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Table of Contents
Overview 4
Basic Concepts 8
Summary 75
Objectives
The objectives of this tutorial on Life-Cycle Costing are:
understand the basic terminology and concepts of Life-Cycle Costing (LCC), with emphasis on
the LCC approach developed and recommended by National Institute of Standards and
Technology (NIST) at the direction of the Federal Energy Management Program (FEMP)
be able to conduct a basic LCC analysis
be able to discuss LCC results with clients and colleagues
be able to anticipate the general impact on LCC results due to changes in basic LCC analysis
assumptions
understand the limitations of Simple Payback
Figure 1 A building is a
Whole Building
Design system of
systems …
Whole Building Design
recognizes that a building optimum
is a whole, i.e., a system of performance
systems, not merely the
sum of its parts and requires
requires an integrated building
design approach among
the entire design team systems
(see Figure 2). integration
Harvesting the synergy between building systems requires that the conventional serial-sequential design
process, where mechanical or lighting design is not considered until after earlier design stages such as
envelope are well developed, be converted into a more integrated process (Figure 2), where the impacts of
one building system design can be considered on other building systems, before finalizing the design.
Integrated systems via whole building design YIELDS a building that is:
comfortable for the occupants
more productive for the occupants
less costly to operate
less costly to build
As a result of the growing emphasis on sustainability via whole building performance (e.g., USGBC’s
LEED™ rating system [10]) and the increasing role this has created for performance compliance paths
within California Title 24 [11] and ASHRAE 90.1 [12], whole building design and analysis tools such as
eQUEST [13] are in increasing demand.
The increased breadth of scope implied in whole building design is complimented by the broader life cycle
perspective of a building implicit in life-cycle costing. Life-cycle costing is consistent with this trend to
consider the impact of our building design and operations decisions more broadly, i.e., globally.
Figure 3
Life-Cycle Admin.
FACILITY Costs Energy
(U.S. Average) 18%
30%
The chart at right
illustrates the relative Grounds 10%
magnitude of facility
costs (excludes
employee payroll and 19% 23%
dept service), indicating
the high cost of energy Cleaning Maint.
in facility overhead.
(source: BOMA 2000)
Figure 4 Design
Life-Cycle Total Energy
OWNING Costs Constr.
(U.S. Average) 20%
13%
The chart at right Debt Maint.
illustrates the relative
Service 19%
10%
magnitude of total
owning costs (includes (Ammort. 10% Cleaning
employee payroll and 50 yrs)
dept service), indicating 16%
the high cost of energy Grounds
in overhead. Property
(source: BOMA 1985) Admin.
Taxes
Figure 5 100
Life-Cycle Costs,
Design, Operating, 80
Assumptions:
Payroll $40,000/yr/employee (ave.)
Percent (%)
Background
Life-Cycle Costing (LCC) is an economic analysis method widely accepted to identify cost optimal
building design options… yet LCC is not widely used with confidence, even within the federal sector
where its use is mandated.
The Federal Energy Management Program (FEMP) of the U.S. Department of Energy (DOE) has
codified the rules for performing LCC analysis of investments for energy and water conservation and
renewable energy resource projects in the Code of Federal Regulations, 10 CFR 436, Subpart A,
"Methodology and Procedures for Life-Cycle Cost Analysis" [1]. These rules apply to both new and
existing buildings owned or leased by the Federal Government. These economic evaluations are required
by the Federal Energy Management Improvement Act of 1988 (Public Law 100-6 15) and the National
Energy Conservation Policy Act (NECPA) of 1978 (P.L. 95-6 19). More recently, these requirements have
been renewed in Executive Order 13123 [2], "Greening the Government through Efficient Energy
Management", issued on 3 June 1999 (available online) and Executive Order 13423 [3], “Strengthening
Federal Environmental, Energy, and Transportation Management”, 24 January 2007 (available online).
At the direction of FEMP, and drawing on standards work by the American Society for Testing and
Materials (ASTM) [4], the National Institute of Standards and Technology (NIST) has developed
standardized LCC nomenclature and conventions so that the buildings industry can speak one "language"
when conducting LCC analysis. These are thoroughly documented in NIST Handbook 135, Life-Cycle
Costing Manual for the Federal Energy Management Program [5] by S. Fuller and S. Pedersen (available at
http://www1.eere.energy.gov/femp/information/download_blcc.html).
The centerpiece to NIST's LCC contributions is a computer program called BLCC, the Building Life-Cycle
Cost Program [8], which automatically applies the FEMP/NIST LCC conventions in LCC analyses. BLCC
is a stand-alone computer program available as freeware for both Windows™ and DOS, downloadable via
the link cited above. If this link becomes out of date, a search for “Building Life-Cycle Cost” and “BLCC”
using any search engine is sure to return a current link. This tutorial describes the Life-Cycle Costing
procedures recently added to eQUEST which are based on BLCC and NIST Handbook 135 [5].
Almost all LCC programs are designed to follow a familiar three step process: 1) collect the relevant user
input describing the parameters of the analysis (e.g., including inflation rate, fuel price escalation rate,
annual utility costs, acquisition costs, etc.), 2) click the “calculate” button to allow the LCC program to ‘go
away’ to calculate results, and 3) to post the results to one or more reports for user review. Both BLCC
and eQUEST’s EEM Wizard follow this familiar organization. Not withstanding the thorough
documentation of the theory that’s widely available regarding LCC (including Handbook 135 cited above),
a frequent concern expressed by LCC users is that this common three step procedure can seem a little too
much like a "black box" procedure, or given the available documentation, at least a "grey box" procedure.
As an alternative to this conventional three step implementation of LCC, eQUEST’s Detailed Interface
also provides a spreadsheet-like "glass box" implementation of its LCC routines where all intermediate
LCC calculations and results are displayed and their formulae can be examined. An Excel® spreadsheet
version of eQUEST’s LCC procedures, called the User-Friendly Life-Cycle Costing spreadsheet, is also
available via free download at http://www.doe2.com.
Life-Cycle Cost Analysis (LCC or LCCA) should not be confused with Life-Cycle Assessment (LCA).
LCA is an assessment of the environmental aspects and potential impacts associated with a product,
process, or service. LCA compiles an inventory of relevant energy and material inputs and environmental
releases; evaluates the potential environmental impacts associated with identified inputs and releases, and
interprets the results to help designers identify more sustainable design solutions.
Basic Concepts
Life-Cycle Costing
Weighing First Costs and Operating Costs
With regard to building energy efficiency, there seems to be a rule of nature which holds that whatever
project design options cost least to acquire tend to cost most to operate, and conversely. In other words,
more energy efficient project design alternatives tend to cost more than less efficient alternatives.
Figure 6 B
Building 1st Costs vs LCC
Operating Costs Weighs 1st
First Cost
The curve at right
illustrates the tradeoff that Costs vs
frequently exists between A
building first costs and
Operating
operating costs. LCC is Costs
used to weigh these costs.
Operating Costs
For a hypothetical project, if the first costs for all design alternatives were plotted against their respective
operating costs, a curve similar to the one in Figure 6 would result. The ideal design alternative would lie
as close as possible to the origin of the graph (i.e., zero operating cost and zero first cost). If first costs are
valued over operating costs, the preferred choice is A. If operating costs are valued most, the preferred
choice is B. Life-cycle costing is a rational method to weight first costs versus operating costs.
First cost versus operating cost data for glass type options from an actual new construction project are
plotted in Figure 7 below, whose ‘shape’ resembles Figure 6. In Figure 7, glass type #1 would be the
preferred choice if least operating cost was the principal concern. Conversely, glass type #5 would be the
preferred choice if minimum first cost was the principal concern. Glass types #3, #4, and #5 present
other options that weigh the relative importance of first versus operating costs differently. Clearly, the best
choice lies on the imaginary line bounding glass types #1 through #5. According to multiple criteria
decision methods [6], the other glass types (un-numbered in Figure 7) are said to be dominated by glass
types #1 through #5. Which of the non-dominated options (1 thru 5) are favored will depend on the relative
importance given to first versus operating costs. Life-cycle costing is the recognized means to weigh first
costs against future (e.g., operating) costs. The principle used to do this is the "time value of money".
Figure 7 $500,000
$350,000
Costs
First Costs ($)
$300,000
(actual data) 1
The chart at right illustrates $250,000
Figure 8
Weighing Savings
and Costs
When ‘weighing’ future Costs
savings and initial costs,
the savings must out
Savings
weigh the costs.
Purchase
Cost
5%
Figure 9
See the Whole Maint &
Picture… Repair
Initial costs versus 7%
20-year operating costs
for an electric motor
Energy
Cost
88%
Figure 10
Life-Cycle Costs ($)
Figure 11b How much of a discount would you offer for early payment… $1… $200?
Comparing Near- $399 $400 $400
$ $
term and Future
Income Streams
Most investors would
$200
accept a small penalty in
order to receive
earnings early… but
how large a penalty? $0 $0 $0 $0 $0 $0
yr 1 yr 2 yr 3 yr 4 yr 1 yr 2 yr 3 yr 4
Figure 12
The “Time value of
Money” Inflation
The time value of money
Of the two, inflation and opportunity cost, most designers have a more intuitive feel for the process of
inflation, where future increases in prices for goods and services causes an effective loss in the future
purchasing power of our dollars. The concept of an opportunity cost recognizes that a fair comparison of
the economic benefit between two or more building design options must also consider either 1) the
forgone returns an owner is able to earn on his or her money in order to make the investment in
efficiency upgrades (if the building owner is financing the efficiency investment ‘out of their own pocket’),
or 2) the cost of borrowing the capital necessary to invest in the efficiency upgrades (if the building owner
must borrow to finance the efficiency upgrade) should. Either ‘cost’ should be included in the cost of the
efficiency upgrades. Life-cycle costing considers both inflation and opportunity cost in weighing the value
of present costs against future costs.
The discount rate is the rate of interest that makes an investor indifferent between cash amounts
received at different points in time.
For an investor’s money, this is the investor’s ‘minimum acceptable rate of return’ (MARR).
