8-i 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 Inputs ................................... 8-4

8.2 LIFE

- CYCLE COST INPUTS ........................................................................................ 8-7

8.2.1 Definition ............................................................................................................. 8-7

8.2.2 Total Installed Cost Inputs ................................................................................... 8-7

8.2.2.1 Baseline Manufacturer Selling Price ....................................................... 8-8

8.2.2.2 Efficiency Level Energy Consumption and Manufacturer Selling Price

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

8.2.2.3 Overall Markup ...................................................................................... 8-12

8.2.2.4 Installation Cost ..................................................................................... 8-13

8.2.2.5 Weighted

- Average Total Installed Cost ................................................. 8-14

8.2.3 Operating Cost Inputs ........................................................................................ 8-17

8.2.3.1 Electricity and Natural Gas Price Analysis ............................................ 8-17

8.2.3.2 Electricity and Natural Gas Price Trend ................................................ 8-21

8.2.3.3 Repair Cost

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

8.2.3.4 Maintenance Cost

................................ ................................................... 8-25

8.2.3.5 Lifetime .................................................................................................. 8-25

8.2.3.6 Discount Rate ......................................................................................... 8-26

8.2.3.7 Compliance Date of Standard ................................................................ 8-28

8.2.3.8 Base

- Case Distribution of Efficiency Levels ......................................... 8-28

8.3 PAYBACK PERIOD INPUT S ...................................................................................... 8-29

8.3.1 Definition ........................................................................................................... 8-29

8.4 LIFE -C YCLE COST AND PAYBACK PERIOD RESULTS ...................................... 8-30

8.4.1 Life

- Cycle Cost Results ..................................................................................... 8-30

8.4.2 Payback Period Results ...................................................................................... 8-32

8.4.3 Rebuttable Presumption Payback Period ........................................................... 8-33

8.5 DETAILED RESULTS ................................................................................................. 8-34

REFERENCES ......................................................................................................................... 8-368- ii L IST OF TABLES

Table 8.1.1 Summary Information of Inputs for the Determination of Life- Cycle Cost and Payback Period..................................................................................................... 8-6 Table 8.1.2 Electricity Use in SPVAC <65 kBtu/h by Efficiency Level in Education, Telecommunications, and Office Buildings, U.S. Average Climate Conditions . 8-7 Table 8.2.1 Inputs for Total Installed Costs ................................................................................. 8-8 Table 8.2.2 Equipment Classes Evaluated for the SPVU Equipment Standard Life- Cycle Cost and Payback Period Analysis ............................................................................... 8-8 Table 8.2.3 Baseline Energy Consumption Levels and M SP Values for the Representative SPVU Equipment Units of Four Equipment Classes Analyzed.................................... 8-11

Table 8.2.4 Standard- Level Manufacturer Selling Price Increases ............................................ 8-11 Table 8.2.5 U.S. Average Electricity Consumption Values for Representative SPVU Equipment Units, by Building Usage Type, at All Efficiency Levels Analyzed ................. 8-12

Table 8.2.6 Weighted Average Baseline Installation Costs by Equipment Class ..................... 8-13 Table 8.2.7 Installation Cost Indices (National Value = 100.0) ............................................... 8-14

Table 8.2.8 Costs and Markups for Determination of Weighted -Average Total Installed Costs for New Equipment, SPVAC <65,000 Btu/h Equipment Class* ............................ 8-15

Table 8.2.9 Weighted-Average Equipment Price, Weighted Installation Cost, and Total Installed Costs for SPVAC <65,000 Btu/h at U.S. Average Conditions (2013$)* for Temporary Offices ............................................................................................. 8-17 Table 8.2.10 Inputs for Operating Costs .................................................................................... 8-17 Table 8.2.11 Commercial Electricity Prices by State (2013 cents/kWh) .................................. 8-19

Table 8.2.12 Commercial Natural Gas Prices by State (2013$ per Million Btu) ...................... 8-19 Table 8.2.13 Derived Average Commercial Energy Prices by Business Type ......................... 8-20

Table 8.2.14 Shares of SPVU Market by Business/Building Type ........................................... 8-21

Table 8.2.15 Population Shares by State, 2013 ......................................................................... 8-21 Table 8.2.16 Annualized Repair Costs by Equipment Class for Each Efficiency Level ........... 8-24

Table 8.2.17 Annualize d Maintenance Costs by Equipment Class for Each Efficiency Level . 8-25 Table 8.2.18 Derivation of Average Real Discount Rates by Bu siness Type ........................... 8-28 Table 8.2.19 Base-Case Distribution of Efficiency Levels for SPVU Equipment in 2019 ....... 8-29 Table 8.4.1 LCC Savings Distribution Results for Equipment Class SPVAC <65,000Btu/h (2013$) ............................................................................................................... 8-32 Table 8.4.2 Mean LCC Savings for All Equipment Classes and Efficiency Levels ................. 8-32 Table 8.4.3 Median LCC Savings for All Equipment Classes and Efficiency Levels .............. 8-32 Table 8.4.4 Payback Period Distribution Results for SPVAC <65,000 Btu/h .......................... 8-33

Table 8.4.5 Median Payback Period for All Equipment Classes and Efficiency Levels ........... 8-33 Table 8.4.6 Rebuttable Presumption Payback Periods by Efficiency Level and Equipment Class

................................ ................................ ............................................................ 8-34 Table 8.5.1 Summary of Results of LCC and PBP Analysis for SPVAC <65,000 Btu/h Equipment Class ................................................................................................ 8-358- iii LIST OF FIGURES

Figure 8.1.1 Flow Diagram of Inputs for the Determination of Life- Cycle Cost and Payback

Period ................................................................................................................... 8-5 Figure 8.2.1 Historical Nominal and Deflated Producer Price Indexes for Miscellaneous Refrigeration and Air-Conditioning Equipment .................................................. 8-9 Figure 8.2.2 Historical Deflated Producer Price Indexes for Copper Smelting, Steel Mills Manufacturing and All Other Miscellaneous Refrigeration and Air-Conditioning Equipment .......................................................................................................... 8-10 Figure 8.2.3 Electricity Price Trends for Commercial Rates to 2047 ........................................ 8-22 Figure 8.2.4 Natural Gas Price Trends for Commercial Rates to 2047 ..................................... 8-23 Figure 8.4.1 LCC and Installed Cost Variation over Efficiency Levels for SPVAC <65,000 Btu/h Equipment Class ................................................................................................ 8-30 Figure 8.4.2 LCC Savings Distributions for All the Efficiency Levels for the Equipment Class SPVAC <65,000 Btu/h ...................................................................................... 8-31 Figure 8.4.3 Payback Period for All Efficiency Levels for the Equipment Class SPVAC <65,000

Btu/h ................................................................................................................... 8-338-1 CHAPTER 8 . LIFE

- CYCLE COST AND PAYBACK PERIOD ANALYSIS

8.1 INTRODUCTION

This chapter describes the analysis that the U.S. Department of Energy (DOE) has performed to evaluate the economic impacts of possible energy conservation standards developed for single package vertical air conditioners and heat pumps (SPVU equipment) on

individual commercial customers, henceforth referred to as customers . The effect of standards on

customers includes a change in operating cost (usually decreased) and a change in installed cost (usually increased). This chapter describes two metrics used to determine the effect of standards

on customers :

• Life

- cycle cost (LCC) . The total customer cost over the life of the equipment is the

sum of installed cost (purchase and installation costs) and operating costs (maintenance, repair, and energy costs). Future operating costs are discounted to the time of purchase, and summed over t he lifetime of equipment.

• Payback perio d ( PBP) . Payback period is t he estimated amount of time it takes customers to recover the assumed higher purchase price of more energy efficient equipment through lower (undiscounted) operating costs.

An efficiency i mprovement to SPVU equipment that is financially attractive to a

customer will typically be associated with a sh ort PBP and a reduced LCC ( i.e. , LCC savings).

This chapter is organized as follows. The remainder of this section outlines the general approach and provides an overview of the inputs to the LCC and PBP analysis of SPVU equipment. Inputs to the LCC and PBP analysis are discussed in detail in sections 8.2 and 8.3

. Results for the LCC and PBP analysi s are presented in s ections 8.4 and 8.5

.

The calculations discussed in this chapter were performed with Microsoft Excel spreadsheets available at http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/produc tid/35

. Appendix 8A provides instructions for using the LCC spreadsheet

. Detailed LCC and PBP

results are presented in appendix 8B. Impacts of high growth and low growth scena rios for energy prices are presented in appendix 8 C. Appendix 8D describes the percentages of equipment by efficiency level that would be purchased in the absence of standards (b ase

- case market scenario).

8.1.1 General Approach for L ife -C ycle Cost and P ayback Period Analysis

This section summarizes DOE’s approac h to the LCC and PBP analysis for SPVU equipment. As part of the engineering analysis, various efficiency levels are ordered based on increasing efficiency (decreased energy consumption) and , typically, increas ing manufacturer selling price ( MSP ) values. For the LCC and PBP analysis, DOE chose five levels , henceforth

referred to as efficiency levels

. DOE treats each higher efficiency level (efficiency levels above the baseline) as a potential new standard level. For this notice of proposed r ulemaking ( NOP R),

t rial standard l evels (TSLs) and e fficiency l evels (ELs) have a one

- to -one correspondence. For example, TSL 1 calls for EL 1 equipment, TSL 2 calls for EL 2 equipment, and so on.8-2 T he LCC analysis of SPVU equipment is being conducted to help determine i f DOE should adopt an efficiency standard more stringent than the American Society of Heating, Refrigerating and Air -Conditioning Engineers (ASHRAE) standard level discussed in earlier chapters . T he baseline efficiency level is the ASHRAE 90.1-2013 standard for each equipment

class (also see section 8.1.2 ) . It is the least efficient and the least expensive equipment in that

class . T he higher efficiency levels (l evel 1 and up ) have a progressive increase in efficiency and equipment cost from the baseline level

. The highe s t efficiency level in each equipment class corresponds to the max imum efficiency level obtainable with non-proprietary technology (see

the technical support document ( TSD ) chapter 5 for details)

. DOE treats the efficiency levels as trial standard levels , as each higher efficiency level represents a potential new standard level

.

