LCCAid:

Life Cycle Cost Analysis for integrative design

Users Guide
version 1.0

1820 Folsom Street | Boulder, CO 80302 303.245.1003 | www.rmi.org

March 2011

1 ACKNOWLEDGEMENTS
The RMI LCCA Tool w as d eveloped w ith fu nd ing from Rocky Mountain Institutes Com m ercial Build ing Retrofit Initiative. The follow ing staff at Rocky Mountain Institute w ere involved in its d evelopm ent: Aaron Buys, Lead Developer Kend ra Tupper, Project Manager Caroline Fluhrer, Content Support Ad d itional thanks to all beta testers for their valuable feed back.

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2 TABLE OF CONTENTS
1 2 3 ACKNOWLEDGEMENTS .......................................................................................... 2 TABLE OF CONTENTS.............................................................................................. 3 OVERVIEW ............................................................................................................... 4
3.1 3.2 3.3 ABOUT......................................................................................................................... 4 COMPATIBILITY AND SAVING THE FILE............................................................................... 4 O THER TOOLS AND EDUCATIONAL M ATERIALS.................................................................. 4

GUIDE TO LCCA STEPS ........................................................................................... 5

4.1 4.2 4.3
4.3.1 4.3.2 4.3.3

STEP 1: PROJECT INFO .................................................................................................... 5 STEP 2: GLOBAL INPUTS ................................................................................................. 6 STEP 3: ADD /EDIT/D ELETE BASELINES................................................................................ 8
Adding a Baseline..................................................................................................................... 9 Editing a Baseline.................................................................................................................... 12 Deleting a Baseline ................................................................................................................. 13

4.4 4.5
4.5.1 4.5.2 4.5.3

STEP 4: BASELINE O UTPUT REPORTS................................................................................13 STEP 5: ADD /EDIT/D ELETE M EASURES ..............................................................................13
Adding a Measure .................................................................................................................. 14 Editing a Measure ................................................................................................................... 15 Deleting a Measure ................................................................................................................ 15

4.6 4.7 4.8 4.9

STEP 6: M EASURE O UTPUT REPORTS ...............................................................................15 STEP 7: ADD /EDIT/D ELETE BUNDLES................................................................................19 STEP 8: BUNDLE O UTPUT REPORTS.................................................................................20 STEP 9: SENSITIVITY ANALYSIS.........................................................................................20

5 6 7

GLOSSARY ............................................................................................................. 21 FREQUENTLY ASKED QUESTIONS........................................................................ 24 REFERENCES........................................................................................................... 25

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3 O VERVIEW 3.1 ABOUT

This life cycle cost analysis tool w as d esigned to be used by build ing d esign professionals (architects, engineers & energy m od elers) w ho have little or no previous experience w ith financial analysis. The goals in its d evelopm ent w ere: 1. Transparency Make it as clear as possible how the financial calculations are being d one. This has been accom plished by keeping the tool open source. The user can see all the in-cell calculations, as w ell as all of the user -d efined functions and sub-routines that are used . 2. Simplicity Make it easy enough to d o that som eone w ith no prior LCCA experience can use the tool. This has been accom plished by utilizing a step -bystep m ethod in w hich the user starts w ith the basics and m oves on to m ore d etailed inform ation. 3. Flexibility Give users experienced in LCCA the ability to m od ify and ad apt the tool as they see fit. This is d one by creating an open source tool w ithin a fram ew ork w ith w hich m ost d esign professionals are fam iliar Excel.

3.2 COMPATIBILITY AND SAVING THE FILE

The tool w as d eveloped in Microsoft Wind ow s XP SP3 u sing Office 2007. The file has been saved d ow n to Excel 97-2003 com patibility to provid e greater usability. All efforts have been m ad e to avoid com patibility errors, but becau se the program uses VBA su broutines, problem s m ay occur d ue to library locations. These problem s occur w hen Excel is upd ated and the path of a VBA library is changed . This can be fixed by correcting the path by going to the VBA ed itor (Alt+F11), choosing Tools/ References, selecting the library which has been m od ified and brow sing to find the correct path. Ad d itionally, w hen using Excel 2007, the w orkbook m ust continue to be saved as 972003 com patible (.xls) as opposed to a 2007 version (.xlsx).