For borrowed money, this is the borrower’s loan rate.
The Discount Rate accounts for the time-value of money.
General Inflation
General inflation is the rate of increase in the general level of prices of goods and services, including the
cost of building components and trade labor, but excluding the cost of energy (see ‘Escalation’).
Escalation
The concept of escalation is identical to the concept of general inflation, except that the FEMP/NIST
LCC conventions reserve the term ‘escalation’ to describe the inflation incurred by energy prices, i.e., the
rate of increase in the price of energy sources such as electricity and natural gas.
“Real” Escalation
A “real” escalation rate is the rate of increase in the price of energy sources relative to the rate of increase
in the general level of prices, i.e., relative to general inflation. This is alternately referred to as “differential”
escalation.
“Current” Dollars
“Current” dollars refers to the price of an item at the time it is purchased, i.e., includes the effect of
inflation. To estimate future costs using TODAY’s dollars, the change in price due to inflation must be
added into the total future cost. The adjustment is given by equation (3) in the next section.
“Constant” Dollars
As a mater of considerable convenience, future costs of items may be stated in TODAY’s prices, if we use
a REAL discount rate and REAL escalation rates. This allows us to use dollars of constant purchasing
power.
value. Considering an LCC analysis to be calculating COSTS, the normal sign convention is to represent
COSTS as a positive value and INCOME (or residual value) as a negative value.
Figure 14
Discounting Future
Costs to Present Value
Operating Costs
Owing to the time value of
money, life-cycle cost
analysis requires that all
costs be expressed in a
common time frame, e.g., in
present value. Some cash Investment Costs Capital
Replacement
flows are annually recurring Cost
(blue). Others are one-time Operations, Maintenance & Repair Costs (OM&R)
(red). Cash flows above the Energy Costs
Study Period
Life-Cycle Costing seeks the least life-cycle cost option; therefore LCC tends to focus on the difference or
‘deltas’ between alternatives. Consider only the Relevant Costs or Benefits:
Consider only the costs that change between design alternatives. For example, if maintenance
costs do not vary between design alternatives, they may be omitted without affecting the results.
Although omitting them WILL change the LCC for each alternative, the difference or delta
between the life-cycle costs (i.e., the Net Savings) will NOT be affected.
Exclude any ‘sunk’ costs. A sunk cost is a cost that has already been incurred or committed and
which cannot be changed or affected in any way by the design decision under consideration.
Consider only significant costs. Given the uncertainties implicit in any engineering analysis, small
differences in the final life-cycle costs indicate no difference in LCC alternatives.
In brief, identify all costs that will be affected by the design decision(s).
It is helpful to distinguish Investment-Related costs from Operational costs.
Investment-related costs include:
o Acquisition Costs
o Replacement Costs
o Residual Value
o Utility Incentives
o Tax Credits
Operational costs include:
o Utility Costs (Energy, Water, etc.)
o Operating, Maintenance, and Repair Costs
Concerning the length of the study period:
Use a time period that is consistent for all alternatives
o Use the same time period for all alternatives
o Use the same time period for calculating all economic measures
Use an appropriate length of study period. An appropriate time period will:
o accommodate investors time horizon
o reflect the expected life of systems being evaluated
Use residual value to credit remaining service life in equipment remaining equipment life.
The maximum study period allowed for Savings By Design analyses (and by FEMP) is 25 years.
As an example, if an HVAC design option compares package rooftop service (~15 year equip. life)
with central plant service (~25 year equip. life); either 15 or 25 years would be an appropriate length
of the study period. In either case, a ‘residual value’ will be needed to credit remaining equip. life.
Ft P0 1 i
t
(3)
where:
Ft = future value of a present cost, P0, in year t
P0 = present cost of goods or services in year 0
i = the assumed rate of general inflation
t = future year assumed in the calculation
SPV Ft
PV
A single discrete future cost or savings (i.e., not annually recurring such as equipment replacement) or
future value (a residual value due to unexpended life of an equipment option) is discounted to its present
value using the Single Present Value (SPV) Factor. For Nominal Discount rates, use equation (4). For Real
Discount rates, use equation (5).
Single Present Value Factor (SPV) using a nominal discount rate:
1
PV Ft (4)
(1 D) t
where:
PV = present value of the future cost of goods/services
Ft = future cost of goods/services in year t (estimated using equation 3)
t = future year assumed in the calculation
d = the assumed "discount rate",
for existing capital, D is the minimum rate-of-return on an alternative investment
for borrowed capital, D is the cost of borrwed captial, i.e., the loan rate
Using a real discount rate, d, in place of nominal discount rate, D in equation (4), yields equation (5) in
which a user does not need to explicitly adjust future costs, Ft, for inflation.
Of course, any investor would hope for a minimum rate-of-return that would out pace the influence of
general inflation, else, the net value of their investment return is negative, i.e., a loss. Hence, they would
hope that their realized rate-of-return is greater than the inflation rate, i.e., D > i.
PV UPV
A0
For annually recurring future costs that are uniform, i.e., do not vary annually other than by the influence
of general inflation (e.g., annual maintenance costs), a future cash flow stream is discounted to its present
value using the Uniform Present Value (UPV) Factor. For real Discount rates, use equation (6). For
nominal Discount rates, replace d in equation (6) with D.
1 1 1 1
PV A0 A0 A0 A0
1 d 1
1 d 2
1 d 3
1 d n
PV A0
n
1
A0
1 d 1
n (6)
t 1 1 d t
d 1 d
n
where:
PV = present value of the stream of annually recurring future costs of goods/services
A0 = annually recurring cost of goods/services in year 0 (assumed to change only due to
inflation)
n = last year assumed in the analysis
d = the assumed discount rate (real)
PV $100
108
. 1
10
$100 6.710 $671
0.08108
.
10
UPV*
PV A2
A0 A1
For annually recurring future costs that are not uniform, i.e., that escalate annually, but which escalate at a
uniform escalation rate, (e.g., annual utility costs that are projected to escalate at a uniform rate), a future
cash flow stream is discounted to its present value using the Modified Uniform Present Value (UPV*)
Factor. For real Discount rates, use equation (7). For nominal Discount rates, replace d in equation (7) with
D and replace e with E (the nominal uniform energy price escalation rate).
A1 A2 A3 An
PV 1 2 3
1 d 1 d 1 d 1 d n
1 e 1 1 e 2 1 e 3 1 e n
PV A0 A A A (7)
1 d 1 0
1 d 2 0
1 d 3 0
1 d n
n
1 e
t
1 e 1 e n
PV A0 A0 1
t 1 1 d
d e 1 d
where:
PV = present value of the stream of annually recurring future costs of goods/services
A1 = annually recurring cost of goods/services in year 1 (assumed to change due to inflation and
uniform fuel price esclation)
A0 = annually recurring cost of goods/services in year 0 (assumed to change only due to
inflation)
n = number of years assumed in the analysis period
t = future year assumed in the calculation
e = the assumed uniform (does not vary from year to year) energy price escalation rate (real)
d = the assumed discount rate (real)
For annually recurring future costs that are not uniform, i.e., that escalate annually, but which escalate at a
non-uniform escalation rate, (e.g., annual utility costs whose projected escalatation rates vary from year-to-
year), a future cash flow stream is discounted to its present value using the FEMP Modified Uniform
Present Value (FEMP UPV*) Factor. For real Discount rates, use equation (8). For nominal Discount rates,
replace d in equation (8) with D and replace e with E (the nominal annual energy price escalation rate).
A1 A2 A3 An
PV 1 2 3
1 d 1 d 1 d 1 d n (8)
(1 e1 )1 (1 e2 ) 2 (1 e3 ) 3 (1 en ) n
PV A0 A A ... A
(1 d )1 (1 d ) 2 (1 d ) 3 (1 d ) n
0 0 0
where:
PV = present value of the stream of annually recurring future costs of goods/services
A1 = annually recurring cost of goods/services in year 1 (assumed to change due to inflation and
uniform fuel price esclation)
A0 = annually recurring cost of goods/services in year 0 (assumed to change only due to
inflation)
n = number of years assumed in the analysis period
t = future year assumed in the calculation
e1 = the assumed energy price escalation rate for year 1 (real, varies from year to year, see
reference [7] for annuall values)
d = the assumed discount rate (real)
For an example, see the next section.
While goods and services are assumed to inflate at the same rate, i.e., the general inflation rate, the
FEMP/NIST LCC procedures require that inflation of energy prices be treated separately. Accordingly,
general price inflation is distinguished from energy price inflation by referring to the latter as energy price
"escalation". As with the use of the discount rate, the energy price escalation rates are "real" (i.e., net or
differential). The U.S. DOE publishes official projections for future energy prices annually [7] each April
for the residential, commercial and industrial sectors, broken down by region of the country, for six
energy types (electricity, natural gas, LPG, distillate fuel oil, residual fuel oil, and coal).
Step 8: Calculate Life-Cycle Costs for at least two alternatives and select the
alternative with the lowest LCC
The final step in an LCC analysis is to calculate the LCC for at least two alternatives and then select to
implement the design alternative having the lowest LCC. See the following section for a tabular example.
Figure 16
U.S. DOE Energy Price
Indices and Discount
Factors for LCC Analysis
This reference is published as an
annual update to the NIST
Handbook 135 each April and is
available via download at the web
link above.
