ventilating roof-mounted 20 Steam turbines 30 Boilers, Hot water (steam) Coils Electric motors 18 Steel water tube 24(30) DX, water, steam 20 Motor starters 17 Steel fire tube 25(25) Electric 15 Electric transformers 30 Cast iron 35(30) Heat Exchangers Controls Electric 15 Shell-and-tube 24 Pneumatic 20 Burners 21 Reciprocating compressors 20 Electric 16 Furnaces Package chillers Electronic 15 Gas or oil fired 18 Reciprocating 20 Valve actuators Unit heaters Centrifugal 23 Hydraulic 15 Gas or electric 13 Absorption 23 Pneumatic 20 Hot water or steam 20 Cooling towers Self-contained 10 Radiant heaters Galvanized metal 20 Electric 10 Wood 20 Hot water or steam 25 Ceramic 34 Data extracted from ASHRAE Handbook, 1999 HVAC Applications, Table 3 chapter 35

Determine Analysis Method Factors: Income Based or Cost Based? Private or Public Sector? Level of Analysis Needed? Section 2 Life Cycle Costing Procedure

Income vs. Cost Based Analysis Income based How much will the asset grow over time Best choice is highest present value Savings for the future is an example Cost based Looking at all the costs associated with a asset choice, at a common period of time Lowest overall cost is best choice Most HVAC decisions are cost based

Public vs. Private Analysis Public sector analysis Money raised through taxes or bonds Tax impacts not included Government agencies set rates Private sector Analysis Money is borrowed and competes with other alternatives Tax impacts included if required Borrowing rates and MARR set rates Government Building Office Building

Types of Tools Available Today Name Difficulty Detail Functions Simple Payback Spreadsheets HAP Hourly Analysis Easy Formal Training High Varies Peak Load Calcs Block Load Easy/ Medium Medium Peak Load Calcs Building System Optimizer (powered by HAP) Engineering Economics Commercial Invest (powered by HAP) Chiller System Optimizer (powered by HAP) Easy/ Medium Medium Energy Modeling Easy/ Medium Medium Life Cycle Costs Easy/ Medium Medium Air Cooled DX Energy Modeling Easy/ Medium High Air Cooled / Water Cooled Chiller System Energy Modeling System Sizing System Sizing System Selection Life Cycle Costs Life Cycle Costs Energy Modeling

Effort Select the right tools Pick a level and method that fit the goal Example: A 10 hp motor for an AHU Use a standard 80% efficiency or a high efficiency 95% that costs 100.00 more Motor operates 1800 hr/year at 0.10/ kw Which should you select? How Detailed a Study is required? LCC Analysis Operating hours with simple payback Only include cost items that are significant and different Section 2 Life Cycle Costing Procedure

Collect Data Rates for time value of money First Costs Equipment Costs Installation Costs Design/Planning Costs Recurring Operating Costs Maintenance Energy Repair Other Rebates Taxes Financing

Discount Rate Compounding Rate depends on: Public Set Rates OMB Bonding Rate Financing Method Discounting Private MARR Profit objectives Tax Impacts Risk Financing Method Use a realistic rate If not sure ASK! A wrong rate will discredit the study Account for inflation if it may influence the outcome Use the same rate for all alternatives UNLESS there is a good reason to do otherwise

Discount Rate Minimum Attractive Rate of Return (MARR) Owners typically make capital budgeting decisions based on a fixed amount of available capital This fixed amount of available capital is competed for by various alternative investments The building owner must decide the MARR for any proposed capital expenditure Proposals which meet or exceed this minimum required return are deemed acceptable Rate may change depending on sensitivity and risk Required MARR may be set as is typical with government projects

Inflation Rates Inflation is the overall change in the value of goods and services in the economy, generally caused by the laws of supply and demand. When demand is greater than supply the costs tend to rise. This changes the actual discount rate Nominal rate is the discount rate before inflation Dollars are constant dollars Real rate is the discount rate accounting for inflation Dollars are current dollars This is different than escalation of price for a given commodity or service Values are published by Office of Management and Budget, and NIST annual supplement In 2005 average projected 10 year rate was 2.3%

Cost Escalation Escalation Rate (e) Increase in the price of goods and services over time A difficult decision because we are predicting the future Use historical values and government guideline - if they make sense Typical escalation rates Electricity 1.5 to 2.5 %/ year Natural gas 3.0 to 4.0 %/ year Service Labor 1.0 to 2.0 %/ year