The installed cost of equipment to a customer is the sum of the equipment purchase price and installation costs. The purchase price is established starting from the manufacturer production cost (MPC), to which a manufacturer markup and cost of delivery to the job site are applied to obtain the MSP . This value is calculated as part of the engineering analysis ( chapter 5

of the TSD ). DOE then applies additional markups to the equipment to account for the markups associated with the distribution channels for this type of equipment (chapter 6 of the TSD) to
arrive at the final customer price. Installation costs vary by state depending on the prevailing

labor rates.

Operating costs for SPVU equipment are a sum of maintenance costs, repair costs , and energy costs. These costs are incurred over the life of the equipment and therefore are discounted to the year 2019 which is the effective date of the standards that will be established as part of this rulemaking. The sum of the installed cost and the operating cost, discounted to reflect the present value, is termed the lif e- cycle cost or LCC.

Generally, customers incur higher installed costs when they purchase higher efficiency equipment, and these cost increments will be partially or wholly offset by savings in the operating costs over the lifetime of the equipment. Usually, the savings in operating costs are due to savings in energy costs because higher efficiency equipment uses l ess energy over the lifetime of the equipment. Often , the LCC of higher efficiency equipment is lower compared to the LCC

of lower efficiency equipment. LCC savings are calculated for each efficiency level of each equipment class.

The PBP of higher efficiency equipment is obtained by dividing the increase in the installed cost by the decrease in annual operating cost. For this calculation, DOE uses the sum of the changes in the first year operating costs as the estimate of the decrease in operating cost, noting that some of the repair and replacement costs used herein are annualized estimates of

costs. P BP is calculated for each efficiency level of each equipment class

.

Apart from MSP , installation costs, and maintenance and repair costs, other important inputs for the LCC and PBP analysis are markups and sales tax, equipment energy consumption, electricity prices and future price trends, equipment lifetime, and discount rates.

The inputs for the LCC and PBP analysis are estimated from the best available data in the

market

, and in some cases the inputs are generally accepted values in the HVAC equipment industry . In gen eral, there is uncertainty associated with most of the inputs because it is difficult8-3 to develop an accurate representative value for some inputs. Therefore, DOE carrie d out the LCC and PBP analysis in the form of Monte Carlo simulations in which certain inputs were provided a range of values and probability distributions that account for the uncertainties. The results of the LCC and PBP analysis are presented in the form of mean and median LCC savings, percentages of customers experiencing net savings, net cost , no impact in LCC, and median PBP . For each equipment class, 10,000 Monte Carlo simulations were carried out. The simulations were conducted using Microsoft Excel and Crystal Ball , a commercially available Excel add

- in for doing Monte Carlo simulatio ns

DOE calculated LCC savings and PBP by comparing the installed costs , operating costs,

and LCC values of a standards

- case scenario against those of base

- case scenario

. The b ase

- case market scenario is the scenario in which equipment is assumed to be purchased by customers in the absence of the proposed energy conservation standards. T he b ase

- case market scenario is

shown in s ection 8.2.3.8 and its derivation is further described in appendix 8D. Standards- case scenarios are scenarios in which equipment is assumed to be purchased by customers after the hypothetical energy conservation standards, determined as part of the current rulemaking, go into

effect. The number of standards- case scenarios for an equipment class is equal to one less than the total number of efficiency levels in that equipment class because each efficiency level above

the ASHRAE baseline level represents a potential new standard . Usually, the equipment

available in the market will have a distribution of efficiencies. Therefore, for both base- case and

standards- case scenarios in the LCC and PBP analysis, DOE assumed a distribution of

efficiencies in the market , and the distribution was assumed to be spread over the first few efficiency levels in the LCC and PBP analysis (see appendix 8D).

Recognizing considerable variation in how commercial buildings use SPVU equipment, DOE analyzed variability and uncertainty by performing the LCC and PBP calculations for three types of buildings (1) modular relocatable school classrooms or “portables,” (2) telecommunications equipment shelters , and (3) modular and miscellaneous commercial and government office and retail buildings. Different types of b usinesses face different energy prices and also exhibit differing discount rates that they apply to purchase decisions. Five types of businesses were analyzed: (1) health care; ( 2) education; (3) mining, construction, and other entities requiring temporary office space; ( 4) telecommunications; and (5 ) general office, retail, and government.

Equipment lifetime for SPVU equipment is another input that does not justify usage of one single value for each equipment class. Therefore, for purposes of the LCC ana lysis, DOE

assume d a distribution of equipment lifetime s between 10 and 25 years that are defined by

Weibull survival functions, with an average value of 15 years

.

Another important factor influencing the LCC and PBP analysis is the location in which

the SPVU equipment is installed . Inputs that vary based on this factor include energy consumption, energy prices , markups and installation costs, and sales tax. At the national level,

the LCC spreadsheet explicitly modeled variability in the model inputs for t hese factors using probability distributions based on the relative populations in different states and percent of the market in particular business types.8-4 Results of the LCC and PBP analysis are presented in section 8.4 and in appendix 8B. Impacts of high growth and low growth energy price scenarios on LCC and PBP are presented in appendix 8 C.

8.1.2 Overview of L ife -C ycle Cost and P ayback Period Inputs

Inputs to t he LCC and PBP analysis are categorized as follows: (1) inputs for establishing

the total installed cost and (2) inputs for calculating the operating cost.

The primary inputs for establishing the total installed cost are as follows:

• Baseline manufacturer s elling price is t he price charged by the manufacturer to either a wholesaler or customer for equipment meeting baseline efficiency level

. The MSP

includes a manufacturer’s markup and transportation, which converts the MPC to

MSP

. These values are calculated in TSD chapter 5.

• Price learning is a method of adjusting the MSP across time to account for increased efficiency in the production of SPVU equipment . It is assumed in DOE SPVU LCC analyses that the real cost of producing equip ment will stay constant over time

. This

is discussed in section 8.2.2.1 and appendix 8D.

• Efficiency l evel manufacturer selling price increase is t he incremental change in MSP associated with producing equipment at each of the higher efficiency levels (e fficiency l evels above the baseline).

• Markups and sales tax are the distribution channel markups and sales tax associated with converting the MSP to a customer purchase price. Figure 8.1.1 depicts these generically. The methodology to determine markups and sales taxes is presented in

TSD chapter 6.

• Installation cost is t he cost to the customer of installing the equipment. The c ost for

installation is estimated as a one- time cost and is intended mainly to represent the cost

of labor. Installation overhead and other miscellaneous materials and parts are considered part of the installation cost.

The primary inputs for calculating the operating cost s are as follows:

• Equipment energy consumption : Consumption is the total annual energy consumed by

SPVU equipment . This includes electricity in kilowatt -hours and natural gas in

millions of British thermal units (MBtu) where applicable . T his value is calculated as part of the engineering analysis for each efficiency level in each equipment class

.

• Electricity and natural gas prices : Electricity prices used in the analysis are the price per kilowatt- hour paid by each customer for electricity. Natural gas prices are expressed in dollars per MBtu. Electricity and natural gas prices are determined using average commercial electricity and natural gas prices in each s tate from the U.S. Energy Information Administration (EIA) data for 2013 The derived 2013 average commercial prices were modified to reflect the fact that the five types of businesses analyzed pay electricity and natural gas prices that are different from the average commercial prices. Details on the development of electricity and natural gas prices

and the data sources used are found in s ection 8.2.3.1

.8-5 • Electricity and natural gas price trends : The EIA’s Annual Energy Outlook 2013 ( AEO201 3 ) 1 is used to project electricity and natural gas prices. For the results presented in this chapter, DOE used the regional prices from the AEO2013 Reference

C ase to project future trends in electricity and natural gas prices

.

• Maintenance costs: Estimated as an annual expense, derived from RS Means

CostWorks 2 data , representing the labor and materials costs associated with maintaining the operation of the equipment. Maintenance includes activities such as cleaning heat exchanger coils, checking refrigerant charge levels , and replacing filters, and other routine measures to keep the equipment running efficiently.

• Repair costs : The cost for repairs is estimated as an annualized expense, from RS

Means CostWorks data , derived to represent the labor and materials costs associated with repairing or replacing components that have failed.

• Equipment l ifetime : The age at which the SPVU equipment is retired from service.

• Discount rate : The rate at which future costs are discounted to establish their present

value. It is calculated as t h e weighted

- average cost of capital (WACC) for each of the

five types of business es assumed to be in commercial space served by SPVU equipment.

Figure 8.1.1 depicts the relationships between the installed cost and operating cost inputs

for the calculation of the LCC and PBP. Table 8.1.1 summarizes the characteristics of the inputs

to the LCC and PBP analysis and lists the corresponding reference chapter in the TSD for details on the calculation of the inputs.