PV = Ft x SPV
PV = $10,000 x 0.863
PV = $8,630
PV = A0 x UPV
PV = $400 x 8.530
PV = $3,412
(today’s $)
Annual Energy Cost : $15,000 (today’
Time Period: years 1 - 10
Discount Rate: 3%
Annual energy price increase: 2%
PV = A0 x UPV*
PV = $15,000 x 9.48
PV = $142,200
PV = A0 x UPV*
PV = $20,000 x 14.81
PV = $296,200
2
3
5
1
6
NON-ANNUAL RECURRING COSTS ELECTRIC COSTS NATURAL GAS COSTS ANNUAL TOTAL COSTS
RECURRING COSTS
Investment-Related Costs Operations-Related Costs Annual Electric Discounted Annual Nat Gas Discounted Annual Discounted Discounted
(e.g., 1st cost, replacement, residual) (e.g., non-annual maintenance) Recurring Real Electric Recurring Differential Nat Gas Recurring Recurring Total
Year Description Discounted Description Discounted Electric Escalation w/Fuel Esc. Nat Gas Escalation w/Fuel Esc. (e.g., maintenance) Year Costs
# of Cost Constant $ PV $ of Cost Constant $ PV $ Constant $ % PV $ Constant $ % PV $ Constant $ PV $ Date PV $
0 First Cost 14 $54,300 $54,300 n/a n/a n/a $656,310 18 $25,320 19 $0 20 $54,300
1 $0 $0 $0 $0 $656,310 -0.59% $633,459 $25,320 -3.18% $23,801 $0 $0 2007 $657,260
2 $0 $0 $0 $0 $656,310 -1.65% $604,855 $25,320 -3.18% $22,372 $0 $0 2008 $627,227
3 $0 $0 $0 $0 $656,310 -2.28% $573,860 $25,320 -3.61% $20,937 $0 $0 2009 $594,797
4 $0 $0 $0 $0 $656,310 -2.94% $540,739 $25,320 -3.08% $19,701 $0 $0 2010 $560,440
5 $0 $0 $0 $0 $656,310 -2.15% $513,706 $25,320 -1.82% $18,780 $0 $0 2011 $532,486
6 $0 $0 $0 $0 $656,310 -0.82% $494,663 $25,320 -2.89% $17,706 $0 $0 2012 $512,369
7 $0 $0 $0 $0 $656,310 -0.43% $478,170 $25,320 -0.48% $17,108 $0 $0 2013 $495,278
8 $0 $0 Overhaul 17 $0 $0 $656,310 -0.04% $464,040 $25,320 -0.36% $16,551 $0 $0 2014 $480,591
9 $0 $0 $0 $0 $656,310 0.74% $453,866 $25,320 0.36% $16,126 $0 $0 2015 $469,992
10 $0 $0 $0 $0 $656,310 0.91% $444,654 $25,320 1.56% $15,900 $0 $0 2016 $460,554
11 $0 $0 $0 $0 $656,310 -0.09% $431,333 $25,320 -1.88% $15,146 $0 $0 2017 $446,479
12 $0 $0 $0 $0 $656,310 -0.99% $414,632 $25,320 -2.76% $14,299 $0 $0 2018 $428,931
13 $0 $0 $0 $0 $656,310 -0.13% $402,032 $25,320 0.62% $13,968 $0 $0 2019 $416,000
14 $0 $0 $0 $0 $656,310 0.30% $391,509 $25,320 0.61% $13,645 $0 $0 2020 $405,153
15 Replace 15 $0 $0 $0 $0 $656,310 0.35% 23 $381,423 $25,320 1.22% 23 $13,409 $0 $0 2021 $394,831
16 $0 $0 $0 $0 $656,310 0.04% $370,473 $25,320 1.81% $13,253 $0 $0 2022 $383,726
17 $0 $0 $0 $0 $656,310 0.17% $360,303 $25,320 1.07% $13,004 $0 $0 2023 $373,308
18 $0 $0 $0 $0 $656,310 0.26% $350,713 $25,320 0.59% $12,700 $0 $0 2024 $363,412
19 $0 $0 $0 $0 $656,310 0.34% $341,668 $25,320 0.23% $12,358 $0 $0 2025 $354,026
20 $0 $0 Overhaul $0 $0 $656,310 0.00% $331,717 $25,320 0.58% $12,068 $0 $0 2026 $343,785
21 $0 $0 $0 $0 $656,310 0.13% $322,468 $25,320 1.39% $11,879 $0 $0 2027 $334,347
22 $0 $0 $0 $0 $656,310 0.51% $314,682 $25,320 1.25% $11,677 $0 $0 2028 $326,360
23 $0 $0 $0 $0 $656,310 0.47% $306,946 $25,320 2.47% $11,618 $0 $0 2029 $318,564
24 $0 $0 $0 $0 $656,310 0.25% $298,763 $25,320 1.32% $11,428 $0 $0 2030 $310,191
25 Residual 16 $0 $0 $0 $0 $656,310 0.25% $290,796 $25,320 0.87% $11,191 $0 $0 2031 $301,988
25 Life-Cycle COSTS
Base Single Clear $54,300 $54,300 $681,630 $10,892,097 $0 $0 $10,946,397 n/a n/a n/a $54,300 $10,892,097 n/a n/a
Alt 1 Single Pane Azurlite ** $74,880 $74,880 $655,380 $10,471,618 $0 $0 $10,546,498 n/a n/a n/a $74,880 $10,471,618 n/a n/a
Alt 2 Calif Series - Water White Crystal $482,040 $482,040 $645,720 $10,316,667 $0 $0 $10,798,707 n/a n/a n/a $482,040 $10,316,667 n/a n/a
Alt 3 Calif Series - Sea Foam Low-E Clear $383,760 $383,760 $639,220 $10,214,313 $0 $0 $10,598,073 n/a n/a n/a $383,760 $10,214,313 n/a n/a
Alt 4 Calif Series - Tahoe Blue $332,280 $332,280 $639,140 $10,210,731 $0 $0 $10,543,011 n/a n/a n/a $332,280 $10,210,731 n/a n/a
Alt 5 Viracon - VE1-55 - Low-E Clear $169,650 $169,650 $642,060 $10,263,368 $0 $0 $10,433,018 n/a n/a n/a $169,650 $10,263,368 n/a n/a
Alt 6 Viracon - VE1-85 - Low-E Clear $174,330 $174,330 $662,150 $10,584,924 $0 $0 $10,759,254 n/a n/a n/a $174,330 $10,584,924 n/a n/a
Alt 7 Viracon - VE7-55 - Low-E Azurlite $256,470 $256,470 $626,930 $10,020,348 $0 $0 $10,276,818 n/a n/a n/a $256,470 $10,020,348 n/a n/a
Alt 8 Viracon - VE7-85 - Low-E Azurlite $245,540 $245,540 $636,780 $10,178,597 $0 $0 $10,424,137 n/a n/a n/a $245,540 $10,178,597 n/a n/a
Alt 9 PPG - SolarBan 2000 * $224,660 $224,660 $628,370 $10,042,939 $0 $0 $10,267,599 n/a n/a n/a $224,660 $10,042,939 n/a n/a
* alternative with least life-cycle cost
** alternative with most rapid simple payback
26 Life-Cycle SAVINGS (negative entries indicate increased costs)
Alt 1 Single Pane Azurlite ** ($20,580) ($20,580) $26,250 $420,479 $0 $0 $399,899 $399,899 0.8 0.8 $20,580 $420,479 20.4 16.2% **
Alt 2 Calif Series - Water White Crystal ($427,740) ($427,740) $35,910 $575,430 $0 $0 $147,690 $147,690 11.9 16.6 $427,740 $575,430 1.3 4.2%
Alt 3 Calif Series - Sea Foam Low-E Clear ($329,460) ($329,460) $42,410 $677,784 $0 $0 $348,324 $348,324 7.8 9.8 $329,460 $677,784 2.1 6.0%
Alt 4 Calif Series - Tahoe Blue ($277,980) ($277,980) $42,490
28 27 $681,366 $0 $0 $403,386
27$403,386 6.5 8.0 $277,980 $681,366 2.5 6.8%
Alt 5 Viracon - VE1-55 - Low-E Clear ($115,350) ($115,350) $39,570 $628,729 $0 $0 $513,379 $513,379 2.9 3.2 $115,350 $628,729 5.5 10.2%
Alt 6 Viracon - VE1-85 - Low-E Clear ($120,030) ($120,030) $19,480 $307,173 $0 $0 $187,143 $187,143 6.2 7.6 $120,030 $307,173 2.6 6.9%
Alt 7 Viracon - VE7-55 - Low-E Azurlite ($202,170) ($202,170) $54,700 $871,749 $0 $0 $669,579 $669,579 3.7 4.2 $202,170 $871,749 4.3 9.2%
Alt 8 Viracon - VE7-85 - Low-E Azurlite ($191,240) ($191,240) $44,850 $713,500 $0 $0 $522,260 $522,260 4.3 4.9 $191,240 $713,500 3.7 8.6%
Alt 9 PPG - SolarBan 2000 * ($170,360) ($170,360) $53,260 $849,158 $0 $0 $678,798 $678,798 3.2 3.5 $170,360 $849,158 5.0 9.8% *
* LCC Choice
** Simple Payback choice
LCCa choice vs Simple Payback choice 29 ($149,780) ($149,780) $27,010 $428,679 $0 $0 $278,899 $278,899
9 If the building will not be in full use (i.e., generate full utility consumption) during the entire Service
Period (e.g., during initial lease out for an office building), enter occupancy/use multipliers to
indicate approximate level of full utility usage. These inputs are used as multipliers on each year’s
energy use (for both fuel types).
10) Current federal fiscal year discount rates, FEMP, OMB Short- and Long-term, are provided for
reference.
11) Comments for each of the input cells are provided (see the small red triangular indicators at the top
right corner of input cells). View these comments by hovering the mouse pointer over the
commented cell.
12) Inputs cells are shown in blue font. Only the input cells are unprotected. The remainder of the
General Data tab sheet is protected, but can easily be unprotected if edits to protected cells are
desired. To unprotect any sheet, from the menu select "Tools", "Protection", "Unprotect Sheet…")
13 Two cells area provided to name the project alternative, e.g., "base case", "alternative 1", etc. The
two cells are concatenated into the description filed of the summary results table.
14 Enter investment-related costs (e.g., first cost) at year 0, 15 capital replacement costs at future years,
and 16 residual values, if any, at the last year of the analysis. Estimate each in today's dollars, entered
in the year in which they are expected to occur. If a real discount rate is used, there is no need to
inflate these future costs before entering them.