Determining First Cost Installation and Design Costs can vary significantly between alternatives Evaluate the impact on: Building structure: Both for the operation and installation. Examples Cutting entry door, structural support Electrical, water, gas or other services may need to be added or increased in size or be different with alternatives Include costs associated with all the required subsystems when the impact is different

Determining First Cost Differences in types & amount of installation labor Include all the miscellaneous supplies to the extent they impact the analysis. Don t forget: Pipe Wire Structural support Hardware Expendable supplies Remember if it is significant enough to influence the decision be sure to include it every job situation may be different

Determining Operating Costs Energy Rates Electricity Gas Other Utilities Oil, steam, water Type of Rates Time of Use Tiered Demand Charges Flat

Building Load & Operating Hours Climate Index Annual hours spent at different temperatures and wetbulbs for project location Operating Hours Of each tenant

Some government projects require analysis of water usage Water usage may be associated with : Condenser water make-up Boiler make-up Once through condenser systems Evaporative condensers Swamp coolers Flooded roof systems Humidifiers Determining Water Cost Section 4 Collecting Data

Charges are normally based on gallons or cubic feet used Charges for Water may be in several way Single flat rate Determining Water Step scale based on volume Base rate and a step sale When charges are a step scale it is necessary to estimate total building usage for other items (bathroom, kitchen or process requirements) to determine realistic cost impacts Sewer charges may be included as a function of water usage

Determining Operating Costs Operating Expense Operating labor or services Maintenance Expense Servicing, expendable supplies Repair Costs

Determining Operating Expense System alternatives may have very different costs of operation For example: Local requirements may require a full time system operator for one type of system and not for another One system type may require special operating services such as water treatment

Maintenance Expense All systems require some amount of regular maintenance which should be accounted for in the analysis Filter changing requirements may be different for different alternatives and may have both material and labor implications

Repair Costs Repair type service contracts such as extended warranties may be included in this category Alternatives may have different levels of reliability and different types of repair possibilities Repair vs Replace Analysis

Collecting data Other Considerations

Utility Rebates Utility companies sometimes offer an incentive for systems which help reduce their costs either by being more efficient or shifting and level loading the demand. Incentives are normally a financial credit provided for: Installing equipment that is more efficient Limiting demand at the utilities option Switching to an alternate fuel source Using some form of storage to shift demand to off-hours times

Tax Incentives To help promote the use of alternative energy sources and improved energy efficiency products, government agencies may offer a tax incentive or credit to help defray a part of the additional first cost When evaluating high efficiency and alternative energy products, which will usually have higher costs, with more conventional project alternatives including the impact of these credits in the analysis may influence the economic decision Both Federal and State governments have energy tax credits

Finding Residual Value Residual or salvage value can be based on: Value in place at the end of the life cycle Book value based on the allowed deprecation Resale value Scrap value It should be adjusted for any costs involved: For selling expenses For any required conversion or disposal costs When refrigerant containing decisions are made disposal cost may be significant

Finding Residual Value As a rule of thumb: One quick method of setting a value is to prorate the initial cost For example a 10,000 unit with a 20 year life at the end of 15 years would be: 10,000 20 = 500/year 500/year * 5 years left = 2,500 residual value Another method is to assume double declining depreciation for the IRS allowed years and then use the book value at the end of the study period

Non-economic Costs Not every cost associated with implementing a project is a direct project-related cost. Some projects impact the value or performance of the building in an indirect way Rent charged for office space and tenant turnover can be influenced by building decisions Document all assumptions in an analysis that includes these costs or credits. Since these costs are often considered soft they can be controversial if not documented

Non-economic Costs Typical impacts to consider: Comfort impacts Acoustics Safety Security Flexibility Environmental impacts Productivity improvements Ability to demand higher rents Building having a higher resale value This is an area of continuing study - small improvements in areas like productivity can result in very large savings. More on this at the end of this program.

