COMMERCIAL HVAC APPLICATIONS Life Cycle Costing for...

Copyright © Carrier Corp. 2005

COMMERCIAL HVAC APPLICATIONS

Life Cycle Costingfor HVAC Systems

PRESENTED BY:

Colby Fischer

Technical Development Program


Objectives1. Understand why Life Cycle Cost studies are often required and

valuable2. Gain new perspective on the difference/importance of energy

modeling vs equipment ratings3. Understand the time value of money and its role in life cycle

costing4. Learn about various analysis tools available and the basic

differences between them


Section 1 Introduction

Section 3 Energy Modeling & Equipment Ratings

Section 2 Procedure

Menu

Section 4 Summary

Break


SECTION 1

Introduction

LIFE CYCLE COSTINGFOR HVAC SYSTEMS


Life Cycle Cost Analysis (LCC) -An economic technique used to compare variousdesign alternatives by projecting (discounting orcompounding) all initial and incremental associatedcosts over the economic life of the project, (also calledthe "Life Cycle Period"), to a common period of time.

Life Cycle Costing


Life Cycle

Cost

True CostsALL THE COSTS OVER THE LIFE OF THE SYSTEM


Time Value of Money

Discounting ò$$$$$$$$$$$

$$$$$$$$$

$$$$$$$$

$$$$$

$$$$

$$$

$$

$$$$$$$

$$$$$$ $

101 2 3 6 7 8 94 5


Bringing Cost To the PresentIn

vest

men

tC

ost

Ope

ratin

gC

ost

FirstCost Operating Cost + OM&R Cost

ReplacementCost

ReplacementCost

ResidualValue

Study Period


Time Value of MoneyMARR (Minimum Attractive Rate of Return)

Example: 10% MARR, 2% annual Escalation$5,000/ YR in initial energy costs

5 Year Life Cycle Period

Year EnergyCosts

PresentValue

1 $5,000 $4,5612 $5,100 $4,3773 $5,202 $4,0594 $5,306 $3,7645 $5,412 $3,490Total: $26,020 $20,251


Life Cycle Cost of SystemsTwo Approaches:

• Compare to the base• Difference from the base

System 1 2 3 4

Energy

Operating,Maintenance& Repair

First Cost

$


Life Cycle StudiesKey Points:• Used as comparative

technique

• Does not determineabsolute costs in thefuture

• Not all costs need to beincluded


Why Life Cycle Cost Analysis?• Mandates by Federal and State Governments

• ASHRAE Energy Code directs users toevaluate the impacts and optimize the options

• Trends toward sustainable building design

• Even private corporations seek to make thebest decision based on more than first cost

• Can be used to determine profit potential orROI


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

Procedure



Life Cycle Cost Analysis Steps

Section 2 – Life Cycle Costing Procedure

• Define the project (goal)• Determine Analysis Method• Determine Life Cycle Period• Collect Data• Analyze• Recommendation


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 alternativesSection 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 LifeTable 1, Estimated Service Life of Various System Components

Equipment MedianYears



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?



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 TodayName Difficulty Detail Functions

Simple PaybackSpreadsheets

Easy Varies

HAP HourlyAnalysis

FormalTraining

High Peak LoadCalcs

SystemSizing

EnergyModeling

Block Load Easy/ Medium Medium Peak LoadCalcs

SystemSizing

Building SystemOptimizer(powered byHAP)

Easy/ Medium Medium EnergyModeling

SystemSelection

EngineeringEconomics

Easy/ Medium Medium Life CycleCosts

CommercialInvest (poweredby HAP)

Easy/ Medium Medium Air CooledDX EnergyModeling

Life CycleCosts

Chiller SystemOptimizer(powered byHAP)

Easy/ Medium High Air Cooled /Water CooledChillerSystemEnergyModeling

Life CycleCosts


Effort

Select the right tools• Pick a level and method that fit the goal

Example: A 10 hp motor for an AHUUse a standard 80% efficiencyor a high efficiency 95% that costs $100.00 moreMotor operates 1800 hr/year at $0.10/ kWWhich should you select?

Operating hours with simple paybackLCC Analysis

How Detailed a Study is required?

• Only include cost items that aresignificant and different



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

Rate depends on: Public• Set Rates OMB• Bonding Rate• Financing Method

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 agood reason to do otherwise

DiscountingCompounding


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 competedfor by various alternative investments

• The building owner must decide the MARR for anyproposed capital expenditure

• Proposals which meet or exceed this minimumrequired return are deemed acceptable

• Rate may change depending on sensitivity and risk

• Required MARR may be set as is typicalwith government projects

Discount Rate


• Inflation is the overall change in the value of goodsand services in the economy, generally caused by thelaws of supply and demand. When demand is greaterthan 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 givencommodity or service

• Values are published by Office of Management andBudget, and NIST annual supplement– In 2005 average projected 10 year rate was 2.3%

Inflation Rates


• 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

Cost Escalation


• Installation and Design Costs can varysignificantly 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 needto be added or increased in size or be differentwith alternatives