Figure 8.1.1 Flow Diagram of Inputs for the Determination of Life-Cycle Cost and Payback

Period Experiential
Learning input Baseline

Manufacturer
Selling Price

Std

- Level

Manufactur e r Selling Price

Installation Cost From Engineering Analysis (price

is a function of efficiency)

From Markups for Equipment
Price Determination Analysis

Repair Cost

Maintenance

Cost Lifetime

Discount Rate

Electricity Price

Trends From Energy Use Analysis Energy Consumption

Electricity Prices

Sales Tax Markups for:

• AC Wholesale

• Bldg Mfg

• Bldg Distrib

• Mech. Contr

• Gen. Contr Customer Price

Data Inputs

Intermediate Analysis

Output Results Total Installed

Cost

Annual Energy

and Water Cost Annual

Operating

Expense Lifetime
Operating
Expense Payback Period Life

- Cycle Cost8-6 Table 8.1.1 Summary Information of Inputs for the Determination of Life -Cycle Cost and Payback Period

Input Description TSD Chapter

Reference Total Installed Cost Primary Inputs

Baseline MSP Varies with equipment class. Chapter 5 Efficiency level MSP

increases Varies with equipment class and efficiency level within an equipment

class. Chapter 5

Markups and sales tax Varies with location (state) where equipment is installed. Chapter 6 Installation price Varies with equipment class location (state) where equipment is installed. Chapter 8 Operating Cost Primary Inputs Equipment energy consumption Varies with equipment class and efficiency level within an equipment

class. Chapter 7

Electricity and natural

gas prices Varies with location, type of business

. Chapter 8

Electricity and natural

gas price trends Varies with location (regional) and price scenario. Chapter 8

Maintenance costs Varies with location. Chapter 8

Repair costs Varies with equipment class and efficiency level within equipment class

and location. Chapter 8

Lifetime Mean a ssumed to be 15 years. Chapter 8

Discount rate Varies with type of business. Chapter 8

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

s ections 8.2 and 8.3

.

If DOE adopts more- stringent standard levels than the le vels contained in the amended ASHRAE Standard 90.1-2013, compliance is required 4 years after the final rule is published. Based on a publication in 2015 for a final rule, the expected year of compliance would be 2019. For purposes of comparing different effici ency levels for the LCC analysis , it is assumed that the year of sale for the SPVU equipment is 2019.

As an example, Table 8.1.2 shows the five efficiency level s for the single package vertical air conditioner ( SPV AC ) <65 thousand British thermal units per hour (kBtu/h) equipment class, obtained from the engineering analysis ( ASHRAE plus four additional

numbered levels) . This table represents the current (2014) technology levels modeled for

SPVAC <65 kBtu/h equipment on the market. As previously explained, DOE assumed that the

ASHRAE standard would represent the minimum efficiency level of the market for this unit and that it would remain so. To approximate this state of market technology, DOE assumed the efficiency levels shown in Table 8.1.2 for SPVAC <65 kBtu /h equipment in U.S. average climate

conditions. Table 8.1.2 also shows electricity consumption for this SPVAC unit in the three types of buildings included in the energy use analysis

. The average change in natural gas consumed in a typical building as a result of the increased air

- conditioning efficiency in this rulemaking is very small (0 to 1 MBtu per year) (see TSD chapter 7). It is ignored in Table 8.1.2

.8-7 Table 8.1.2 Electricity Use in SPVAC <65 kBtu/h by Efficiency Level in Education, Telecommunications, and Office Building s, U.S. Average Climate Conditions

Ef ficiency Level Education Electricity Consumption kWh/yr * Telecommunications Electricity Consumption kWh/yr Office Electricity Consumption kWh/yr

ASHRAE Standard 5,633 8,217 4,008

Level 1 5,415 7,827 3,875

Level 2 5,216 7,473 3,755

Level 3 4,949 6,998 3,593

Level 4 4,775 6,686 3,487

* kWh/yr is kilowatt

- hours per year.

8.2 LIFE

- CYCLE COST INPUTS

8.2.1 Definition

LCC is the total customer cost over the life of a unit of equipment, including purchase

cost (equipment and installation costs) and operating costs (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. LCC is defined by Eq. 8.1 :



# ∑

= 

### + += N

t t

t 

### r OC ICLCC

1 

### )1 /(

Eq. 8.1

W here :

LCC = life

- cycle cost ($)

, IC = total installed cost ($)

, N = lifetime of equipment (years)

, OC t = operating cost ($) of the equipment in year t

,

r

= discount rate, and

t = year for which operating cost is being determined.

Because DOE gathered most of its data for the LCC analysis in 2014, DOE expresses all costs in 2013$. In the LCC analysis, the first year of equipment purchase is assumed to be 2019. Total installed cost, operating cost, lifetime, and discount rate are discussed in the following

sections.

8.2.2 Total Installed Cost Inputs

The total installed cost to the customer is defined by Eq. 8.2 :8-8 INST EQP IC += Eq. 8.2

W here :

EQP = customer purchase price for the equipment ($), and

INST = installation cost or the customer price to install equipment ($).

The equipment price is based on the distribution channel through which the customer purchases the equipment, as discussed in TSD chapter 6.

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

calcul ate the total installed cost for SPVU equipment. Table 8.2.1 shows inputs for the

determination of total instal led cost

.

Table 8.2.1 Inputs for Total Installed Costs

Baseline manufacturer selling price ($)

Price l earning c oefficient Efficiency

- l evel manufacturer selling price increases ($)

Distribution channel markup Sales tax ($) Installation cost ($)

8.2.2.1 Baseline Manufacturer Selling Price

The baseline MSP is the price charged by manufacturers for SPVU equipment f or existing efficiency levels (for equipment classes with no standards). The MSP includes

manufacturer markup and costs of transportation that are applied to convert the MPC to an MSP

. DOE developed MSP values for the four equipment class es (see TSD chapter 3). Table 8.2.2

shows the set of four equipment classes that DOE evaluated during the NOPR analysis of the current rulemaking

.

Table 8.2.2 Equipment Classes Evaluated for the SPVU Equipment Standard Life

- Cycle Cost and Payback Period Analysis

Description ( Equipment

, Capacity ) Abbreviation

SP V AC <65 ,000 Btu /h SP V AC < 65 kBtu /h

SP V HP < 65 ,000 B tu /h SP V HP < 65 kBtu /h

S PV AC ≥ 65 ,000 Btu/h and < 135

, 000 Btu /h SP V AC 65

- 135 kBtu /h

S PV HP ≥ 65 ,000 Btu/h and < 135

, 000 Btu /h SP V HP 65

- 135 kBtu /h

* SPVHP is single package vertical heat pump.

DOE’s LCC analysis typically includes an allowance for equipment prices to change as experience is gained with manufacturing. To derive a price trend for SPVUs , DOE obtained historical Producer Price Index (PPI) data for all other miscellaneous refrigeration and air

conditioning equipment spanning the time per iod 19 90-2013 from the Bureau of Labor Statistics’ (BLS). a DOE used PPI data for all other miscellaneous refrigeration and air-conditioning

a Series ID PCU3334153334159 ; http://www.bls.gov/ppi/8-9 equipment as representative of SPVUs because PPI data specific to SPVUs are not available. The

PPI data reflect nomi nal prices, adjusted for product quality changes. An inflation-adjusted (deflated) price index for all other miscellaneous refrigeration and air -conditioning equipment was calculated by dividing the PPI series by the Gross Domestic Product Chained Price In dex and is presented in 2013 dollar values in Figure 8.2.1

.

Figure 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 downward trend. From 2004 to 2009, the index has risen sharply, primarily due to rising prices of copper and steel products that go into SPVUs (see Figure 8.2.2 ). The rising pr ices 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 starting in 2008, DOE believes that the extent to which the trends of the past couple of

yea rs will continue is very uncertain. DOE performed an exponential fit on the deflated price

index for all other miscellaneous refrigeration and air

- conditioning equipment (see T SD appendix 10 B) , but the statistical fit was relatively low, which indiates a p oor fit to the data. DOE also considered the experience curve approach, in which an experience rate parameter is derived using two historical data series on price and cumulative production , but the time series for historical shipments was not available.

Given the above considerations, DOE decided to use a constant price assumption to project future SPVU prices in 2019. Thus, prices projection for the LCC and PBP analysis are equal to the 2013 values for each efficiency level in each equipment class. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1

0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.01989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013Deflated PPI (2013=1)Nominal PPI (1989=100)

Nominal Misc. Refrigeration and AC Equipment

Deflated Misc. Refrigeration and AC Equipment8- 10 Figure 8.2.2 Historical Deflated Producer Price Indexes for Copper Smelting, Steel Mills Manufacturing and All Other Miscellaneous Refrigeration and Air

- Conditioning Equipment

Table 8.2.3 presents the baseline energy consumption values and the resulting baseline

MSPs used in the LCC and PBP analysis for the representative sizes for each of the equipment

classes (see TSD chapter 3). Because the analysis in this chapter is designed to help determine whether efficiency levels beyond the ASHRAE standard would be economically justified, the

b aseline was set at the ASHRAE standard baseline, as explained in s ec tion 8.1.2

. 0 0.2 0.4 0.6 0.8

1 1.2 1.4 1.6 1.8

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010Deflated Commodity Price Index (2013=1)

Year

Iron and Steel Mills Primary Copper Smelting Misc. Refrigeration and AC Equipment8- 11 Table 8.2.3 Baseline E nergy C onsumption L evels and MSP V alues for the Representative

SPVU Equipment Units of Four E quipment C lasses Analyzed

Equipment Class Baseline Electricity Consumption kWh/yr

Manufacturer Selling Price

201 3$ Temporary

Offices,

General Offices, and

Health Care Education Telecommunic

ations

SPVAC < 65 kBtu/h 4,008 5,633 8,217 1,891

SPVHP < 65 kBtu/h 19,126 21,419 NA* 2,162

SPVAC 65

- 135 kBtu/h 7,820 11,091 16,412 2,483

SPVHP 65

- 135 kBtu/h 38,065 42,666 NA* 2,842

* Telecommunications shelters are assumed not to be heated, so air conditioning would be installed, but not heat

pumps.

