Life_Cycle_Cost_Example

Life Cycle Cost Example Comparison Of Various Water Heating Systems Contents
Important Notes: 1) The installed costs and other assumptions in this example were developed by a collaborative of individuals participating in the California Solar Water Heating Collaborative, an activity of the California Energy Commission's Research & Development office (Ray Darby was the Collaborative lead). 2) The data were representative of a large scale residential subdivision development at the time the study was performed during 1994 - 1995. The installed costs and assumptions used below are not representative of today's single-family home retrofit market (which is currently more active than the new construction market), they represent one example analysis. Today's systems cost considerably more for several reasons - It costs more to retrofit an existing home in both labor & materials due to cost inflation (labor, materials) - Subdivision costs are lower due to economy of scale - Inflation (labor, materials and energy) On the other hand, there are cost-reducing factors today we did not have in the mid 1990s, such as tax credits and rebates. And while energy costs have escalated about 6.7% annually over the past 30 years, they will likely escalate at a higher rate in the future. So if you want to compare water heating system options for your own situation, always use assumptions specific to your installation when using the spreadsheets below. 3) Although the focus of this page is water heaters and water heating systems, most of the concepts presented apply to other energy technologies as well, and the spreadsheets can be modified accordingly.

Introduction How To Use This guide

Definitions

Financial Inputs
F1: Installed Cost F2: Amount Financed F3: Loan Term F4: Interest Rate F5: Nominal Discount Rate F6: General Inflation Rate F7: Income Tax Bracket F8: Maintenance Cost F9: Replacement Cost and Frequency F10: Environmental Value

Energy Inputs
E1: Solar Fraction E2: Base Fuel Usage E3: Fuel Cost E4: Fuel Escalation Rate E5: Base Electrical Usage
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E6: Electricity Cost E7: Electricity Escalation Rate

Other Considerations Results References

Introduction:
This guide was developed to help illustrate the process involved in completing a Life Cycle Cost (LCC) economic analysis of competing energy solutions. It also introduces the concept of accounting for subsidies and/or externalities in an economic analysis, an increasingly important issue to many policy and other decision makers. The intent behind the "real example format" and links to required resources, is to illustrate the type of practical considerations and resources needed for a comprehensive yet straightforward comparison of the economic and environmental costs of alternatives. For the LCC analysis, a series of simple spreadsheet templates are developed to represent several different types of water heating systems. The spreadsheets calculate the total 30 year Life Cycle Cost (LCC) as well as the effective annual cost to own, operate, and maintain a water heating system. Individual yearly values for cost associated with maintenance, replacement, externalities, inflation, and others can be easily entered. Six examples as well general considerations, tables, and references are also provided to facilitate a thorough yet rapid assessment of economic and environmental benefits. RESULTS FOR SOLAR WATER HEATING HEREIN SHOULD NOT BE CONSIDERED "TYPICAL" Solar water heating savings vary signifcantly with the type of system, available sunlight, outside temperatures, hot water use, and time of use. Given the many different types of systems available, as well as differences in the frequency and cost of replacing components, only one "active" and one "passive" system example are covered here. These examples are NOT intended to represent the "best" OR the "worst" of what is available; they are merely examples. Therefore, it is not appropriate to draw any general conclusions, regarding the comparative value of solar water heating to gas or electric water heating, from just two examples of what the industry currently has to offer. Solar water heating (SWH) systems can provide compelling economic and environmental benefits in many cases. Unfortunately, such knowledge has remained largely unavailable to many decision makers. This has been a key barrier to the success of SWH. This guide, and associated documents, are intended to help address that gap. Because the population will continue to grow, so will consumption of our limited resources, air pollution problems, and the the potential for global climate change. Fortunately, a SWH system can cut the energy use and pollution from water heating by half, or more, in areas with plentiful solar energy (like most of California). As an added bonus, the SWH industry will create many new jobs as the world transitions to a more sustainable future!

What This Guide Includes

The guide includes six (one-page) spreadsheet files, each designed to allow rapid comparison of specific water heating systems. All of the inputs, outputs and cash flows for an entire 30 year finance scenario can be printed out on a single sheet of paper. The six "competing" water heating system types evaluated are (clicking on a link below will download the excel file template):

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1 - Electric Water Heater 2 - Electric Water Heater with Active Solar 3 - Electric Water Heater with Passive Solar 4 - Gas Water Heater 5 - Gas Water Heater with Active Solar 6 - Gas Water Heater with Passive Solar The basis and reasoning behind the values used for the examples, as well as considerations for other systems, are provided. The guide is layed out as follows: Examples Basis for Example Inputs General Discussion Actual (installed) systems are used as examples to illustrate the input variables used for an economic analysis. The basis and reasoning behind the selection of each input variable is described, along with the corresponding references. A general discussion of considerations for selecting each input variable. Considerations for other situations are provided, as are tables of suggested input values and references.