17 Enter operations-related capital costs, e.g., non-annually recurring maintenance such as overhauls;
each estimated in today's dollars, entered in the year in which they are expected to occur
18 Enter annual electric costs, estimated in today's dollars. Normally these are entered for the first year
only and assumed to repeat each year thereafter. If energy use (not just cost) varies by year, either use
the % Occ/Use inputs on the General Data sheet (see 9 on Figure 17) or unprotect the sheet (see
12 above) and edit the cells as required.
19 Enter annual second fuel costs, e.g., natural gas, LPG, etc., estimated in today's dollars. Normally
these are entered for the first year only and assumed to repeat each year thereafter. If energy use (not
just cost) varies by year, see item 18 above.
20 Enter annually recurring costs, e.g., ongoing operations, maintenance, and repair (OM&R). Normally
these are entered for the first year only and assumed to repeat each year thereafter. See item 18 .
21 The total life-cycle cost is reported in the lower right-most cell. Note that all LCC results are
summed across each row (for each year) and down each column (for each LCC cost component, e.g.,
investment-related, operations-related, utility costs, annually recurring costs).
22 General data from the "General Data" tab sheet are echoed at the top of each LCC sheet, e.g.,
FEMP fiscal year, discount rate, length analysis period, DOE region, and analysis sector.
23 Year-by-year "real" (i.e., differential) energy price escalation rates are displayed for each of the two
energy types. If no user input is provided on the General Data tab for uniform energy price
escalation, then these escalation rates will default to the U.S.DOE projected escalation rates based on
input on the General Data sheet for region and sector. User input for uniform energy price
escalation rates on the General Data tab sheet will override the DOE escalation values. Alternately, if
a user obtains local energy price projections (e.g., specific to a particular utility) for any of the analysis
years, these may be input by going to the tab “DOE Fuel Esc Rates” (not shown) and entering
custom escalation rates at cells V9 ― W38. IMPORTANT: these energy price escalation rates must be
REAL. To convert from nominal to real escalation rates, see above.
24 Columns J, K, L, and P, Q, R are normally hidden and may be unhidden by un-protecting the
worksheet (see 12 above). These columns are not actually used in the analysis. They display nominal
energy price escalation and the separate results of discounting and escalating the annual energy costs,
only for educational purposes.
25 The upper half of the table reports COSTS for the base case and all alternative cases.
26 The lower half of the table reports SAVINGS for all alternative cases (no base case row included
since savings = base case minus alternative case).
27 Items in pale blue font report positive savings (uses automatic conditional formatting).
28 Items in pale red font report negative savings (i.e., increases in cost compared with the base case).
29 The bottom-most row indicates the delta between the LCC choice and the SPB choice.
30 The graph plots cumulative life-cycle SAVINGS (baseline life-cycle costs minus alternative life-cycle
costs), not life-cycle COSTS.
31 .Each curve on the graph represents one of the glass type options. Each begins showing negative
cumulative savings, indicating the incremental additional first cots associated with each.
32 The point (year) where each curve (glass type option) crosses the X-axis (savings have accumulated
to a point that equals the first costs) represents the discounted payback.
33 At year 25, Alt 9 (SolarBan 2000, shown as a bold blue line) achieves the greatest cumulative life-
cycle savings (same as Net Savings)… $678,798 from Figure 19.
34 Alt 1 (single pane Azurlite), the glass type having the most rapid simple payback (SPB), is shown as
the bold magenta line… $399,899 from Figure 19.
Example Results
Figures 19 and 20 illustrate example results from the User-Friendly LCC spreadsheet. The data are from
the same example plotted in Figure 7, i.e., glass type options for a large institutional new construction
project. In Figure 19, the tabular results are divided into an upper and lower half. The upper half reports
life-cycle costs. The lower half reports life-cycle savings. Cells in the cost portion of the table (upper
portion) are linked directly to the "LCC" tab sheets for the base case and each alternative. Cells in the
savings portion of the table (lower portion) are calculated from the upper portion of the table, by
subtracting a row for each project alternative from the base case. Thus, two columns, "Total LCC
Savings" and "Net Savings" are identical. Using the results in Figure 19, we can answer the question posed
previously regarding the "best" glass type illustrated in Figure 7. Alternative #2 in Figure 7 (Alternative 9
in Figure 19) yields the lowest life-cycle cost (i.e., the maximum Net Savings) and is therefore the LCC-
recommended choice of glass type for this analysis.
For the purposes of this example, the useful life of the central plant will be assumed to be 25 years, while
the useful life of the package rooftop equipment will be assumed to be 15 years. A standard source for
estimating HVAC equipment life is ASHRAE [15].
Figure 29, User-Friendly LCC Spreadsheet, LCC0 Base Case Inputs Sheet, LCC Example 5
Input illustrated below match those given above in Figure 23. The items circled are to be compared with the
results hand calculated in Figure 24 above.
Figure 30, User-Friendly LCC Spreadsheet, LCC0 Alternate Case Inputs Sheet, LCC Example 5
Input illustrated below match those given above in Figure 25. The items circled are to be compared with the results
hand calculated in Figure 26 above.
Figure 31
LCC Example 5
Life Cycle Cost Decision
Comparison of
Hand Calculation and Hand Calc Spreadsheet
Spreadsheet Results • Base Case = $ 1,125,033 $ 1,124,890
Net Savings for • Alternative = $ 1,064,355 $ 1,064,124
LCC example 5
via hand calculations and
LCC spreadsheet.
• Net Savings = $ 60,678 $ 60,766
This example resulted in a
$6 difference in the Net
Savings. since Net Savings (NS) > $0,
recommend the investment
Figure 33
Life-Cycle Savings Base - Alt Savings
Calculation
NS = ( $75,000 - $120,000 ) $-45,000 ( I)
The calculation at right takes
the results for the base case + ( $41,730 - $0 ) $41,730 ( Repl)
(from Figure 24) and
+ ($1,001,250 - $929,160 ) $72,090 ( Energy)
subtracts from each the
results for the alternate case - ( $10,357 - $0 ) $10,357 ( Res)
(from Figure 26).
The same Net Savings + ( $ 17,410 - $15,195 ) $2,215 ( O&M)
results (compare Figure 27). $60,678 Net Savings
Figure 34 on the following page illustrates the results from using the LCC spreadsheet to calculate Net
Savings using the Life-Cycle Savings form of the LCC equation (Figure 32). The Net Savings calculated in
this manner using the LCC spreadsheet agrees exactly with the Net Savings calculated in Figure 29, 30 and
31 and within $6 with the hand calculated Net Savings.
Figure 34, User-Friendly LCC Spreadsheet, Life-Cycle SAVINGS Inputs, LCC Example 6
Input illustrated below match those given above in Figure 33. Initial costs, operating costs and residual value are
entered as incremental values, i.e. baseline cost minus alternative case cost. The items circled are to be compared
with the results hand calculated in Figure 33 above.
The cumulative savings for Alt 9 may appear larger than the cumulative savings for Alt 1 but when
the larger first cost for Alt 9 is deducted, the total savings for Alt 9 are much closer to the savings
for Alt 1. — The cumulative savings shown in Figure 20 have already had the first costs subtracted from the
totals, i.e., the cumulative savings are net of the first costs.
The additional first cost for the LCC-recommended glass type (Alt 9) could have been better used
in some alternative investment, i.e., we can’t afford to tie up that much additional capital in this
investment. — The total cumulative savings shown in Figure 20 for all alternatives have already be adjusted
(reduced) by the opportunity cost, i.e., the cumulative savings have been reduced by the discount rate to capture the
effect of earnings from an alternative investment that had to be forgone in order to make this investment. The return
on the alternative custodial investment was assumed to be the minimum acceptable rate of return (MARR), a value
that should reflect a reasonable alternative custodial investment. If it does not, then the discount rate should be
altered and the analysis re-run. CAUTION: the assumed return on the alternative custodial investment should
reflect a similar level of risk as incurred by the efficiency investment, i.e., presumably a conservative level of risk.
The more rapid return of the invested capital offered by the SPB-preferred alternative (Alt 1) is
appealing since this frees the original capital to ‘return to work’ in an alternative investment. —
As in the previous concern, the opportunity cost of the investments have been accounted for by using a discount rate
that reflects the expected minimum acceptable rate of return (MARR) for the investment option awaiting the freed
capital. If a rate of return higher than the MARR is expected to become available in the early years of the life of a
project, then ‘rushing’ to regain one’s capital to permit its reinvestment in the new investment is justified.
The additional first cost for the LCC-recommended glass type (in this case ~$150,000) is too
great, i.e., the budget cannot bear the additional cost. — If the first cost was too high, regardless of how
good the investment proved to be, the alternative should have been omitted from the analysis.
Figure 36 $1,400
Roof Insulation Annual
Hot Climate
Utility Savings versus $1,200
Warm Climate
Incremental First Cost
insulation. Alternatives
$200
increase this to a maximum 10 20 30 40 50 60
Insulation R-value (F-Hr-sqft/Btu)
of R-60. Two climates, $0
Sacramento and Palm $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000
In Figure 36, roof insulation upgrades for a 30,000 sqft roof on an office building are investigated for two
climates, Sacramento (warm climate) and Palm Springs (hot climate). To emphasize the effect of
diminishing returns, the baseline case assumes only minimal insulation, i.e., R-3, well below code
minimum. Only incremental results are presented, i.e., both axes represent the difference between the
assumed baseline case (R-3 minimal insulation) and the increased insulation cases (R-7 through R-60). The
curves in Figure 36 illustrate ‘diminishing returns’ associated with increased levels of roof insulation,
where the curve of increased benefit for increased insulation (and increased first cost) flattens out
(approaches an asymptote) as the level of additional insulation increases.