8.2.2.2 Efficiency Level Energy Consumption and Manufacturer Selling Price

Increases

The MSP increase is the change in MSP associated with producing equipment at higher efficiency levels. Increases in MSP as a function of equipment efficiency were developed for

each of the four equipment classes. The engineering analysis established a seri es of MSP

increases for each standard level. Table 8.2.4 presents the increase in MSP corresponding to all efficiency levels for each equipment class.

Table 8.2.4 Standard

- Level Manufacturer Selling Price Increases

Equipment Class Baseline ( ASHRAE )

MSP MSP Increase by Efficiency Level

201 3 $

Level 1 Level 2 Level 3 Level 4

SPVAC < 65 kBtu/h 1,891 88 176 459 986

SPVHP < 65 kBtu/h 2,162 101 202 524 1,125

SPVAC 65

- 135 kBtu/h 2,483 NA NA NA NA

SPVHP 65

- 135 kBtu/h 2,842 NA NA NA NA

Table 8.2.5 presents the annual electricity consumption of the representative units belonging to each of the four equipment classes that were selected for the engineering analysis. On an average basis, the differences in natural gas consumption are very small, occur only in buildings with SPVAC units <65,000 kBtu/h, and occur only in about 11 percent of health care,

education , and general office buildings. Telecommunications shelters and temporary office s are assumed to be all

- electric buildings (see TSD chapter 7).8- 12 Table 8.2.5 U.S. Average E lectricity C onsumption V alues for R epresentative SPVU

E quipment U nits , by Building Usage Type, at All Efficiency Levels Analyzed

Product Class Annual Energy Consumption kWh/yr

Baseline ( ASHRAE ) Level 1 Level 2 Level 3 Level 4

Temporary Offices, General Offices, and Health Care

SPVAC <65 kBtu/h 4,008 3,875 3,755 3

, 593 3

, 487

SPVHP <65 kBtu/h 19,126 18,707 18,457 17

, 656 17

, 550

SPVAC 65

- 135 kBtu/h 7,820 NA NA NA NA

SPVHP 65

- 135 kBtu/h 38,065 NA NA NA NA

Education

SPVAC <65 kBtu/h 5,633 5,415 5,216 4,949 4,775

SPVHP <65 kBtu/h 21,419 20,917 20,590 19,690 19,516

SPVAC 65

- 135 kBtu/h 11,091 NA NA NA NA

SPVHP 65

- 135 kBtu/h 42,666 NA NA NA NA

Telecommunications

SPVAC <65 kBtu/h 8,217 7,827 7,473 6,998 6,686

SPVAC 65

- 135 kBtu/h 16,412 NA NA NA NA

8.2.2.3 Overall Markup

Based on information from the Modular Building Institute

, 3

, 4

, 5

, 6 most of the temporary offices and many of the school portables are sold by modular building manufacturers to dealers, who then either sell or lease the buildings to the companies that occupy them, while the remainder are sold directly by the building manufacturer to the ultimate occupant (private company or government entity). Buildings may be leased several times in succession, and then

sold in an active used market. The percentages of leased buildings and distribution among classes of occupants vary from year to year. The occupants of leased space typically pay both the electricity bill and a lease payment that pays for the dealer’s investment in the building, the general contractor costs for siting the building, and the dealer’s cost of maintain in g the b uilding. There appears to be widespread competition in the temporary building market, with the decision to lease or buy largely a matter of convenience for the building occupant. For purposes of the LCC analysis, DOE assumed that the cost of the SPVU equipment is imbedded in the purchase price of the relocatable building, including all applicable markups, and that the present value of the lease payment over the life of the building, where relevant, equals the occupant’s cost ofbuying and maintaining the building. Thus, the LCC analysis is not affected by whether the airconditioned building is owned by the occupant or is being leased.

As discussed in TSD chapter 6, DOE calculated overall markups to determine the equipment purchase price to customers from the equipment MSP. DOE calculated baseline markups to convert baseline MSP to baseline customer purchase price and calculated incremental markups to convert the increments in MSP into increments in customer pu rchase price. DOE used these markup values in the LCC- PBP analysis for calculation of baseline and higher efficiency equipment price to customers.8- 13 8.2.2.4 Installation Cost

Most SPVU equipment is sold to manufacturers of portable buildings that use such equipment , rather than being separately installed in the field at the end

- use location

. The princip al exceptions are sales of replacement equipment where the SPVU has failed prematurely

. The “installation” cost for new equipment thus would be included in the markup of the modular building manufacturer. Although some SPVU equipment in replacement applications is not
installed in standard configurations, which complicates estimating the cost of installation

, some standardized estimates do exist

. The estimated installa tion cost is designed to represent a onetime fixed cost, to incorporate the labor and overhead required to fully replace SPVU equipment of various capacities

. DOE utilized replacement cost data from RS Means CostWorks 2014 for single -zone rooftop air conditioners to derive installation cost curves for SPVU equipment by capacity of the unit measured in tons of unit for the base efficiency unit. (One ton of cooling capacity equals 12,000 Btu/h.) Ins tallation cost s were available for 3- to n units. The costs for installing 6

- ton units were interpolated linearly from installation costs for 5 -ton and 7.5-ton units reported by RS Means CostWorks.

One additional adjustment w as made. The installation cost must represent an average of both replacement installations (which incur installation costs) and new building installations (which come with the SPVU equipment installed and therefore do not incur separate installation

cost s ). Therefore

, the installation costs derived from RS Means CostWorks were adjusted downward so that the average cost represented only replacement applications. The average costs

w ere obtained by multiplying the estimated installation cost by the proportion of SPVU equipment that the man ufac tu rers estimated was shipped for replacements. For the NOPR analysis, DOE assum ed that the engineering design options do not significantly affect installation labor within an equipment class, and therefore, within given equipment class the installation cost
will not vary with efficiency levels, though installation cost may still vary from one equipment

c apacity or equipment class to another. DOE did not find any information that suggests installation costs change as efficiency changes. If installation costs do not vary with efficiency

levels , they do not affect the LCC, PBP, or national impact analysis results. T he installation costs

in the NOPR analysis are estimated very simply as a fixed value for each equipment class and capacity

. To allow for the possibility that installation cost could increase as a function of increased efficiency within an equipment class, DOE designed an option into the LCC spreadsheet such that installation costs can be varied by efficiency level, but for the NOPR analysis DOE has modeled installation cost as constant across efficiency

. Table 8.2.6 shows the average values for baseline installation costs.

Table 8.2.6 Weighted Average Baseline Installation Costs by Equipment Class

Equipment Class Installation

Cost

201 3 $

SPVAC < 65 kBtu/h 1,252

SPVHP < 65 kBtu/h 1,252

SPVAC 65

- 135 kBtu/h 2,006

SPVHP 65

- 135 kBtu/h 2,006

Table 8.2.7 shows installation cost indices for installations in each of the 50 states and the

District of Columbia , and weighted- average for the entire U nited States

, which are used to adjust8- 14 the nationally representative installation costs for each s tate . To arrive at an average index for each state, DOE first weighted the RS Means city

- level cost indices in each state by their population within the state

. DOE used city - and state

- level population weights for 2012 and

201 3, respectively, from the U.S. Census Bureau 7 to calculate a weighted

- average index for each

state

.

Table 8.2.7 Installatio n Cost Indices (National Value = 100.0)

State Index State Index State Index

Alabama 82.5 Kentucky 95.2 North Dakota 87.4

Alaska 104.5 Louisiana 86.8 Ohio 99.3

Arizona 94.3 Maine 92.2 Oklahoma 84.6

Arkansas 83.8 Maryland 95.2 Oregon 103.7

California 112.9 Massachusetts 110.0 Pennsylvania 110.8

Colorado 93.2 Michigan 102.4 Rhode Island 110.8

Connecticut 109.2 Minnesota 107.5 South Carolina 83.7

Delaware 109.2 Mississippi 84.7 South Dakota 81.1

Dist. of Columbia 99.8 Missouri 102.2 Tennessee 92.4

Florida 88.5 Montana 91.4 Texas 85.2 Georgia 89.3 Nebraska 93.6 Utah 89.9

Hawaii 106.6 Nevada 101.7 Vermont 91.7

Idaho 91.9 New Hampshire 97.0 Virginia 91.2

Illinois 115.6 New Jersey 112.0 Washington 104.8

Indiana 94.2 New Mexico 90.7 West Virginia 99.0

Iowa 94.8 New York 126.4 Wisconsin 101.7

Kansas 91.1 North Carolina 83.8 Wyoming 88.3

8.2.2.5 Weighted -Average Total Installed Cost

As presented in Eq. 8.2 , the total installed cost is the sum of the equipment price and the

installation cost. DOE derived the customer equipment price for any given standard level by multiplying the baseline MSP by the baseline markup and adding to it the product of the

incremental MSP and the incremental markup. Because markups, sales tax , and installation costs all can take on a variety of values, depending on location, the resulting total installed cost for a particular standard level will not be a single -point value but rather a distribution of values. Because new SPVU units generally come to the customer alre ady mounted, only the portion of the units that are sold as replacements incur separate installation charges

, as discussed previously. During the manufacturer interviews, SPVU m anufacturers estimated this portion as about 50 percent of the market. The portion of these replacement sales that go to modular building distributors for replacements in their leased units may not show an explicit installation cost, but since replacement installations are a cost of doing bu si ness, the final lease customer likely pay s an allowance for repairs and replacements as part of the rental charge.