How To Use This Guide

Learn By Doing It's often easiest to "learn by doing," which is greatly facilitated by an example. Because a solar economic analysis depends on the combination of solar system type (active/passive) as well as the backup water heater type (electric/gas), an example of each combination is shown below. Each example represents an actual LCC analysis, researched and prepared by the California Solar Water Heating Collaborative (1). Descriptions of the "how and why" behind the selection of values for each of the examples are provided. More importantly, general considerations for system configurations unlike these examples are discussed, providing the user with suggestions for other applications. Choosing Appropriate Inputs For Your Economic Analysis The examples included here are illustrative of the range of considerations given one specific application: a residential subdivision home in Sacramento, California, circa 1992. Also, just two different solar water heating systems were evaluated. Be careful to ask yourself "Is this example identical to mine, with the same costs, hot water useage, etc?" It's likely the answer is "no." Therefore, be careful in selecting appropriate input variables for your situation - avoid "Garbage In" = "Garbage Out!" Selecting appropriate inputs for an economic analysis, or avoiding "Garbage In" = "Garbage Out," cannot be emphasized enough. To help illustrate the number of variables that can influence an economic analysis of SWH, consider the list below: Performance variables *Solar energy available *Outdoor air temperature & cold water temp.erature. *Collector tilt and orientation (varies with architectural design, aesthetics) *Collector shading (varies with shade from buildings and/or site objects) *Hot water used, time of use (varies by family size and habits) *Hot water delivery temperature (varies from 125 - 140 degrees F) *Auxiliary water heater size and type (varies considerably) *Solar energy system size and type (varies considerably) Economic variables
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*Current and future fuel costs *Current and future inflation rate *Discount rate, or "cost of capital." This is generally the interest rate the homeowner earns to lend (or pays to borrow) money; also referred to as "time value of money" from the investor's standpoint. *Homeowners income tax rate (varies with income) *Financing terms (loan period, interest rate, etc.) *Investment time period (length of time homeowner intends to live in home, mortage period, etc., depending on individual investment considerations) *System replacement and maintenance costs over time *Environmental benefits (value of reduced emissions, etc.) over time

Definitions of economic analysis terminology

Some users may not be familiar with some of the terminology used in this guide. These terms appear throughout the guide and are applied to certain parameters. The following are a few select terms used with brief definitions. Inflation: A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services. Escalation: To increase, enlarge, or intensify the value of a given commodity. Nominal: The value in a specific year, including the effects of inflation. This is normally the value as observed in the marketplace. For example, a "nominal" home mortgage interest rate of 8% (a common number today) includes the effect of inflation. Real: The nominal value in a specific year, after removing the effects of inflation. For example, if inflation is 3.4%, the "real" home mortgage interest rate is 4.6% (8% - 3.4%).

Financial Inputs
This section describes the selection of each of the financial inputs used for the economic analysis examples.

F1: Installed cost

Electric water heater: $480 (3). This cost is based on a system using an American Appliance KEFR90-50, 50 gallon water heater. This cost estimate was also obtained from a plumbing contractor. It includes electrical wiring and circuit breaker materials and installation, connection to H/C water piping stub-outs (but not the H/C water distribution system piping). Also included is the cost of a separate electrical service (breaker and 50 feet of dedicated conduit/wire) to serve only the water heater. The developer markup to the homeowner is again assumed to be 20%. Hot and cold water distribution system piping costs were not included, as this is common to all heater types being compared. Electric water heater + Active solar: $2,447 = $1,967 for solar system (10) + $480 for electric backup water heater (3). This cost is based on a system using a Solaray Model TE40P-80-1 (the "-1" signifies a single tank system). This system includes 40 sf of collector area and an 80 gallon electric water heater. Only the top portion of the electric water heater is heated by electricity, allowing the bottom portion to be heated by the solar collector. The estimated installed cost for this system was provided by the same two local solar installers referenced in the example above; the cost is lower due to the elimination of the extra tank required in a gas auxiliary system.

