CHAPTER 8. LIFE

- CYCLE COST AND PAYBACK PERIOD ANALYSIS

TABLE OF CONTENTS

8.1 INTRODUCTION

................................ ................................ ................................................. 8-1

8.1.1 General Approach for Life

- Cycle Cost and Payback Period Analysis

.............................. 8-1

8.1.2 Overview of Life

- Cycle Cost and Payback Period Analysis Inputs

.................................. 8-2

8.1.3 Use of Per Unit Annual Energy Consumption Data

........................................................... 8-5

8.2 LIFE

- CYCLE COST ANALYSIS I NPUTS

................................ ....................................... 8-6

8.2.1 Total Installed Cost Inputs

................................ ................................ .................................... 8-6

8.2.1.1 Manufacturer Costs

................................ ........................................................... 8-7

8.2.1.2 Markups

................................ ................................ .............................................. 8-7

8.2.1.3 Total Customer Price

................................ ......................................................... 8-8

8.2.1.4 Future Equipment Prices

................................ ................................................... 8-9

8.2.1.5 Installation Cost

................................ ............................................................... 8- 11

8.2.1.6 Total Installed Cost

................................ ......................................................... 8- 13

8.2.2 Operating Cost Inputs

................................ ................................ ........................................ 8- 14

8.2.2.1 Annual Energy Use Savings

................................ ........................................... 8- 14

8.2.2.2 Energy Prices

................................ ................................ ................................... 8- 14

8.2. 2.3 Energy Price Trends

................................ ........................................................ 8- 15

8.2.2.4 Repair Cost

................................ ................................ ....................................... 8- 17

8.2.2.5 Maintenance Cost

................................ ............................................................ 8- 17

8.2.2.6 Lifetime

................................ ................................ ............................................ 8- 17

8.2.2.7 Di scount Rates

................................ ................................ ................................ . 8- 18

8.2.2.8 Compliance Year of Standard

................................ ......................................... 8- 20

8.2.2.9 Base Case Distribution of Efficiency Levels

................................................. 8- 21

8.3 PAYBACK PERIOD INPUT S

................................ ......................................................... 8- 22

8.4 LIFE

- CYCLE COST AND PAYBA CK PERIOD RESULTS

....................................... 8- 23

8.4.1 Packaged Terminal Air Conditioners

– 9,000 Btu/h

........................................................ 8- 23

8.4.2 Packaged Terminal Air Conditione rs – 15,000 Btu/h Cooling Capacity

....................... 8- 26

8.4.3 Packaged Terminal Heat Pumps

– 9,000 Btu/h Cooling Capacity

................................ . 8- 28

8.4.4 Packaged Terminal Heat Pumps

– 15,000 Btu/h Cooling Capacity

............................... 8- 30

8.4.5 Alternative Base Case Analysis

................................ ........................................................ 8- 32

8.4.6 Rebuttable Payback Period

................................ ................................ ................................ 8- 33

8.4.6.1 Inputs 8- 34

8.4.6.2 Results 8- 34

LIST OF TABLES

Table 8.1.1 Summary of Inputs and Key Assumptions Used in the LCC and PBP Analysis

................................ ................................ ..................................................... 8-5

Table 8.2.1 Manufacturer Production Cost for PTACs by Efficiency Level (2013$)

............ 8-7

Table 8.2.2 Manufacturer Production Cost for PTHPs by Efficiency Level (2013$)

............. 8-7

Table 8.2.3 Summary of Average Markups

................................ ................................................ 8-8

Table 8.2.4 Summary of National Accounts Markups

............................................................... 8-8

8-iTable 8.2.5 Overall Markup for Packaged Terminal Air Conditioner s and Heat Pumps

........ 8-8

Table 8.2.6 Average Customer Price for Packaged Terminal Air Conditioners and Heat Pumps (2013$)

................................ ................................ ................................ .8-9

Table 8.2.7 Installation Costs for Baseline Packaged Terminal Air Conditioners and Heat Pumps

................................ ................................ ............................................ 8- 12

Table 8.2.8 National Average Installation Cost for Packaged Terminal Air Conditioners and Heat Pumps

................................ ............................................... 8- 12

Table 8.2.9 Installation Cost Indices by State (National Value = 100.0)

............................... 8- 13

Table 8.2.10 Average Total Installed Cost for Packaged Terminal Air Conditioners and Heat Pumps (2013$)

................................ .............................................................. 8- 13

Table 8.2.11 Average and Marginal Tariff

- Based Prices by Region (2013 Dollars or Cents)

................................ ................................ ...................................................... 8- 15

Table 8.2.12 Commercial El ectricity Prices (2013 cents/kWh)

............................................... 8- 16

Table 8.2.13 Risk

- free rate and equity risk premium, 2011

- 2013

............................................ 8- 19

Table 8.2.14 Weighted

- Average Cost of Capital for Analyzed Sectors

.................................. 8- 20

Table 8.2.15 Base Case Efficiency Market Shares in 2019 for Packaged Terminal Air Conditioners and Heat Pumps

................................ ............................................... 8- 22

Table 8.4.1 Packaged Terminal Air Conditioners

– 9,000 Btu/h Cooling Capacity:

Life

- Cycle Cost and Payback Period Results

...................................................... 8- 24

Table 8.4.2 Packaged Terminal Air Conditioners

– 15,000 Btu/h Cooling Capacity:

Life

- Cycle Cost and Payback Period Results

...................................................... 8- 26

Table 8.4.3 Packaged Terminal Heat Pumps

– 9,000 Btu/h Cooling Capacity

..................... 8- 28

Table 8.4.4 Packaged Terminal Heat Pumps

– 15,000 Btu/h Cooling Capacity

................... 8- 30

Table 8.4.5 Alternative Base Case Efficiency Market Shares in 2019 for Packaged Terminal Air Conditioners and Heat Pumps

........................................................ 8- 32

Table 8.4.6 Alternative Base Case Analysis Results

............................................................... 8- 33

Table 8.4.7 Rebuttable

- Presumption Payback Periods (years) for Packaged Terminal

Air Conditioners

................................ ................................ .................................... 8- 34

Table 8.4.8 Rebuttable

- Presumption Payback Periods (years) for Packaged Terminal Heat Pumps

................................ ................................ ............................................ 8- 35

LIST OF FIGURES

Figure 8.1.1 Flow Diagram of Inputs for the Determination of LCC and PBP

......................... 8-4 Figure 8.2.1 AEO 2013 electricity price projections by region (2013$)

................................ . 8- 16 Figure 8.4.1 Range of Life

- Cycle Cost Savings for Packaged Terminal Air

Conditioners

– 9,000 Btu/h Cooling Capacity

..................................................... 8- 25 Figure 8.4.2 Range of Payback Periods for Packaged Terminal Air Conditioners

– 9,000 Btu/h Cooling Capacity

................................ ............................................... 8- 26 Figure 8.4.3 Range of Life

- Cycle Cost Savings for Packaged Terminal Air

Conditioners

– 15,000 Btu/h Cooling Capacity

................................................... 8- 27 Figure 8.4.4 Range of Payback Periods for Packaged Terminal Air Conditioners

– 15,000 Btu/h Cooling Capacity

................................ ............................................ 8- 28 Figure 8.4.5 Range of Life

- Cycle Cost Savings for Packaged Terminal Heat Pumps

– 9,000 Btu/h Cooling Capacity

................................ ............................................... 8- 29

8- iiFigure 8.4.6 Range of Payback Periods for Packaged Terminal Heat Pumps

– 9,000 Btu/h Cooling Capacity

................................ ......................................................... 8- 30 Figure 8.4.7 Range of Life

- Cycle Cost Savings for Packaged Terminal Heat Pumps

– 15,000 Btu/h Cooling Capacity

................................ ............................................ 8- 31 Figure 8.4.8 Range of Payback Periods for Packaged Terminal Heat Pumps

– 15,000 Btu/h Cooling Capacity

................................ ......................................................... 8- 32

8- iiiCHAPTER 8. LIFE

- CYCLE COST AND PAYBACK PERIOD ANALYSIS

8.1 INTRODUCTION

The effect of amended standards on individual customers usually includes a reduction in operating cost and an increase in purchase cost. This chapter describes two metrics used in the analysis to determine the economic impact of standards on individual com mercial customers

.

• Life

- cycle cost (LCC) is the total customer cost over the life of an appliance or product, including purchase costs and operating costs (which in turn include maintenance, repair, and energy costs). Future operating costs are discounted to the time of purchase and summed over the lifetime of the appliance or product.

• Payback period (PBP) measures the amount of time it takes customers to recover the assumed higher purchase price of more energy

- efficient products through reduced operating costs.

The U.S. Department of Energy (DOE) conducted the LCC and PBP analysis using a spreadsheet model developed in Microsoft Excel. When combined with Crystal Ball (a commercially available software program), the LCC and PBP model generates a Monte Carl o simulation to perform the analysis by incorporating uncertainty and variability considerations in certain of the key parameters as discussed further in section 8.1.1

.