3.3 O THER TOOLS AND EDUCATIONAL M ATERIALS

This tool w as d eveloped by Rocky Mountain Institute (RMI) in conju nction w ith several other softw are tools and ed ucational m aterials w ith the sam e goal in m ind . These other tools and m aterials includ e: A full d ay energy m odeling training w orkshop covering m od eling fund am entals, best practices for quality control, use of the 90.1 Perform ance

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Rating Method , and strategies for effectively utilizing energy m od eling throughout the build ing life cycle. Content d evelopm ent for the BEMbook energy m od eling w iki hosted by the International Build ing Perform ance Sim ulation Association (IBPSA) located at http:/ / bem book.su -per-b.org/ ind ex.php?title=Main_Page A DOE-2.2 m od el m anager, w hich stream lin es param etric runs in DOE-2.2 based m od eling softw are EMIT (Energy Mod el Input Translator), w hich translates typical d esign d ata into energy m od el input d ata. A w eather tool that lets the user im port, ed it, analyze, visualize, and export w eather d ata from all of the com m only used w eather d ata form ats. Energy Aud it Checklists

LCCAid , along w ith current and future tools, can be d ow nload ed at: http:/ / w w w .rm i.org/ rm i/ Mod elingTools

4 GUIDE TO LCCA STEPS

The tool is structured in a step -by-step m anner. The follow ing is a d escription of each step w ith som e tips and tricks along the w ay. See section 5 for a glossary of term s.

4.1 STEP 1: PROJECT INFO

The first step involves entering basic inform ation about the project for w hich you are perform ing an LCCA. When you click Step 1: Project Info , the form in Figure 1 appears. The follow ing inform ation is required at this tim e: Project N ame: The nam e of the project, w hich w ill appear on output reports. Project Location: The location of the project, w hich w ill appear on output reports. User N ame: The user m ay enter their nam e, w hich w ill appear on output reports. Utility Region: The u ser can click Lookup Region and w ill have the option of either entering a zip cod e or choosing from a list of regions on a m ap of the United States. These regions are Figure 1. Step 1: Project Information Form

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d efined by the EPA eGrid program (w w w .ep a.gov/ egrid ) and are used to d eterm ine the equivalent CO 2 em issions d ue to electricity prod uction in the region. Square Feet: The total square footage of the build ing for w hich the analysis is being d one. Inform ation is for output report purposes only, although it m ay be reference in any cell by using the variable nam e ProjectA rea. Analysis Start D ate: The year in w hich your analysis starts. This is typically the year in w hich construction begins, although m ay be any year the user chooses. Occupancy D ate: The year in w hich the build ing is first occupied . This d ate is u sed as a d efault for the start of utility use, and has no effect on the calculations. Analysis D uration: The length of the analysis period . This value m ay be any num ber from 1 to 50 years. The d uration starts at the analysis start d ate, so if the analysis m u st be 25 years from the start of occupancy and construction lasts for 2 years, then this value should be 27 years. Once all the inform ation has been entered , click OK and m ove to step 2.

4.2 STEP 2: GLOBAL INPUTS

This step is w here d iscount, inflation and escalation rates are entered . See the glossary for m ore inform ation on these. In ad d ition, the user selects w hich u tilities w ill be u sed in the analysis and can ad just the CO 2 em ission rates for each utility. When the user clicks Step 2: Global Inputs the form in Figure 2 pops up .

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Figure 2. Step 2: Global Inputs Form In this form , the user m ay enter the follow ing inform ation: D iscount Rate Method: The user chooses either constant d ollars or current d ollars. The constant d ollar m ethod ignores inflation, w hile the current d ollar method accounts for inflation. Real D iscount Rate: The real d iscount rate is the rate at w hich future costs are d iscounted to the present. If constant d ollars are chosen, the real d iscount rate is equal to the nom inal d iscount rate. This rate is typically set by the projects ow ner/ fund er as a targeted rate or return. Inflation Rate: The inflation rate is the rate at w hich the price of good s and services increases annually. This rate is only used w hen current d ollars are selected .