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Electric water heater+ Passive solar: $2,352 = $1872 for solar system (4) + $480 for electric backup water heater (3). This value represents the actual installed cost for the same solar system listed above, plus the estimated installed cost of the same electric water heater listed above. Gas water heater: $679 (2). This cost is based on a system using an A.O. Smith FGR50-218 (or equal), 50 gallon natural water heater, with an energy factor of 0.60. These cost values were obtained from plumbing contractors, based upon a number of assumptions regarding the specific installation. All water heating system component and installation costs, specific to the gas water heater, were accounted for in order to allow a meaningful comparison to electric and other heaters. For example, a gas water heater is assumed to be installed in a garage on a return plenum/water heater stand shared with the gas furnace. Also, a portion of both the water heaters flue and gas line are shared by gas furnace. The cost estimate includes the water heaters share of the flue pipe, gas line materials and installation, and connection to Hot/Cold pipe stub-outs. Hot and cold water distribution system piping costs are not included, as this is common to all heater types. The cost is based on a minimum of 100 units installed in a Sacramento area residential subdivision, and a 20% markup was added to account for the developers profit (from the home buyer). Gas water heater + Active solar: $3,294 = $2,615 for solar system + $679 for gas backup water heater (6). This cost is based on a system using a Solaray Model TE40P-80-2 (the "-2" signifies two tanks). The system includes 40 sf of collector area, a 40 gallon solar storage tank, and a 40 gallon gas auxiliary water heater. Note that the cost of the active solar system with a gas backup is higher than the same system with electric backup (see example, below). This is because a seperate solar storage tank is needed when a gas water heater is used (called a "two-tank" system); in the example below, the lower portion of the electric backup tank is utilized for solar storage (called a "one-tank" system). Gas water heater + Passive solar: $2,551 = $1872 for solar system + $679 for gas backup water heater (4). This cost is based on a system using a Thermal Conversion Technology; Model PT40-CN; 42 Gallon ICS volume; allcopper absorber with black chrome coating; collector area = 3.6X6.7 = 24.12 Sq.ft. The cost selected in this case represents the actual installed cost for systems installed in a Sacramento area residential subdivision several years ago, plus the estimated installed cost of the same gas water heater listed above; actual cost will vary from contractor to contractor, and the cost for a single (custom home) installation will be higher. Note that the solar system costs includes the auxiliary water heater ($679). The installed cost includes roof mounting hardware and installation but does not include additional costs associated with additional roof structure reinforcement which was not necessary in this case. The cost includes a $20 crane service, required for installation on two story homes ($80/hr, one hour minimum, with four to six units installed per hour). Installed costs are based on cost to the builder/developer - a 20% mark-up is added to account for overhead and profit (5). The solar contractor labor is approximately $20/hr, compared to approximately $45/hr for a plumber. This is a special rate provided by the solar contractor, reflecting the large number of installations involved; standard solar contractor rates in the Sacramento area are more consistent with the rates charged by plumbers.

General considerations
The accurate identification of installed cost cannot be overemphasized. The "garbage-in/garbage-out" rule should be kept in mind when important economic decisions hinge on the outcome. For example, the actual installed cost will vary by contractor, your location, and the number of systems involved. The costs referenced in the examples would be completely inappropriate for a single (custom home) installation, as the cost is based on a subdivision, and reflects the savings associated with a large number of installations. In the examples, the cost of different backup heaters is added to the solar system costs to allow comparison of "whole systems". For example, the gas and electric water heaters have distinctly different installed costs, such as flue vent & gas lines as opposed to a circuit breaker and electrical wiring. Also, the active system with gas backup requires an additional tank not required with electric backup, as gas based systems cannot be single tank

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Additional cost associated with additional structural depends on the systems installed weight and the load bearing capacity of the existing/designed roof structure; a structural engineer may be consulted to assure structural safety if weight is an issue. Other costs not included here that may be associated with some installations include added space for SWH equipment and the cost of building details designed to integrate the solar collector(s) into the roof system so they are less visible. In general, the best estimates invariably come from estimates or bids provided by installing contractors from the area in which the system will be installed. Suppliers and manufacturers do not generally quote their distributors prices and are not generally as reliable a source for installed cost estimates as installing contractors. RETURN TO TABLE OF CONTENTS

F2 Amount financed
All examples assumed 20% down, 80% financing on the total home loan amount borrowed.

General considerations
Although the examples all assume a home buyer is purchasing a home in a residential subdivision, the spreadsheet may also be used for cases where either a different down payment is required or the investment is not to be financed. To input a different down payment fraction, change the multiplier in the "amount financed" (F2) cell calculation from 0.2 to the value desired. If the project is not mortgage financed, set the value F2 to zero (this will set the down payment equal to the installed cost). RETURN TO TABLE OF CONTENTS

F3: Loan term

A loan term of 360 months was used for the examples, as a 30 year mortgage equals 360 months (30 years * 12 months/year = 360 months)

General Considerations
All the examples assume a thiry year mortgage, as this is common both for new home purchases as well as re-financing for an addition or remodel. Although mortgage loan terms vary; 30 years is most common. This spreadsheet is not intended to perform economic assessments for periods other than 30 years, although it could be amended to whatever time frame is desired by the user, assmuing the user has a basic understanding of spreadsheets and the economic functions used. RETURN TO TABLE OF CONTENTS

F4 Interest rate
An interest rate of 8% was assumed for this example, as it is the current lending rate for the time period considered (1996).

General Considerations
Financing rates vary with the prime lending rate; check current average interest rates in your local newspaper. Note that the cost-effectiveness of SWH is improved at lower financing rates, longer mortgage period and lower down payment. RETURN TO TABLE OF CONTENTS

F5 Nominal discount rate

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A nominal discount rate 6.2% was assumed for the examples (7). This therefore assumes a real discount rate of 3%, along with the current inflation rate of 3.2%, resulting in a nominal discount rate of 6.2%.