Given that the slope of ‘benefit’ illustrated in the curves in Figure 36 represent the change in savings
(benefit) divided by the change in first cost (incremental cost), simple payback (SPB) may be understood
as the reciprocal of these benefit slopes, i.e., the change in incremental first cost divided by the first year
annual savings (or benefit, see equation 9 above). For comparison, Figure 37 below transposes the X and Y
axes in Figure 36 above. The slopes of the curves in Figure 37 below are literally the SPB for the
incremental increase in insulation level and associated cost. For efficiency measures that suffer from
‘diminishing returns’, SPB will tend to favor the smallest investigated step in efficiency gain. In other
words, for efficiency measures that suffer from ‘diminishing returns’, which are very common in building
energy efficiency decisions, SPB often ‘says’ “the best investment building efficiency investment just
happens to be the one that that also requires the least capital expense.” There is little wonder why SPB is a
popular energy efficiency analysis method.
$30,000
Figure 37
Hot Climate
Roof Insulation $25,000
Warm Climate
Incremental First Cost
Incremental First Cost ($)
$20,000
versus Annual Utility
Savings $15,000
The axes in the figure at
right have been swapped $10,000
$0
$0 $200 $400 $600 $800 $1,000 $1,200 $1,400
Annual Utility Savings ($)
SPB Strengths
Simple Payback may be used as a supplemental measure of merit, i.e., in addition to other considerations.
Simple payback is:
easy to calculate
good for gross sanity check
is a direct estimate of how rapidly an investment is re-cooped
can be used to approximate the rate of return (see Figure 42 below)
The graph below relates the rate of return to simple payback. Note that an approximation that recognizes
7% rate of return yields approximately 10 years simple payback can be used to estimate the rate of return
for other payback periods (see magenta line on graph below), e.g., twice as rapid a simple payback yields
approximately twice the rate of return (e.g., 3.5 years simple payback ~ 20% rate of return).
100%
Figure 38
Estimating Rate of 90% Actual
Equivalent* Rate of Return
80% Approx
Return using Simple
Payback (SPB) 70%
60%
Since 10 years SPB (magenta
50%
line) yields approx 7% rate
40%
of return (blue line), e.g., half
30%
the SPB yields approximately
20%
twice the rate of return (e.g.,
3.5 years SPB ~ 20% rate of 10%
return). 0%
15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
Years to Simple Payback
* Assumes first costs & energy savings only (no maintenance or replacement costs or savings)
Figure 36
Schematic Wizard
Screen #1, 4
General Information 1
Figure 40
Schematic Wizard
1
Screen #3
Building Footprint
195 ft
3 Total area ~ 30,000
sqft per floor
Figure 41
Schematic Wizard
Screen #17
Main Schedule Info.
Figure 42
Schematic Wizard
Screen #19
HVAC System
1
1 Cooling Source =
DX Coils
2 Heating Source =
Furnace
3 System Type =
Packaged Single Zone
with Furnace
Figure 43
Schematic Wizard
Screen #17
Main Schedule Info.
Figure 44
Title 24 Minimum
Efficiency for Unitary
Air Conditioners
units = 9.7
2 0.2 EER credit for
Figure 45
Schematic Wizard
Screen #25
1 2
HVAC Fan Schedule
To continue with EEM Wizard LC Example 1, press the button to exit the Schematic
Design Wizard, then launch the EEM Wizard by clicking the EEM Wizard button (left side or top
center of the tool bar) and follow the steps indicated in Figures 46 through 49 below.
Figure 46
EEM Wizard Run Info
Screen
1 Measure Category =
HVAC System
2 Measure Type =
Package HVAC
Efficiency
Figure 47
EEM Wizard Run Info
1
Screen
To continue with EEM Wizard LC Example 1, press the button to exit the EEM Wizard, then
run a simulation by clicking the button (left side of the screen) and follow the steps
indicated in the following Figures.
Figure 48
EEM Wizard Run Info
Screen
Figure 49
Annual Building Summary Results Report
At the lower left corner of the screen, select: the ‘Reports button
Select ‘Annual Building Summary’ from the list of reports (second from the bottom of the list).
Figure 50
2005 DEER Cost Data
Figure 51
eQUEST Air-Side Summary tab view
Return to the Project View are of eQUEST’s Detailed Interface by clicking the ‘Return to Building
Description Mode’ button (upper left area of the View Results screen).
Then select the ‘Air-Side HVAC’ button near the top right hand area of the Project View
screen. From the Air-Side HVAC screen, select the tab then the ‘Project’ item
from the component tree (on the left side of the screen), then select the ‘Summary’ tab to view the
Air-Side Summary Input/Output report (see below).
1 Scroll to the bottom of the Air-Side Summary Input/Output report, and find total cooling tons.
Figure 52
Simple Payback Calculation
EEM Wizard Example 1
Simple Payback cost of upgrade
Simple Payback =
Calculation annual utility savings
Calculate simple payback
assuming 127 ton peak load
(round up to 150 tons of $110.89/ton * 127 tons (use 150)
AC) at $111/ton $2,582/year
incremental cost.
Figure 53
Simple Payback
EEM Wizard Example 1
Simple Payback Issues • Easy to calculate and widely
Simple Payback is widely accepted
used in making building • Easily compared to holding period
design decisions but is ‘blind of property
‘to all future costs &
benefits. (See the previous • Good for gross ‘sanity check’
section regarding Simple • Blind to the future
payback.)
• Tends to promote a ‘narrow’ view
of building quality investments
Initially, eliminate the impact of discounting and energy price escalation by entering 0% for both the
discount rate and energy price escalation.
Figure 54
EEM Wizard Project &
Baseline LCC Data
Figure 55
EEM Wizard EEM Run
LCC Data
Return to the Results View by clicking on the button (left-most button on the tool bar at the top of the
screen). In the Results View, on the project tree (on the left side of the screen) select ‘Life-Cycle Savings
Graph’.
Figure 56
EEM Example 1 Results
Cumulative Net Savings
1 With the discount rate = Cumulative Savings becomes
0% and energy price positive at 6.4 years, for this
escalation = 0%, the example, this is Simple Payback
cumulative net savings
curve becomes a straight
1
line (compare Figure 72).
2 When the cumulative net
Figure 57
Life-Cycle Costs Summary Report
1 The Simple Payback reported here agrees with the hand-calculated SPB in Figure 52.
Figure 58, LCC Spreadsheet, General Data Input Sheet, EEM Wizard LCC Example 1
Inputs illustrated below match those given in Figure 54 above, i.e., discount rate = 0%,
energy price escalation = 0% (for both energy sources).
Figure 59, LCC Spreadsheet, LCC0 Base Case Input Sheet, EEM Wizard LCC Example 1
Incremental first cost = $0. Inputs for annual utility costs match those given above in Figure 49.
Figure 60, LCC Spreadsheet, LCC0 Alternate Case Input Sheet, EEM Wizard LCC Example 1
Incremental first cost = $16,634 (from Figure 55). Inputs for annual utility costs match those given above in
Figure 49.
Figure 61
EEM Example 1 Cumulative Savings
LCC Spreadsheet becomes positive at
Cumulative Net 6.4 years
Savings Graph
Cumulative Net Savings for
EEM LCC Example 1
via the LCC spreadsheet.
Figure 62
EEM Wizard EEM Run
LCC Data
Return to the Results View by clicking on the button (left-most button on the tool bar at the top of the
screen). In the Results View, on the project tree (left side of the screen) select ‘Life-Cycle Savings Graph’.
Figure 63
EEM Example 1 Results
Cumulative Net Savings When is Simple
(w/ Equip. Replacement) Payback achieved in
1 Since the discount rate = this example?
0% and energy price
escalation = 0%, the
cumulative net savings
curve still has no
curvature but does show 1
the impact of the 2
replacement cost. .
2 With the cumulative net
Figure 64, LCC Spreadsheet, Alternate Case Input Sheet, EEM Wizard LCC Example 1
Inputs illustrated below match those given above in Figure 62.
EEM replacement cost at year 12 = $16,634
Figure 65 $40,000
EEM Example 1
LCC Spreadsheet $30,000
EER=10.8 **
(w/ Equip. Replacement)
$10,000
Cumulative Net Savings for
EEM LCC Example 1 $0
via the LCC spreadsheet, with 0 2 4 6 8 10 12 14 16 18 20 22 24
added.
Note the agreement with ($20,000)
$100,000
Figure 66 4%
Effect of Energy Price $80,000 3%
Escalation 2%
Cummulative Net Savings
In Figure 67, adding a discount rate > 0% has the effect of ‘bending’ downward the cumulative Net
Savings line, i.e., as the future value of energy savings is discounted, cumulative Net Savings decreases. In
the typical energy efficient building design decision, added efficiency costs more ‘up front’ but may save
enough in the long run to make the investment attractive. Increasing the discount rate will have the effect
of eroding the value of future energy cost savings, thereby making it harder to justify efficiency
investments, i.e., finding it harder to compete with a custodial investment having a high MARR.
Figure 67 $60,000
Effect of the Discount
Rate $50,000
0%
What will be the effect on $40,000 1%
Cummulative Net Savings
In this part of the example, a 3% real discount rate is added (assuming ~2% general inflation, ~5.1%
nominal discount rate, see equation 2a below).
Figure 68
EEM Wizard EEM Run
LCC Data
Return to the Results View by clicking on the button (left-most button on the tool bar at the top of the
screen). In the Results View, on the project tree (left side of the screen) select ‘Life-Cycle Savings Graph’.
Figure 69
EEM Example 1 Results
Cumulative Net Savings
(w/ 3% real discount rate)
1 With discount rate = 3%
downward curvature, 2
Figure 70
Annual Building Summary Results Report & Life-Cycle Costs Summary Report
1 Total annual first year utility cost is reported on both the Annual Building Summary Results
Report and on the Life-Cycle Costs Summary Report
Total LCC is also reported on both the Annual Building Summary Results Report and on the
Life-Cycle Costs Summary Report, however, if any LCC parameters are edited, the Life-Cycle
Costs Summary Report will automatically be updated without re-running the simulation while the
simulation must be re-run for the Annual Building Summary Results Report to be updated.
1 2
1 2
Net Savings = $16,662 (> $0, therefore LCC recommends this investment)
equivalent: AIRR = 4.9% (> discount rate of 3%, thus LCC recommends this investment)
In this part of the example, a U.S. DOE energy price escalation is added.