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N ominal D iscount Rate: The nom inal nom inal d iscount rate is calculated using the follow ing equation: n = (1+d)(1+i) 1 Equation 1

w here n is the nom inal d iscount rate, d is the real d iscount rate and i is the inflation rate. The nom inal rate is the rate used in the w orkbook to d iscount all cash flow s to present d ollars. Escalation Rates: Escalation rates are rates at w hich the price good s and services increase annually above inflation. This tool lets you account for escalation of all energy sources and w ater. DOE projected escalation rates for energy sources are built in and m ay be used by selecting the Use DOE stand ard escalation rates rad io button and selecting the state w here the project is located from the d rop dow n list to the right. Currently, these rates are taken from the 2010 Supplem ent to N IST H and book 135. Utilities: The user should select from the list all utilities to be analyzed . Only selected utilities w ill show up on form s in follow ing steps. Carbon Emissions: You m ay choose to use the d efault carbon em ission factors, w hich are based on EPA d ata, or you m ay choose to enter your ow n custom rates. These em issions are u sed to calculate carbon savings, and the em issions for electricity m ay also be used in carbon tax calculations. Carbon Tax Method: You m ust choose one of three scenarios no carbon tax, DOE forecast carbon tax, or flat rate carbon tax. The DOE forecasts are taken from the 2010 Supplem ent to N IST Hand book 135. Carbon taxes only apply to electricity, and are calculated based on the utility em issions rate entered in this step. After com pleting step 2, click OK and go to step 3.

4.3 STEP 3: ADD /EDIT/D ELETE BASELINES

Step 3 is the first instance w here energy m odel outputs or other energy use d ata is required . In this step, you create baselines that w ill be associated w ith your energy efficiency m easures. These baselines should be carefully d efined to provid e the m ost insightful benchm ark for the energy efficiency m easures. Baselines m ay likely be created for each system (H VAC, lighting, etc.), or for specific com p onents (e.g. w ind ow s), or possibly for the w hole build ing. For new build ings, the baselines m ay be ASH RAE 90.1 com pliant system s. For an existing build ing, the baseline m ay be current system s. When the Step 3 button is clicked , the form in Error! Reference source not found. ppears.

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From here you m ay choose to ad d , ed it or d elete a m easure. Each of these options is d escribed in d etail below .

4.3.1 Adding a Baseline

When you select Ad d a Baseline, you w ill be prom pted to enter a nam e for the baseline along w ith any notes (see Figure 4Error! Reference source not found.). H ere, you enter the nam e of the baseline and any notes that go Figure 3. Add/Edit/ along w ith it. You m ay also check the box to copy utility d ata D elete a Baseline from a previously entered baseline. It is generally useful to enter utility d ata at the w hole build ing level for every baseline even if that baseline is for a sp ecific system or com ponent. This w ill let you account for integrative benefits such as red uced cooling load s d ue to red uced lighting pow er.

Figure 4. Basic Baseline Information Once you click Create Baseline & Go To Inputs the tool w ill autom atically ad d an entry in the Baseline Data tab for the baseline you have just created and a form w ill pop up for you to enter utility d ata (See Figure 5).

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Figure 5. Baseline Utility D ata This form allow s you to ed it the baseline annual use and cost for each utility, as w ell as ad d notes on the d ata. You can also choose the year in w hich the utility d ata should begin (Annual Use Start D ate ). This input gives you the opportunity to d elay the utility use w hile the build ing is und er construction. This value d efau lts to the Occupancy D ate entered d uring Step 1: Project Inform ation. If the annual use or cost is not constant over the life of the build ing, you m ay click the check box next to the input box and click the ad jacent Enter Manually button to enter the d ata for each year separately. The m anual entry option is available for m ost d ata inputs in LCCAid . When the button is clicked , the form in Figure 6. Manual Entry Form Figure 6 appears. The m anual entry form is autom atically populated w ith one input box for every year of the analysis period . You can enter the values for each year separately, or you m ay use the d efault value function located in the low er left corner to populate every box w ith a d efault value and then change only the years that d eviate from the default. When you are d one, click the save button to return to the baseline utility form .

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Figure 6. Manual Entry Form Once you are d one w ith the utility d ata, click the Continue to Costs button. The form in Figure 7 w ill appear.