Inputs to the LCC and PBP analysis of packaged terminal air conditioner s ( PTACs ) and packaged terminal heat pumps ( PTHP s) are discussed in sections 8.2 and 8.3

, respectively. Results for each metric are presented in section 8.4 . Key variables and calculations are presented for each metric. The calculations discussed here were performed with a series of Microsoft Excel spreadsheets that are accessible over the Internet ( http://www1.eere.energy.gov/buildings/appliance_standards/buildings/appliance_standards/prod uct.aspx/productid/77 ).

8.1.1 General Approach for Life

- Cycle Cost and Payback Period Analys is

PTAC and PTHP equipment usage patterns and purchase costs are unique, so variability and uncertainty are analyzed by performing the LCC and PBP calculations detailed here for prototypical commercial buildings across various U.S. locations . The results are expressed as the number of PTAC and PTHP equipment c usto mers experiencing economic impacts of different magnitudes. The LCC and PBP mode l was developed using Microsoft Excel spreadsheets combined with Crystal Ball. The LCC and PBP analysis explicitly model s both the uncertainty and the variability in the model’s inputs using Monte Carlo simulation and probability

distributions.

These inputs include estimated energy use for each PTAC and PTHP unit

, as described in the energy use analysis in Chapter 7. Energy use is sensitive to climate and therefore varies by location within the United States. Aside from energy use, other importan t inputs influencing the

8-1LCC and PBP analysis include energy prices, installation costs, equipmen t distribution markups,

and sales taxes.

As mentioned previously , DOE generated LCC and PBP results as probability distributions using a simulation based on Monte Carlo analysis methods, in which certain key inputs to the analysis consist of probability distributions rather than single

- point values. Therefore, the outcomes of the Monte Carlo analysis can also be expressed as probability

distributions. As a resu lt, the Monte Carlo analysis produces a range of LCC and PBP results. A distinct advantage of this type of approach is that DOE can identify the percentage of customers achieving LCC savings or attaining certain PBP values due to an increased efficiency le vel, in addition to the average LCC savings or average PBP for that efficiency level.

The LCC and PBP results are displayed as distributions of impacts compared to a base

case

. T he base case efficiency distribution is for 2019 and is defined as a mix of PTAC and

PTHP efficiency levels reflecting the expected distribution of efficiency levels by equipmen t
class.

8.1.2 Overview of Life

- Cycle Cost and Payback Period Analys i s Inputs

The LCC is the total customer cost over the life of the equipment , including purch ase price (including retail markups, sales taxes, and installation costs) and operating cost (including repair costs, maintenance costs, and energy cost). Future operating costs are discounted to the time of purchase and summed over the lifetime of the equ ipment . The PBP is the increase in purchase cost of a higher efficiency uni t divided by the change in annual operating cost of the

uni t. It represents the number of years that it will take the customer to recover the increased purchase cost through decreas ed operating costs. In the calculation of PBP, future costs are not

discounted.

Inputs to the LCC and PBP analysis are categorized as: (1) inputs for establishing the purchase cost, otherwise known as the total installed cost; and (2) inputs for calculating the operating cost ( i.e. , energy, maintenance, and repair costs).

The primary inputs for establishing the total installed cost are:

• Baseline manufacturer selling price : The baseline manufacturer selling price (MSP) is the price charged by the manufacture r to a wholesaler for equipment meeting existing minimum efficiency (or baseline) standards. The MSP includes a markup that converts the cost of production ( i.e. , the manufacturer cost) to a MSP.

• Standard

- level manufacturer selling price increase : The stan dard

- level MSP is the incremental change in MSP associated with producing equipment at each of the higher

standard levels.

• Markups and sales tax : Markups and sales tax are the wholesaler and contractor margins

and state and local retail sales taxes associ ated with converting the MSP to a customer price.

8-2• Installation cost : Installation cost is the cost to the customer of installing the equipment

. The installation cost represents all costs required to install the equipment but does not

include the marked

- up customer equipment price. The installation cost includes labor, overhead, and any miscellaneous materials and parts.

The primary inputs for calculating the operating cost are:

• Equipmen t energy consumption and power demand : The equipment energy consumptio n is the site energy use associated with provid ing space conditioning to the building. The power demand is the maximum power requirement of the equipment (more commonly known as the peak demand) for a specific period of time. Typically, electric utilities measure the peak demand for each month. DOE calculated both the energy consumption

and peak demand based on hourly whole

- building simulations.

• Electricity Prices : Average and marginal electricity prices for commercial buildings are determined using a tariff

- based analysis. M arginal prices are used to estimate operating

costs for the baselin e and value the operating cost savings at higher efficiency levels

.

• Electricity price trends : The Energy Information Administration’s (EIA’s) Annual
Energy Outlook 201 3 ( AEO 2013 ) 1 is used to project electricity prices into the future.

• Maintenance costs : The labor and material costs associated with maintaining the operation of the equipment

.

• Repair costs : The labor and material costs associated with repairing or replacing components that have failed.

• Lifetime : The age at which PT AC and PTHP equipment are retired from service.

• Discount rate : The rate at which future costs and savings are discounted to establish their present value.

Figure 8.1.1 graphically depicts the relationships between the installed cost and operating cost inputs for the calculation of the LCC and PBP.

8-3Figure 8.1.1 Flow Diagram of Inputs for the Determination of LCC and PBP

Table 8.1.1 provides descriptions of the various inputs to the calculation of the LCC and PBP. As noted earlier, most of the inputs are characterize d by probability distributions that capture variability in the input variables. Manufacturer Selling Price (Base)

Manufacturer Selling

Price (Standard i=1...n)

Wholesaler/Distributor Markup

Contractor Markups

Sales Tax Installation Costs Equipment Prices

Total Installed Cost (Std i

– Base)

Electricity Consumption

Electricity Prices Annual Energy Costs

Annual Maintenance

Costs

Repair Costs Annual Operating Cost (Std i

–- Base)

Discount Rate

Lifetimes Payback

Period Lifecycle

Cost

Lifetime Operating Cost (Std I

– Base)

8-4Table 8.1.1 Summary of Inputs and Key Assumptions Used in the LCC and PBP Analysis
Inputs Description Affecting Installed Costs

Equipmen t Price Derived MSP for PTAC and PTHP equipment at different input capacities (from the engineering analysis) and multiplied by wholesaler markups and contractor markups plus sales tax (from markups analysis). Used the probability distribution for the different markups to describe their variability.

Installation Cost Includes installation labor derived from RS Means

. 2 Overhead and materials costs and profits are assumed to be included in the contractor’s markup. Thus, the total installed cost equals the customer equipment price (manufacturer cost multiplied by the variou s markups plus sales tax) plus the installation cost. Affecting Operating Costs Annual Energy Use See Chapter 7.

Energy Efficiency The energy efficiency ratio ( E ER) is the efficiency descriptor for PTAC and

PTHP equipment

. Whole

- building simulations were used to determine the annual energy consumption associated with a particular standard level.

E lectricit y Prices Costs were calculated for generalized buildings from summer and winter marginal and average electricity prices using tariff data and CBECS 1992 and 1995 monthly electricity consumption and demand. Prices were escalated by the

AEO 2013 forecasts to update tariff prices to 2013 and to estimate future electricity prices. Escalation was performed at the census division level.

Maintenance Cost The cost associated with maintaining the operation of the equipment ( e.g. , cleaning heat exchanger coils ) was also obtained from RS Means

. 3 Annual maintenance cost does not change as a function of MSP.

Repair Cost The cost associated with repairing the equipment ( e.g. , malfunction of components that would typically be covered under warranty ) was also obtained

from RS Means

. Affecting Present Value of Annual Operating Cost Savings

Equipment Lifetime Adjusted the probability distributions developed for the 2008 final rule but keeping the same mean and maximum lifetimes.

Discount Rate Mean real discount rate s ranging from 4.14 percent to 7.83 percent for various

classes of commercial customers , calculated using financial data from

Damodaran Online . Probability distributions are used for the discount rates.

Compliance Date 2019 , or 4 years after expected publication of the final rule

, as standards more stringent than ANSI/ASHRAE/IES Standard 90.1

- 201 3 are being proposed

.

All of the inputs depicted in Figure 8.1.1 and summarized in Table 8.1.1 ar e discussed in

sections 8.2 and 8.3

.

8.1.3 Use of Per Unit Annual Energy Consumption Data

As detailed in Chapter 7

, DOE used unit energy consumption (UEC) data obtained from the 2008 Energy Conservation Standards Rulemaking for PTAC and PTHP equipment. To account for differences in cooling capacity and/or EER from the previous rulemaking, the UEC (cooling) for each equipment class and each efficiency level were linearly scaled from existing to

the considered cooling capacity and/or EER.

8-58.2 LIFE

- CYCLE COST ANALYSIS INPUTS

Life

- cycle cost is the total customer cost over the life of a piece of equipment , including purchase cost and operating costs (which are composed of energy costs, maintenance costs, and repair costs). Future operating costs are discounted to the time of purchase and summed over the

lifetime of the equipment . Life

- cycle cost is defined by the following equation:

Eq. 8. 2. 1

Whe re:

LCC = life

- cycle cost ($),

IC = total installed cost ($), ∑ = sum over the lifetime, from year 1 to year N,

where N = lifetime of equipment (years),

OC = operating cost ($),

r = discount rate, and

t = year for which operating cost is being determined.

