Residential Furnaces and Boilers

Life Cycle Cost Analysis

James E. McMahon

(JEMcMahon@LB L gov)

Ernest Orlando Lawrence Berkeley National Laboratory

U.S. DOE Workshop on Standards

for Residential Furnaces and Boilers

July 17, 2001

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Life Cycle Cost Analysis:

Purpose

• Analyze "the savings in operating costs

throughout the average life of the covered

product in the type (or class) compared to

any increase in the price of, or in the initial

charges for, or maintenance expenses of, the

covered products which are likely to result

from the imposition of standards."

(§325 (1)(2)(B)(i)(II))

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Life Cycle Cost Analysis:

Method

• LCC =initial costs plus operating costs

- Sum over lifetime of equipment

- Discount future expenses to the present

• LCC = P + [O/(1+r)t] where

- P =Installed owner cost

- 0 =Annual operating expense

- r =Discount rate

- t =years (sum over furnace/boiler lifetime)

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Life Cycle Cost Analysis:

DOE Requests Input from Stakeholders

• Are the proposed approaches reasonable?

• Should regional variations in climate and energy

price be analyzed in ANOPR stage or later

(NOPR)?

• Are the proposed data sources reasonable?

• Should equipment lifetimes depend on operating

hours, climate, or other application-specific

variables? Should lifetimes be the same for all

product classes of furnaces? Of boilers?

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Life Cycle Cost Analysis:

Inputs (1)

• INSTALLED OWNER COST:

the price paid for a furnace or boiler,

including installation

• Possible data sources

- current or recent purchase prices

- calculated from manufacturer costs plus

markups (manufacturer, dealer, distributor,

contractor) plus sales tax and installation cost

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Imputs (2)

• OPERATING EXPENSES:

- energy and maintenance costs (annually)

- lifetime of the furnace or boiler (years)

- discount rate (for calculating present value of

future operating expenses)

• Possible approach and data sources

- annual energy consumption by furnace or boiler (from

recent EIA survey or simulations)

- current and forecasted regional energy price trends

(from EIA/AEO) applied to marginal prices

- gather and analyze data on lifetimes, discount rates

Life Cycle Cost Analysis:

s

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Life Cycle Cost Analysis:

Illustrative LCC vs AFUE

A range of efficiencies will

be analyzed and compared to

baseline.

In this example, 3 options

have reduced operating costs

- Option 1 = lower LCC

- Option 2 = lowest LCC, but

higher installed costs

- Option 3 = higher LCC and

highest installed costs

Operating and maintenance costs

Installed costs

I

Baseline Option 1 Option 2

AFUE

Option 3

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Life Cycle Cost Analysis:

• Objectives:

- analyze variability among consumers and operating

conditions (e.g., climate, building characteristics, operation)

- rigorous treatment of uncertainty

• Technical Approach:

- use commercially available software

- use distributions for each input, not point estimates

- public access via Web, training

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Life Cycle Cost Analysis:

Results

• Summarize Results for Each Possible

Efficiency Improvement

- Average (or median) LCC savings

- Percent of consumers with net savings or with

net costs

• Importance analysis

Identify key inputs that contribute most to

uncertainty or variability

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BACKUP SLIDES

Life Cycle Cost Analysis

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Life Cycle Cost Analysis:

Cumulative Cash Flow (CCF) and

Life Cycle Cost (LCC)

• Cumulative cash flow

(CCF) is the sum of

installed cost plus

annual operating

expenses over the

equipment lifetime

• Life cycle cost (LCC)

is the discounted sum 0

o Cumulative Cash Flow (undiscounted)

® Life Cycle Cost (discounted)

Years

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Life Cycle Cost Analysis:

Uncertainty and Variability

• Identify key sources of uncertainty and variability

- uncertainty: incomplete information

- variability: range of values

• Estimate input ranges rather than point values

- minimum, likeliest, maximum values

• Conduct scenario ("whatif') analysis

• Simulate over input ranges

• Express output as ranges

- Percent of consumers having lower life cycle cost

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Life Cycle Cost Analysis:

Simulation Method

• Select one household from sample population

- use weighted sampling (to represent appropriate fraction

of total population)

- actual fuel type for furnace or boiler

- actual monthly energy bills

- estimate annual energy consumption by furnace or boiler

• Calculate price of energy

- calculate marginal price for electricity and for gas or oil

- apply time trends to estimate future prices

• Sample given uncertainties

- manufacturers' costs, markups, lifetime, discount rate

• Calculate LCC

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Process for making models

transparent and robust

0 Make models as simple as possible

• Make copies of models accessible to public

- on World Wide Web

- available from USDOE or contractor

• Make models easy to use

- Graphical user interface, option menus

- Develop documentation

• Provide training

- central location (e.g., public workshop)

- on-site at stakeholder location

- computer link or

- videoconference 13

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