## Residential Furnaces and Boilers



## Lif e C ycl e Co st A nal

ysis 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, 2001Life 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))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)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?

3Life 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

# 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:

sLife Cycle Cost Analysis:



### Illustrative LCC vs AFUE A range of efficiencies will be analyzed and compared to b aseline. In this example, 3 options have re du ce d 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

6Life 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, trainingLife 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

### B AC K UP S LIDES

Life Cycle Cost AnalysisLife 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)

Y ears
10Life 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 11Life 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 12

### 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