General Considerations
The discount rate is highly variable and, being that it is dependent on a specific application, it is not intended to be represented here as a fixed value suitable to all installations. The examples do not assume a "risk adjusted discount rate"; ie., it is assumed there are no differences in the risks associated with the "non-solar" versus the "solar" case. Discount rate will vary with each particular households economic situation - for simplicity it is appropriate in many cases to set the discount rate equal to the "opportunity cost" of borrowing money. This may be the average investment rate for consumers of 2% for savings, 5% for money-market accounts (8); alternately, the rate recommended by the National Renewable Energy Lab of 10% real (9) might be used for consumers when the discount rate is not known. The discount rate must be carefully selected based on the criteria for the given application. Note that the cost-effectiveness of SWH is improved at lower discount rates. RETURN TO TABLE OF CONTENTS

F6 General Inflation rate

A General Inflation rate of 3.2% was selected for the examples, using 1993 as the reference (or base) year; in 1996, the general inflation rate over the next 30 years is estimated to be an average of 3.2% (10).

General Considerations
The general inflation rate is an estimate of the future value of the dollar and is based solely on projections available at a given point in time. The actual future rate may be quite different from the value presented here. From a historical perspective, the actual average inflation rate from 1970 to 1993 was 5.5% (10). Note that the cost-effectiveness of SWH is improved at higher general escalation rates. RETURN TO TABLE OF CONTENTS

F7 Income Tax Bracket

An Income Tax Bracket of 25% (10) was selected for this example as being representative of the typical new home buyer in the Sacramento area.

General Considerations
The tax rate is highly variable and, being that it is dependent on a given families income and other factors, it is not intended to be represented here as a fixed value suitable to all. The actual marginal rate for the specific application is generally used here. For example, a value of 28.13% (11), the marginal rate for families earning more than $50,000/yr (the approximate minimum annual family income of a new home buyer), was selected for use by Energy Commission staff to compare end-use technologies for the California Energy Commission's ETSR (Energy Technology Status Report). RETURN TO TABLE OF CONTENTS

F8 Maintenance Cost
Gas or electric water heaters: No operations or maintenance costs for a gas or electric water heater are assumed for the examples because homeowners generally provide none; nor do they hire a plumber to provide O&M, but rather replace the water heater when it leaks or no longer functions. This is unfortunate, as regular water heater maintenance can as much as double or triple the time period between unit replacements, reducing costs over time, saving resources, and reducing problems associated with the availability of landfill space. Passive solar water heater:
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There is very little historical maintenance cost information available for solar water heating systems. The passive solar (ICS) unit used in the example is estimated to have a life time of 30 years according to a limited survey of 6 solar contractors (14). However, the pipe insulation wrap (or insulation itself) must be replaced approximately every 15 years for an estimated $75 service call (15). Active solar water heater: water heater According to Cliff Murley of SMUD, active systems have an estimated average maintenance cost of $30$50 per year, which includes valves, pumps, sensors, and controls (10). A cost of $40 per year was therefore used for the active system examples.

General considerations
Note: Maintenance costs are frequently referred to as "operation and maintenance" (or O&M) costs. Gas or electric water heaters For maintenance, manufacturers recommend the pilot and main burner be checked annually for proper flame characteristics (gas heater) as well as the venting system (for obstructions and/or deterioration in vent piping); lift the temperature/pressure relief valve lever a few times once a year; drain sediment from the heater periodically; and replace the anode rod(s) as necessary. In areas where lime and scale deposits are encountered, the water heater manufacturer recommends the tank be chemically delimed. Pressure/temperature relief and tempering valves are required for safety purposes for all water heating systems. A new pressure/temperature relief valve is assumed to be provided with the original and replacement water heater, although replacement between water heater change-outs is sometimes evident following a check of this valve. No thermostatic mixing valve is included in the estimates above, although the 1994 edition of the UPC (Uniform Plumbing Code), adopted by California code jurisdictions in January of 1996, requires them on all hot water supply lines to showers and tub/shower combinations (refer to UPC section 410.7). As this device is required for safety on all systems, regardless of water heater type, the cost was not included in the examples. Electric heat pump water heaters Electric heat pump water heaters have been around for 20 years, however there is little historical maintenance cost information available. The Federal Energy Management Program (FEMP) "Federal Technology Alert" series, which includes a volume on Heat Pump Water Heaters is the most detailed of the independent reports we know of regarding this subject. Solar water heaters The cost of maintaining a solar water heater varies considerably with the type of system and the corresponding "repair and replacement frequency". Many systems are sensitive to hard (mineralized) water, in which case scaling or build-up of debris may increase maintenance needs. Systems using a heat transfer fluid (referred to as "Class II" fluids) generally need the fluid replaced every three to five years. And as is usually the case, simpler systems built with quality components will require far less maintenance than more complex systems built with low quality components. For example, copper is generally considered better than stainless steel, which is better than plastic for solar collectors. A specially welded polypropylene solar storage tank will generally far outlast a fiberglass tank. Because higher quality generally comes at a higher cost, an economic analysis can be used to quantify this difference in terms of total cost over the mortgage period. Especially important, but often overlooked by some manufacturers, is the serviceability of the solar systems components. For example, if a component needs to be serviced or replaced it should be easy to access, but like some cars, some systems are difficult to impossible to service. These types of systems should generally be avoided, as an entire assembly (or the entire solar unit itself) may need to be replaced if it cannot be adequately serviced.