DOE expresses all the costs in 201 3 $. Total installed cost, operating cost, lifetime, and

discount rate are discussed in the following sections. In the LCC analysis, the year of equipment purchase is assumed to be 2019 , the effective dat e of t he energy conservation standards for

PTAC and PTHP equipment

.

8.2.1 Total Installed Cost Inputs

The total installed cost to the customer is defined by the following equation:

Eq. 8. 2.2

Where:

IC = installed cost

, EQP = equipment price ($) ( i.e. , customer price for the equipment only), and

INST = installation cost ($) ( i.e. , the cost for labor and materials).

The equipment price is based on the distribution channel through which the customer purchases the equipment

. As discussed in Chapter 6, DOE defined distribution channel s for new and replacement units to describe how the equipment passes from the manufacturer to the

customer

.

The remainder of this section provides information about the variables DOE used to

calculate the total installe d cost for PTACs and PTHPs

. 

# ∑

= 

### + += N

t t

t 

### r OC ICLCC

1 

### )1 /(

INST EQP IC +=

8-68.2.1.1 Manufacturer Costs

DOE developed the manufacturer costs for PTACs and PTHPs as described in the engineering analysis ( Chapter 5) . The manufacturer costs at each efficiency level for the representative units in each equipment cla ss are shown in Table 8.2.1 and Table 8.2.2

. DOE

determined that the shipping costs from the manufacturer is $19.52 per unit and will not vary by equipment class or efficiency level.

Table 8.2.1 Manufacturer Production Cost for PTACs b y Efficiency Level ( 201 3$)

Efficiency Level Standard Size PTAC 9,000 Btu/h Standard Size PTAC (15,000 Btu/h)

Total Cost Incremental Cost * Total Cost Incremental Cost *

0 $359.62 ($3.49) $391.78 ($4.04)

1 $363.11 $0.00 $395.82 $0.00

2 $367.55 $4.44 $400.08 $4.26

3 $376.19 $13.08 $411.75 $15.93

4 $385.52 $22.41 $426.79 $30.97

5 $395.56 $32.45 $445.20 $49.38

6 $400.84 $37.73 $455.68 $59.86
* Parentheses indicate negative values

Table 8.2.2 Manufacturer Production Cost f or PTHPs by Efficiency Level ( 2013 $)

Efficiency Level Standard Size PTHP (9,000 Btu/h) Standard Size PTHP (15,000 Btu/h)

Total Cost Incremental Cost Total Cost Incremental Cost

0 $398.09 $0.00 $428.99 $0.00

1 $402.53 $4.44 $433.25 $4.26

2 $411.17 $13.08 $444.92 $15.93

3 $420.50 $22.41 $459.96 $30.97

4 $430.54 $32.45 $478.37 $49.38

5 $435.82 $37.73 $488.85 $59.86

8.2.1.2 Markup s

For a given distribution channel, the overall markup is the value determined by multiplying all the associated markups and the applicable sales tax together to arrive at a single overall distribution chain markup value. The overall markup is multiplied by the baseline or

standard

- compliant manufacturer cost to arrive at the price paid by the customer. Because there

are baseline and incremental markups associated with the wholesaler and mechanical and general

contractor s , the overall markup is also divided into a baseline markup ( i.e. , a markup used to convert the baseline manufacturer price into a customer price) and an incremental markup ( i.e. , a markup used to convert a standard

- compliant manufacturer cost increase due to an efficiency increase into an incremental customer price). Markups can differ depending on whether the equipment is being purchased for a new construction installation or is being purchased to replace existing equipment . DOE developed the overall baseline markups and incremental markups for both new construction and replacement applications as a part of the markups analysis ( see Chapter 6 of the techni cal support document ( TSD )).

8-7Table 8.2.3 and Table 8.2.4 display baseline and incremental markups used to calculate customer price from manufacturer cost; Table 8.2.3 presents the values used for the distribution channels involving wholesalers and contractors, while Table 8.2.4 presents the values used for

the national accounts distribution channels

. Table 8.2.5 presents the resulting overall baseline and incremental markups.

Table 8.2.3 Summary of Average Markups

Baseline Markup Incremental Markup

Manufacturer 1.27

Wholesaler 1. 36 1.1 0

Mechanical Contractor (new construction/replacement) 1. 43 /1 .5 2 1.15/1.22

General Contractor (new construction only) 1.34 1.22

Sales Tax (replacement only) 1.0 7 1.0 7

Table 8.2.4 Summary of National Account s Markups

Market Baseline Markup Incremental Markup

New Construction 1.49 1.16

Table 8.2.5 Overall Markup for Packaged Terminal Air Conditioners and Heat Pumps Equipment Class Baseline Markup Incremental Markup

All Standard Size PTAC and PHTP
Equipment and Capacities 2.48 1.56

8.2.1.3 Total C usto mer Price

DOE derived the customer equipment price for the efficiency levels above the baseline by taking the product of the baseline manufacturer cost and the baseline overall markup (including the sales tax for replacement equipment) and adding to it the product of the

incrementa l manufacturer cost and the incremental overall markup (including the sales tax for replacement equipment ). DOE followed the same process for shipping costs

, but in this case the

manufacturer markup was not included in the overall markup

. DOE then added th e marked

- up shipping cost to the customer equipment price. Markups and the sales tax all can take on a variety of values, depending on location, so the resulting total installed cost for a particular efficiency level is represented by a distribution of val ues.

Table 8.2.6 present s the average customer equipment price for each PTAC and PTHP equipment class at each effici ency level examined. The EERs and COPs associated with each efficiency level is found in Chapter 5.

8-8Table 8.2.6 Average Customer Price for Packaged Terminal Air Conditioners and Heat Pumps ( 2013 $)

Equipment Class Efficiency Level

Baseline 1 2 3 4 5 6

PTAC Standard Size (9,000
Btu/h) $1,193 $1,200 $1,213 $1,230 $1,249 $1,269 $1,279

PTAC Standard Size (15 ,000
Btu/h) $1,294 $1,302 $1,316 $1,339 $1,369 $1,405 $1,426

PTHP Standard Size (9,000
Btu/h) $1,314 $1,323 $1,340 $1,359 $1,379 $1,389

PTHP Standard Size (15 ,000
Btu/h) $1,411 $1,420 $1,443 $1,473 $1,509 $1,530

8.2.1.4 Future Equipmen t Prices

To derive a price trend for PTACs and PTHPs , DOE obtained historical Producer Price Index (PPI) data for “ all other miscellaneous refrigeration and air

- conditioning equipment ” spanning the time period 19 90

- 201 3 from the Bureau of Labor Statistics (BLS). a DOE used PPI

data for “ all other miscellaneous refrigeration and air

- conditioning equipment ” as representative

of PTAC and PTHP equipment because PPI data specific to PTAC and PTHP equipment are not

available and this PPI is the closest match

. The PPI data reflect nominal prices, adjusted for product quality changes. An inflation

- adjusted (deflated) price index for all other miscellaneous

r efrigeration and air

- conditioning equipment was calculated by dividing the PPI series by the

Gross Domestic Product Chained Price Index (see Figure 8.2 -1 ).

a Series ID PCU3334153334159 ; http://www.bls.gov/ppi/

8-9Figure 8.2 -1 Historical Nominal and Deflated Producer Price Indexes for Miscellaneous Refrigeration and Air

- Conditioning Equipment

From 1990 to 2004, the deflated price index for all other miscellaneous refrigeration and

air

- conditioning equipment showed a slightly downward trend. Since then, the index has risen sharply, which is highly correlated with the rising prices of copper and steel products that go into PTAC and PTHP equipment (see Figure 8.2 -2 ). The rising prices for copper and steel products were primarily a result of strong demand from China and other emerging economies. Given the slowdown in global economic activity st arting in 2008, DOE believes that the extent to which the trends of the past couple of years will continue is very uncertain.

Given the se considerations, DOE decided to use a constant price assumption as the default price factor index to project future P TAC and PTHP equipment prices in 201 9. Thus, prices forecast for the LCC and PBP analysis are equal to the 2013 values for each efficiency level in each equipment class.

8- 10Figure 8.2 -2 Historical Deflated Producer Price Indexes for Copper Smelting, Steel Mills Manufacturing and All Other Miscellaneous Refrigeration and Air

Conditioning Equipment

8.2.1.5 Installation Cost

The installation cost is the price to the customer of labor and materials (other than the actual equipment) needed to install the PTAC and PTHP equipment. DOE derived installation

costs from current RS Means data. RS Means provides estimates on the perso n- hours required to

install PTAC and PTHP equipment and the labor rates associated with the type of crew required to install the equipment. DOE calculated the installation cost by multiplying the number of

person

- hours by the corresponding labor rate. RS Me ans provides specific person

- hour and labor

rate data for the installation of packaged cabinet type air conditioners of 9,000 Btu/h and 15,000

Btu/h cooling capacity

. DOE decided that these data are also representative of installation costs

for equipment o f 9,000 Btu/h and 15,000 Btu/h cooling capacity that provides heating in addition to just cooling

.

Labor rates vary significantly among regions

, and the RS Means data provide the necessary information to capture this regional variability. RS Means provide s cost indices that

reflect the labor rates for 656 cities in the United States. Several cities in all 50 states of the

United States and the District of Columbia are identified in the RS Means data. DOE incorporated these cost indices into the analysis to vary the installation cost depending on the

location of the PTAC or PTHP customer.

