Life-Cycle Cost Analysis 

EERE-2006-STD-0125 COMMENT 28
ANOPR Analyses Flow Diagra

Framework 

Document ANOPR NOPR Fina

Rule

Energy Use Characterization

Market and TechnologyAssessment

ScreeningAnalysis

Engineering Analysis

Markups to Determine Equipment Price Life-Cycle 

Cost and Payback Period Analysis

Shipments Analysis

EERE-2006-STD-0125 COMMENT 28
 Markups to Determine Equipment Price

• Characterize the channels for how BVM equipment is d

manufacturer to the customer.

• Determine prices paid by customers based on manufac

baseline and higher efficiency BVM equipment.

 Energy Use Characterization

• Develop electrical energy consumption savings estimat

equipment efficiency levels. 

• Validate the energy savings estimates from the enginee

 Life-Cycle Cost and Payback Period Analyses

• Develop the customer life-cycle cost savings and payba

efficiency BVM equipment.

Purpose

EERE-2006-STD-0125 COMMENT 28
 Purpose

• Determine customer prices under a standards scena

manufacturer costs.

• Characterize equipment distribution channels and m• Describe BVM equipment distributor/wholesaler dire

and profits.

 Inputs

• Firm balance sheets.

– Wholesalers: U.S. Census Bureau Financial Data on O

Equipment Merchant Wholesalers from Wholesale TraSubjects (2002).

 Output

• Baseline and incremental markups.

Markups to Determine Equipmen

Purpose, Inputs, and Outpu

Markups to De

EERE-2006-STD-0125 COMMENT 28
BVM Equipment Distribution Cha

 Estimated Fraction (%) of Equipment Shipments b

Channels*

Markups to De

*DOE assumed the same market shares by distribution chann

Channel 1 Channel 2 Ch

Manufacturer 

↓

Manufacturer 

↓

Man

Beverage 

Bottler/Distributor 

Equipment 

Wholesaler/Distributor 

Eq

Wholesa

↓

 Vending Machine 

Operator 

Sit

68% 27% 

EERE-2006-STD-0125 COMMENT 28
Baseline and Incremental Mark

 Markups relate customer price to cost of goods so

 Baseline markups relate price to cost prior to a ch

• Baseline markups indicate a customer price that covers a

contractor’s expenses plus profit.

• Direct labor costs (salaries, payroll, rental and occupancy

 Incremental markups relate the incremental chang

to the incremental change in COGS beyond baseli

• Some distribution costs remain constant with COGS incr• Incremental markups cover only expenses that vary with 

expenses that increase due to an increase in equipment 

– For example, direct labor costs (salaries, payroll, rental and o

efficiency-induced changes in COGS.

• DOE assumes other operating costs and profit will scale 

COGS.

Markups to De

EERE-2006-STD-0125 COMMENT 28
Distribution Expenses and Mark

 Wholesaler markup estimated from Census Financ Manufacturer direct sales to beverage bottlers occ

manufacturer selling price (with zero markup), befsales tax.

 Sales tax is applied based on each specific State’s  National average estimates for sales tax require es

shipments of beverage vending machines by State

 Since relative shipments at a State level are unkno

census data for population by State as a proxy for shipments.

Markups to De

EERE-2006-STD-0125 COMMENT 28
Markups to De

Distribution Expenses and Markups 

 Resulting Average Baseline Markups

Manufacturer 

Direct Wholesaler/Distributor Ove

Markup 1.000 1.46 

Sales Tax 1.068 1.068 

Overall 

Markup 1.068 1.559 

EERE-2006-STD-0125 COMMENT 28
Markups to De

Distribution Expenses and Markups 

 Resulting Average Incremental Markups

Manufacturer 

Direct Wholesaler/Distributor 

Markup 1.000 1.20 

Sales Tax 1.068 1.068 

Overall 

Markup 1.068 1.282 

EERE-2006-STD-0125 COMMENT 28
Energy Use Characterization

 Class A beverage vending machines are fully-cooled 

for indoor use only) and were assumed to be subject indoor air temperature and relative humidity of 75°F/one of the test conditions in the DOE test procedure

 Class B beverage vending machines are all other ma

indoor-outdoor use). DOE assumed that 25% of Clasplaced outdoors and 75% are indoors

• 75% of Class B machines installed indoors are subje

DOE test condition of 75°F/45% RH as the Class A m

• For the 25% of the Class B machines located outdoo

modified version of the engineering spreadsheet-basperformance model to determine the annual energy cvarying dry bulb temperature and humidity conditions data. 