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RETURN TO TABLE OF CONTENTS

F9 Replacement Cost & Frequency

Gas or electric water heater Replacement cost is estimated to be $400.00 (with labor, materials & mark-up) and the frequency of replacement is estimated to be 15 years (10). Passive solar water heater The passive (ICS) based system requires replacement of the aluminum foil wrap covering the pipe insulation (and potentially the pipe insulation as well) in the 15th year. Because the ICS unit itself has not been installed in the field for 30 years, however, we have no way of knowing if it can last that long without replacement; it is constructed with an all-copper absorber, glass cover glazing, and aluminum frame; a survey of solar service contractors estimates the system may last 30 years (17). The manufacturer states the PT-40-CN solar water heater is virtually maintenance free, although they do recommend the glass be cleaned as needed and the unit be drained once a year, as is recommended for auxiliary water heaters; note that both the solar and gas (or electric) auxiliary water heater could be drained in a single service call. Also, as with auxiliary water heaters, in areas where lime and scale deposits are encountered, it is necessary to chemically delime the tank; it was assumed for this sample analysis that delimining and associated costs would not be necessary. It is important to understand that some SWH systems may experience O&M costs associated with certain component failures over a 30 year period, such as pressure relief valve, check valve(s), ball valve(s), tempering valve(s), and problems related to the solar storage tank or collectors such as glass breakage, glazing seal failure, insulation degradation, and internal scaling or connection failure in the collector absorber. Active solar water heater The replacement costs for the active solar water heater are included under "maintenance costs," and the tank replacement cost is the cost to replace the electric water heater (which doubles as solar storage).

General considerations
Gas or electric water heaters Replacement frequency is estimated by some to be as low as 9 years for gas and 10 years for electric heaters (18). Ultimately, the life of a water heater depends not only on its construction, but also on the type of use (commercial heaters have a shorter life than residential heaters), the amount of use, degree of regular maintenance, water quality, and water temperature setpoint. Solar water heaters The cost of replacing a solar system or system component varies considerably with the type of system and the effort required to service failure-prone components Again, the serviceability of the solar systems components is another major factor. The cost of replacing an entire assembly (or the entire solar unit itself) must be included it failure-prone components cannot be serviced. For example, consider the case of a passive system employing a fiberglass collector/storage tank with foam insulation fused onto the tank, which is in turn fused to the collector/storage container, and the glazing is riveted to the container. In this example, a tank failure requires replacement of the entire unit when only the fiberglass collector/storage tank had failed. With active systems, individual components can generally be replaced when they fail, although the ease of service varies considerably by manufacturer. The service cost relative to the component cost is therefore an important consideration when selecting a system. Generally speaking, pumps, differential controllers, collector sensors, special valves, and solar storage tanks will need to be replaced every ten to fifteen years. Copper-metal framed-glass type collectors should last twenty to thirty years, depending on the system type and application. Plastic collectors, similar to those used in pools, are sometimes used for SWH, however the life expectancy of these is harder to predict because they have not been in use as long as the copper-

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metal framed-glass collectors. Re-roofing costs were not included in the examples, however it can be an added cost in some instances. Generally speaking, if the roof is cement or clay tile, a material commonly used for roofing in the Sacramento region, the roof will not require replacement for 30 years. For other types of roofs where reroofing is required, the cost estimates received to remove & re-install collectors vary from $250 (8/24/95 William R. Murray & Sun, Inc., Sacramento, CA) to $330 (8/18/95 - Pelton's Solar Service, Grass Valley, CA) for material and labor, assuming a flashed steel mounting system (not wood sleepers) is used. RETURN TO TABLE OF CONTENTS

F10 Environmental (or Externality) Value

An "environmental value," more commonly refered to as an "environmental impact" class of "externality," was applied to these examples to account for the pollution reduction provided by the solar water heaters. These values were estimated using pollution factors and emission reduction values recommended by the IEP (Independent Electrical Producers) of California.

General Considerations
The quality of the environment, both now and in the future, is an important issue worldwide. For this reason, externalities are beginning to show up in the decision making process, but in limited ways. In general, the "social cost" of gas and electricity generation can apply to environmental impacts, impacts on production, trade balances, depletion of nonrenewable resources, defense of foriegn fossil fuel resources, and many other impacts. For example, Public Utility Commissions (referred to as "P-U-C's") are mandated to ensure utilities act in the public interest. One way they accomplish the public interest is to help ensure utilities minimize the social costs associated with utility generation. The value of "social costs" from a PUC perspective, however, is limited to environmental impacts. Another example is the U.S. Forest Service, which also includes environmental impacts in their decision making process for facilities. RETURN TO TABLE OF CONTENTS

Energy Inputs
E1 Solar Fraction
The estimated solar fractions for all of the example calculations are based on a TRNSYS (Transient Systems Simulation) computer program analysis (20). Typical Sacramento weather conditions and hot water useage patterns were used. Passive solar water heater Passive solar fraction = 0.487 (Integral Collec./Stor. or ICS + elec. aux. heater) Passive solar fraction = 0.433 (Integral Collec./Stor. or ICS + gas aux. heater) Active solar water heater Active solar fraction = 0.588 (one-tank; elec. element heats top, solar bottom) Active solar fraction = 0.446* (two-tanks; solar storage tank + gas aux. heater) * Uses additional 186 kWh electricity per year (for pump & control)

