Selecting the Most Cost Effective HVAC Design based on a Life Cycle Cost Analysis

1. Performing a
Life Cycle Cost Analysis

2. What is a Life Cycle Cost Analysis?
• Compare the cost of different equipment, fuel
types, and etc from inertia installation to end
of service life.
• Comparison includes first installation cost, life
time maintenance cost, life fuel cost,
replacement cost.

3. Why Perform a Life Cycle Cost Analysis
• The owner asks you compare the costs of
different HVAC systems. Packaged RTU’s vs.
central plant fed AHU’s.
• Justify additional cost of Energy Saving
Technology (energy recovery device, heat
pump chiller, solar, and etc.)
• Owner is required by law to perform a LCCA
(government projects)

4. Terminology
• Net Present Value (NPV) – Value of Money at Year “0”
• Adjusted Internal Rate of Return (AIRR) - % return on
investment
• Savings to Investment Ration (SIR) – dollar for dollar
return
• Simple Payback method (SPP) – first cost over savings
• Time Value of Money (TVOM) – Change in the value of
money over time. The US Dollar loses value over time.
• Cash Flow Diagram

5. Simple Payback Method
• Easy method to determine return on
investment for simple projects.
• SPP = Initial Cost / Annual Savings
• Example: $3000 to install an energy recovery
wheel in a restroom exhaust system. Will save
$800 in annual energy costs.
• SPP= $3000/$800 = 3 yrs 9 months

6. Detailed Analysis Consists
• First Cost (Installation cost)
• Maintenance Cost
• Energy Cost
• Inflation
• Discount Rate (Owner’s Cost to Borrow
Money)

7. Cash Flow Diagram

8. Which Chiller Should Be Installed?
• 100 Ton Chiller at 0.9 kw/ton or
• 100 Ton Chiller at 0.6 kw/ton at $18k premium
• Electricity Costs: $0.08 / kwh with 3% Annual Inflation.
• Assume Service Costs are the same with both Chillers.
• The Customer’s Discount Rate is 5%.
• Either chiller will run 2000 hrs per year.
• Which chiller is most cost effective after 10 years?
• What is the Net Present Value (NPV) of the
investment?

9. Annual Energy Costs
0.9 kw/ton Chiller 0.6 kw/ton Chiller
• Annual Energy Consumption • Annual Energy Consumption
is 2000 hrs x 100 tons x 0.9 is 2000 hrs x 100 tons x 0.6
kw/ton = 180,000 kwh kw/ton = 120,000 kwh

10. COST OF ENERGY CONSUMPTION
OVER TIME
ENERGY ANNUAL ENERGY COST
ANNUAL ENERGY
YEAR COST 0.9 KW/TON 0.6 KW/TON
COST DIFFERENCE
($ / KWH) CHILLER CHILLER
1 $0.08 $14,400 $9,600 $4,800
2 $0.08 $14,832 $9,888 $4,944
3 $0.08 $15,277 $10,185 $5,092
4 $0.09 $15,735 $10,490 $5,245
5 $0.09 $16,207 $10,805 $5,402
6 $0.09 $16,694 $11,129 $5,565
7 $0.10 $17,194 $11,463 $5,731
8 $0.10 $17,710 $11,807 $5,903
9 $0.10 $18,241 $12,161 $6,080
10 $0.10 $18,789 $12,526 $6,263

11. SIMPLE PAYBACK ANALYSIS
• SPP = FIRST COST / ANNUAL SAVINGS
• SPP = $18,000 / $4800/YR
• SPP = 3.8 YEARS

12. $6262
$6080
$5245
$4944 $5092
$4800
$18,000

13. Convert Future Savings into Present
Day Values
• Determine the Net Present Value of the
Investment (NPV)
• Use Owner’s discount rate (cost to borrow
money)
• NPV = Present Value (PV) savings or loss minus
PV of First Cost Investment

15. ANNUAL ENERGY COST DISCOUNT
YEAR PRESENT VALUE
DIFFERENCE FACTOR
1 $4,800 0.9524 $4,572
2 $4,944 0.9070 $4,484
3 $5,092 0.8638 $4,399
4 $5,245 0.8227 $4,315
5 $5,402 0.7835 $4,233
6 $5,565 0.7462 $4,152
7 $5,731 0.7107 $4,073
8 $5,903 0.6768 $3,995
9 $6,080 0.6446 $3,919
10 $6,263 0.6139 $3,845
$41,988
NPV = $41988 - $18,000 = $23,984
SIR = $41988 / $18000 = 2.33
Adjusted Internal Rate of Return (AIRR) = [(1+d)x(SIR)^(1/n)]-1 = [(1+.05)x(2.33)^(1/10)]-1 = 0.14 OR 14%