• Annual energy (E) consumed by all Class B machine

Eannual = 0.25 x Eoutdoor + 0.75 x Eindoor

Ene

EERE-2006-STD-0125 COMMENT 28
Energy Use Characterization (co

 Outdoor climate data was represented by TMY2 city 

temperature and relative humidity bins

 Sum of the hourly energy consumption for all bins 

city provides the annual energy consumption; DOE each city to the State using population weights

 DOE calculated annual energy consumption figures 

selected efficiency levels and three sizes (vendible beverage vending machines for each equipment cla

Ene

EERE-2006-STD-0125 COMMENT 28
Equipment Classes 

(Issue #1)

 DOE assumed two equipment classes A and B: 

• Class A machines are fully cooled machines (certified for in• Class B machines are all other machines (certified for indoo• DOE further assumed that 25% of class B machines were i

subject to outdoor ambient conditions.

 All Class A machines and 75% of Class B machines w

relatively constant indoor conditions of 75°F/45% RH the DOE test conditions.

DOE invites comments on the use of the two equipmand Class B) for energy use characterization analysisDOE invites comments on the assumption for the spl

location (75% indoor and 25% outdoor) for the Class 

Ene

EERE-2006-STD-0125 COMMENT 28
Compressor and Lighting Operating 

(Issue #2)

 DOE assumed that there are no controls that limit dis

compressor operation in a beverage vending machinhours of the day or that display lighting would be affoccupancy patterns in the building

 DOE understands that such controllers exist and can 

on or enabled in certain beverage vending machines

DOE invites comments on the need to incorporate su

energy analysis and how DOE might do so in the NOP

Ene

EERE-2006-STD-0125 COMMENT 28
Equipment Refurbishment Cyc

(Issue #3)

 DOE assumed that there are typically two refurbis

beverage vending machines during their lifetime.

Ene

DOE invites comments on refurbishment cycles for vending machines and the effect of refurbishment cenergy consumption. Specifically, DOE requests co

• The typical frequency of refurbishment cycles.• How refurbishing a vending machines might affe

use.

• Whether and how DOE might account for these 

assessing the overall impacts of the candidate s

for beverage vending machines.

EERE-2006-STD-0125 COMMENT 28
 Economic evaluation from the customer perspect Life-cycle cost (LCC) equals customer price plus t

operating costs discounted to a particular base ye

 Results are expressed as LCC difference of the ba

minus the standard level.

 Simple payback period (PBP - in years) is also cal

reported in this analysis.

Combine 

Changes 

in Costs

Life-Cycle Cost Analysis

First Cost

(Consumer Price + Installation Cost)

Operating Expenses Convert to 

Present 

Value

Life-Cycle Cost and P

EERE-2006-STD-0125 COMMENT 28
 Up to 13 efficiency levels were examined for equip

engineering analysis.

 Nine efficiency levels were selected for the LCC a

• Level 0 represented the current market level of BVMs.• Level 1 represented the ENERGY STAR Tier 1 level an

efficiency level from which the remaining proposed stancompared.

• Levels 2–8 are the proposed standard levels analyzed f

period compared to the baseline efficiency Level 1. 

Life-Cycle Cost and P

Selection of Efficiency Levels for A

EERE-2006-STD-0125 COMMENT 28
LCC Calculation Flow

Life-Cycle Cost and P

Baseline

Manufacturer

Price

Std-Level

Manufacturer

Price

Total Installed

Cost

From 

Engineering 

Analysis

(Price is a 

Function of 

Efficiency)

From Markups 

for Equipment 

Price 

Determination 

Analysis

Electricity

Prices

Annual Energy

Expense

Repair Cost

Maintenance

Cost

Annual

Operating

Expense

Lifetime

Discount Rate

Electricity

Price Trend

From Energy 

Use 

Characterization 

Analysis 

(Energy Use as a 

Function of 

Efficiency)