DOE used the baseline and incremental markups, the sales tax, and installation costs to

convert the MSPs into total installed costs for a case where the incremental installation cost s are held flat across efficiency levels . As an example of this procedure, Table 8.2.8 summarizes the weighted average or mean costs and markups neces sary for determining the national weighted

average baseline and standard

- level total installed costs

.8- 15 Table 8.2.8 Costs and Markups for Determination of Weighted-Average Total Installed

Costs for New Equipment

, SP V AC <65,000 Btu /h Equipment Class *

Variable Weighted Average or Mean

Value

ASHRAE Baseline MSP $1,891

Standard

- Level MSP Increase (Efficiency Level 2 ) $176 Overall Markup Factor

– Baseline (Including National Average Sales Tax) 1.9 59

Overall Markup Factor

– Incremental (Including National Average Sales Tax) 1.6 39

Average Installation Cost

– Baseline $ 2,505 Weighted Average Installation Cost

– Baseline $ 1,252 Installation Cost Factor, for U.S. Average 1.0

* Installation costs apply to the baseline unit with no incremental installation costs.

Note that the surveyed cost structured reflected the dominant technology currently on the market, which is based on Energy Policy and Conservation Act ( EPCA ) requirements. While comparison of LCC savings is done by using ASHRAE as a baseline, the cost build-up uses current technology as a starting point. Going from current technology to ASHRAE level constitutes an incremental efficiency improvement and, therefore, only an incremental cost increase to the manufacturers. To reflect that, the incremental markup is applied to the difference in MSP between current dominant technology (EPCA) and ASHRAE baseline.

To illustrate the derivation of the weighted

- average t otal installed cost (based on the data

shown in Table 8.2.8 ) is evaluated in Eq. 8.3 for the baseline ( ASHRAE standard l evel ) and in Eq. 8.4 for a higher efficiency level (Level 2 ) SPVAC <65,000 Btu/h equipment class

. For the baseline product, the calculation of the total installed cost at national average conditions is as follows: b

IC BASE AC< 65 = EQP BASE AC< 65 + PCT REPL × INST BASE AC< 65 × ISTINDEX

= MFG BASE AC< 65 × Price Learning Coef Analysis Year × MU OVERAL L BASE +

PCT REPL × INST BASE AC< 65 × ISTINDEX Eq. 8.3

W here :

IC BASE AC <65 = total installed cost of SPVAC <65,000 Btu/h equipment at baseline efficiency

level ($), EQP BASE AC <65 = equipment purchase price of SPVAC <65,000 Btu/h equipment at baseline efficiency level ($),

PCT REPL = percentage of units that are replacement units (assumed = 50%),

INST BASE AC <65 = installation cost of SP V AC <65,000 Btu/h equipment at baseline efficiency level ($),

MFG BASE AC<65 = MSP of SP V AC <65,000 Btu/h equipment at baseline efficiency level ($),

b The numbers shown in Eq. 8.3 have been rounded and do not exactly match the numbers in the analysis.8- 16 MU OVERALL_B ASE = overall baseline markup for equipment class SP V AC <65,000 Btu/h,

ISTINDEX = location dependent multiplier on installation costs ; approximately 1.0 at a national

average , and

Price Le arning Coef Analysis Year = price learning coefficient value for the year in which the unit is being purchased (assumed = 1.0 in 2019).

The calculation of the total installed cost at higher efficiency levels includes the use of an

MSP increment above the baseline MSP

. DOE uses an incremental markup factor that applies to

incremental increases in MSP. The equipment price is equal to the baseline price calculated in Eq. 8.3 , plus t he MSP increment for a higher efficiency level multiplied by the incremental markup.

As an example, DOE calculated the national average total installed cost ( IC AC<65 LEVEL 2 ) for

a new SPVAC < 65,000 Btu /h unit at Efficiency Level 2 as follows: c

IC AC< 65 LEVEL 2 = EQP AC< 65 LEVEL 2 + PCT REPL × INST AC< 65 LEVEL 2 × ISTINDEX

= MFG BASE AC< 65 × Price Learning Coef Analysis Year × MU OVERALL

_ BASE +

∆ MFG AC< 65 LEVEL 2 × Price Learning Coef Analysis Year × MU OVERALL

_ INCR + PCT REPL ×

INST AC< 65 LEVEL 2 × ISTINDEX

Eq. 8.4

W here :

IC AC<65 LEVEL 2 = total installed cost of SPVAC <65,000 Btu/h equipment at Efficiency Level 2

($)

, EQP AC<65 LEVEL 2 = equipment price of SPVAC <65,000 Btu/h equipment at Efficiency Level 2 ($)

, PCT REPL = percentage of units that are replacement units,

INST AC<65 LEVEL 2 = installation cost of SPVAC <65,000 Btu/h equipment at Efficiency Level 2 ($)

, Δ MFG AC<65 LEVEL 2 = i ncremental increase in MSP of SPVAC <65,000 Btu /h equipment at Efficiency Level 2 compared to equipment at baseline efficiency level ($)

, and

MU OVERALL_INCR = i ncremental markup for equipment class SPVAC <65,000 Btu/h.

Table 8.2.9 presents the weighted -average equipment price, installation cost, and total

installed costs for the SPVAC <65,000 Btu/h equipment class at the baseline level and each higher efficiency level examined

.

c Note that the numbers shown in Eq. 8.4 have been rounded and do not exactly match the numbers in the analysis.8- 17 Table 8.2.9 Weighted

- Average Equipment Price, Weighted Installation Cost, and Total

Installed Costs for SPVAC <65,000 Btu/h at U.S. Average Conditions (2013$)* for Temporary Offices

Efficiency Level Equipment Price (MSP) Weighted Installation Cost Total Installed Cost Baseline ( ASHRAE ) $1,891 $1,252 $4,836

Level 1 $1,979 $1,252 $4,980

Level 2 $2,067 $1,252 $5,125

Level 3 $2,350 $1,252 $5,589

Level 4 $2,877 $1,252 $6,453

* Figures shown in the table were taken directly from the LCC analyses and thus can differ from those shown in the text due to the rounding issue mentioned in footnotes c and d.

8.2.3 Operating Cost Inputs

DOE defines the operating cost as the sum of energy cost, repair cost, and maintenance cost, as shown in the following equation:

OC = EC + RC + MC Eq. 8.5

W here :

OC = operating cost ($)

, EC = energy cost ($)

, RC = repair cost ($)

, and

MC = maintenance cost ($)

.

The remainder of this section provides information about the variables that DOE used to calculate the operating cost for SPVU equipment. Table 8.2.10 shows the inputs for the

determination of discounted operating costs (including discounted value and lifetime ).

Table 8.2.10 Inputs for Operatin g Costs

Electricity price ( cents /kWh ) Natural gas price ($/MBtu) Electricity price trend s Natural gas price trends Repair cost ($) Maintenance cost ($)

Lifetime (y ears )

Discount rate (%)

Effective date of standard Baseline electricity consumption (kWh/ y r ) Baseline natural gas consumption (MBtu/y r ) Standard case electricity consumption (kWh/ y r ) Standard natural gas consumption (MBtu/y r )

8.2.3.1 Electricity and Natural Gas Price Analysis

This section describes the electricity price and natural gas price analysis used to develop the energy portion of the annual operating costs (price multiplied by electricity consumption) for8- 18 SPVU equipment used in different commercial building types. As noted earlier, t hree types of buildings were assumed: (1) modular relocatable school classrooms or “portables” ; (2 ) telecommunications equipment shelters ; and (3) modular and miscellaneous commercial and

government office and retail buildings. Occupant categories were also used in the analysis.

SPVU equipment w as assumed to be used by the following :

• health care operations for easy

- to

- erect supplemental facilities and office space ;

• school districts and colleges, mainly for “portables” at K -12 schools;

• private telecommunications companies that need eq uipment shelters, many at remote sites such as cellular telephone and broadcast towers ;

• private companies with groups of employees housed in temporary or portable buildings (mainly in construction, mining, and communications for site offices);

• private companies and state, local, and federal government agencies needing relatively low

- cost general commercial office and retail space ; and

• private companies and government to provide temporary housing such as crew

shelters (assumed to be at field sites —and assum ed to have the same power cost as portable office space)

.