8- 11Table 8.2.7 summarizes the nationally representative person

- hours and labor rates

associated with the installation of 9,000 Btu/h and 15,000 Btu/h cooling capacity PTAC and

PTHP equipment as presented in RS Means

. Table 8.2.7 provides both bare installation costs ( i.e., costs before overhead and profit (O&P)) and installation costs including O&P. DOE

decided that the 9,000 Btu/h and 15,000 Btu/h cooling capacity installation costs that include O&P represent the installation costs for baseli ne efficient systems ( i.e.

, 11. 3 EER for 9,000 Btu/h equipment and 9.5 EER for 1 5,000 Btu/h equipment ).

Table 8.2.7 Installation Costs for Baseline Packaged Terminal Air Conditioners and Heat Pumps

System Type* Person

- hours 2013 Bare Costs Labor w/ O&P Cost per

Person

hour ( 2013 $) Total

Labor

Cost ( 2013 $) Cost per

Person

hour ( 2013 $) Total

Labor

Cost ( 2013 $) PTAC Standard Size (9,000 Btu/h) 3.2 $50.93 $163 $ 76.75 $ 225.22 PTAC Standard Size (15 ,000 Btu/h) 5.3 $51.00 $272 $ 76.75 $ 375.34 PTHP Standard Size (9,000 Btu/h) 3.2 $50.93 $163 $ 76.75 $ 225.22 PTHP Standard Size (15 ,000 Btu/h) 5.3 $51.00 $272 $76.75 $ 375.34

*Description differs in RS Means for Packaged Cabinet Type Air

- Conditioners (“ 9000 BTUH cooling, 13900 BTU heat ”; and

“ 15000 BTUH cooling, 13900 BTU heat”)

.

Table 8.2.8 shows the national average total installation costs by equipment class for PTACs and PTHPs. The average installation costs are constant across all efficiency levels within each equipment clas s . The total includes O&P, which is calculated using labor markups from RS

Means

. For efficiency levels above the baseline, the installation costs do not vary with equipment weight.

Table 8.2.8 National Average Installation Cost for Packaged Terminal Air

Conditioners and Heat Pumps Equipment Class Installation Cost (2013$) PTAC Standard Size (9,000 Btu/h) $229 PTAC Standard Size (15 ,000 Btu/h) $381 PTHP Standard Size (9,000 Btu/h) $229 PTHP Standard Size (15 ,000 Btu/h) $381

Table 8.2.9 summarizes the cost indices for installations in each of the 50 States of the U.S., plus the District of Columbia, used to vary the nationally representative ins tallation costs in

Table 8.2.8 . To arrive at an average index for each state, DOE weighted the city indices in each state by their population. It used population estimates for the year 2010 from the U.S. Census Bureau to calculate a weighted

- average index for each state. DOE then assig ned each state to a

C ensus division (with Pacific divided into north and south) and calculated a weighted

- average index for each region in the same manner

.

8- 12Table 8.2.9 Installation Cost Indices by State (National Value = 100.0)

State Index State Index State Index

Alabama 50. 8 Kentucky 80.9 North Dakota 58. 4

Alaska 104. 8 Louisiana 59. 7 Ohio 91.9

Arizona 79. 7 Maine 62.7 Oklahoma 55.6

Arkansas 55. 5 Maryland 83. 3 Oregon 99. 5

California 121.0 Massachusetts 119.0 Pennsylvania 113.9

Colorado 79.0 Michigan 100.7 Rhode Island 108.3

Connecticut 114.7 Minnesota 113. 5 South Carolina 37.5

D.C 113.4 Mississippi 51.9 South Dakota 4 2.0

Delaware 94.2 Missouri 95.8 Tennessee 71.3

Florida 68. 7 Montana 70.3 Texas 56.3 Georgia 66.1 Nebraska 77.3 Utah 71. 3

Hawaii 109.7 Nevada 100. 3 Vermont 70.5

Idaho 68.8 New Hampshire 77. 8 Virginia 65.7

Illinois 127.5 New Jersey 125. 5 Washington 104.2

Indiana 81.5 New Mexico 68. 2 West Virginia 84.8

Iowa 78.8 New York 161.2 Wisconsin 95. 2

Kansas 69. 8 North Carolina 36. 3 Wyoming 54.3

8.2.1.6 Total Installed Cost

T he total installed cost is the sum of the equipmen t price and the installation cost. MSPs, markups, and sales tax es all can take on a variety of values, depending on location, so the resulting total installed cost for a particular eff iciency level will not be a single

- point value, but

rather a distribution of values

. Table 8.2.10 present s the average total installed cost for each equipment class at each efficiency level examined.

Table 8.2.10 Average Total Installed Cost for Packaged Terminal Air Conditioners and Heat Pumps ( 2013 $)

Equipment Class Efficiency Level

Baseline 1 * 2 3 4 5 6 PTAC Standard Size (9,000 Btu/h) $1,42 2 $1,433 $1,441 $1,459 $1,477 $1,497 $1,508

PTAC Standard Size (15 ,000 Btu/h) $1,675 $1,688 $1,696 $1,720 $1,749 $1,786 $1,807

PTHP Standard Size (9,000 Btu/h) $1,543 $1,552 $1,569 $1,587 $1,607 $1,618

PTHP Standard Size (15 ,000 Btu/h) $1,792 $1,801 $1,824 $1,854 $1,890 $1,911

* Since higher efficiency levels are calculated against efficiency level 1 as the baseline, only t he baseline markup is applied to efficiency level 1.

8- 138.2.2 Operating Cost Inputs

DOE defined the operating cost by the following equation:

OC = EC+ MC Eq. 8. 2.3

Where:

OC = operating cost ($)

, EC = energy cost associated with operating the equipment ($), and

MC = annual maintenance cost for maintaining equipment operation ($).

The remainder of this section provides information about the variables that DOE used to calculate the operating cost for PTA Cs and PTHPs

. The annual energy costs of the equipment are computed from energy consumption per unit for the baseline and standard

- compliant cases (efficiency level 2, 3, and so forth ), combined with the energy prices. Equipment lifetime, discount rate, and compliance date of the standard are require d for determining the operating cost and for establishing the operating cost present value.

8.2.2.1 Annual Energy Use Savings

For each equipment class, DOE calculated the annual energy use savings for each PTAC

and PTHP at each efficiency level by taking the dif ference between a considered efficiency level and the baseline efficiency level.

8.2.2.2 Energy Prices

Tariff data were used to develop marginal and average prices for each member of the generalized building sample. The approach uses tariff data that have been processed into commercial building marginal and average electricity prices. Tariff data provide a means to calculate the monthly customer bill given the monthly electricity consumption (kWh) and peak demand (kW). The CBECS 1992 and CBECS 1995 commercial buil ding surveys provide monthly baseline electricity consumption and demand for a large sample of buildings, approximately 5300 in total. 4

, 5 These monthly values were used to (1) calculate monthly bills and (2) calculate monthly marginal consumption and demand prices. The average electricity price is defined as the tot al electricity bill divided by total electricity consumption. Two marginal prices are defined, one for electricity demand (in $/kW) and one for electricity consumption (in $/kWh). These marginal prices are calculated by applying a 5% decrement to the basel ine demand or consumption and recalculating the electricity bill.

This procedure provides an average electricity price, and marginal consumption and demand prices, for each building and for each month. The monthly variation was reduced to

seasonal variat ion by taking a simple average of the monthly data for the summer months (defined as May through September) and for the winter months. The average and marginal prices for each building were converted to average prices for the entire building sample using a weighted average across region, vintage, building activity and building size for each of the

8- 14buildings. The prices defined in this way were converted to 2013 prices and 2013 dollars using scaling factors taken from the AEO

.

The marginal consumption and demand prices are shown in Table 8.2.11 . The prices in

Table 8.2.11 are somewhat higher than the EIA published national average prices. This is

because the tariff

- based prices are weighted according to the CBECS building sample weights, which tends to give relatively higher weight to smaller buildi ngs, which have higher prices. The

EIA data cover all commercial establishments.

Table 8.2.11 Average and Marginal Tariff

- Based Prices by Region ( 201 3 Dollars or

Cents )

Region Average Electricity

Price ( ¢/k W h ) Marginal Demand

Price ( $/kW ) Marginal Consumption

Price ( ¢/k W h )

Annual Summer Winter Annual Summer Win ter Annual Summer Winter New England 15.63 16.32 14.91 12.73 14.63 11.38 10.11 10.22 9.93

Mid

- Atlantic 16.01 16.69 15.30 13.30 14.43 12.44 9.71 10.04 9.43

ESC 12.95 13.19 12.58 13.15 13.89 12.58 6.58 6.67 6.48

WSC 8.18 8.71 7.77 5.82 6.64 5.22 5.80 6.14 5.54

South Atlantic 10.65 10.58 10.61 8.32 8.56 8.17 7.37 7.34 7.36

ESC 8.86 8.51 9.16 7.23 7.60 6.99 6.00 5.85 6.08

WSC 8.02 8.65 7.31 4.11 4.59 3.74 6.15 6.75 5.45

Mountain 10.85 10.85 10.75 8.25 8.42 8.09 7.46 7.46 7.45

Pacific

– W A,OR 7.27 7.35 7.17 2.72 2.72 2.71 5.77 5.76 5.78

Pacific

– CA 17.20 18.34 16.02 7.13 9.81 4.71 12.74 12.95 12.34 US Average 11.78 12.12 11.37 8.93 9.74 8.28 7.69 7.86 7.48

PTACs and PTHPs are commercial air conditioners and typically consume peak electricity; therefore, electricity costs were calculated using the annual marginal price per kWh, as shown in Table 8.2.11. For each efficiency level, the operating cost savings are calculated by multiplying the ele ctricity consumption savings (relative to the baseline) times the annual marginal consumption price.