Figure 7. Cost Input Form

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In this form , you enter all of the costs for the baseline. These inclu d e the follow ing: Capital: Capital costs includ e all equipm ent and installation costs. If the life of the equipm ent is shorter than the length of the stud y period , then you w ill need to also account for replacem ent costs by selecting the Period ic Replacem ent option in the Cost Type d rop dow n m enu. You can also enter a salvage value, w hich w ill be accounted for in the last year of the stud y period . Operation, Maintenance & Repair (OM&R): OM&R costs should account for any planned equipm ent op erating, m aintenance or repair bud gets, such as replacing light bulbs, H VAC filters, or fan belts. Rebates & Incentives: Rebates & Incentives includ e any tax cred its or utility rebates that are associated w ith im plem enting the m easure. A useful d atabase for these incentives can be fou nd at http:/ / w w w .d sireusa.org/ . Taxes: In this field , you m ay select Carbon Tax from the d rop dow n m enu, and the carbon taxes w ill autom atically be calculated based on the scenario you selected in Step 2. Otherw ise, you m ay input your ow n tax costs in a m anner sim ilar to the other costs. Other Costs: This is a catch-all category for the user to enter any costs that d o not fall und er any of the previous categories. At this tim e, there is not an option to create ad d itional cost categories, so all m iscellaneou s costs should be su m m ed up and entered und er this category. All costs entered in this form are assum ed to be negative cash flow s, w ith the exception of Rebates & Incentives.

4.3.2 Editing a Baseline

When you select Ed it a Baseline, you m ay select the baseline you w ish to ed it (or if there is only one baseline, it w ill autom atically be selected ). After selecting the baseline, the form in Figure 8 w ill appear. From this form you can access the utility and cost form s in Figures 5 & 7.

Figure 8. Edit Baseline

You m ay also ed it bsaeline d ata d irectly in the Baseline Data tab, or you m ay ed it baseline nam e and notes in the Baseline Su m m ary tab.

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4.3.3 Deleting a Baseline

You m ay need to d elete a baseline d uring your analysis. To d o so, select Delete a Baseline from the Ad d / Ed it/ Delete d ialog box. Select the baseline you w ish to d elete from the d ialog box that appears. You w ill be asked to confirm that you w ant to d elete the bseline. If so, select Yes and it w ill be d eleted . Be careful w hen d eleting a baseline, because there is no w ay to retrieve it once it has been d eleted .

4.4 STEP 4: BASELINE O UTPUT REPORTS

After entering your baselines, you can access a sum m ary of the baselines by clicking the Step 4: Baselin e Output Reports button. This w ill take you to the FEMP Baseline Sum m ary tab. See Table 1 for an exam ple. Table 1. Baseline Summary Report
Project Name: Project Location: User Name: Base Year: Occupancy Date (Service Date): Study Length: Project Name Boulder, CO J ane Doe 2012 2013 21 years Discount Rate: Inflation Rate: Nominal Rate: Escalation Type: 8% N/A 8% DOE/NIST

Lighting Baseline
Notes: Notes Present Value Capital Costs Salvage Costs Energy Costs Water Costs OM&R Costs Rebates & Incentives Taxes Other Costs Total ($10,000) $0 ($153,072) ($45,228) ($982) $0 ($58,348) $0 ($267,629) Annual Value ($998) $0 ($15,282) ($4,515) ($98) $0 ($5,825) $0 ($26,718) Qualitative Benefits:

4.5 STEP 5: ADD /EDIT/D ELETE M EASURES

Step 5 is w here you enter all energy efficiency m easures for the project. Start by clicking the Step 5: Ad d/ Ed it/ Delete Measures button. From here you m ay choose to ad d , ed it or d elete a m easure. Each of these options is d escribed in d etail below .