Payba

Perio

Energy

Consumption

Distributor

Markup

Sales Tax

Manufacturer

Direct

Markup

Consumer

Price

Installation

Cost

EERE-2006-STD-0125 COMMENT 28
Life-Cycle Cost Baseline Leve

(Issue #4)

 DOE selected ENERGY STAR Tier 1 as the baselin

(Level 1) for the LCC and payback period analysis

DOE invites comments on the use of a single level (L

distribution of efficiencies for LCC and payback perioDOE seeks data that could be used to populate such 

Life-Cycle Cost and P

EERE-2006-STD-0125 COMMENT 28
Electricity Prices

 Analysis was based on State-by-State average elect

by seven business types using BVM equipment. 

 Electricity prices by business type were developed 

average price in 2003 CBECS by business type1 to t

average price for four of the business types, and inprice for two of the business types (military and ma

• Bottler/distributors are assumed to experience a ma

mix of the prices experienced by the other six busin

 These ratios are then applied to the State-by-State a

prices projected for 2012 and out years by EIA.

 Electricity price projections based on EIA/AEO refe

commercial sector.

 AEO high growth and low growth cases can be run 

Life-Cycle Cost and P

1These business types represent the selected businesses (e.g., m

EERE-2006-STD-0125 COMMENT 28
 Installation Costs

• DOE assumed a $72 installation cost (2007$)• Costs were based on an article by Foster-Miller, Inc. in 2• Installation costs assumed not to vary with equipment pr

but do vary by location

 Discount Rates

• Derived from estimates of the cost of capital of companie

beverage vending machines by business type.

• Cost of capital is calculated from the weighted-average c

the company to obtain equity and debt financing. 

• Weighted-average value (real) is: 4.49% for bottler/distri

manufacturers; 5.42% for office/health care; 5.77% for reschools; 2.83% for military installations; and 5.15% for owarehouses).

Other Inputs

Life-Cycle Cost and P

EERE-2006-STD-0125 COMMENT 28
 Equipment Lifetime

• Used average age of 14 years based upon a literature s• DOE assumed equipment would be refurbished every th

would undergo two refurbishment cycles in a typical lifet

 Repair Costs

• Annualized repair costs were based on Foster-Miller 200

equipment, averaging $115.

• Repair costs were assumed to increase proportionately 

 Maintenance Costs

• Preventative maintenance cost is $165/year (2007$) bas

report for BVM equipment. DOE used a flat rate for prevfor all equipment classes and efficiency levels.

• Preventative maintenance includes routine maintenance 

two refurbishment cycles (every four years) at $930 eac

Other Inputs (cont.)

Life-Cycle Cost and P

EERE-2006-STD-0125 COMMENT 28
Example of LCC Analysis Res

Cumulative LCC Savings 

(B-L-IO Equipment Class, Level 4 Efficien

Life-Cycle Cost and P

EERE-2006-STD-0125 COMMENT 28
U.S. National Average LCC Analysis 

Life-Cycle Cost and P

LCC as a function of Efficiency Level

6358

6124

6036 5975 5996 6020 60

500055006000650070007500

Level 1

(Energy

Star Tier

1)

Level 2 Level 3

(Energy

Star Tier

2)

Level 4 Level 5 Level 6 Level 7 

Efficiency Level

Life Cycle Cost

Life Cycle 

Equipment=B-L-Indoor-Outdoor, Fuel Price=AEO 2007 - Reference 

Year= 2012

EERE-2006-STD-0125 COMMENT 28
Example of Payback Period Analysis 

Cumulative LCC Savings 

(B-L-IO Equipment Class Level 4 Efficiency

Life-Cycle Cost and P

EERE-2006-STD-0125 COMMENT 28
U.S. National Average Payback Period 

Life-Cycle Cost and P

Payback Period as a function of Efficiency Level

0.8 1.2 1.7 3.5 4.6 4.8

0.0

10.020.030.040.050.060.070.080.090.0

Level 2 Level 3

(Energy Star

Tier 2)

Level 4 Level 5 Level 6 Level 7 

Efficiency Level

Payback Period (Years)

Payback

Equipment=B-L-Indoor-Outdoor, Fuel Price=AEO 2007 - Referenc

Year= 2012

EERE-2006-STD-0125 COMMENT 28
National Average LCC Saving

by Equipment Class and Proposed Stan

(Baseline efficiency level is Level 1)