8.2.2.3 Energy Price Trends

The tariff

- based prices were updated to 2013 using the commercial electricity price series published in the AEO as an index. AEO price s for commercial electricity are presented by region

in Table 8.2.12 . The table also shows the scaling factor used to convert the tariff data year (2004) to current prices. The national average price increase in constant dollars since the tariff data year is 3.3%.

8- 15Table 8.2.12 Commercial Electricity Prices ( 2013 cents/kWh)

Year Region 2009 2010 2011 2012 Scaling Factor

New England 16.50 15.86 15.12 14.50 1.033

Middle Atlantic 14.50 15.01 14.43 14.08 0.964

East North Central 9.97 10.06 10.01 10.16 1.086

West North Central 8.05 8.47 8.70 8.20 1.101

South Atlantic 10.41 10.01 10.01 9.57 1.105

East South Central 10.04 10.06 10.35 8.85 1.046

West South Central 9.68 9.46 9.04 7.66 0.772

Mountain 9.25 9.43 9.37 8.85 1.029

Pacific (North) 12.68 12.48 12.28 12.04 0.957

U.S. 10.99 10.93 10.75 10.21 1.033

Source: AEO 2009 - 2012

DOE projected future electricity prices using trends in average commercial electricity price from EIA's AEO 2013 , as shown in Figure 8.2.2 . The chart shows constant dollar prices by region for the AEO forecast period, 2011 to 2040. The U .S. average trend is shown as a heavy

dashed line. DOE used AEO 2013 Reference Case scenarios b for the nine C ensus divisions. DOE applied the projected ener gy price for each of the nine C ensus divisions to each building in the sample based on the building’s location.

Figure 8.2.1 AEO 2013 electricity price projections by region ( 2013$)

b The reference case is a business- as -usual estimate, given known market, demographic, and technological trends.

8- 168.2.2.4 Repair Cost

Repair costs are associated with repairing or replacing components that have failed. DOE assumed that any routine or minor repairs are included in the annualized maintenance costs. As a result, repair costs are not explicitly modeled in the LCC and PBP ana lysis. Instead, DOE incorporated a cost for a major repair ( typically covered by equipment warranty ) based on the annualized value of an equipment warranty contract as a dollar value to the repair cost input.

Because the component costs are typically highe r in higher efficiency equipment, repair costs by efficiency level were scaled by the percentage increase in MSP for higher efficiency equipment

.

8.2.2.5 Maintenance Cost

The maintenance cost is the routine cost to the customer of maintaining equipment operation

. DOE took annualized maintenance costs for PTA Cs and PTHPs from data in RS Means Onlin e , which provides estimates on the person

- hours, labor rates, and materials required to maintain packaged terminal equipment.

DOE calculated the annualized maintenance cost s for PTACs based off the figure of $50

that was used in the 2008 PTAC and PTHP rulemaking. 6 The figure was adjusted for inflation to

arrive at $55.66 in annual maintenance costs at the baseline efficiency level. The annualized

maintenance costs for PTHP were derived from the annualized maintenance costs for PTAC s based on RS Means data for both PTACs and PTHPs . The percentage difference in maint enance costs was applied to the PTAC maintenance costs to arrive at the ma intenance cost of $62.62 for

PTHPs.

8.2.2.6 Lifetime

DOE defines lifetime as the age when equipment is retired from service. DOE created a

survival function for PTACs and PTHPs based on lifetime data from the previous rulemaking, input from individuals with experience in manufacturing, and comment from the ASHRAE

Standard 90.1

- 2013 Notice of Data Availability. 7

The Weibull distribution is a probability distribution function commonly used to measure

failure rates. 8 Its form is similar to an exponential distribution, which would model a f ixed failure rate, except that it allows for a failure rate that changes over time in a particular fashion.

The cumulative distribution takes the form:

for x > θ and P(x) = 1 for x ≤ θ

, Eq. 8. 2.4

Where:

P(x) = probability that the equipment is still in use at age x , 

# e x 

### xP β

α

θ 

    

−

−



### = )(

8- 17x = equipment age,

α = the scale parameter, which is the decay length in an exponential distribution, β = the shape parameter, which determines the way in which the failure rate changes

over time, and

θ = the delay parameter, which allows for a delay before any failures occur.

For the present analysis

, DOE developed a Weibull distribution with an alpha of 11.2 and

a beta of 3.2 , resulting in a mean lifetime of 10 and a maximum lifetime of 20 years. DOE

assumed that the lifetime is the same at different efficiency levels and therefore used the same lifetime distribution for each PTAC and PTHP equipment class.

8.2.2.7 Discount Rate s

The commercial discount rate is the rate at which future operating costs are discounted to

establish their present value in the LCC analysis. The discount rate value is applied in the LCC to future year energy costs and non

- energy operations and maintenance costs to calculate the

estimated net life

- cycle cost of products of various efficiency levels and life

- cycle cost savings as compared to the baseline for a representative sample of commercial end users.

DOE’s method views the pur chase of higher efficiency equipment as an investment that yields a stream of energy cost savings. DOE derived the discount rates for the LCC analysis by estimating the cost of capital for companies that purchase PTACs and PTHPs . The weighted

average cost of capital (WACC) is commonly used to estimate the present value of cash flows to be derived from a typical company project or investment. Most companies use both debt and equity capital to fund investments, so their cost of capital is the weighted average of the cost to the firm of equity and debt financing, as estimated from financial data for publicly traded firms

in the sec tors that purchase PTACs and PT HP s. 9

Damodaran Online is a widely used source of information about company debt and equity financing for most types of fir ms, and was the primary source of data for this analysis. 10

Companies included in the Damo daran Online database were assigned to the aggregate categories listed below:

• Office

,

• Hotel , and

• Medical Services

.

DOE estimated the cost of equity using the capital asset pricing model (CAPM). 11 The CAPM assumes that the cost of equity ( k

e ) for a particular company is proportional to the systematic risk faced by that company, where high risk is associated with a high cost of equity

and low risk is associated with a low cost of equity. The systematic risk facing a firm is determined by several variables: the risk coefficient of the firm (β), the expected return on risk

free assets ( R f

), and the equity risk premium ( ERP ). The risk coefficient of the firm indicates the risk associated with that firm relative to the price variability in the stock market. The expected

return on risk

- free assets is defined by the yield on long

- term government bonds. The ERP

8- 18represents the difference between the ex pected stock market return and the risk

- free rate. The cost of equity financing is estimated using the following equation:



# ( ) ERP Rk

f

e 

## ×+= β Eq. 8. 2.5

Where:

k

e = cost of equity,

R

f = expected return on risk

- free assets, β = risk coefficient of the firm, and

ERP = equity risk premium.

Several parameters of the cost of capital equations can vary substantially over time, and therefore the estimates can vary with the time period over which data is selected and the

technical details of the data -a veraging method. For guidance on the time period for selecting and averaging data for key parameters and the averaging method, DOE used Federal Reserve methodologies for calculating these parameters. In its use of the CAPM, the Federal Reserve uses a forty

- year period for calculating discount rate averages, utilizes the gross domestic product price deflator for estimating inflation, and considers the best method for determining the

risk

- free rate as one where “the time horizon of the investor is matched wit h the term of the risk

free security. ” 12

By taking a 40

- year geometric average of Federal Reserve data on annual nominal returns

for 10

- year Treasury bills , DOE found for this analysis the fo llowing risk

- free rates for 2011

- 2013 ( Table 8.2.13 ). 13 DOE also estimated the ERP by calculating the difference between the

risk

- free rate and stock market return for the same time period. 14

Table 8.2.13 Risk

- free ra te and equity risk premium, 2011

- 2013

Year Risk free rate (%) ERP (%)

20 11 6.61% 2.94%

201 2 6.41% 3.99%

201 3 6.24% 5.30%

The cost of debt financing ( k d

) is the interest rate paid on money borrowed by a company. The cost of debt is estimated by adding a risk adjustment factor ( R

a ) to the risk

- free rate. This risk adjustment factor depends on the variability of stock returns represented by standard deviations in stock prices. So for firm i , the cost of debt financing is:

8- 19aifdi RRk += Eq. 8. 2.6

Where:

k di = cost of debt financing for firm, i

, R

f = expected return on risk

- free assets, and

R ai = risk adjustment factor to risk

- free rate for firm, i

.