General Considerations
The Solar Fraction can be determined by simulation (TRYNSYS or WATSUN) or by correlation methods

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(such as FChart). Or, contact the Solar Rating and Certification Corporation (SRCC) and download their publication titled "SRCC Certified Solar Collector and Water Heating System Ratings" which can be used to calculate Solar Fraction. See the SRCC's web site for more information about SRCC, manufacturer/suppliers having certified systems, and how to calculate solar savings from SRCC's published "Solar Energy Factors" (SEF's). RETURN TO TABLE OF CONTENTS

E2 Fuel Usage
The estimated fuel usage for all of the example calculations is based on a TRNSYS (Transient Systems Simulation) computer program analysis provided by SRCC (they own a special version of this program, developed to better serve the evaluation of SRCC certified systems). The results were used to calculate the operating cost as follows: Gas water heater annual operating cost example: (22.182 MBtu/yr) x (6.25 $/MBtu) = $139/yr Electric water heater annual operating cost example: (4.382 MWh/yr) * (10^3 kWh/MWh) x (0.122 $/kWh) = $535/yr The calculated energy use is based on typical Sacramento California conditions which are, as the table below illustrates, close to the national average conditions upon which the SRCC ratings are based: Avg. Annual Air Temp (F) Sacramento U.S. National (City) Average 60.3 58.0 Avg. Daily Sun (Btu/days.f.) 1660 1500 Avg. Annual Water Temp (F) 65 58

The other conditions assumed for the TRNSYS analysis are 135F hot water supply temperature, 67.5F average ambient temperature (air around the water heater) and a daily hot water load of 64.3 gallons./day. The energy consumption of all systems evaluated in the examples are based on the same set of conditions so that direct comparisons are possible. Normally, the energy factor under those same conditions is used to provide a relative comparison of the fuel use of a water heater. The gas water heater is rated with an EF=0.60, and the electric has an EF=0.89 (21); if you are unfamiliar with the term "EF", or Energy Factor, it is described below. Although a gas EF of 0.60 for a gas water heater is considerably higher than the 0.53/0.54 required to comply with Title-24 energy standards, it is the unit most frequently used in subdivision developments. This is due to the high energy code compliance credit obtained at small additional cost. Cost savings vary with the solar system and water heater model selected, hot water use, solar and ambient temperature conditions, and many other factors.

General Considerations
Energy Factor The fuel useage, or energy consumption of a particular water heater is a direct function of the water heater temperature set point, the surrounding (environment) temperature, and hot water useage pattern. The Energy Factor (EF) is an overall measure of relative water heater efficiency, or "coefficient of performance" under DOE (Department of Energy) standard conditions. In equation form: EF = Energy Output/Energy Input = Qdelivered/Qaux Where*:

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Qdelivered= delivered water heating energy from system Qaux= auxiliary energy required to heat hot water *All values are expressed in the same units. The energy factor of a water heater under standard DOE test conditions is available from the Gas Appliance Manufacturers Association (GAMA) publication "Consumer Directory of Certified Efficiency Ratings;" GAMA is in Arlington, Vermont. Water Heating System Energy Calculation The annual energy load for a water heater can be esimated using the energy factor as follows: Yearly energy load (kWh/yr) = (365 days/yr) x (12.03 kWh/day) / EF where the constant of 12.03 kWh/day is the average annual energy use of a standard electric hot water heater. Knowing the fuel cost, the annual operating cost can be calculated as: Yearly energy cost ($/yr) = (Yearly energy load; kWh//yr) x (Fuel cost; $/kWh) Water Heating (with Solar) Energy Calculation The annual load met by solar can be determined by simulation (TRYNSYS or WATSUN) or by correlation methods (such as FChart). Solar with Electric Backup Case For all-electric systems under SRCC standard conditions, the SRCC Directory of OG300 Certified Systems allows simple calculation of annual load with the solar energy factor as follows: Yearly energy load met by solar (kWh/yr) = (365 days/yr) x (12.03 kWh/day) / SEF The constant of 12.03 kWh/day, above, is the average annual energy use of a standard electric hot water heater. Knowing the fuel cost, the annual operating cost can be calculated as: Yearly energy cost ($/yr) = (Yearly energy load; kWh//yr) x (Fuel cost; $/kWh) Solar with Gas Backup Case For systems with a backup gas water heater, the SRCC method cannot be used, however a method may eventually be developed. RETURN TO TABLE OF CONTENTS

E3 Fuel Cost
The rates assumed for the example are the average residential rates for PG&E . Average rates for several other utilities serving California at the time are: Propane gas rates (22): Statewide average = 1.14 $/gallon Natural Gas Rates ($/mmBtu) For California's Largest Gas Utilities (23) The Gas Company 6.42

Pacific Gas & Electric 6.4

San Diego Gas & Electric 6.55

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Electricity Rates ($/mmBtu) For California's Largest Electric Utilities (24) Pacific Gas & Electric 12.17 Southern California Edison San Diego Gas & Electric Sacramento Municipal Utility District 12.26 10.93 8.38

Because fuel costs depend on usage, solar savings, and weather conditions as a function of the time of the year, average residential rates were used for simplicity. The fuel costs used for the example are forecasted rates for 1995, based on 1993 as the reference year (the average data for 1995 was not available at the time).