Life-Cycle Cost and P

Equipment National Average LCC Savings (2007Class Level 1 Level 2 Level 3 Level 4 Level 5 Level A-L-IN NA $145 $254 $339 $363 $359 A-M-IN NA $141 $237 $318 $334 $328 A-S-IN NA $136 $233 $309 $317 $310 B-L-IO NA $234 $322 $383 $362 $338 B-M-IO NA $235 $306 $361 $338 $306 B-S-IO NA $233 $290 $310 $279 $240 

Percent of Units with Positive LCC Savi

Level 1 Level 2 Level 3 Level 4 Level 5 Level 

A-L-IN NA 100% 100% 100% 99% 99% A-M-IN NA 100% 100% 100% 99% 99% A-S-IN NA 100% 100% 100% 99% 99% B-L-IO NA 100% 100% 100% 99% 95% B-M-IO NA 100% 100% 100% 99% 93% B-S-IO NA 100% 100% 100% 95% 89% 

A=fully-cooled machine (indoor use only) S=small M=mB=all other machines (indoor or outdoor use) IN=indoor only 

EERE-2006-STD-0125 COMMENT 28
National Average Payback Peri

by Equipment Class and Proposed Stan

(Baseline efficiency level is Level 1)

Life-Cycle Cost and P

Equipment National Average Payback Period (YeClass Level 1 Level 2 Level 3 Level 4 Level 5 LevA-L-IN NA 1.2 1.6 1.9 2.4 2A-M-IN NA 1.3 1.6 2.0 2.6 2A-S-IN NA 1.3 1.5 1.9 2.5 2B-L-IO NA 0.8 1.2 1.7 3.5 4B-M-IO NA 0.8 1.3 1.8 3.7 4B-S-IO NA 0.8 1.4 2.0 4.3 5

Percent of Units with Payback Period less tha

Level 1 Level 2 Level 3 Level 4 Level 5 Lev

A-L-IN 0% 100% 99% 91% 79% 7A-M-IN 0% 100% 99% 89% 73% 65A-S-IN 0% 100% 99% 91% 77% 67B-L-IO 0% 100% 100% 95% 43% 23B-M-IO 0% 100% 100% 91% 39% 2B-S-IO 0% 100% 99% 85% 25% 17

A=fully-cooled machine (indoor use only) S=small M=mediB=all other machines (indoor or outdoor use) IN=indoor only IO

EERE-2006-STD-0125 COMMENT 28
Life-Cycle Cost Baseline Level Sensitiv

 LCC sensitivity analyses were performed for AEO 

growth and low growth fuel escalation rate scenar

• The choice of fuel escalation rate scenario impacted the 

for all equipment classes. 

• For the high growth scenario, the minimum life-cycle co

(maximum life-cycle cost savings level) did not differ froreference case for all equipment classes.

 Sensitivity of LCC savings and PBP to the assume

efficiency level was also examined.

• The minimum LCC is unaffected by the choice of baseli

(Level 1), but the magnitude of the savings is affected. 

• The PBP increases when higher baseline efficiency leve

Life-Cycle Cost and P

EERE-2006-STD-0125 COMMENT 28
Split Incentive

 A bottler/vendor BVM owner/operator may or may 

all of the energy costs, depending on the agreemecustomer at the site where the BVM is located.

 DOE assumes that energy cost savings are transf

owner/operator of the BVM through the coin-box ragreement. 

• This assumption results in the maximum LCC savings a

equipment owner for higher efficiency equipment.

 Limited sensitivity analysis was conducted with th

savings split 50/50 between the BVM owner/operacustomer at the site where the BVM is located. 

Life-Cycle Cost and P

EERE-2006-STD-0125 COMMENT 28
Split Incentive (cont.)

 Sample LCC Sensitivity Analysis Results

Operator Pays Energy Costs 50/50 En

Life-Cycle Cost and P

EERE-2006-STD-0125 COMMENT 28
Other Issues

DOE invites comments and recommendations from any other aspects related to the life-cycle cost and panalysis.

Life-Cycle Cost and P

EERE-2006-STD-0125 COMMENT 28