DOE estimates the WACC using the following e quation:

d dee 

### wkwkWACC ×+×= Eq. 8. 2.7

Where:

WACC = weighted

- average cost of capital,

k

e = cost of equity,

w

e = pro portion of equity financing,

k

d = c ost of debt financing for firm, and

w

d = proportion of debt financing.

By adjusting for the influence of inflation, DOE estimates the real weighted

- average cost of capital, or discount rate, for each company . DOE then aggregates the company real weighted

- average costs of capital to estimate the discount rate for each of the eight broader ownership types in the PTAC

- PTHP analysis. An overall average is estimated by weighting

each ownership type ’s discount rate by its estimated share of the PTAC and PTHP markets

. These values are presented in Table 8.2.14 . While WACC values for any category may trend higher or lower over substantial periods of time, these values represent a private sector cost of capital that is averaged over major business cycles.

Table 8.2.14 Weighted

- Average Cost of Capital for Analyzed Sectors

Sector Discount Rate Standard Deviation Market Share

Office 4.57% 1.98 % 5%

Large Hotel / Motel Chain 6.31% 2.03 % 70 %

Independent Hotel / Motel 7.83% 3.12% 1 0 %

Medical Services 4.14% 1.66% 15%

Average Discount Rate: 6.05%

Source: Damodaran Online Data Page: Costs of Capital by Industry Sector, 2011, 2011, 2013.

8.2.2.8 Compliance Year of Standard

DOE calculated the LCC and PBP for all customers as if each would purchase a new piece of equipment in the year that compliance with amended standards is required. The Energy

8- 20Policy and Conservation Act ( EPCA ) directs DOE to publish a final rule amending the standard

for the equipment covered by t his NOPR not later than 2 years after a notice of proposed rulemaking is issued. (42 U.S.C. 6313(a)(6)(C) (iii)) At the time of preparation of the NOPR analysis, the expected issuance year was 2013, leading to a final rule publication in 2015. EPCA

also states that amended standards prescribed under this subsection shall apply to products

manufactured after a date that is the lat t er of

— (I) the date that is 3 years after publication of the final rule establishing a new standard; or (II) the date that is 6 years after the effe ctive date of the current standard for a covered product. (42 U.S.C. 6313(a)(6)(C)(iv)) The date under clause (I), estimated to be 2018, is later than the date under clause (II).

While it is reasonable to consider 2018 as the first year of compliance for both PTAC and PTHP equipment with amended standards, a simultaneously ongoing Federal rulemaking revising the ANSI/ ASHRAE/IES ( American National Standards Institute / American Society of Heating, Refrigerating and Air

- Conditioning Engineers /Illuminating En gineering Society)

standard creates an exception to the compliance year regulation for PTAC equipment

. Since it

was proposed in the present rulemaking that a uniform national standard more stringent than the

amended ANSI/ ASHRAE/IES Standard 90.1 be adopted, ANSI/ASHRAE/IES Standard 90.1 requires that products follow the national standard if they are manufactured on or after a date which is four years after the date such rule is published in the Federal Register . (42 U.S.C 6313(a)(6)(D)) Therefore

, PTAC equipment manufactured on or after 2019 would be required to meet the more stringent Federal standard.

Because PTHPs are defined as a subset of PTACs, DOE was also triggered to consider whether clear and convincing evidence supports a more stringen t standard than the ASHRAE levels for PTHPs, though the ASHRAE levels for PTHPs were not explicitly revised. As such,

PTHP equipment manufactured on or after 2019 also would be required to meet the more stringent Federal standard.

8.2.2.9 Base Case Distribution o f Efficiency Levels

Market share and efficiency level data for PTACs and PTHPs were obtained from a 2013

dataset from the Air -C onditioning, Heating, and Refrigeration Institute (AHRI) Directory of

Certified Product Performance

. DOE used an efficiency trend to establish the efficiency

distribution for 2019. DOE appl ied the trend from 2012 to 2035 that was used in the c ommercial

u nitary a ir c onditioner Advance Notice of Proposed Rulemaking (ANOPR), which estimated an increase of approximately 1 EER every 35 years. c Table 8.2.15 presents the estimated base case efficiency market shares for each PTAC and PTHP equipment class.

c See DOE’s technical support document underlying DOE’s July 29, 2004 ANOPR. 69 FR 45460 (Available at: http://www.regulations.gov/#!documentDetail;D=EERE -2006- STD -0103-0078 ).

8- 21Table 8.2.15 Base Case Efficiency Market Shares in 2019 for Packaged Terminal Air Conditioners and Heat Pumps

PTAC

– 9,000 Btu/h PTAC

– 15,000 Btu/ h PTHP

– 9,000 Btu/h PTHP

– 15,000 Btu/h

IEER Market Share IEER Market Share IEER Market Share IEER Market Share

11.1 0.0% 9.3 0.0%

11.3 43.6% 9.5 25.8% 11.3 48.5% 9.5 58.2%

11.5 24.3% 9. 7 34.8% 11.5 8.9% 9. 7 0.0%

12.0 29.5% 10.0 34.7% 1 2.0 30.2% 10.0 32.5%

12.4 2.1% 10.4 2.7% 12.4 12.4% 10.4 7.9%

12. 9 0.5% 10. 8 1.4% 12. 9 0.0% 10. 8 1.4%

13.1 0.0% 1 1.0 0.7% 13.1 0.0% 1 1.0 0.0%

8.3 PAYBACK PERIOD INPUT S

Th e PBP is the amount of time it takes the customer to recover the assumed higher purchase cost of more energy

- efficient equipment as a result of lower operating costs. Numerically, the PBP is the ratio of the increase in purchase cost ( i.e ., from a less efficien t design to a more efficient design) to the decrease in first year annual operating expenditures.

The equation for PBP is:

PBP =∆ IC/ ∆ O C Eq. 8.3 .1

W here:

PB P = payback period in years,

∆IC = difference in the total installed cost between the more efficient standard

- level equipment (efficiency levels 2, 3, and so on ) and the baseline efficiency equipment, and

∆OC = difference in first year annual operating costs.

Payback periods are expressed in years. Payback periods can be greater than the life of the equipment if the increased total installed cost of the more efficient equipment is not recovered fast enough in reduced operating costs.

DOE also calculates a rebuttable PBP, which is the time it takes the customer to recover the assumed higher purchase cost of more energy

- efficient equipment as a result of lower energy costs. Numerically, the rebuttable PBP is the ratio of the increase in purchase cost ( i.e., from a less efficient design to a more efficient design) to the decrease in annual energy expenditures

— that is, the difference in first year annual energy cost as calculated based on the DOE test procedure. The calculation excludes maintenance costs.

The data inputs to PBP are the total installed cost of the equipment to the customer for each efficiency level and the annual (first year) operating costs for each efficiency level. The inputs to the total installed cost are the equipment price and the installation cost. The inputs to the operating costs are the annual energy cost and the annual maintenance cost (or

, in the case of

8- 22rebuttable PBP, only the annual energy cost) . The PBP uses the same inputs as the LCC analysis, except that electricity price trends and discount rates are not required. Since th e PBP is a “simple” payback, the required electricity cost is only for the year in which a new efficient

standard is to take effect

— in this case, 201 9

.

8.4 L IFE

- CYCLE COST AND P AYBACK PERIOD RESULTS

This section presents the results of the LCC and PBP analysis for PTAC s and PTHPs . As discussed previously, DOE’s approach to the LCC analysis relied on 1

, 224 unit energy consumption values from the previous rulemaking. DOE also used probability distributions to characterize the uncertainty i n many of the inputs to the analysis. DOE used Monte Carlo simulation to perform the LCC calculations for the customer s in the sample.

LCC and PBP calculations were performed 10,000 times on the sample of customer s established for each equipment class. Each LCC and PBP calculation was performed on a single

customer selected from the sample. A customer was selected based on its weight ( i.e. , how representative that particular customer was of other customer s in the distribution). Each LCC and

PBP ca lculation also sampled from the probability distributions that DOE developed to characterize many of the inputs to the analysis.

For each set of sample customers using the equipment in each equipment class, DOE

calculated the average LCC and LCC savings and the median PBP for each trial sta ndard level (TSL ). DOE calculated LCC savings and PBPs relative to the base

- case products that it assigned to the sample customers . For some customers , DOE assigned a base

- case product that is more

efficient than the ba seline. For that reason, the average LCC impacts are not equal to the difference between the LCC of a specific standard level and the LCC of the baseline product. The calculation of average LCC savings includes customers with zero LCC savings (no impact

fr om a standard). DOE considered a customer to receive no effect at a given standard level if DOE assigned it base

- case equipment having the same or higher efficiency than the standard level. DOE calculated the median PBP values by excluding the customers th at are not impacted by a standard at a given efficiency level.

For each TSL , DOE also calculated the share of customer s experiencing a net LCC benefit, a net LCC cost, and no effect. DOE considered a customer to receive no effect at a given

standard level if DOE assigned it base

- case equipment having the same or higher efficiency than

the standard level.

For this NOPR, DOE also repeated the LCC and PBP calculations for an alternative base case where the mandatory efficiency level is the Federal minimum

, for informational purposes

.

8.4.1 Packaged Terminal Air Conditioners

– 9,000 Btu/h

Table 8.4.1 summarizes the LCC and PBP results for PTACs of 9,000 Btu/h cooling capacity

.

