Heating and Air Conditioning I Principles of Heating, Ventilating and Air Conditioning R.H. Howell, H.J. Sauer, and W.J. Coad ASHRAE, 2005 basic textbook/reference material For ME 421 John P. Renie Adjunct Professor – Spring 2009

Chapter 10 – Life-Cycle Costs General Concepts. Properly engineered HVAC system must also be economical Compromise between performance and economic merit Selection due to User’s needs Designer’s experience Local building codes First costs Most efficiency use of source energy Any of these may affect the choice – among choices given same results – system with the lowest-life cycle cost – not necessarily the lowest first-cost Overall cost may be divided into two main categories Owning costs Operating costs

Chapter 10 – Life-Cycle Costs General Concepts. Overall cost may be divided into two main categories Owning costs Operating costs See Tables 10-1 and 10-2 Also Chapter 36 of the ASHRAE Handbook – HVAC Applications

Chapter 10 – Life-Cycle Costs General Concepts. See Table 10-1 – Owning and Operating Cost Data Summary

Chapter 10 – Life-Cycle Costs General Concepts. See Table 10-1 – Owning and Operating Cost Data Summary

Chapter 10 – Life-Cycle Costs General Concepts. See Table 10-1 – Owning and Operating Cost Data Summary

Chapter 10 – Life-Cycle Costs General Concepts. See Table 10-2 – Initial Cost Checklist

Chapter 10 – Life-Cycle Costs General Concepts. See Table 10-2 – Initial Cost Checklist

Chapter 10 – Life-Cycle Costs General Concepts. Life-cycle costs consider expenses that are experienced over an extended period. Economic procedures project long-term costs so that comparisons can be made between systems with different initial and operating costs. Must include all cost factors – initial costs, service life, interest, energy costs, operating expenses, and cost escalation Life-cycle cost techniques Present worth Uniform annual owning and operating costs Rate of return Rate of return of investment Benefit cost analysis Years to pay back Cash flow – more sophisticated analysis – need of investors/owners

Chapter 10 – Life-Cycle Costs Owning Costs. Expressed as annual costs that are distributed over an extended period or as an equivalent total value – present worth (includes initial costs, salvage value, property taxes, rents, and insurance.) Initial Costs Included construction costs of the system – cost of design, administration, and raise capital Interest – money has a true value because it most be borrowed, obtained from investors, or diverted (cost of borrowed capital, cost of capital, or discount rate) Time period – used by owners and engineers to analyze the system – defined in the following manner Depreciation period – allocated first cost over the estimated useful life (IRS: straight-line, accelerated procedures such as declining balance or sum of the years. ) Amortization period – time over which periodic payments of monies are made to discharge a debt

Chapter 10 – Life-Cycle Costs Owning Costs. Initial Costs Service life – time value that reflects the expected life of the specific component (not useful life or the depreciation period used for IRS) High life is variable – depends on maintenance, environment, technical advancements of new equipment, and personal opinions Service life can be used to set amortization period or help is decisions of preventive maintenance See Table 10-3 for Estimates of Service Lives of Various Components Capital recovery factor (CRF) Calculated from the established interest rate and the amortization period n that determines the uniform annual cost needed to repay a debt or initial cost. See Table 10-4 ($1,000 at 8 percent for 20 years – CFR = , or $ per year

Chapter 10 – Life-Cycle Costs Owning Costs. Initial Costs (Amortization Table)

Chapter 10 – Life-Cycle Costs

Owning Costs. Initial Costs Present worth – initial cash required (or present worth) is the current value of monies to be spent over the selected amortization period – money needed today for initial investment and all future expenditures. Present worth factor, uniform annual series (PW uas ) – given in tables and is used to calculate the present worth when given a uniform annual cost. PW = Annual costs x PW uas (or 1/CFR) Series compounded amount factor, uniform annual series (SCAF) – used to determine a future sum of money when a uniform annual payment is made. Actual sum = Annual costs x SCAF 1/SCAF is the sinking fund factor (SFF) Annual costs= Actual sum at end x SFF

Chapter 10 – Life-Cycle Costs Owning Costs. Present worth factor, single payment (PWF sp ) – used to calculate the present worth of a future one-time payment Actual cost times this number gives the present worth of a one-time cost, such as an overhaul or equipment replacement. Reciprocal is referred to as the compound amount factor, single payment.