General Considerations
Fuel costs vary both by utility as well as how much is used per month below the average or "baseline" rate and the "over baseline" or "marginal" rate (which costs more per unit of energy used). This fact can have a significant impact on the total savings associated with a particular system. For example, if a home has an electric water heater and the monthly electricity useage with water heating subtracted out, has already used up the baseline electricity "allowance," all of the solar water heating savings for that month would be at the higher "marginal" cost. If this were the case for every month of the year, this system would be more economical than one which saved energy only at the lower (under) baseline rate. Ideally, the relative consumption of gas or electricity throughout the year for the entire home must be known to determine the actual rate at which the savings accrue. Note that the cost-effectiveness of SWH is improved at higher fuel costs. RETURN TO TABLE OF CONTENTS

E4 Fuel Escalation Rate

The rates assumed for the example are the average nominal residential rates for PG&E (23), (24).

General Considerations
The fuel escalation rates are an estimate of future costs of fuel and are based solely on currently available sources of data - actual future rates may vary from the values presented here. Note that the costeffectiveness of SWH is improved at higher fuel escalation rate . Nominal rates for several other utilities serving California at the time are as follows: Propane gas: Unknown (unable to obtain data) Natural Gas Escalation Rates (%) For California's Largest Gas Utilities (23) The Gas Company 3.69

Pacific Gas & Electric 3.75

San Diego Gas & Electric 2.84

Electricity Escalation Rates (%) For California's Largest Electric Utilities (24) Pacific Gas & Electric 2.14 Southern California Edison San Diego Gas & Electric Sacramento Municipal Utility District 2.28 1.73 2.56

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RETURN TO TABLE OF CONTENTS

E5 Electrical Usage
Refer to "E1" and "E2"

E6 Electric Cost
Refer to "E3"

E7 Electricity Escalation Rate

Refer to "E4" RETURN TO TABLE OF CONTENTS

Other Considerations
Salvage Value The salvage value for the SWH (ICS) unit at year 30 is assumed to be zero (25). The salvage value of the auxiliary gas water heater at year 30 is also assumed to be zero. The salvage value for the SWH unit assumes a solar service contractor removes the system at no charge to the homeowner at the end of 30 years, with the contractor's expenses compensated by the salvage value of the copper and other materials within the unit. Likewise, the salvage value for the auxiliary gas water heater is assumed to be zero, as the cost to remove the heater is approximately equal to the salvage value of the heater. The salvage value for the auxiliary electric water heater is zero because it will be replaced anyway just after year 30 (given replacement frequency is 15 years). RETURN TO TABLE OF CONTENTS

Results
Given all of the inputs discussed previously, the graph below shows the results of the thirty year (mortgage financed) Life Cycle Cost Analysis, presented in terms of "annualized cost of ownership":

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The "total annualized cost of ownership" is the cost to install, maintain, fix, replace, and operate the water heating system over a 30 year period. Note: for those familiar with economics terminology, this is the annualized value of the life cycle cost. In this case, a natural gas water heater is the least costly option, followed by a passive solar system with a natural gas backup. Remember that this is just one example, looking at just two different solar water heating systems (there are several hundred others available), a specific set of economic criteria, etc. Professional assistance providers can help you find the most appropriate system based on your own hot water use, climate, system options, and so on. Now, what if we were to estimate the cost of subsidies and externalities, account for these "hidden costs" in an economic analysis, and revise the previous chart accordingly? Subsidies and/or externalities are of interest to decision makers ranging from consumers to the U.S. Forest Service. Any time "hidden costs" are included they should be carefully evaluated to assure the basis behind the selection is consistent with the interests of those involved. The results are shown below:

In this case, the externalities are limited to environmental impacts alone, and subsidies are estimated to add 10% to the cost of electricity and $0.05/therm for gas. Using these assumptions, the cost of a solar water heater with gas backup amounts to less than a dollar per month. Again, remember that this is just one example, looking at just two different solar water heating systems, etc. RETURN TO TABLE OF CONTENTS