8- 23Table 8.4.1 Packaged Terminal Air Conditioners

– 9,000 Btu/h Cooling Capacity : Life- Cycle Cost and Payback Period Results

Trial

Standard

Level Average Life

- Cycle Costs (2013$) * Life -Cycle Cost Savings **
Median Payback

Period (years) † Installed

Cost Operating

Cost LCC Customers Showing (%) Avg. Savings

Net No Impact Net

Benefit (2013$)

Cost

1 $1,441 $1,152 $2,593 32% 57% 11%

- $0.60 9.4

2 $1,459 $1,138 $2,597 54% 32% 14%

- $3.21 9.9

3 $1,477 $1,125 $2,602 82% 2% 16%

- $8.53 10.6

4 $1,497 $1,112 $2,609 86% 0% 13%

- $15.57 11.2

5 $1,508 $1,106 $2,614 88% 0% 12%

- $19.72 11.5

*The average discounted LCC for each T SL is calculated assuming that all purchases are for products only with that TSL. This allows the LCCs for each TSL to be compared under the same conditions. ** The LCC savings for each T SL are calculated relative to the base case efficiency distribution. The calculation

includes establishments with zero LCC savings (no impact). †The median payback period is calculated only for affected establishments

. Establishments with no impact have an undefined payback period, and are therefore not included in calculating the median PBP.

Figure 8.4.1 and Figure 8.4.2 show the range of LCC savings and PBPs for all of the efficiency levels considered for PTACs with outputs of 9,000 B tu/h cooling capacity . For each

standard level, the top and the bottom of the box indicate the 75 th and 25 th percentiles, respectively. The bar at the middle of the box indicates the median; 50 percent of the customers have LCC savings or PBP above this value. The horizontal lines above and below each box

indicate the 95 th and 5 th percentiles, respectively. The small box shows the average LCC savings

or PBP for each standard level.

8- 24Figure 8.4.1 Range of Life

- Cycle Cost Savings for Packaged Terminal Air

Conditioners

– 9,000 Btu/h Cooling Capacity -50 -40 -30 -20 -10

0 10 20

Level 1 Level 2 Level 3 Level 4 Level 5Average LCC Savings (2011$)

Efficiency Level PTAC

- 9,000 Btu/h Range of LCC Savings Average; Median; Box 25%

- 75%; Whisker 5%

- 95% median

average

8- 25Figure 8.4.2 Range of Payback Periods for Packaged Terminal Air Conditioners

– 9,000 Btu/h Cooling Capacity

8.4.2 Packaged Terminal Air Conditioners

– 15,000 Btu/h Cooling Capacity

Table 8.4.2 summarizes the LCC and PBP results for PTACs of 15,000 Btu/h cooling capacity.

Table 8.4.2 Packaged Terminal Air Conditioners

– 15,000 Btu/h Cooling Capacity:

Life- Cycle Cost and Payback Period Results

Trial

Standard

Level Average Life

- Cycle Costs (2013$) * Life

- Cycle Cost Savings **

Median Payback

Period (years) † Installed

Cost Operating

Cost LCC Customers Showing (%) Avg. Savings

Net No Impact Net

Benefit (2013$)

Cost

1 $1,696 $1,502 $3,198 19% 75% 7%

- $0.33 9.4

2 $1,720 $1,487 $3,207 55% 39% 6%

- $5.55 12.3

3 $1,749 $1,474 $3,223 92% 5% 3%

- $21.19 15.7

4 $1,786 $1,462 $3,247 96% 2% 1%

- $44.86 18.7

5 $1,807 $1,456 $3,262 99% 1% 1%

- $59.77 20.3 0 2 4 6 8 10 12 14 16 18

Level 1 Level 2 Level 3 Level 4 Level 5Average PBB (years)

Efficiency Level PTAC

- 9,000 Btu/h Average Payback Period Average; Median; Box 25%

- 75%; Whisker 5%

- 95% median

average

8- 26*The average discounted LCC for each CSL is calculated assuming that all purchases are for equipment only with that CSL. This allows the LCCs for each CSL to be compared under the same conditions. ** The LCC savings for each CSL are calculated relative to the base case efficiency distribution. The calculation

includes customers with zero LCC savings (no impact).

†The median payback period is calculated only for affected customers . Customers with no impact have an undefined payback period and are therefore not included in calculating the median PBP.

Figure 8.4.3 and Figure 8.4.4 show the range of LCC savings and PBPs for all of the efficiency levels considered for PTACs with output of 15,000 B tu/h co oling capacity . For each

standard level, the top and the bottom of the box indicate the 75 th and 25 th percentiles, respectively. The bar at the middle of the box indicates the median; 50 percent of the customers have LCC savings or PBP above this value. Th e horizontal lines above and below each box

indicate the 95 th and 5 th percentiles, respectively. The small box shows the average LCC savings

or PBP for each standard level.

Figure 8.4.3 Range of Life

- Cycle Cost Savings for Packaged Terminal Air

Conditioners

– 15,000 Btu/h Cooling Capacity -100

-90 -80 -70 -60 -50 -40 -30 -20 -10

0 10

Level 1 Level 2 Level 3 Level 4 Level 5Average LCC Savings (2011$)

Efficiency Level PTAC

- 15,000 Btu/h Range of LCC Savings Average; Median; Box 25%

- 75%; Whisker 5%

- 95% median

average

8- 27Figure 8.4.4 Range of Payback Periods for Packaged Terminal Air Conditioners

– 15,000 Btu/h Cooling Capacity

8.4.3 Packaged Terminal Heat Pumps

– 9,000 Btu/h Cooling Capacity

Table 8.4.3 summarizes the LCC and PBP results for PTHPs of 9,000 Btu/h cooling capacity.

Table 8.4.3 Packaged Terminal Heat Pumps

– 9,000 Btu/h Cooling Capacity

Trial

Standard

Level Average Life

- Cycle Costs (2013$) * Life -Cycle Cost Savings **
Median Payback

Period (years) † Installed

Cost Operating

Cost LCC Customers Showing (%) Avg. Savings

Net No Impact Net

Benefit (2013$)

Cost

1 $1,552 $1,725 $3,277 5% 51% 45% $3.46 4.4

2 $1,569 $1,706 $3,275 17% 42% 42% $4.77 5.8

3 $1,587 $1,687 $3,274 39% 12% 50% $5.23 6.9

4 $1,607 $1,668 $3,275 52% 0% 48% $4.16 7.5

5 $1,618 $1,659 $3,276 54% 0% 46% $3.01 7.7 0 5 10 15 20 25 30 35

Level 1 Level 2 Level 3 Level 4 Level 5Average PBB (years)

Efficiency Level PTAC

- 15,000 Btu/h Average Payback Period Average; Median; Box 25%

- 75%; Whisker 5%

- 95% median

average

8- 28*The average discounted LCC for each CSL is calculated assuming that all purchases are for equipment only with that CSL. This allows the LCCs for each CSL to be compared under the same conditions. ** The LCC savings for each CSL are calculated relative to the base case efficiency distribution. The calculation

includes customers with zero LCC savings (no impact).

†The median payback period is calculated only for affected customers . Customers with no impact have an undefined payback period and are therefore not included in calculating the median PBP.

Figure 8.4.5 and Figure 8.4.6 show the range of LCC savings and PBPs for all of the efficiency levels considered for PTHPs with outputs of 9,000 B tu/h cooling capacity . For each

standard level, the top and the bottom of the box indicate the 75 th and 25 th percentiles, respectively. The bar at the middle of the box indicates the median; 50 percent of the customers have LCC savings or PBP above this value. The horizontal lines above and below each box

indicate the 95 th and 5 th percentiles, respectively. The small box shows the average LCC savings

or PBP for each standard level.

Figure 8.4.5 Range of Life

- Cycle Cost Savings for Packaged Terminal Heat Pumps

– 9,000 Btu/h Cooling Capacity -40 -30 -20 -10

0 10 20 30 40 50 60

Level 1 Level 2 Level 3 Level 4 Level 5Average LCC Savings (2011$)

Efficiency Level PTHP 9,000 Btu/h Range of LCC Savings Average; Median; Box 25%

- 75%; Whisker 5%

- 95% median

average

8- 29Figure 8.4.6 Range of Payback Periods for Packaged Terminal Heat Pumps

– 9,000 Btu/h Cooling Capacity

8.4.4 Packaged Terminal Heat Pumps

– 15,000 Btu/h Cooling Capacity

Table 8.4.5 summarizes the LCC and PBP results for PTHPs of 15,000 Btu/h cooling capacity.