Subdivision of the Country

. Because of the wide variation in electricity consumption patterns, wholesale costs, and retail rates across the country, it is important to consider regional

differences in electricity prices. For this reason, DOE undertook this analysis at the state level (including the District of Columbia). DOE used reported average effective commercial electricity prices at the state level from the EIA publication Form EIA -826 Databas e Monthly Electric Utility Sales and Revenue Data

. 8 The latest available prices from this source are for the calendar

year 2013. Table 8.2.11 provides data on the electricity prices. Commercial natural gas prices for

2013 were available online at EIA’s Natural Gas Navigator website 9 and are shown in

Table 8.2.12

.8- 19 Table 8.2.11 Commercial Electricity Prices by State ( 2013 cents /kWh)

State Commercial Electricity Price

c ents / kWh State Commercial Electricity Price

cents / kWh State Commercial Electricity

Price

cents/ kWh

Alabama 10.50 Kentucky 8.50 North Dakota 8.31

Alaska 15.62 Louisiana 8.94 Ohio 9.38

Arizona 9.87 Maine 11.72 Oklahoma 7.71

Arkansas 7.98 Maryland 10.70 Oregon 8.39

California 14.57 Massachusetts 14.51 Pennsylvania 9.26

Colorado 9.87 Michigan 11.07 Rhode Island 13.08

Connecticut 14.64 Minnesota 9.53 South Carolina 9.82

Delaware 10.26 Mississippi 10.21 South Dakota 8.44

Dist. of Col. 11.93 Missouri 8.72 Tennessee 10.01

Florida 9.49 Montana 9.52 Texas 8.03 Georgia 9.84 Nebraska 8.62 Utah 8.37

Hawaii 34.06 Nevada 9.02 Vermont 14.64

Idaho 7.40 New Hampshire 13.52 Virginia 8.05

Illinois 7.88 New Jersey 12.80 Washington 7.76

Indiana 9.48 New Mexico 9.78 West Virginia 8.16

Iowa 8.47 New York 15.23 Wisconsin 10.84

Kansas 9.54 North Carolina 8.73 Wyoming 8.60

Table 8.2.12 Commercial Natural Gas Prices by State (2013 $ per Million Btu )

State Commercial

Natural Gas

Price
$/MBtu State Commercial

Natural Gas

Price
$/MBtu State Commercial

Natural Gas

Price
$/MBtu

Alabama 13.05 Kentucky 9.38 North Dakota 6.99

Alaska 8.54 Louisiana 8.83 Ohio 7.48

Arizona 8.83 Maine 11.68 Oklahoma 11.10

Arkansas 8.34 Maryland 10.63 Oregon 9.05

California 7.87 Massachusetts 10.76 Pennsylvania 11.16

Colorado 8.12 Michigan 8.67 Rhode Island 13.31

Connecticut 8.54 Minnesota 7.33 South Carolina 9.37

Delaware 13.05 Mississippi 7.81 South Dakota 7.12

Dist. of Col. 12.56 Missouri 9.60 Tennessee 9.01

Florida 11.25 Montana 8.90 Texas 7.74 Georgia 10.20 Nebraska 6.81 Utah 7.49

Hawaii 43.36 Nevada 6.88 Vermont 11.92

Idaho 7.53 New Hampshire 12.94 Virginia 9.49

Illinois 9.38 New Jersey 9.83 Washington 9.52

Indiana 8.00 New Mexico 7.29 West Virginia 9.50

Iowa 7.37 New York 8.20 Wisconsin 7.26

Kansas 10.65 North Carolina 9.36 Wyoming 7.19

DOE recognized that different kinds of businesses typically use electricity and natural gas in different amounts at different times of the day, week, and year, and therefore face different effective prices. To make this adjustment, DOE used the 2003 Commercial Buildings Energy Consumption Survey ( CBECS ) 10 data set to identify the average prices paid by the five kinds of businesses in this analysis compa red with the average prices paid by all commercial customers. Eq. 8.6 shows t he ratio s of prices paid by the five types of businesses used to increase or8- 20 decrease the average commercial electricity prices. Natural gas prices for specific business types are adjusted similar ly

.

EPRICE COM BUSTYPE STATE 2013 = EPRICE COM STATE 2013 × � EPR I CE BUSTYPE US 2003

EPRICE COM US 2003 �

Eq. 8.6

W here :

EPRICE COM BUS TYPE STATE 2013 = average commercial sector electricity price in a specific bu siness type ( such as health care

, education , and office ) in a specific state in 2013,

EPRICE COM STATE 2013 = average commercial sector electricity price in a specific state in 20 13,

EPRICE BUS TYPE US 2003 = national average commercial sector electricity price in a specific bu siness

type in the 2003 CBECS, and

EPRICE COM US 2003 = national average commercial sector electricity price in the 2003 CBECS

.

Table 8.2.13 shows the derivation of the EPRICE ratios from the CBECS.

Table 8.2.13 Derived Average Commercial Energy Price s by Business Type

Business Type Electricity

Price

cents /kWh Ratio of Electricity Price to Average

Price for A ll

Commercial

Bu ilding s Natural

Gas Price

$/

MBtu Ratio of Natural Gas Price to Average

Price for A ll

Commercial

Bu ilding s Health Care 6.8 86% 6.39 84%

Telecommunications 8.1 103% 8.17 107%

Education 7.4 94% 6.96 91% Temp Office 8.1 103% 8.17 107%

Gen Office and Retail * 8.1 103% 8.17 107%

All Commercial 7.9 100% 7.62 100%

Source : CBECS 2003 . Reported ratios may differ from values computed using prices in the table due to rounding.

* Retail is assumed to include miscellaneous modular building types, including some car dealership showrooms, daycare facilities, bank branches, conve n ience stores

, and restaurants.

The derived ratio of commercial electricity prices by bu siness type to the overall average commercial building price was then combined with state

- by

- state commercial rates to derive a series of prices for each state and for each bu siness type. Future prices are projected as described

in section 8.2.3.2 . In sampling electricity prices for each business type and state to estimate LCCs and PBPs, DOE weighted the price s paid by each business type by their estimated national

market share s ( Table 8.2.14 ) . These shares were based on a combination of SPVU ma nufacturer and Modular Building Institute information . Th e state w eights were the 2012 population share s in each state ( Table 8.2. 15 ).8- 21 Table 8.2.14 Shares of SPVU Market by Business/Building Type

Business/ Building Type SPVAC SPVHP

Health Care 4% 6%

Telecommunications (Shelters Only) 35% 0%

Education 35% 54%
Temp orary Office (Construction, Mining, and Telecommunications) 16% 25%

Gen eral Office and Retail 10% 15%

Total 100% 100%

Table 8.2.15 Population Shares by State, 2013

State Population

Share State Population

Share State Population

Share

Alabama 1.5% Kentucky 1.4% North Dakota 0.2%

Alaska 0.2% Louisiana 1.5% Ohio 3.7%

Arizona 2.1% Maine 0.4% Oklahoma 1.2%

Arkansas 0.9% Maryland 1.9% Oregon 1.2%

California 12.1% Massachusetts 2.1% Pennsylvania 4. 0 %

Colorado 1. 7 % Michigan 3. 1 % Rhode Island 0.3%

Connecticut 1.1% Minnesota 1.7% South Carolina 1.5%

Delaware 0.3% Mississippi 0.9 % South Dakota 0.3%

Dist. of Col. 0.2% Missouri 1.9% Tennessee 2.1%

Florida 6. 2 % Montana 0.3% Texas 8. 4 % Georgia 3.2% Nebraska 0.6% Utah 0.9%

Hawaii 0.4% Nevada 0.9% Vermont 0.2%

Idaho 0.5% New Hampshire 0.4% Virginia 2.6%

Illinois 4.1% New Jersey 2.8% Washington 2.2%

Indiana 2.1% New Mexico 0.7% West Virginia 0.6%

Iowa 1.0% New York 6.2% Wisconsin 1.8%

Kansas 0.9% North Carolina 3.1% Wyoming 0.2%

Source: Computed from U.S. Census Bureau, Population Estimates, Nation al Totals, Vintage 201 3 http://www.census.gov/popest/data/national/totals/201 3 /index.html

8.2.3.2 Electricity and Natural Gas Price Trend

The electricity price trend provides the relative change in electricity and natural gas prices for future years out to the year 2040. Estimating future electricity and natural gas prices is difficult, especially considering that there are efforts in many states throughout the country to

restructure the electricity supply industry and that there have been recent breakthroughs in natural gas supply technology that may affect both natural gas and electrici ty prices

.

DOE applied a projected trend in national average electricity and natural gas prices to

each customer’s energy prices based on the AEO201 3 11 price scenarios. In the LCC analysis, the following three scenarios are analyzed:

1. AEO201 3

, estimated Hig h Economic Growth (“AEO2013 High Growth” in Figure 8.2.3 and Figure 8.2.4 )

2. AEO201 3 , Reference Case (“AEO201 3 Reference Case” in Figure 8.2.3 and Figure 8.2.4 )

3. AEO201 3

, estimated Low Economic Growth (“AEO2013 Low Growth” in Figure 8.2.3 and Figure 8.2.4 )8- 22 The default energy price scenarios used in the main LCC analysis are based on the census division energy prices from the AEO201 3 Reference Case

. DOE extrapolated the values in later years ( i.e. , after 2040— the last year of the AEO20 13 projection). To arrive at values for the later

years, DOE used the average growth rate from 2025 to 2040 to establish prices beyond 2040 for each price scenario

. High and Low Growth cases considered as the supplemental analysis are discussed in Appendix 8C.

Figure 8.2.3 Electricity Price Trends for Commercial Rates to 204 7 0.085 0.095 0.105 0.115 0.125 0.135 0.145

2019 2024 2029 2034 2039 2044US Weighted Average Real Cost/kWh (2013$)

Year 

## Electricity Price Projections

AEO2013 Low Growth AEO2013 Reference Case AEO2013 High Growth8- 23 Figure 8.2.4 Natural Gas Price Trends for Commercial Rates to 204 7

8.2.3.3 Repair Cost

The repair cost is the average annual cost to the consumer for replacing or repairing components in the SPVU equipment that have failed. Available data from TSD c hapter 5 as well as data on repair costs from RS Means CostWorks for similar equipment ( small rooftop packaged units) suggest that costs for replacement parts used in repair increase as the size and the efficiency of SPVU units increases

, and that a typical frequency of a major repair is about 10

years from purchase. A typical repair might involve replacing the supply fan motor, compressor, some bearings

, and refrigerant

. DOE estimated the repair cost for SPVU equipment at the baseline level using Eq. 8.7

.