Figure 71
EEM Wizard EEM Run
LCC Data
Return to the Results View by clicking on the button (left-most button on the tool bar at the top of the
screen). In the Results View, on the project tree (left side of the screen) select ‘Life-Cycle Savings Graph’.
Figure 72
EEM Example 1 Results
Cumulative Net Savings
(w/ default DOE energy
price escalation)
1 Compared with Figure 65,
Return to the Schematic Design Wizard by clicking the button (upper left area of
eQUEST’s screen) and follow the steps indicated in Figure 73 below.
Figure 73
Schematic Wizard
Screen #1, 1
General Information
Leave the Schematic Design Wizard by clicking the button and run a simulation by clicking
the button (left side of the screen). When the simulation run is completed, click the
button and follow the steps indicated in the Figure 74.
Figure 74
eQUEST Air-Side Summary tab view
Select the ‘Air-Side HVAC’ button near the top right hand area of the Project View screen,
then select the ‘Summary’ tab to view the Air-Side Summary Input/Output report.
1 Scroll to the bottom of the Air-Side Summary Input/Output report, and find total cooling tons.
Round 152 tons up to 170 tons for cost estimate. 170 tons * $110.89/ton = $18,850
Figure 75
EEM Wizard EEM Run
LCC Data
Figure 76
Annual Building Summary Results Report
Return to the Results View by clicking on the button (left-most button on the tool bar at the top
of the screen). At the lower left corner of the screen, select: the ‘Reports’ button
. Select ‘Annual Building Summary’ from the list of reports (second from the
bottom of the list).
Return to the Results View by clicking on the button (left-most button on the tool bar at the top of the
screen). In the Results View, on the project tree (left side of the screen) select ‘Life-Cycle Savings Graph’.
Figure 77
EEM Example 1 Results 5
Cumulative Net Savings
1 The first cost is increased
CZ06
from $16,663 to 3
2 $18,850.
Still in the Results View, on the project tree (on the left side of the screen) select ‘Life-Cycle Costs
Summary Report’.
Figure 78
Life-Cycle Costs Summary Report
The improved economic performance (both improved payback and Net Savings) of the high
efficiency air conditioner confirms the intuitive understanding high efficiency air conditioning is a
more attractive efficiency measure in the warmer climate of Fresno.
For For
CZ06, CZ06,
was 6.4 was 8.3
years years
For CZ06, this was $9,935 For CZ06, this was 4.2%
Net Savings = $40,266 (> $0, therefore LCC recommends this investment)
equivalent: AIRR = 6.4% (> discount rate of 3%, thus LCC recommends this investment)
The same results may be calculated using the LCC Spreadsheet...
Figure 79, LCC Spreadsheet, LCC0 Base Case Inputs, EEM Wizard LCC Example 1, part 5
Incremental first cost = $0. Inputs for annual utility costs match those given above in Figure 76.
Base Case LCC from spreadsheet = eQUEST LCC ($1,877,496)
Figure 80, LCC Spreadsheet, LCC0 Base Case Inputs, EEM Wizard LCC Example 1, part 5
Input illustrated below match those given above in Figures 74 through 76.
Figure 81
Building Shell
Screen
(Detailed Interface)
with 3-D Geometry 2
view selected
1) NOTE: It is NOT necessary to change from Wizard Data Edit to Detailed Data Edit mode to view
and edit the LCC parameters spreadsheet from within eQUEST’s Detailed Interface.
2 Pull down the Tools menu and 3 select Life-Cycle Costing.
4
5
6
1
7
10
6 Enter the number of years for the analysis (25 years max, does not currently allow for a
Planning/Construction Period). The Study Period should be consistent with the investor’s time
horizon and the expected useful life of the options being evaluated.
7 Select the DOE energy price escalation region (1 - 4, 5=U.S. average, see the table at the bottom of
this screen , not shown in Figure 82). Alternately, if a user obtains local energy price projections (e.g.,
specific to a particular utility), these may be input on tab “User Defined Fuel Esc Rates” (not
shown). This item must be set to “6” (User Defined).
8 Indicate the analysis utility sector, Residential, Commercial, or Industrial.
9 If applicable, select a second fuel type (electric is assumed for all). Only one additional fuel can be
specified: none, Natural Gas, LPG, Distillate Oil, Residual Oil, or Coal. Inputs at 7 8 are used
to retrieve DOE energy price escalation rates from the “DOE Fuel Esc Rates” tab of the spreadsheet.
10 Uniform energy price escalation rates (do not change from year to year) are optional. If omitted (the
default), all LCC analyses will use the U.S. DOE energy price escalation rates for the current year. To
enter custom energy price escalation rates that vary year to year, go to the tab “DOE Fuel Esc Rates”
and enter custom escalation rates (e.g., from a local utility) at cells V9 – W38. IMPORTANT: these
energy price escalation rates must match the type (real or nominal) indicated at 4 . To convert
from nominal to real escalation rates, see 1 above.
11) Current federal fiscal year discount rates, FEMP, OMB Short- and Long-term, are provided for
reference.
12) Comments for each of the input cells are provided (see the small red triangular indicators at the top
right corner of input cells). View these comments by hovering the mouse pointer over the
commented cell.
13 22
14 18 19 20
15 17
23 23
16
21
13 Two cells are provided to name the project alternative, e.g., "Base”, “Baseline Design", etc. The label
in the lower cell (“Baseline Design in the example above”) is used on various reports and as the run
name on the project tree in the Results View (see the LCC Results Reporting section below).
14 Enter investment-related costs (e.g., first cost) at year 0, 15 capital replacement costs in future years,
and residual values, if any, at the last year of the analysis. Estimate each in today's dollars, entered
in the year in which they are expected to occur. If a real discount rate is used, there is no need to
inflate these future costs before entering them. If a nominal discount rate is used, each future cost
must be inflated using equation 3. In the example above, no incremental first cost, replacement cost
or residual value was associated with the baseline case.
17 Enter operations-related capital costs, e.g., non-annually recurring maintenance such as overhauls;
each estimated in today's dollars, entered in the year in which they are expected to occur
18 Enter annual electric costs, estimated in today's dollars. These are entered for the first year only and
assumed to repeat each year thereafter.
19 Enter annual second fuel costs, e.g., natural gas, LPG, etc., estimated in today's dollars. These are
entered for the first year only and assumed to repeat each year thereafter.
20 Enter annually recurring costs, e.g., ongoing operations, maintenance, and repair (OM&R). These are
entered for the first year only and assumed to repeat each year thereafter.
21 The total life-cycle cost is reported in the lower right-most cell. Note that all LCC results are
summed across each row (for each year) and down each column (for each LCC cost component, e.g.,
investment-related, operations-related, utility costs, annually recurring costs).
22 General data from the "General LCC Data" tab sheet are echoed at the top of each LCC sheet, e.g.,
FEMP fiscal year, discount rate, length analysis period, DOE region, and analysis sector.
23 Year-by-year "real" (i.e., differential) energy price escalation rates are displayed for each of the two
energy types. If no user input is provided on the General LCC Data tab for uniform energy price
escalation, then these escalation rates will default to the U.S.DOE projected escalation rates based on
input on the General Data sheet for base year, region, and sector. User input for uniform energy
price escalation rates on the General Data tab sheet will override the DOE escalation values.
Alternately, if a user obtains local energy price projections (e.g., specific to a particular utility) for any
of the analysis years, these may be input on tab “User Defined Fuel Esc Rates” (not shown). Item
(Figure 82) also must be set to “6” (User Defined). IMPORTANT: these user defined escalation
rates must mach the Discount rate type entered at (see Figure 82). To convert from nominal to
real escalation rates, see 1 above.
24 33
25 29 30 31
26 28
34 34
27
32
associated with the alternative case since the air conditioner equipment is assumed to have the same
life for the baseline and alternative design.
28 Enter operations-related capital costs, e.g., non-annually recurring maintenance such as overhauls;
each estimated in today's dollars, entered in the year in which they are expected to occur (none in this
example).
29 Enter annual electric costs, estimated in today's dollars. These are entered for the first year only and
assumed to repeat each year thereafter.
30 Enter annual second fuel costs, e.g., natural gas, LPG, etc., estimated in today's dollars. These are
entered for the first year only and assumed to repeat each year thereafter.
31 Enter annually recurring costs, e.g., ongoing operations, maintenance, and repair (OM&R). These are
entered for the first year only and assumed to repeat each year thereafter.
32 The total life-cycle cost is reported in the lower right-most cell. Note that all LCC results are
summed across each row (for each year) and down each column (for each LCC cost component, e.g.,
investment-related, operations-related, utility costs, annually recurring costs).
33 General data from the "General LCC Data" tab sheet are echoed at the top of each LCC sheet, e.g.,
FEMP fiscal year, discount rate, length analysis period, DOE region, and analysis sector.
Year-by-year "real" (i.e., differential) energy price escalation rates are displayed for each of the two
energy types. These escalation rates should be identical for all ‘LCC’ sheets.
Figure 85:
Reports Tree
(Detailed Interface, Results View)
The reports tree in the Results View lists all
currently available graphical reports in LCC
eQUEST. Reports
In this section, only the LCC-related
Comparison Reports will be reviewed.
Things to Know:
a) Comparison Reports are designed to display results for multiple projects or runs (in the case of
EEM runs or Parametric runs). The maximum number of project or runs varies by report.
b) Select projects or runs for display using Comparison Reports via the Projects Tree (accessible via
the Projects/Runs tab at the lower left hand portion of the Results View screen).
Figure 86
Life-Cycle Cost Summary
Reports and compares life-cycle costs by cost
component for each of up to eleven projects or runs.
Things to Know:
a) The report above displays results from Example 2, however, any projects
and/or runs for which there are simulation results may be displayed.
b) No default acquisition, replacement, or maintenance costs are provided. If
no user input is provided for these, the LCC results above should be
interpreted as the Net Present Value of life-cycle utility costs and savings.