Non-economic Impacts Non-economic factors can have major economic effects Comfort BOMA rated this as number one reason tenants move Top 5 reasons tenants move: 1. Rental rates 2. Comfortable temperatures 3. Indoor Air Quality 4. Acoustics/Noise 5. Building Maintenance and Management

Life Cycle Cost of Systems Two Approaches: Compare to the base Difference from the base Energy Operating, Maintenance & Repair First Cost System 1 2 3 4

Economic Evaluation Criteria Acceptance or rejection of one alternative Optimize a design, efficiency, component or system Determine the optimum system between multiple alternatives Determine the optimum combination of independent systems Rank the order of independent options to maximize funding

SECTION 3 LIFE CYCLE COSTING FOR HVAC SYSTEMS Energy Modeling & Equipment Efficency Ratings

AHRI Equipment Ratings: Ratings Vs Modeling Designed to describe the efficiency of equipment with a wide array of different features made by different manufactures that will be used in various types of applications and climates and put them on a level playing field of comparison. Energy Modeling: In its fullest form, it incorporates the location ambient climate index, space load analaysis at various hours, and the operating hours of the specific space the hvac system is serving and compares them to the efficiency of the hvac system at dozens of points of space load vs. ambient conditions. The result is a project specific efficiency analysis of the HVAC system.

Air Cooled DX System Ratings EER Energy Efficiency Ratio SEER Seasonal Energy Efficiency Ratio (5 Tons and Under) IEER Integrated Energy Efficiency Ratio (6 Tons and Up)

AHRI Ratings (EER) EER = NetCapacity (Btuh) TotalPowerInput (Watts) Compressor(s) Watts + Indoor Fan Watts + Outdoor Fan Watts For AHRI this is given at 95F Ambient Conditions and full cooling capacity with 80/67 mixed air conditions. This was the sole rating given on most home and commercial dx air conditioners for many decades.

AHRI Ratings Example EER Calculation: EER = Net Capacity (Btuh) Total Power Input (Watts) 7.5 ton RTU Net Capacity 89,000 Btuh EER = 89,000 (Btuh) 5,660 + 500(2) + 1,400 Compressor Power Condenser Fan (each) Evaporator Fan 5.66 kw.5 kw 1.4 kw EER = 89,000 8,060 = 11.0

AHRI Ratings (SEER) Test for Systems with Single Stage Compressor & Constant Speed Fan

AHRI Ratings (SEER) Test for Systems with Two Stage Compressor & Two Speed Fan

AHRI Ratings (SEER) Test for Systems with Variable Speed Compressor & Multi-Speed Fan

AHRI Ratings (SEER) Calculated SEER rating: Based on the laboratory tests required in the previous slides (depending on compressor & fan type) The 3-6 test points are weighted based on average house hold conditions in the median U.S. Climate.

AHRI Ratings (IEER)

Air Cooled DX System Energy Modeling

Air Cooled Dx Offering Tiers Section 5 Rating and Efficiency Terms

Payback Factors of Higher Tier Equipment Climate Building Load Profile & Operating Hours Building Design / Direction Facing Occupancy Type Office School Church Warehouse/Storage Retail Medical Unit Efficiency & Staging Capabilities Electricity / Gas Rates & Demand Charges Section 5 Rating and Efficiency Terms

Air Cooled Dx Climate Zones Section 5 Rating and Efficiency Terms

Air Cooled Dx Climate Zones Note: data shown is for a 2-speed 10 Ton standard pkg unit vs single speed standard pkg unit Section 5 Rating and Efficiency Terms

Scenarios This scenario was generated with Carrier Commercial Invest Software. A software program powered by the HAP (Hourly Analysis Program) that calculates energy use of Air Cooled Dx Systems by modeling building & equipment loads while accounting for equipment fan & staging capability. Section 5 Rating and Efficiency Terms

Scenario 1 A For-Profit College is replacing (20) 5 Ton Gas Electric Rooftop Package units at each of three different campuses around the country and it is trying to decide whether to go with standard efficiency, mid efficiency or high efficiency equipment Other Info: Electricity Rate: 0.15 /kw @ all locations Locations: Long Beach, Riverside, Miami Equipment Life: 15 Years Section 5 Rating and Efficiency Terms

Scenario 1 Tier Std Mid High Compressor Stgs 1 1 2 Fan Speeds 1 1 3 EER 12 12.5 12.7 SEER 14.1 15.2 17.2 Economizer Yes Yes Yes Installed Cost 180,000 192,000 212,000 Difference - 12,000 32,000 Section 5 Rating and Efficiency Terms

Scenario 1 Results Using Energy Modeling Software - Riverside Tiers Std Mid High Energy Usage (/Year) 37,060 36,660 29,060 Energy Savings (/Year) N/A 400 8,020 Payback Years N/A 30 4.0 Section 5 Rating and Efficiency Terms