RC BASE = � ( R CAP ABOVE −R CAP BELOW )

( CAP ABOVE − CAP BELOW ) × ( CAP BASE − CAP BELOW ) + R CAP BELOW � ∗ ANN

Eq . 8.7

W here :

RC BASE = annualized repair cost for a baseline efficiency unit (including labor, overhead and profit) at a given capacity ($)

, R CAP ABOVE = one- time repair cost for the next larger reported capacity in RS Means

, R CAP BELOW = one- time repair cost for the next smaller reported capacity in RS Means

, 6.000 8.000 10.000 12.000 14.000 16.000 18.000

2019 2024 2029 2034 2039 2044US Weighted Average Real Cost/MBtu (2013$)

Year 

## Natural Gas Price Projections

AEO2013 Low Growth AEO2013 Reference Case AEO2013 High Growth8- 24 CAP BASE = the baseline capacity in tons,

CAP ABOVE = the next larger reported capacity in RS Means,

CAP BELOW = the next smaller reported capacity in RS Means, and

ANN = annualization factor equivalent to the present value of an equipment repair in year 10,

wit h an assumed equipment lifetime of 15 years (see section 8.2.3.5 ). The d iscount rate for

the annualization factor is selected based on the business type (see section 8.2.3.6 ).

For repair costs at higher efficiency levels as a result of standards, the materials portion

of repair cost is assumed to increase proportionately with the cost of the more efficient equipment, while labor cost is constant:

RC STD = RC BASE × PCT MAT × EQP STD
EQP BASE + RC BASE × (1 − PCT MAT )

Eq . 8.8

Where:

RC STD = annualized repair cost at the standard efficiency level

, PCT MAT = percent of base repair cost for materials

, EQP BASE = original equipment price of the SPVU equipment at the baseline efficiency , and EQP STD = original equipment price of SPVU equipment at the standard efficiency

.

As the components used for higher

- efficiency equipment have a higher original equipment manufacturer cost, the equation 8.8 yields an increasing repair costs scenario for higher- efficiency equipment. Table 8.2.16 shows the annualized values for repair costs.

Table 8.2.16 Annualized Repair Costs by Equipment Class for Each Efficiency Level

Equipment Class Annualized Repair Costs for LCC by Efficiency

Level

201 3 $/yr

Baseline ( ASHR

AE ) Level 1 Level 2 Level 3 Level 4

Temporary Offices, General Offices, and Health Care

SPVAC < 65 kBtu/h 168 171 174 182 198

SPVHP < 65 kBtu/h 168 171 174 182 198

SPVAC 65

- 135 kBtu/h 213 NA NA NA NA

SPVHP 65

- 135 kBtu/h 214 NA NA NA NA

Education

SPVAC < 65 kBtu/h 198 201 204 214 232

SPVHP < 65 kBtu/h 198 201 204 214 232

SPVAC 65

- 135 kBtu/h 251 NA NA NA NA

SPVHP 65

- 135 kBtu/h 251 NA NA NA NA

Telecommunications*

SPVAC < 65 kBtu/h 171 173 176 185 201

SPVAC 65

- 135 kBtu/h 216 NA NA NA NA

* Telecommunications shelters are assumed not to be heated, so air conditioning would be installed, but not heat pumps.8- 25 8.2.3.4 Maintenance Cost

The maintenance cost is the cost to the consumer of maintaining equipment operation. The maintenance cost is not the cost associated with the replacement or repair of components that have failed (as discussed in the previous section ). Rather, it is the cost associated with general preventive maintenance.

DOE estimated annualized preventive maintenance costs for SPVU equipment from RS

Means CostWorks data on preventive maintenance for terminal and package units. RS Means

does not provid e estimates on the person -hours, labor rates, and materials required to maintain

SPVU equipment. RS Means does specif y preventive maintenance activities for air -cooled packaged air -conditioning and heat pump equipment (which has maintenance needs similar to SPVU equipment) . These activities are expected to occur on a scheduled basis an d include the following types of actions: c leaning evaporator coils

, changing filters, lubricat ing motors,

clean ing condenser coils

, chec king refrigerant pressures and adding refrigerant as necessary , and

similar activit ies . Some of t hese occur more than once a year. DOE assumed that this work was done by an outside maintenance contractor. DOE used available s ingle air -cooled packaged unit

and air -cooled heat pump figure s of $ 311 per year (2013 $) from RS Means CostWorks for

scheduled preventive maintenance activities for all SP V AC equipment classes up to 24 tons capacity , $345 per year ( 2013 $) for SP V HP equipment c lasses up to 5 tons, and $414 per year (2013 $) for SP VHP equipment of larger capacity

.

D ata were not available to indicate how maintenance costs vary with equipment efficiency level

. However , although preventive maintenance costs may vary by size of the unit,

the activities are about the same

, regardless of efficiency level , and should not require significantly different amounts of material and labor at different effici e ncy levels . Therefore,

DOE decided to use preventive maintena nce costs that remain constant as equipment efficiency

is increased

.

Table 8.2.17 Annualized Maintenance Costs by Equipment Class for Each Efficiency Level

Equipment Class Annualized Maintenance Costs for LCC by Efficiency

Level

2013 $/yr

Baseline ( ASHRAE ) Level 1 Level 2 Level 3 Level 4

SPVAC < 65 kBtu/h 311 311 311 311 311

SPVHP < 65 kBtu/h 345 345 345 345 345

SPVAC 65

- 135 kBtu/h 311 N/A N/A N/A N/A

SPVHP 65

- 135 kBtu/h 414 N/A N/A N/A N/A

8.2.3.5 Lifetime

DOE defines lifetime as the age at which SPVU equipment is retired from service. DOE

based equipment lifetime on review of available online literature and studies and concluded that a typical lifetime of between 10 and 25 years with an average of 15 years is appropriate for most

SPVU equipment. While references to service life were found in online literature, most

documents found appeared to reference the American Society of Heating, Refrigerating and Air

Conditioning Engineers ( ASHRAE ) generally

, and they cited equipment life estimates for similar8- 26 equipment. ASHRAE indicates about a 15- year service life for a variety of similar heating, ventilation, and air-conditioning ( HVAC ) equipment in the ASHRAE Handbook, 12 but appears to have no data specific to SPVU equipment. A 2005 ASHRAE study on equipment service life

found that the median age for 25 air

- to

- air heat pump units still in operation was 16 years, with

the oldest at 17 years . In the same study, the maximum age at which 136 unit s were replaced

was 17 years . For a sample of packaged direct -expansion (DX) air-conditioning units, out of 32 units operating, the mean age was 11 years and the maximum age was 24 years. No information

was avai lable on the end of life because the study did not have end -of- life information. 13 An

Australian study estimated the average life at 10 years for non-ducted air -conditioning equipment

and 14 years for ducted air -conditioning equipment with a standard deviation of 3 years. 14 Based on the range of service life information available, DOE established the 10–25 year range and 15- year average service life estimates for this analysis.

8.2.3.6 Discount Rate

The discount rate in this analysis is the percentage rate at which future operating costs are

discounted to establish a present value. DOE derived the discount rates for the SPVU equipment analysis by estimating the cost of capital for companies that purchase SPVU equipment. The cost of capital 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 company of equity and debt financing.

DOE estim ated the cost of equity financing by using the C apital A sset P ricing Model (CAPM)

. 15 The CAPM, among the most widely used models to estimate the cost of equity financing, assumes that the cost of equity is proportional to the amount of systematic risk

assoc iated with a company. The cost of equity financing tends to be high when a company faces a large degree of systematic risk

, and it tends to be low when the company faces a small degree of systematic risk.

DOE determined the cost of equity financing by usin g several variables, including the risk coefficient of a company ( 

### β ), the expected return on “risk free” assets ( R f ), and the additional return expected on assets facing average market risk, also known as the equity risk premium or

ERP

. The risk coefficient of a company

, 

### β (beta)

, indicates the degree of risk associated with a given firm relative to the level of risk (or price variability) in the overall stock market. Risk coefficients usually vary between 0.5 and 2.0. A company with a risk coefficient of 0.5 faces half the risk of other stocks in the market; a company with a risk coefficient of 2.0 faces twice the

overall stock market risk.

Eq. 8.9 gives the cost of equity financing for a particular company:

k

e = R f + (β × ERP) Eq. 8.9

W here :

k

e = the cost of equity for a company (%),8- 27 R

f = the expected return of the risk free asset (%), 

### β = the risk coefficient , and

ERP = the expected equity risk premium (%)

.

DOE defined the risk

- free rate as the 40- year geometric average yield on long- term government bonds. The risk free rate was calculated using Federal Reserve data for the period 1974 to 2013, 16 with a resulting rate of 6.24 percent. DOE used a 5.81- percent estimate for the

ERP based on data from Damodaran Online. 17

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.

Eq. 8.10

Where:

k

d = the cost of debt financing for each firm (%),

R

f = the expected return on risk- free assets (%), and

a 

### R = the risk adjustment factor to risk

- free rate for each firm (%)

.

The risk adjustment factor depends on the variability of stock returns represented by standard deviations in stock prices and was taken from Damodaran Online worksheets for individual company cost of capital

. 18 The WACC of a company is the weighted

- average cost of debt and equity financing:

k =k

e × w e + k d × w d Eq. 8.11

W here :

k = the (nominal) cost of capital (%),

k

e = the expected rate of return on equity (%),

k

d = the expected rate of return on debt (%),

w e = the proportion of equity financing in total annual financing, and

w d = the proportion of debt financing in total annual financing.

The cost of capital is a nominal rate because it includes anti cipated future inflation in the expected returns from stocks and bonds. The real discount rate or WACC deducts expected inflation ( r ) from the nominal rate. DOE calculated expected inflation (3. 55 percent ) over the

1974–2013 historical p eriod used for the other data calculations

. 19

To estimate the WACC of SPVU equipment purchasers, DOE randomly sampled from companies involved in each of the five types of business that are likely to use SPVU equipment. The sample was drawn from a database of U.S. companies g iven on the Damodaran Online individual company worksheet cited earlier. Th e Damodaran database includes most of the publicly traded companies in the United S tates. afd 

### RRk +=8- 28 Based on information from manufacturer interviews and periodic reports on the modular

build ings market from the Modular Buildings Institute cited in section 8.2.2.3

, DOE divided the

Damodaran

- reported companies into categories according to their type of activity. DOE used

financial information for all of the firms in the Damodaran database in five types of bu sinesses likely to use SPVU equipment.