Example c) If the LCC parameters (e.g., discount rate, energy price escalation, etc.) are
Project/Runs list changed, the results reported above will be automatically recalculated
for Figure 86 without re-running the simulation. If model changes cause the annual
utility costs to change, the simulation must be re-run.
d) The order in which projects and/or runs are selected for inclusion in the
Life-Cycle Cost Summary report will determine the top-down order of
presentation in the report (last selected will be top-most above). Care is
required to ensure costs reflect the total costs of all measures included in
each run.
Figure 87
Life-Cycle Savings Graph
Compares cumulative Net Savings (i.e., Life-Cycle
Savings) for up to eleven projects or runs.
Example
Project/Runs list
for Figure 87
Things to Know:
a) The graph above displays results from Example 2.
b) No default acquisition, replacement, or maintenance costs are provided. If no user input is
provided for these, the cumulative net savings above will start at year zero at 0$ and the resulting
cumulative net savings should be interpreted as the cumulative NPV of utility savings.
c) eQUEST’s LCC analysis is based on NIST’s BLCC. See eQUEST’s LCC Tutorial for details.
d) If the LCC parameters (e.g., discount rate, energy price escalation, etc.) are changed, the results
reported above will be automatically recalculated without re-running the simulation. If model
changes cause the annual utility costs to change, the simulation must be re-run.
e) The graph above displays multiple runs from the same EEM Wizard run set, however, separate
projects and/or runs may be displayed.
f) If multiple runs are not cascaded (each run independently), costs must be only for each
independent case. If multiple runs are cascaded (each on top of the previous), costs should be
cumulative for each run.
Figure 88
Life-Cycle Savings Comparison
Compares various Life-Cycle Cost related metrics for
up to seven projects or runs.
Example
Project/Runs list
for Figure 88
Things to Know:
a) For demonstration purposes, the graphs above DO NOT display results from Example 2.
b) The example used for the graph above ran simulations where each subsequent run was made on
top of all previous runs (cascaded), i.e., each new run added an additional measure to a cumulative
package of all previous measures, therefore, these results are for the cumulative performance of
each package of measures.
c) No default acquisition, replacement, or maintenance costs are provided. If no user input is
provided for these, the resulting net savings should be interpreted as the net present value of
utility savings.
d) If multiple runs are not cascaded (each run independently), costs must be only for each
independent case. If multiple runs are cascaded (each on top of the previous), costs should be
cumulative for each run.
Things to Know:
a) The graph above displays results from Example 2.
b) No default acquisition, replacement, or maintenance costs are provided. If no user input is
provided for these, the resulting net savings should be interpreted as the net present value of
utility savings.
c) Unlike the Life Cycle Cost Summary report (Figure 86), the LCC results in the Annual Building
Summary report do NOT automatically update. If LCC parameters are changed, the simulations
must be re-run for the LCC results in this report to be updated.
d) If multiple runs are not cascaded (each run independently), costs must be only for each
independent case. If multiple runs are cascaded (each on top of the previous), costs should be
cumulative for each run.
(11)
where:
AIRR = the Adjusted Internal Rate of Return
r = the assumed reinvestment rate, i.e., the MARR (the discount rate)
SIR = The Savings-to-Investment ratio (see equation 10)
N = the number of years in the study period
Summary
Life-Cycle Costing
Types of Efficiency Investment Decisions
The types of decisions that often arise in energy efficient building design projects include the following.
Accept/Reject decisions, i.e., to upgrade or not upgrade. Examples include,
o Glass or roof upgrade, HVAC system change
Optimum Level of Efficiency, i.e., when there is a spectrum of possible efficiency levels,
what level of efficiency is the best? Examples include,
o Roof or wall R-Value, how high to go?
o Cooling kW/ton, how low to go?
Optimum Combination of Interacting Measures, i.e., it often happens that the number
of worthy efficiency ideas exceeds the available budget. When this happens, how can the
designers identify the optimal subset of all the good ideas? For example,
o Insulation + Glazing + Shading + Daylighting + Lighting + HVAC + Controls,
which three or four among these would provide the best overall package of
measures that will fit within an available budget?
Funding authorities are often faced with the task of evaluating competing, independent
projects (that may have very different lengths of analysis and other assumptions). How
to rank order independent projects when their periods of analysis may differ? Examples
might include:
o an HVAC replacement for one school versus a lighting retrofit for a hospital.
Optimum Level of Efficiency, i.e., when there is a spectrum of possible efficiency levels,
what level of efficiency is optimal?
o Calculate the life-cycle cost (LLC) for each of the levels of efficiency (e.g., for each
R-Value level or each EER rating). Select the case having the minimum LCC (may
be the base case).
o Calculate the Net Savings (NS) for each of the levels of efficiency (e.g., for each
R-Value level or each EER rating). Select the case having the maximum NS (may be
the base case).
Optimum Combination (i.e., Packages) of Interacting Measures ― When the number of
worthy efficiency ideas exceeds the available budget, how can the optimal subset of all
the good ideas is best?
o Calculate the life-cycle cost (LLC) for each package of possible measures. Select the
package having the minimum LCC (may be the base case).
o Calculate the Net Savings (NS) for each package of possible measures. Select the
package having the maximum NS (may be the base case).
Funding authorities who must rank order competing independent projects that have
very different LCC parameters, e.g., differing lengths of analysis periods or differing
discount rates). When these basic LCC parameters are not held constant for all
alternatives, the usual methods (minimum LCC or maximum NS) are not valid (the LCC
of an alternative will tend to increase if the period is extended, therefore to fairly
compare alternatives using LCC, the period of analysis must be the same for each).
o Use SIR to rank order competing independent projects is their periods of analysis or
discount rates differ.
Conclusions
Two points are offered in conclusion.
To provide value for the life cycle, we must design for the life cycle
Life-cycle design should consider Life-Cycle Costs
LCC Software
[8] BLCC, The NIST “Building Life-Cycle Cost” Program, NISTIR 5185-2, National Institute of Standards and
Technology, Gaithersburg, MD, April 1999. To download a free copy and manual, visit:
http://www.eere.energy.gov/femp/information/download_blcc.cfm
[9] User-Friendly Life-Cycle Costing, Addison, M.S. 1982 (in Excel format) Available via free download at:
http://www.doe2.com.
User’s Guide and Reference Manual, NISTIR 5186-2, National Institute of Standards and Technology,
Gaithersburg, MD, October 1996.
DISCOUNT--A Program for Discounting Computations in Life-Cycle Cost Analyses, User’s Guide and Reference
Manual, NISTIR 4513, National Institute of Standards and Technology, Gaithersburg, MD, January 1991.
Other References
[10] LEED®, “Leadership in Energy and Environmental Design”, is an environmental building
performance rating developed and provided by the U.S. Green Building Council (USGBC). See
http://www.usgbc.org/ for more information.
[11] California Building Energy Efficiency Standards for Residential and Non-residential Buildings, Title
24. The current standards, the ‘2005’ standards, became effective 1 October 2005. Recent previous
versions were released in 2001, and 1998. See http://www.energy.ca.gov/title24/ for more information.
[12] American Society of Heating Refrigerating and Air Conditioning Engineers (ASHRAE) Standard 90.
Standard 90.1 covers non-residential and high-rise residential buildings. Standard 90.2 covers low-rise
residential buildings. See http://www.ashrae.org/technology/page/548 for more information.
[13] eQUEST, the “Quick Energy Simulation Tool”, is designed to support whole building energy use
analysis. It is based on an enhanced version of DOE-2 that through the use of ‘Building Design Wizards’
is easy to use yet yields sophisticated building energy analysis in an affordable level of effort. eQUEST is
available as freeware via http://www.energydesignresources.com/ or http://www.doe2.com/.
[14] Building Owners and Managers (BOMA) Experience Exchange Report, published annually, see
http://www.boma.org/
[15] 2003 ASHRAE Handbook: HVAC Applications, Chapter 35, American Society of Heating,
Refrigerating and Air Conditioning Engineers (ASHRAE), Atlanta, 2003
[16] Fuller, S.K., Guidance on Life-Cycle Cost Analysis Required by Executive Order 13123, National Institute of
Standards and Technology, Gaithersburg, April 2005 (available at:
http://www1.eere.energy.gov/femp/pdfs/lcc_guide_05.pdf).
Glossary
Life-Cycle Costing
The following is based on the glossary provided in NIST Handbook 135, Life-Cycle Costing Manual for the
Federal Energy Management Program [5] by S. Fuller and S. Pedersen (available at
http://www1.eere.energy.gov/femp/information/download_blcc.html).
Adjusted Internal Rate of Return (AIRR) — Annual yield from a project over the Study Period, where
reinvestment of interim returns (i.e., avoided utility costs) is assumed to be made at the discount rate, i.e.,
at the minimum acceptable rate of return (MARR). Contrast AIRR with IRR (Internal Rate of Return)
where IRR implicitly assumes the reinvestment of interim returns (avoided costs) is made at the IRR rate.
In the context of energy efficient building design, the savings are actually avoided utility costs, hence it is
more reasonable to assume these avoided costs would reside in a custodial investment earning a return
equal to the MARR (equal to the discount rate).
Alternative Building System — The installation or modification of a building system intended primarily
to reduce operating-related costs, including energy and/or water costs.
Annually Recurring Costs — Those costs which are incurred each year in an equal amount throughout
the Study Period, or which change from year to year at a known rate.
Annual Value (Annual Worth) — The time-equivalent value of past, present, or future cash flows
expressed as an Annually Recurring Uniform amount over the Study Period.
Annual Value (Annual Worth or Uniform Capital Recovery) Factor — A discount factor by which a
present dollar amount may be multiplied to find its equivalent Annual Value, based on a given Discount
Rate and a given period of time.
Base Case — The building system against which an Alternative Building System is compared.
Base Date — The beginning of the first year of the Study Period, generally the date on which the Life-
Cycle-Cost analysis is conducted.
Base Year — The first year of the Study Period, generally the year in which the Life-Cycle-Cost Analysis
is conducted.