Table 8.4.4 Packaged Terminal Heat Pumps

– 15,000 Btu/h Cooling Capacity

Trial

Standard

Level Average Life

- Cycle Costs (2013$) * Life -Cycle Cost Savings ** Median Payback

Period (years) † Installed

Cost Operating

Cost LCC Customers Showing (%) Avg. Savings

Net No Impact Net

Benefit (2013$)

Cost

1 $1,801 $2,232 $4,032 27% 43% 30% $0.42 7.2

2 $1,824 $2,206 $4,030 26% 43% 31% $2.06 7.0

3 $1,854 $2,181 $4,034 59% 10% 31%

- $2.27 8.5

4 $1,890 $2,157 $4,047 77% 2% 22%

- $14.57 10.0

5 $1,911 $2,145 $4,056 82% 0% 18%

- $23.72 10.6

*The average discounted LCC for each CSL is calculated assuming that all purchases are for equipment only with that CSL. This allows the LCCs for each CSL to be compared under the same conditions. ** The LCC savings for each CSL are calculated relative to the base case efficiency distribution. The calculation

includes customers with zero LCC savings (no impact). 0 2 4 6 8 10 12

Level 1 Level 2 Level 3 Level 4 Level 5Average PBB (years)

Efficiency Level PTHP

- 9,000 Btu/h Average Payback Period Average; Median; Box 25%

- 75%; Whisker 5%

- 95% median

average

8- 30†The median payback period is calculated only for affected customers . Customers with no impact have an undefined payback period and are therefore not included in calculating the median PBP.

Figure 8.4.7 and Figure 8.4.8 show the range of LCC savings and PBPs for all of the efficiency levels considered for PTHPs with output of 15,000 B tu/h co oling capacity . For each

standard level, the top and the bottom of the box indicate the 75 th and 25 th percentiles, respectively. The bar at the middle of the box indicates the median; 50 percent of the customers have LCC savings or PBP above this value. The horizontal lines above and below each box

indicate the 95 th and 5 th percentiles, respectively. The small box shows the average LCC savings

or PBP for each standard level.

Figure 8.4.7 Range of Life

- Cycle Cost Savings for Packaged Terminal Heat Pumps

– 15,000 B tu/h Cooling Capacity

Figure 8.4.8 shows the range of PBPs for all efficiency level s for PTHPs

– 15,000 Btu/h

. -80 -60 -40 -20

0 20 40 60

Level 1 Level 2 Level 3 Level 4 Level 5Average LCC Savings (2011$)

Efficiency Level PTHP 15,000 Btu/h Range of LCC Savings Average; Median; Box 25%

- 75%; Whisker 5%

- 95% median

average

8- 31Figure 8.4.8 Range of Payback Periods for Packaged Terminal Heat Pumps

– 15,000 Btu/h Cooling Capacity

8.4.5 A lternative Base Case Analysis

The alternative base case analysis was based off a scenario where the mandatory efficiency level is the Federal minimum. Table 8.4.5 shows the efficiency distributi on against

which LCC and PBP results were calculated. The results of these calculations are shown in Table

8.4.6

.

Table 8.4.5 Alternative Base Case Efficiency Market Shares i n 2019 for Packaged Terminal Air Conditioners and Heat Pumps

PTAC

– 9,000 Btu/h PTAC

– 15,000 Btu/h PTHP

– 9,000 Btu/h PTHP

– 15,000 Btu/h

IEER Market Share IEER Market Share IEER Market Share IEER Market Share

11.1 3.4 % 9.3 10.9 %

11.3 40.3 % 9.5 14.9 % 11.3 48.5% 9.5 58.2%

11.5 24.3% 9.7 34.8% 11.5 8.9% 9.7 0.0%

12.0 29.5% 10.0 34.7% 12.0 30.2% 10.0 32.5%

12.4 2.1% 10.4 2.7% 12.4 12.4% 10.4 7.9%

12.9 0.5% 10.8 1.4% 12.9 0.0% 10.8 1.4%

13.1 0.0% 11.0 0.7% 13.1 0.0% 11.0 0.0% 0 2 4 6 8 10 12 14 16

Level 1 Level 2 Level 3 Level 4 Level 5Average PBB (years)

Efficiency Level PTHP

- 15,000 Btu/h Average Payback Period Average; Median; Box 25%

- 75%; Whisker 5%

- 95% median

average

8- 32Table 8.4.6 Alternative Base Case Analysis Results

Trial

Standard

Level Average Life

- Cycle Costs (2013$) * Life

- Cycle Cost Savings **
Median Payback

Period (years) † Installed

Cost Operating

Cost LCC Customers Showing (%) Avg. Savings

Net No Impact Net

Benefit (2013$)

Cost

PTAC <12,000

Btu/h 1 $1,437 $1,152 $2,589 28% 57% 16% ($0.47) 8.3

2 $1,455 $1,138 $2,593 52% 32% 17% ($3.08) 9.6

3 $1,473 $1,125 $2,598 80% 2% 17% ($8.39) 10.5

4 $1,493 $1,112 $2,605 85% 0% 15% ($15.43) 11.0

5 $1,503 $1,106 $2,610 87% 0% 13% ($19.58) 11.4

PTAC ≥12,000

Btu/h 1 $1,692 $1,502 $3,194 13% 75% 12% ($0.17) 6.9

2 $1,715 $1,487 $3,202 53% 39% 8% ($5.39) 11.7

3 $1,745 $1,474 $3,219 91% 5% 4% ($21.03) 15.1

4 $1,781 $1,462 $3,243 96% 2% 2% ($44.69) 17.7

5 $1,802 $1,456 $3,258 98% 1% 1% ($59.61) 19.4

PTHP <12,000

Btu/h 1 $1,552 $1,725 $3,277 5% 51% 45% $3.46 4.4

2 $1,569 $1,706 $3,275 17% 42% 42% $4.77 5.8

3 $1,587 $1,687 $3,274 39% 12% 50% $5.23 6.9

4 $1,607 $1,668 $3,275 52% 0% 48% $4.16 7.5

5 $1,618 $1,659 $3,276 54% 0% 46% $3.01 7.7

PTHP ≥12,000

Btu/h 1 $1,801 $2,232 $4,032 27% 43% 30% $0.42 7.2

2 $1,824 $2,206 $4,030 26% 43% 31% $2.06 7.0

3 $1,854 $2,181 $4,034 59% 10% 31% ($2.27) 8.5

4 $1,890 $2,157 $4,047 77% 2% 22% ($14.57) 10.0

5 $1,911 $2,145 $4,056 82% 0% 18% ($23.72) 10.6

*The average discounted LCC for each CSL is calculated assuming that all purchases are for equipment only with that CSL. This allows the LCCs for each CSL to be compared under the same conditions. ** The LCC savings for each CSL are calculated relative to the base case efficiency distribution. The calculation includes customers with zero LCC savings (no impact).

†The median payback period is calculated only for affected customers. Customers with no impact have an undefined payback period and are therefore not include d in calculating the median PBP.

8.4.6 Rebuttable Payback Period

DOE presents rebuttable PBPs to provide the legally established rebuttable presumption that an energy efficiency standard is economically justified if the additional equipment costs
attributed to the standard are less than three times the value of the first

- year energy cost savings. (42 U.S.C. §6295(o)(2)(B)(iii))

The basic equation for rebuttable PBP is the same as that shown f or the PBP in section

8.3 . Unlike the analyses described in section 8.3 , however, the rebuttable PBP is not based on the

use of probability distributions, but on discrete single

- point values. For example, wh ereas DOE uses a probability distribution of energy prices in the distributional PBP analysis, it uses only the

national average energy price to determine the rebuttable PBP.

8- 338.4.6.1 Inputs

Inputs for the rebuttable PBP differ from the distribution PBP in that the calculation uses discrete values, rather than distributions. Note that for the calculation of d istribution PBP, because inputs for the determination of total installed cost were based on single

- point values, only the variability and/or uncertainty in the inputs for determining operating cost contributed to variability in the distribution PBPs. The f ollowing summarizes the single

- point values that DOE used in determining the rebuttable PBP:

• Manufacturing costs, markups, sales taxes, and installation costs were all based on the single

- point values used in the distributional LCC and PBP analysis.

• Ener gy prices were based on national average values for the year that new standards

will take effect.

• An average discount rate or lifetime is not required in the rebuttable PBP calculation.

• The effective date of the standard is assumed to be 2019.

• The annual energy consumption uses the single

- point per unit values, determined

from the whole

- building simulations as discussed in Chapter 7.

8.4.6.2 Results

DOE calculated rebuttable PBPs for each standard level relative to the distribution of equipm ent energy efficiencies estimated for the base case. Table 8.4.4 and Table 8.4.5 present

the rebuttable PBPs for PTACs and PTHPs

.

Table 8.4.7 Rebuttable

- Presumption Payback Periods (years) for Packaged Terminal

Air Conditioners

PTACs

- 9,000 Btu/h PTACs

- 15,000 Btu/h

TSL Efficiency Level PBP (years) TSL Efficiency Level PBP (years)

ASHRAE 0 8.1 ASHRAE 0 7 .0

1 1 8.4 1 1 8.6

2 2 8.7 2 2 10.1

3 3 9.1 3 3 11.7

4 4 9.5 4 4 13.3

5 5 9.7 5 5 14.0

8- 34Table 8.4.8 Rebuttable

- Presumption Payback Periods (years) for Packaged Terminal Heat Pumps

PTHPs

- 9,000 Btu/h PTHPs

- 15,000 Btu/h

TSL Efficiency Level PBP (years) TSL Efficiency Level PBP (years)

1 1 4.4 1 1 6.9

2 2 5.6 2 2 6.7

3 3 6.2 3 3 7.5

4 4 6.6 4 4 8.4

5 5 6.8 5 5 8.9

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