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4.5.1 Adding a Measure

When you select Ad d a Measure, y ou w ill be prom pted to enter a nam e for the m easure along w ith any notes, as w ell as select a baseline for the m easu re (see Figure 9Error! Reference source not found.). After entering this inform ation, click Create Measure . The tool w ill autom atically ad d an entry in the Measure Data tab for the m easure you have just created and a form w ill pop up for you to enter utility d ata for the m easure. This form is id entical to the form in Figure 5Error! Reference source not found. and requires all of the sam e d ata. Utility d ata entered in this form should be absolute utility use and cost for the m easure, N OT utility savings for the m easure. The next step is entering costs for the m easure. This form is id entical to the form in Figure 7, and all the sam e d ata is required . Once you have com pleted the utility and cost inputs, click Continue to Qualitative Benefits to m ove on to the final step of the Ad d a Measure process. This w ill take you to the Qualitative Benefit form (see Figure 10). Qualitative benefits are ad vantages of m easure to w hich a qu antitative dollar am ount cannot be assigned . This form afford s you the opportunity to record these ad vantages for consid eration. Four com m on benefits are listed for you, but you m ay also record your ow n in the space below . These benefits are often ignored in a conventional LCCA because they cannot be incorporated into typical financial Figure 9. Add a Measure

Figure 10. Qualitative Benefits

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m etrics. H ow ever, they could be the d ecid ing factor betw een tw o m easures w ith sim ilar m etrics. Once the qualitative benefits have been entered , click Finish & Save.

4.5.2 Editing a Measure

N ow that you have created a m easure, you m ay w ish to ed it it. When you select Ed it a Measure you w ill be asked to select a m easure to ed it from the list of measures that have alread y been created . The process for ed iting a m easure is sim ilar to ed iting a baseline. From the d ialog box that pops up, you m ay ed it the m easure nam e and notes or select a d ifferent baseline. You m ay also choose to ed it the utility d ata, costs or qualitative benefits by clicking on the buttons at the bottom of the w ind ow . Clicking any of these three buttons w ill bring up the sam e form s w hich w ere used to ad d the m easure. You m ay also ed it m easure d ata d irectly in the Measure Data tab, or you m ay ed it m easure nam e, notes and baseline d escription in the Measure Sum m ary tab.

4.5.3 Deleting a Measure

Deleting a m easure is the sam e as d eleting a baseline. Be careful, because you cannot retrieve a m easure once it has been d eleted .

4.6 STEP 6: M EASURE O UTPUT REPORTS

After entering your efficiency m easures, you m ay w ant to com pare m easures or look at a sum m ary of financial ind icators for a specific m easure or m easures. This step gives you the option to view or create five d ifferent reports: Cash Flow vs. Time: This report gives you the opportunity to plot d iscounted cash flow over the analysis period for any com bination of measures. The plot show s the accum ulated net present value for each m easure at each year. See Figure 11 for an exam ple. N PV Bar Graph: This report com pares the NPV of selected m easures on a bar graph. See Figure 12. N PV vs. Carbon Reduction: This report plots the N PV for each selected m easure against that m easures total carbon red uction. The best location for a m easure on this graph is tow ard the upper right (m axim um N PV w ith m axim um CO 2 red uction). See Figure 13.

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Summary LCC (FEMP Standard): This is a text report d esigned to m im ic the sum m ary LCC report from the BLCC5 softw are. See Table 2 for an exam ple. Measure Financial Metrics: This report is a sum m ary for all m easures of typical financial m etrics su ch as net present value, d iscounted payback period , savings to investm ent ratio, ad justed internal rate of return and levelized cost of efficiency. In ad d ition, energy, carbon and w ater savings are also listed . See Table 3.

Figure 11. Cash Flow vs. Time Example

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Figure 12. N PV Bar Graph Example

Figure 13. N PV vs. Carbon Reduction Example

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Table 2. Summary LCC Example

Project Name: Project Location: User Name: Base Year: Occupancy Date (Service Date): Study Length: Project Name Location J ane Doe 2011 2011 20 years Discount Rate: Inflation Rate: Nominal Rate: Escalation Type: 8% N/A 8% DOE/NIST

Measure 1
Notes: Baseline Description: Note 1 Baseline 1 Present Value Baseline Initial Capital Costs Baseline Salvage Costs Measure Initial Capital Costs Measure Salvage Costs Net Measure Energy Costs Net Measure Water Costs Net Measure OM&R Costs Net Measure Rebates & Incentives Net Measure Other Costs Total $50,000 $0 ($70,000) $0 $26,775 $0 $0 $0 $0 $6,775 Annual Value $5,093 $0 ($7,130) $0 $2,727 $0 $0 $0 $0 $690 Qualitative Benefits:

Table 3. Measure Financial Metrics Example

Measure Reduced LPD Notes 30% reduction in LPD Baseline Lighting Baseline Net Present Value $1,513 Discounted Payback Period 12.64 Savings to Investment Ratio 1.061 Adjusted Internal Rate of Return 9.58%

table contd :

Levelized Cost of Efficiency ($/ MMBtu) $54.46

Energy Use Reduction Cost Savings $9,143 MMBtu 483 % 2.9%

CO2 Emissions Reduction Metric Tons 102 % 6.1%

Water Reduction 1000 gal 0 % 0.0%

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4.7 STEP 7: ADD /EDIT/D ELETE BUNDLES

A bund le is a com bination of ind ivid ual energy efficiency m easures. The p urpose of bund ling is to evaluate the synergistic benefits of measures. This practice supports integrative d esign and allow s for m ore cost-effective m easures to absorb the cost of measures that d o not pay for them selves, lead ing to a m ore efficient d esign w ith m ore qualitative benefits. Bund ling m easures also often lead s to d ow nsizing m echanical system s because a sp ecific collection of measures can greatly red uce heating and cooling load s. When you click on Step 7: Ad d / Ed it/ Delete Bund les, you w ill see the d ialog box in Figure 14. To create a bund le, click Ad d a Bund le and you w ill see the Ad d a Bund le form (Figure 15).

Figure 14. Add/Edit/ D elete a Bundle

From this form , you m ay nam e the bund le and insert any notes. Then, select all the m easures you w ould like to bund le and click Create Bund le. A bund le w ill be created by sum m ing up all costs from each m easure in each category. This process assum es that no m easures interact w ith each other that is, all savings from each m easure are fully realized w hen the m easures are com bined . Of course, this assu m p tion is not necessarily true. As m entioned above, oftentim es the m echanical system s can be d ow nsized w hen several m easures are com bined . Therefore, after m aking a prelim inary bund le of measures, you should resize the m echanical system s, Figure 15. Add a Bundle Form and re-evaluate the energy operating cost savings and capital cost of the bund le. This re-evaluation w ill not require as m uch as effort as w as required to create the initial estim ates, because you can com bine m easures w ith relative ease using param etric runs in energy m od eling softw are and revise the initial cost estim ates w ithout m uch ad d ed effort.

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Once you have created your bund les, you m ay ed it and d elete them in the sam e m anner in w hich m easures are ed ited and d eleted . See Section 4.5.2 and 4.5.3 for d etails on these processes.

4.8 STEP 8: BUNDLE O UTPUT REPORTS

Once you have created your bund les, you m ay create the sam e reports as are available und er Step 6. See Section 4.6 for a sum m ary and exam ples of these reports.

4.9 STEP 9: SENSITIVITY ANALYSIS

After com pleting the input of all baselines, m easures and bu nd les, it is useful to d o sensitivity analysis to d eterm ine w hat variables have the m ost im pact on the financial results of your LCCA. Click on the Step 9: Sensitivity Analysis button to access this feature, and the follow ing form appears:

Figure 16. Sensitivity Analysis From here you m ay select a single param eter to vary w ith the rad io buttons in the first colum n, or you m ay check the m ultiple param eters box and select several param eters. You m ust also select the output value you w ou ld like to record .

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If you select a single param eter, the form in Figure 17 pops up. H ere you w ill enter the m inim um and m axim um values you w ish to explore and select the num ber of steps betw een the m inim um and m axim um . Click OK and the outputs are calculated for all m easures and bund les. The results are com piled on the Sensitivity tab. If you choose m ultiple param eters, the form in Figure 18 w ill pop up. H ere you m ay enter any combination of param eters. Click Load Current Values to populate the param eters w ith their current setpoints. Once you are finished entering the param eter values, click OK and the results are com piled . Figure 17. Single Parameter Sensitivity