References
1) The California Solar Water Heating Collaborative is a group of solar stakeholders from government and industry, formed in 1994 by the California Energy Commission (CEC), to assess and resolve commercialization barriers. 2) Fax from Les Nelson of CAL-SEIA, the California Solar Energy Industries Association to Tony Wong, CEC, on 3/14/95 ; $566 * 1.2 (markup). 3) Fax from Les Nelson of CAL-SEIA to Ray Darby, CEC, on 3/14/95 . 4) Invoice from Sierra Sun Industries, Inc., for actual installed cost of five passive SWH systems in a residential
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subdivision in Sacramento in June of 1992. 5) "1993 National Construction Cost Estimator." Source of this reference for builder markup to homeowner is fax from Les Nelson of CAL-SEIA to Ray Darby, CEC, on 3/14/95. 6) Telephone conversations with Richard Reed of SunEarth, Ed Murray of W.R.Murray & Sun Inc., and Mike Loer of Sierra Pacific Solar in May 1996. 7) California Energy Commission, Efficiency Technology Division - value recommended by Jon Leber and Tony Wong for residential case, during meeting with Pramod Kulkarni and Ray Darby, 10/5/95 - based on a real discount rate of 3% + 3.2% inflation = 6.2% nominal discount rate. 8) Byard Wood, Technical Director, SRCC; recommendation for SWH analysis sent in fax to Cliff Murley, SMUD, 7/27/95. 9) "A Manual for the Economic Evaluation of Energy Efficiency and Renewable Energy Technologies", Doc # NREL/TP-462-5173, National Renewable Energy Lab, March 1995 10) "Analysis Of Various Water Heater Systems," May 1996, California Energy Commission; this guide is based on the paper and spreadsheets originally developed by Tony Wong, Energy Efficiency Division. 11) John Butler, California Energy Commission, Research & Development Office; maximum effective marginal income tax rate for 95% of California Population. This value was used to assess end-use technologies for the purpose of the California Energy Commission's 1996 Energy Technology Status Report. 12) Construction Industry Research Board, February 1994; 50.3% homes 3-bedroom @ $147.6k avg cost; 40.3% homes 4-bedroom @ $189.1k avg cost. 13) Rich Gernes, Mortgage Broker, (916) -273-2875; in phone conversation with Ray Darby, CEC; Rich said the general formula for calculating required income when qualifying for a mortgage is complex, however as a general rule of thumb (assuming 20% down), for principal, interest, taxes, and insurance they allow 33% of gross income for housing cost - therefore, assuming $150k home @ 8% for 30 years, P&I = $880.52, taxes = $156.25 (1.25%), and fire insurance = $34 (0.34%/12) = $1,070/month; therefore $1070/0.33 = $3242/month gross (38,909/yr). Therefore, average annual taxable income required to purchase typical new home is = $40k/yr. 14) John Anderson, Sandia Labs; 7/17/95 letter sent to Cliff Murley, SMUD Solar Program, re. Sandia survey of solar contractors. 15) Average cost of $75; First estimate = $83.53 = $12.60 material + $0.98 tax + $69.95 labor from Ed Murray, William R. Murray & Sun, Inc., 8/24/95 fax to Ray Darby; Second estimate = $66.55 = $13.55 material & tax + $53 labor from Bob Pelton, Pelton's Solar Service, 8/18/95 fax to Les Nelson. 16) "Analysis Of Various Water Heater Systems," May 1996, Tony Wong, California Energy Commission (916654-4015). 17) Survey by John Anderson, Sandia Labs; 7/17/95 letter sent to Cliff Murley, SMUD Solar Program. 18) "Annual Industry Survey"; Appliance Magazine, Dana Chase Publications, Oak Brook, IL; September 1996 issue. 19) Emmision reduction offsets transaction costs - summary Report for 1994, May 1995; pg 11, tbl 4 - Sac area , $8750/ton (transaction of 4.44 tons), $13500 (84.73 tons); $37000/ton (39.28 tons). Average cost = $20,522/ton or $10.261/lb. Nat gas reduction rate for ICS unit = (1/0.6-1/1) x 4,1045 x 365 = 9.99 mmBtu/yr. NOx emission
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reduction = NOx emission factor x Nat gas reduction rate = 0.0895 /lbs/mmBtu x 9.99 mmBtu/yr = 0.894 lb. 20) Fax from Steven Long, Florida Solar Energy Center (FSEC) to Cliff Murley of SMUD, 7/31/95. The SEF calculation was done using the TRNSYS computer program, with data for Sacramento, CA. 21) California Energy Commission Directory Of Certified Water Heaters, January 29, 1993; EF & Btu.day (assumption for Btu/day derived from Annual Energy Consumption - AEC); pgs. 177 (electric) and 133 (gas). EF & AEC are based on the same hot water load and temperature conditions as were used for derivation of the SEF. 22) Report to The California Legislature on Propane Service, Rates, and Safety, California Public Utilities Commission, March 1993; data for 1990. 23) 1995 Fuels Report preliminary data, California Energy Commission; "Unofficial Estimates" as they are derived from data proposed for the report which has not yet been completed or approved by the Commission 24) 1996 Electricity Report preliminary data, California Energy Commission; "Unofficial Estimates" as they are derived from data proposed for the report which has not yet been completed or approved by the Commission. 25) Conversation between Ed Murray of W.R. Murray & Sun, Inc. (916-929-3916) and Tony Wong, CEC in November 1994. Back To Top Of Page

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Last revised 02/12/2010 Contact The Energy Guy

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