Chapter 10 – Life-Cycle Costs Owning Costs. Property Tax Included as an owning tax and is a percentage of the market value of the buildings Engineer needs to assess whether appreciation or depreciate of property values will occur. Incentives for energy conservation may be an important consideration in determining justifiable long-term investment Insurance Means by which a property owner can be reimbursed for a financial loss from property damage that requires repair or replacement Financial recovery also from loss of income, rents, or profits resulting from the property damage State-wide regulation (premium, liabilities, deductibles, etc.) Salvage Value Terminal value of the equipment at the end of the life or amortization period – often assumed to be zero

Chapter 10 – Life-Cycle Costs Operating Costs. Energy Utility costs require monthly calculation considering energy consumption and peak demands. Most reliable are hourly procedures – each component as a function of weather, internal loads, building heat gains and losses and ventilation Cost escalation – loss of purchasing power due to inflation Real return = difference between interest and inflation (1 to 5%) Present worth of an annual cost over a selected time period, n, using an interest of money, I, and a cost escalation, j, is the present worth escalation factor (PWEF) – when interest and fuel cost rises are not equal … use

Chapter 10 – Life-Cycle Costs Operating Costs. Energy costs

Chapter 10 – Life-Cycle Costs Operating Costs. Energy costs

Chapter 10 – Life-Cycle Costs Operating Costs. Maintenance Expenses for labor and material necessary to make repairs, as well as for cleaning, painting, inspection, testing, etc. Usually operation engineer handles routine maintenance Extraordinary repairs covered by maintenance divisions Technique for estimating building HVAC maintenance cost for various equipment combinations (Dohrmann and Alereza – 1986) Assume that the base HVAC system consists of fire-tube boilers for heating equipment, centrifugal chillers for cooling, variable-air-volume (VAV) distribution. Costs are $ per square foot with adjustment from Table 10-5 to account for building age and various types of HVAC equipment.

Chapter 10 – Life-Cycle Costs Operating Costs. Maintenance (Table 10-5)

Chapter 10 – Life-Cycle Costs Operating Costs. Labor for Operations System operators are often necessary due to scope of facility or local regulation Water Costs Heat can be rejected either through purchased water or cooling towers Water conservation Water Treatment Income Tax Can be considered as an operating cost Tax rate is the marginal rate – next dollar Allowances for depreciation and other deductions strongly influence investments by reducing life-cycle costs Significant tax-credits should be included in life-cycle costs.

Chapter 10 – Life-Cycle Costs Life-Cycle Cost Techniques. Present Worth Most common technique – comparing the equivalent cash needed on hand to own and operate over an entire selected time. – single investment dollar amount.

Chapter 10 – Life-Cycle Costs Life-Cycle Cost Techniques. Uniform Annual Owning and Operating Costs Compares the cost of both investment and annual costs on an annual base –spread the costs of owning the building spread over the full amortization period Consider the additional costs at some particular point in its life due to replacements or major overhauls. Rate of Return The average annual net benefit/original cost x 100.

Chapter 10 – Life-Cycle Costs Life-Cycle Cost Techniques. Rate of Return The average annual net benefit/original cost x 100.

Chapter 10 – Life-Cycle Costs Life-Cycle Cost Techniques. Benefit/Cost Analysis Comparative procedure that provides the engineer and owner the ratio of cost versus savings – after both have been converted to present worth.

Chapter 10 – Life-Cycle Costs Life-Cycle Cost Techniques. Years to Payback Similar to benefit cost analysis in that it does not look for system cost comparisons at a specific life – agreement between engineer and owner that YTP is reasonable and less than life expectancy Years required for the present worth of the investment is equal to the savings.

Chapter 10 – Life-Cycle Costs Life-Cycle Cost Techniques. Years to Payback

Chapter 10 – Life-Cycle Costs Life-Cycle Cost Techniques. Cash Flow A discounted cash flow approach provides the owner with a technique to incorporate variable annual outlays and taxes, with the amount and year of the cash income. To account for interest and time, net cash flows are converted to single-payment present worths – the interest at which the summations of present worth of net cash flow is zero gives the rate of return. If acceptable to the investor – proposal should be approved. Another way would be to obtain an investment value at a given rate of return by adding the present worth of the net cash flows, but not including the investment costs.

Chapter 10 – Life-Cycle Costs Household Energy Use

Chapter 10 – Life-Cycle Costs Household Energy Use (from Energy and the Environment, 2 nd Edition, Ristinen and Kraushaar, 2006, John Wiley)