Figure 18. Multiple Parameter Sensitivity

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5 GLOSSARY
The follow ing is list of term s used in the tool and their d efinitions or d escriptions. Utility Region : For projects insid e the United States, enter the four -letter eGrid acronym for the region w here the build ing is located . Click Show Map for a m ap of all U.S. regions. For projects outsid e the United States, enter the nam e of the country w here the build ing is located . This input w ill inform the d efault carbon em issions values used in the analysis. Analysis Start D ate : This is the year in w hich the first cash flow of any type (usually capital cost) w ill occur. N ote that this year w ill also be the reference year if constant d ollars w ill be used . Occupancy Start D ate : Enter the year in w hich the build ing w ill first be occupied . This can also be thought of as the analysis start d ate plus the expected construction tim e. This d ate is u sed as a d efault start d ate for annual costs for energy, but otherw ise has no effect on the analysis. Analysis D uration : Enter the length over w hich the life cycle cost analysis w ill be cond ucted (e.g. the nu m ber of years for w hich you w ant to account for cash inflow or outflow s). For fed eral projects, this is 40 years from occupancy (per EISA 2007). For private sector projects this typically ranges from 5 15 years. Because this is such a critical input, it should be d iscussed w ith and agreed upon by the client project m anager. D iscount Rate Method : For the analysis, you can choose if youd like to use constant d ollars or current d ollars. If you choose constant d ollars , the value of a d ollar is kept constant throughout the analysis. This m eans the analysis w ill not account for inflation and a real d iscount rate w ill be u sed . If you choose current d ollars, the value of the d ollar changes over tim e to account for inflation. If this option is selected , a nom inal d iscount rate w ill be u sed . As an exam ple, if the analysis is d one u sing constant d ollars, everything w ill be in the reference year (e.g. 2011) d ollars. Thus, a chiller that m ight cost $500k in 2010 w ill also cost $500k in 2011 d ollars in 2015 (unless you think the actual cost of the item w ill change above or below inflation). If the analysis is d one in current d ollars, the chiller w ill cost say $537k in 2015 in 2015 d ollars (d u e to inflation). Because the LCC m ethod d iscounts everything back to the present year, the use of constant versus current d ollars w ill not affect the total LCC, though it w ill affect the SIR and IRR values. Thus, this is an inp ut that should be d iscussed w ith the client project m anager, as som e clients w ill prefer to includ e inflation and som e w ill not.

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It should be noted that inflation is not the sam e as the tim e value of money. Even if inflation is ignored in the analysis, $10 tod ay is still w orth m ore than $10 five years from now . This is because you could take that $10 tod ay, invest it, and have m ore than $10 in five years. If you received the $10 in five years, you w ould have no opportunity to have m ore than $10. Thus, m oney is alw ays w orth m ore tod ay than tom orrow . This fact is accounted for by the real d iscount rate. Real D iscount Rate : The real d iscount rate is the rate at w hich future costs are d iscounted to the present. Essentially the real d iscount rate accounts for the tim e value of money (that m oney tod ay is w orth m ore than m oney tom orrow ). For exam ple, at a real d iscount rate of 5%, a cost of $100 incurred in 2012 w ould equal $95 in 2011, and a cost of $100 incurred in 2013 w ould equal $90.25 in 2011 (100*(1-.05)2). If you chose constant d ollars as your d iscount rate m ethod, w hich m eans you are exclud ing inflation, then you need only enter a real d iscount rate. If you w ant to includ e inflation, you should use the nom inal d iscount rate. N ominal D iscount Rate : If you chose current d ollars as your d iscount rate m ethod , then the nom inal d iscount rate w ill be used to account for both the tim e value of money and for inflation w hen calculating present value. This num ber is autom atically calculated from the real d iscount rate and the inflation rate accord ing to the form ula: = 1 + 1 + 1 Inflation Rate : If you chose current d ollars as your d iscount rate m ethod , y ou m ust enter an inflation rate. The inflation rate is the average rate at w hich the purchasing pow er of a unit of currency d ecreases each year. For exam ple, at an inflation rate of 1%, $100 in 2011 equals $101.01 in 2012 equals $102.03 in 2013. Construction Escalation : The rate at w hich real construction costs increase each year above and beyond inflation. For exam ple, if you know steel prices are head ed up or that there w ill be a shortage for the next 3 years for w ind turbines, you should account for that here. Water Escalation : The rate at w hich the real cost of w ater increases each year. Because the cost of utilities d oes not generally m atch general inflation, this is the If you chose constant d ollars as your d iscount rate, then this should be a real rate. Otherw ise it should be a nom inal rate. Energy Escalation : The rate at w hich real energy costs increase each year. This rate can be constant for all utilities, constant at d ifferent rates for each utility or vary annually by utility. N IST releases energy price forecasts for the next 30 years for several d ifferen t energy sources in their annual supplem ent to H and book 135. Utilities and Carbon Emissions : In this section, check the boxes next to each utility that you w ould like to account for in your analysis. If necessary, select the type of utility.