Scenario 1 Yearly Energy Savings 12,000 10,000 8,000 6,000 4,000 2,000 - Riverside Long Beach Miami Mid High Section 5 Rating and Efficiency Terms

Scenario 1 6 Years to Payback High Efficiency Units 5 4 3 2 1 0 Riverside Long Beach Miami Section 5 Rating and Efficiency Terms

Watercooled Chiller Ratings Full Load EER or kw/ton Energy Consumed per Ton at Full Capacity and Design Condenser Water IPLV Integrated Part Load Value in EER or kw/ton @ AHRI Standard Conditions NPLV Integrated Part Load Value in EER or kw/ton @ Custom Full load conditions but AHRI part load Conditions

Chiller Efficiency Compressor Input (kw) = Mass Flow X Lift Compressor Efficiency

IPLV/NPLV Ratings Weightings & ECWT are based on a single chiller plant operation characteristics & average climate in America

IPLV/NPLV Ratings All AHRI chiller factories receive independent random audit tests. During the audit they must be within the tolerances below:

IPLV With only these 4 points there is a lot you don t know of rebates & project incentives are based on these 4 points

10 Point Load Line

# of Chillers AHRI 550/590 section D2 states, The equation (IPLV) was derived to provide a representation of the average part load efficiency for a single chiller only. However, it is best to use a comprehensive analysis that reflects the actual weather data, building load characteristics, operational hours, economizer capabilities and energy drawn by auxiliaries such as pumps and cooling towers, when calculating the chiller and system efficiency. This becomes increasingly important with multiple chiller systems because individual chillers operating within multiple chiller systems are more heavily loaded than single chillers within single chiller systems.

# of Chillers 4 Chillers 3.3% 3 Chillers 15.4% 43.3% 14.3% 1 Chiller 2 Chillers 23.7% 1 Chiller into existing multi chiller installation 85% Are In Multiples On Jobs

Multiple Chiller Plants Buildings with multiple chillers generally do not turn on their chillers till the building has reached 20-25% load and ambient air/economizer air will no longer meet their needs

Multiple Chiller Plants What about Equal Unloading?

Multiple Chiller Plants

IPLV/NPLV Summary Measures just 4 points Weights the 4 points to represent single chiller plant Designed for the average U.S. Climate 10% average tolerance allowed

Water Cooled Chiller Energy Modeling

Typical Real World Operating Maps Office Building w/ Airside Econo

Typical Real World Operating Maps Data Center / Process Load

Climate Zones

Building Load Profile Based on: Operating Hours of Tenants Building Type Weather Bin Data With Economizer Without Economizer

Chiller Performance Map

Recap Data Inputed: Building Bin Load Profile Chiller Performance Map Staging Type Sequenced or Equal Unloading Pumping Scheme Contant, VPF, Primary/Seconday Section 5 Rating and Efficiency Terms

Scenario 2 15 Story office building in Los Angeles is debating whether to repair existing (2) 400 Ton 25 year old centrifugal chillers or replace. The building has 600 Tons of load Operates M-F during typical business hours Uses Airside Economizer Has Constant Speed Pumps

Scenario 2 We are proposing, replacing with (2) variable speed centrifugal rated at 0.33 IPLV, and new pumps operating in variable primary flow

Input Data

Costs Existing Chiller Costs New Chiller Costs Note: leaving maintenance cost out of it and assuming to be similar

Economic Data

Input Data New Chiller performance map Existing (interpolated)

Results

Summary LIFE CYCLE COSTING FOR HVAC SYSTEMS Things to Remember!

Summary Life Cycle Costing is used as a decision tool between different options With HVAC systems this means taking the first costs of design, materials, installation & any rebates, then incorporating the present value of future incremental costs such as energy, maintenance and repair. The result is an overall present value for each option. Generally, the option with the highest annual rate of return is chosen unless a noneconomic decision outweighs this AHRI ratings provide a limited outlook on the efficiency of the equipment and are often not in sync with the local climate and application. Energy modeling of equipment provides the best outlook of what kind of real life efficiency you will experience

Technical Development Program Thank You This completes the presentation. TDP 903 Life Cycle Costing Artwork from Symbol Library used by permission of Software Toolbox www.softwaretoolbox.com/symbols