Base-Date Price — The price of a good or service as of the Base Date.
Capital Costs (Capital Investment Costs) — Costs which are paid from capital funding accounts rather
than from agency operating funds. For projects subject to the FEMP Rules, these include initial
investment, capital replacements, and residual values.
Cash Flow — The stream of costs and savings (expressed for the purpose of this requirement in
Constant Dollars) resulting from a project investment.
Compound Interest Factors or Formulas — See Discount Factors or Formulas.
Constant Dollars — Dollars of uniform purchasing power tied to a reference year (usually the Base Year)
and exclusive of general price inflation or deflation.
Cost Effective — The condition in which an Alternative Building System saves more than it costs over
the Study Period, where all Cash Flows are Discounted to their equivalent value at a common point in
time.
Current Dollars — Dollars of non-uniform purchasing power, including general price inflation or
deflation, in which actual prices are stated. For example, when estimating a future one-time cost such as
equipment replacement cost, if Current Dollars are used (must be used with nominal rates), the
replacement cost in today’s dollars must be adjusted (increased) to account for inflation When using
Constant Dollars (and real rates), no inflation adjustment would be necessary. With zero inflation, current
dollars are identical to constant dollars.
Demand Charge — That portion of the charge for electric service based on fixed plant, equipment, and
transmission costs associated with providing maximum required capacity.
Differential Cost — The difference in the costs of an Alternative Building System and the Base Case.
Differential Escalation Rate — See Real Escalation Rate
Discount Factor — A multiplicative number used to convert a Cash Flow occurring at a given point in
time (usually in the future) to its equivalent value at a common point in time (usually the Base Date).
Discount Formula — An expression of a mathematical relationship which enables the conversion of
dollars at a given point in time to their equivalent amount at some other point in time.
Discount Rate — The rate of interest, reflecting the investor's Time Value of Money (or opportunity
cost), that is used in Discount Formulas or to select Discount Factors which in turn are used to convert
("discount") Cash Flows to a common time. Real Discount Rates reflect Time Value of Money apart from
changes in the purchasing power of the dollar and are used to discount Constant Dollar Cash Flows;
Nominal Discount Rates include changes in the purchasing power of the dollar and are used to discount
Current Dollar Cash Flows.
Discounted Payback (DPB) Period — The time required for the cumulative savings from an
investment to pay back the Investment Costs and other accrued costs, taking into account the Time Value
of Money.
Discounting — A technique for converting Cash Flows occurring over time to time-equivalent values, at
a common point in time, adjusting for the Time Value of Money.
Disposal Cost — See Residual Value
Economic Life — That period of time over which a Building or Building System is considered to be the
lowest-cost alternative for satisfying a particular need.
Energy Conservation Measure — An installation or modification of an installation in a Building which
is primarily intended to reduce energy consumption cost, or allow the use of a renewable energy source.
Energy Cost — The annual cost of fuel or energy used to operate a building or building system, as billed
by the utility or supplier (including Demand Charges, if any). Energy Costs are incurred during the Service
Period only. Energy consumed in the construction or installation of a new building or building system is
not included in this cost.
Escalation Rate — The rate of change in price for a particular good or service (as contrasted with the
Inflation Rate, which is for all goods and services). See Real Escalation Rate and Nominal Escalation Rate.
investments where high initial costs are traded for reduced future cost obligations. NOTE: LCCA should
not be confused with LCA, Life-Cycle Assessment (LCA, see above).
Liquid Petroleum Gas (LPG) — Propane, butane, ethane, pentane, or natural gasoline.
Measures of Economic Evaluation — The various ways in which project cash flows can be combined
and presented to describe a measure of project cost effectiveness. The measures used to evaluate FEMP
projects are Life-Cycle Cost (LCC), Net Savings (NS), Savings-to-Investment Ratio (SIR), Adjusted
Internal Rate of Return (AIRR). Discounted Payback (DPB) and Simple Payback (SPB) are measures of
evaluation not fully consistent with the LCCA but are used as supplementary measures in some federal
programs.
Modified Uniform Present Value (Worth) (UPV* or UPW*) Factor — A discount factor used to
convert an annual amount, changing from year to year at a given escalation rate, to a time-equivalent
Present Value. The FEMP UPV* Factor indicates a discount factor published in the Annual Supplement
to Handbook 135 for use in computing present-value energy costs, based on energy price escalation rates
provided for this purpose by DOE's Energy Information Administration.
Mutually Exclusive Projects — Projects where the acceptance of one precludes acceptance of the
others. Examples are whether to use single-glazing, double glazing or triple-glazing for a window; or R11,
R19, or R30 levels of insulation in an attic.
Net Savings (NS) or Net Benefits (NB) — Time-adjusted savings or benefits less time adjusted
differential costs taken over the Study Period, for an Alternative Building System relative to the Base Case.
Nominal Discount Rate — The rate of interest (market interest rate) reflecting the time value of money
stemming from both inflation and the real earning power of money over time.
Nominal Escalation Rate — The projected annual rate of change in actual (market) prices for a
particular good or service.
Operational Costs — See Operating, Maintenance, and Repair Costs
Operating, Maintenance, and Repair (OM&R) Costs — Non-investment costs related to the use of a
building or building system, including energy and water costs.
Planning/Construction (P/C) Period — The period beginning with the Base Date and continuing up
to the Service Date during which only Initial Investment Costs are incurred.
Present Value (Present Worth) — The time-equivalent value of past, present or future Cash Flows as of
the beginning of the Base Year.
Present Value (Present Worth) Factor — A discount factor by which a future dollar amount may be
multiplied to find its equivalent Present Value as of the Base Date. Single Present Value Factors are used
to convert single future amounts to Present Values. Uniform Present Value Factors and Modified Present
Value Factors are used to convert Annually Recurring amounts to Present Values.
Real Discount Rate — The rate of interest reflecting the portion of the time value of money attributable
to the real earning power of money over time and not to general price inflation.
Real Escalation Rate — The difference between the rate of annual price change for a particular good or
service and the rate of general Inflation.
Renewable Energy — Energy obtained from sources that are essentially inexhaustible (unlike, for
instance, fossil fuels of which there is a limited supply). Renewable sources of energy include wind energy,
geothermal energy, hydroelectric energy, photovoltaic and solar energy, biomass, and waste.
Replacement Costs — Capital costs incurred to replace the project during the Study Period. Sometimes
referred to as Capital Replacement Costs. Replacement costs as used in this handbook do not include the
cost of replacing system components that are paid out of current operating budgets; these are considered
to be Operation-Related Costs.
Residual Value — The estimated value, net of any Disposal Costs, of any building or building system
removed or replaced during the Study Period, or remaining or recovered through resale or reuse at the end
of the Study Period (also called Resale Value, Salvage Value, or Retention Value).
Retrofit — The installation of an Alternative Building System into an existing building.
Risk Attitude — The willingness of decision makers to take chances or to gamble on investments of
uncertain outcome. Risk attitudes are generally classified as risk-averse, risk-neutral, or risk-taking.
Risk Exposure — The probability of investing in a project whose economic outcome is less favorable
than what is economically acceptable.
Salvage Value — See Residual Value
Savings-to-Investment Ratio (SIR) — A ratio of economic performance computed from a numerator
of discounted energy and/or water savings, plus (less) savings (increases) in other operation-related costs,
and a denominator of increased Initial Investment Costs plus (less) increased (decreased) Replacement
Costs, net of Residual Value (all in present-value terms), for an Alternative Building System as compared
with a Base Case.
Sensitivity Analysis — Testing the outcome of an evaluation to changes in the values of one or more
system parameters from the initially assumed values.
Service Date — The point in time during the Study Period when a building or building system is put into
use, and operation-related costs (including energy and water costs) begin to be incurred.
Service Period — The period of time starting with the Service Date and continuing through the end of
the Study Period.
Simple Payback (SPB) Period — A measure of the length of time required for the cumulative savings
from a project to recover its Initial Investment Cost and other accrued costs, without taking into account
the Time Value of Money. SPB is usually measured from the Service Date of a project.
Single Present Value (Worth) (SPV or SPW) Factor — The discount factor used to convert single
future benefit and cost amounts to Present Value.
Study Period — The length of the time period covered by the economic evaluation. This includes both
the Planning/Construction Period and the Service Period.
Sunk Costs — Costs which have been incurred or committed to prior to the Life-Cycle Cost analysis.
These costs should not be considered in making a current project decision.
Time-of-Use Rate — Charges for service (usually electricity) that vary from period to period, based on
the cost of supplying the service during that period.
Time-Value of Money — The time-dependent value of money, reflecting the opportunity cost of capital
to the investor during that time period. See Discount Rate.
Uniform Present Value (Worth) (UPV or UPW) Factor — The discount factor used to convert
uniform annual values to a time-equivalent Present Value.
Useful Life — The period of time over which a Building or Building System continues to generate
benefits or savings.
$62,500 annual
electric cost
$75,000 initial
cost
15 year expected
life
$65,000
replacement cost
at year 15
15 year expected
life
$1,000 annually
recurring
maintenance
cost
Figure A.4, Comparison of Results, Tabular Data, LCC Spreadsheet,, BLCC4, BLCC5
The table below compares outputs from four methods used to calculate Example 5, tabular procedure (see
Figures 22-27), the LCC spreadsheet (see Figures 28-30), BLCC version 4 (see Figure A.3), and BLCC
version 5 (see Figure A.2).
LCC
Tabular Spreadsheet BLCC4 BLCC5
High Eff Package Rooftop HVAC
+ Initial Cost: $75,000 $75,000 $75,000 $75,000
+ PV replace cost: $41,730 $41,721 $41,721 $41,720
– PV residual value: $10,357 $10,245 $10,245 $10,245
+ PV electricity: $1,001,250 $1,001,001 $1,001,001 $1,001,072
+ PV annual maint: $17,410 $17,413 $17,413 $17,414
+ PV non-annual maint: $0 $0 $0 $0
LCC: $1,125,033 $1,124,890 $1,124,890 $1,124,961