– Include costs associated with all the requiredsubsystems when the impact is different

Determining First Cost


• Differences in types & amount of installation labor

• Include all the miscellaneous supplies to theextent they impact the analysis.Don’t forget:– Pipe– Wire– Structural support– Hardware– Expendable supplies

• Remember if it is significant enough to influencethe decision be sure to include it

…every job situation may be different

Determining First Cost


• Energy Rates– Electricity– Gas– Other Utilities

• Oil, steam, water• Type of Rates

– Time of Use– Tiered– Demand Charges– Flat

Determining Operating Costs


Building Load & Operating Hours

Climate Index• Annual hours spent at different temperatures and wet-

bulbs for project location

Operating Hours• Of each tenant


• Some government projects require analysis of waterusage

• 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

Section 4 – Collecting Data

Determining Water Cost


• Charges are normally based on gallons or cubic feet used

• Charges for Water may be in several way– Single flat rate– Step scale based on volume– Base rate and a step sale

• When charges are a step scale it is necessary to estimatetotal building usage for other items (bathroom, kitchen orprocess requirements) to determine realistic cost impacts

• Sewer charges may be included as a function of water usage

Determining Water


• Operating Expense– Operating labor or services

• Maintenance Expense– Servicing, expendable supplies

• Repair Costs

Determining Operating Costs


System alternatives may have verydifferent 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

Determining Operating Expense


– Filter changing requirements may be differentfor different alternatives and may have bothmaterial and labor implications

• All systems requiresome amount ofregular maintenancewhich should beaccounted for in theanalysis

Maintenance Expense


• Repair type service contracts such asextended warranties may be included inthis category

• Alternatives may have different levels ofreliability and different types of repairpossibilities

• Repair vs Replace Analysis

Repair Costs


Collecting data

Other Considerations


Utility companies sometimes offer an incentivefor systems which help reduce their costs eitherby being more efficient or shifting and levelloading the demand. Incentives are normally afinancial 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 shiftdemand to off-hours times

Utility Rebates


• To help promote the use of alternative energy sources andimproved energy efficiency products, government agenciesmay offer a tax incentive or credit to help defray a part of theadditional first cost

• When evaluating high efficiency and alternative energyproducts, which will usually have higher costs, with moreconventional project alternatives including the impact ofthese credits in the analysis may influencethe economic decision

• Both Federal and State governments have energy tax credits

Tax Incentives


• 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 theend 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 decliningdepreciation for the IRS allowed years and then use thebook value at the end of the study period

Finding Residual Value


• Not every cost associated with implementing aproject is a direct project-related cost.Some projects impact the value or performanceof 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 costsare often considered “soft” they can be controversialif 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 improvementsin areas like productivity can result in very large savings.More on this at the end of this program.

Non-economic Costs


• Non-economic factors can havemajor economic effects

• Comfort– BOMA rated this as number one reason tenants move

– Top 5 reasons tenants move:1. Rental rates2. Comfortable temperatures3. Indoor Air Quality4. Acoustics/Noise5. Building Maintenance and Management

Non-economic Impacts


Life Cycle Cost of SystemsTwo Approaches:

• Compare to the base• Difference from the base

System 1 2 3 4

Energy

Operating,Maintenance& Repair

First Cost

$


• Acceptance or rejection of one alternative

• Optimize a design, efficiency, componentor system

• Determine the optimum system betweenmultiple alternatives

• Determine the optimum combination ofindependent systems

• Rank the order of independent optionsto maximize funding

Economic Evaluation Criteria


SECTION 3

Energy Modeling & Equipment EfficencyRatings



AHRI Equipment Ratings: Designed to describe the efficiency ofequipment with a wide array of different features made by differentmanufactures that will be used in various types of applications and climatesand put them on a level playing field of comparison.

Energy Modeling: In its fullest form, it incorporates the locationambient climate index, space load analaysis at various hours, and theoperating hours of the specific space the hvac system is serving andcompares them to the efficiency of the hvac system at dozens of points ofspace load vs. ambient conditions. The result is a project specific efficiencyanalysis of the HVAC system.

Ratings Vs Modeling


Air Cooled DX System RatingsEER – Energy Efficiency Ratio

SEER – Seasonal Energy Efficiency Ratio (5 Tons and Under)IEER – Integrated Energy Efficiency Ratio (6 Tons and Up)


†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 airconditions.

This was the sole rating given on most home and commercial dx air conditioners for manydecades.