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Carbon Emissions : This is u nd erstood as the carbon content of each utility, in appropriate units. It is recom m end ed to use the d efault carbon em issions, w hich are provid ed by the EPA and EIA. H ow ever, if you know the carbon em issions for your area and w ish to enter th em , you m ay d o so. Baseline Utility Use : The baseline utility use is the consum ption of u tilities for your baseline build ing. Exam ples of a baseline build ing includ e historic utility d ata, an ASH RAE 90.1-2007 build ing energy m od el, a baseline m od el that m eets fed eral requirem ents for fossil fuel requirem ents, or specific baseline system s. It is up to you to d efine your baseline build ing and ensure that all alternatives correctly reference that build ing. Measure Utility Use : On the follow ing forms that allow you to enter inform ation for ind ivid ual energy efficiency m easures, you should enter inform ation as if just this one m easure and no other m easures w ere im plem ented . Later, in the process you can choose to bund le m easures together and ad just these inputs accord ingly. Electricity : Total annu al electricity use for your baseline build ing in kWh. This can be taken from a build ing sim ulation m od el, d eterm ined from an energy m od el, or be based upon actual utility bills. N atural Gas : Total annual natural gas use for your baseline build ing in kBtu. This value should includ e natural gas used for heating, on-site electricity prod uction (i.e. cogeneration), cooling (i.e. absorption chilling), cooking, or any other use. D istrict Heat: Total annual purchased d istrict heat for your baseline build ing in kBtu. This should be entered as site energy. The d efault CO 2 em ission factor for d istrict heat ad justs for source efficiency. D istrict Chilled : Total annual purchased d istrict cooling for your baseline build ing in kBtu. This should be entered as site energy. The d efault CO 2 em ission factor for d istrict heat ad justs for source efficiency. Other Fuel : If other fuels su ch as heating oil, coal, or w eapons grad e plutonium are used in the baseline bu ild ing, please enter them here. Water: Total annual w ater use for your baseline build ing in US Gal/ year.

6 FREQUENTLY ASKED Q UESTIONS

What is this w orkbook for? This w orkbook is intend ed to assist project team s m ake recom m end ations about cost-effective bund les of energy efficiency m easures that m axim ize energy savings through the application of life cycle cost analysis (LCCA).

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What is LCCA? As d efined by N IST, LCCA is an econom ic m ethod of project evaluation in w hich all costs arising from ow ning, operating, m aintaining, and ultim ately d isposing of a project are consid ered to be potentially im portant to that d ecision. 1 Because LCCA consid ers all relevant cash flow s over a specified period of tim e and accounts for the tim e value of money, it estim ates the total cost-effectiveness of project alternatives better than sim ple payback or first cost. How long does it take to do this analysis? Using this spread sheet should only take a few hours. Collecting the necessary inputs, thinking about how to create bund les, and d iscu ssing outputs w ith clients typically takes w eeks or m onths. What kinds of outputs does it generate? Provid ed w ith the necessary inputs, this spread sheet w ill provid e the life cycle cost, net savings (com pared to other alternatives or a baseline), savings-to-investm ent ratio, ad justed internal rate of return, and sim ple payback for ind ivid ual m easures and for bund les of m easures. The project team shou ld d eterm ine the d ecision -m aking process and m etrics prior to beginning the analysis. What inputs are required? Core inputs includ e energy use, energy cost, operations & m aintenance costs, and capital costs. H ow ever, any other d esired cost or benefit (e.g. rebates, increased revenue, w hite tag cred its) can be inclu d ed in the analysis. Becau se LCCA is usefu l in d ecid ing am ongst alternatives, these types of inputs w ill be required for each baseline or m easure that w ill serve as an alternative.

7 REFERENCES
2007 ASH RAE H and book-H VAC Applications

NIST Handbook 135, Section 1.1

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