AHRI Ratings (EER)

)Watts(InputPowerTotal)Btuh(CapacityNetEER =


AHRI Ratings

0.11

060,8000,89

EER

400,1)2(500660,5

)Btuh(000,89EER

)Watts(InputPowerTotal

)Btuh(CapacityNetEER

=

=

++=

=Example EER Calculation:

7.5 ton RTUNet Capacity 89,000 BtuhCompressor Power 5.66 kWCondenser Fan (each) .5 kWEvaporator Fan 1.4 kW


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 previousslides (depending on compressor & fan type)

The 3-6 test points are weighted based on averagehouse 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


Air Cooled Dx Climate Zones








Note: data shown is for a 2-speed 10 Ton standard pkg unit vs single speed standard pkg unit


Scenarios


This scenario was generated with Carrier CommercialInvest Software. A software program powered by the HAP(Hourly Analysis Program) that calculates energy use of AirCooled Dx Systems by modeling building & equipmentloads while accounting for equipment fan & stagingcapability.


Scenario 1


A For-Profit College is replacing (20) 5 Ton Gas Electric RooftopPackage units at each of three different campuses around thecountry and it is trying to decide whether to go with standardefficiency, mid efficiency or high efficiency equipment

Other Info:Electricity Rate: 0.15 $/kw @ all locationsLocations: Long Beach, Riverside, MiamiEquipment Life: 15 Years


Scenario 1


Tier Std Mid HighCompressor Stgs 1 1 2

Fan Speeds 1 1 3EER 12 12.5 12.7

SEER 14.1 15.2 17.2Economizer Yes Yes Yes

Installed Cost $180,000 $192,000 $212,000Difference - $12,000 $32,000


Scenario 1


Tiers Std Mid HighEnergy Usage

($/Year)$37,060 $36,660 $29,060

Energy Savings($/Year)

N/A $400 $8,020

Payback Years N/A 30 4.0

Results Using Energy Modeling Software - Riverside


Scenario 1


$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Riverside Long Beach Miami

Yearly Energy Savings

Mid High


Scenario 1


0

1

2

3

4

5

6

Riverside Long Beach Miami

Years to Payback High Efficiency Units


Watercooled Chiller Ratings

Full Load EER or kW/Ton – Energy Consumed per Ton at FullCapacity and Design Condenser Water

IPLV – Integrated Part Load Value in EER or kW/Ton @ AHRIStandard Conditions

NPLV – Integrated Part Load Value in EER or kW/Ton @ CustomFull load conditions but AHRI part load Conditions


Chiller Efficiency

Compressor Input (kW) = Mass Flow X LiftCompressor Efficiency


IPLV/NPLV Ratings

Weightings & ECWT are based on a single chiller plantoperation characteristics & average climate in America


IPLV/NPLV Ratings

All AHRI chiller factories receive independent random audittests. During the audit they must be within the tolerancesbelow:


IPLV

With only these 4 points there is a lot you don’t know

$$$$$ of rebates & project incentives are based on these4 points


10 Point Load Line


# of Chillers

AHRI 550/590 section D2 states, “The equation (IPLV) was derived toprovide a representation of the average part load efficiency for a singlechiller only. However, it is best to use a comprehensive analysis thatreflects the actual weather data, building load characteristics, operationalhours, economizer capabilities and energy drawn by auxiliaries such aspumps and cooling towers, when calculating the chiller and systemefficiency. This becomes increasingly important with multiple chillersystems because individual chillers operating within multiple chillersystems are more heavily loaded than single chillers within single chillersystems.”


# of Chillers

85% Are In Multiples On Jobs

23.7%

43.3%

15.4%

14.3%

4 Chillers

1 Chiller

3 Chillers

1 Chillerinto existingmulti chillerinstallation

2 Chillers

3.3%


Multiple Chiller Plants

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



What about Equal Unloading?




IPLV/NPLV Summary

Measures just 4 pointsWeights the 4 points to represent single chiller plant

Designed for the “average” U.S. Climate10% 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


Climate Zones


Building Load Profile

With Economizer Without Economizer

Based on:Operating Hours of Tenants

Building TypeWeather Bin Data


Chiller Performance Map


Recap


Data Inputed:Building Bin Load ProfileChiller Performance Map

Staging Type – Sequenced or Equal UnloadingPumping Scheme – Contant, VPF, Primary/Seconday


Scenario 2

15 Story office building in Los Angeles is debating whetherto repair existing (2) 400 Ton 25 year old centrifugal chillers

or replace.

The building has 600 Tons of loadOperates M-F during typical business hours

Uses Airside EconomizerHas Constant Speed Pumps


Scenario 2

We are proposing, replacing with (2) variable speedcentrifugal rated at 0.33 IPLV, and new pumps operating in

variable primary flow


Input Data


Input Data


CostsExisting Chiller Costs

New Chiller Costs

Note: leaving maintenance cost out of it and assuming to be similar


Economic Data


Input DataNew Chiller performance map

Existing (interpolated)


Results


Results


Results


Summary

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 suchas energy, maintenance and repair. The result is an overall present value for eachoption.

• Generally, the option with the highest annual rate of return is chosen unless a non-economic decision outweighs this

• AHRI ratings provide a limited outlook on the efficiency of the equipment and areoften 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 YouThis completes the presentation.

TDP 903 Life Cycle CostingArtwork from Symbol Library used by permission ofSoftware Toolboxwww.softwaretoolbox.com/symbols

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