Table 8.2.18 outlines the building type and ownership categories as well as the number of companies used for determining real discount rates.

Table 8.2.18 Derivation of Average Real Discount Rates by Bu siness Type

Business Type

Description Private State and Local

Government Federal

Government W eighte d

Discount

Rate No.

Obs.* WACC Percent

of Stock Muni

Bond

Rate Percent

of Stock Federal

Rate Percent

of

Stock

Health Care 5.81% 100.0% 2.44% 0% 2.59% 0.0% 5.81% 9

Education NA 0% 2.44% 100% 2.59% 0.0% 2.44% NA

Telecommunications 6.80% 100% 2.44% 0% 2.59% 0.0% 6.80% 53

Construction and Mining 7.06% 100% 2.44% 0% 2.59% 0.0% 7.06% 195

General Commercial, State

and Local Govt

Offices and Retail 6.66% 75% 2.44% 12.5% 2.59% 12.5% 5.62% 89

* Number of observations was not available for government. Typical values for the whole sector were used.

Data in the Damodaran database was representative of the private companies, but lacked data on cost of capital for public schools, state and local government, or the federal government.

A 40-y ear geometric mean of the Bond Buyer Go 20

- Bond Municipal Bond Index of state and local 20-year general obligation bonds, available from the Federal Reserve Bank of St. Louis

, 20

wa s used as the discount rate for public schools and state and local government. The previously

discussed 40- year geometric average yield on long

- term Federal government bonds was used for the Federal government. Both government rates were adjusted for long- term average inflation using the same rate (3. 55 percent) that was used for private industry.

8.2.3.7 Compliance Date of Standard

As discussed in section 8.1.2

, DOE assume d that the final rule would be issued in 2015 and, therefore, that the new standards would take effect in 2019. For the LCC analysis, the year of equipment purchase is 2019. H owever, all dollar values are expressed in 2013$.

8.2.3.8 Base-Case Distribution of Efficiency Levels

DOE used data from manufacturer interviews in a previous rulemaking for central unitary air conditioning (CUAC) to estimate the market distribution of SPVU equipment in 2012 d . DOE

d See DOE’s technical support document underlying DOE’s July 29, 2004 ANOPR. 69 FR 45460 (Available at www.regulations.gov/#!documentDetail;D=EERE

- 2006

- STD

- 0103

- 0078 ). SPVUs have only had EER standards since 2002, which was not long enough to establish an efficiency trend.8- 29 then used the trend derived from CUAC equipment ( EER improvement by 1 unit every 35 years), to project the base-case efficiency distribution to 2019. Table 8.2.19 summarizes the 2019

distribution. Details of the market share analysis are shown in appendix 8 D.

Table 8.2.19 Base- Case Distribution of Effici e ncy Levels for SPVU Equipment in 201 9

Equipment Class Efficiency Level and EER

Baseline 1 2 3 4

10 10.5 1 1

. 5 11.75 12.3

Percent

SPVAC < 65 kBtu/h 74.4 24.5 1.0 0.1 0

SPVHP < 65 kBtu/h 74.4 24.5 1.0 0.1 0

SPVAC 65

- 135 kBtu/h 100.0 N/A N/A N/A N/A

SPVHP 65

- 135 kBtu/h 100.0 N/A N/A N/A N/A

8.3 PAYBACK PERIOD INPUT S

8.3.1 Definition

P BP is the amount of time it takes the consumer to recover the 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 to the decrease in annual operating expenditures. This type of calculation is known as a “simple” PBP because i t does not take into account changes in operating cost over time or the time value of money; that is, the calculation is done at an

effective discount rate of zero percent.

The equ ation for PBP is:

PBP =∆ IC/ ∆O C Eq. 8.12

W here :

PB P

= payback period in years,

∆ IC = difference in the total installed cost between the more efficient standard level and the baseline equipment, and



### ∆ OC = difference in annual operating costs.

P BP s are expressed in years. P BPs greater than the life of the product mean that the increased total installed cost of the more efficient equipment is not recovered in reduced operating costs over the life of the equip ment

.

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 consumer’s final equ ipment price and the installation

cost. The inputs to the operating costs are the annual energy cost, the annual repair cost, and the

annual maintenance cost. The PBP calculation uses the same inputs as the LCC analysis

described in section 8.2 , except that electricity price trends and discount rates are not required because the PBP is a “simple” (undiscounted) payback and the required electricity price is only8- 30 for the year in which a new efficien cy standard is to take effect

— in this case, the year 2019, expressed in 2013$.

8.4 LIFE

- CYCLE COST AND PAYBACK PERIOD RESULTS

The results of the LCC and PBP analysis are presented in this section. Mean and median values of LCC savings and media n PBP are presented along with a summary of the distribution

of these values.

8.4.1 Life

- Cycle Cost Results

Figure 8.4.1 shows the variation in consumer LCC over the ASHRAE baseline and the

four higher efficiency levels for the SPVAC <65,000 Btu/h equipment class. The LCC values on

this chart are mean values ob tained from t he LCC analysis. This curve is an example to illustrate the typical relationship between installation cost and LCC values over all the efficiency level s in

an equipment class

. The installed costs increase steadily from the baseline to the high est possible efficiency level and the life

- cycle costs decrease from ASHRAE standard level ( baseline ) to

E fficiency L evel 2.

Figure 8.4.1 LCC and I nstalled C ost Variation over E fficiency L evels for SPVAC <65,000

Btu/h E quipment Class

As stated earlier, the LCC savings output obtained from the LCC analysis are in the form of distributions. LCC savings distributions are shown for the SPVAC <65 kBtu /h equipment

class in Figure 8.4.2 . Similar plots of LCC savings distribution are presented in appendix 8 B for all equipment classes analyzed. Table 8.4.1 presents the numerical values associated with the $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000

ASHRAE Baseline 1 2 3 4

Installed Cost Life Cylce Cost8- 31 plot in Figure 8.4.2

. Figure 8.4.2 illustrates the mean and median values on the plot with the help

of red and blue markers , respectively

. The elongated large rectangular box repre sent s the 25 th

and 75 th percentile values. The lower edge of the elongated rectangle represents the 25th percentile of the LCC savings distribution, which means that 25 percent of the customers would experience LCC losses of $27or more if the standard were set at Level 1, losses of $57 or below in LCC savings if the standard were set at Level 2, and so on. The m edian value of LCC savings is equal to the 50 th percentile. The upper edge of the elongated rectangle represents the 75 th percentile. The two ends of the vertical black line for each efficiency level represent the 5 th percentile (lower end) and 95 th percentile (upper end).

Mean and median LCC savings for all equipment class es analyzed are summarized in

Table 8.4.2 and Table 8.4.3

, respectively.

Figure 8.4.2 LCC Savings Distributions for All the Efficiency Levels for the Equipment

Class SPVAC < 65,000 Btu/h -2000 -1500 -1000

-500 0 500 1000 1500

1 2 3 4Life-cycle Cost Savings($)

Efficiency Level Mean Median8- 32 Table 8.4.1 LCC Savings D istribution R esults for E quipment C lass SP V AC <65,000Btu /h (2013$)LCC Savings*2013$ Efficiency Level 1 2 3 4

Mean 116 179 (24) (825)

Median (50 th Percentile) 60 79 (193) (1,042)

5 th Percentile (94) (183) (631) (1,584)

25 th Percentile (27) (57) (440) (1,363)

75 th Percentile 227 341 285 (415)

95 th Percentile 457 820 1,000 476

* Values in parentheses are negative values.

Table 8.4.2 Mean LCC Savings for All Equipment Classes and Efficiency Levels

Equipment Class Mean LCC Savings

2013 $ *

Level 1 Level 2 Level 3 Level 4

SPVAC < 65 kBtu/h 116 179 (24) (825)

SPVHP < 65 kBtu/h 358 424 819 (177)

Table 8.4.3 Median LCC Savings for All Equipment Classes and Efficiency Levels

Product Class Median LCC Savings

2013 $ *

Level 1 Level 2 Level 3 Level 4

SPVAC < 65 kBtu/h 60 79 (193) (1,042)

SPVHP < 65 kBtu/h 320 350 665 (315)

8.4.2 Payback Period Results

Figure 8.4.3 presents the distribution of the PBP results for Efficiency Level 1 to Efficiency Level 6 of the equipment class SPVAC <65,000 Btu/h. The numerical values associated with this plot are presen ted in Table 8.4.4

. The blue marker represents the median

PBP for each efficiency level. The lower edge of the elongated rectangular box represents the

25 th percentile , which means that 25 percent of the customers would experience a PBP of

4 years o r lower if the energy conservation standard were set at one level above the ASHRAE standard ( Level 1), 4.2 years or lower if the energy conservation standard were set at Level 2, and so on. The upper edge of the rectangular box represents the 75 th percentile. The two ends of the vertical line represent the 5 th percentile (lower end) and 95 th percentile (upper end).

Table 8.4.5 summarize s the median PBPs for all efficiency levels for all the analyzed equipment

classes.8- 33 Figure 8.4.3 Payback P eriod for A ll E fficiency L evels for the E quipment Class SPVAC <65,000 Btu/h

Table 8.4.4 Payback P eriod D istribution R esults for SPVAC <65,000 Btu/hPayback periodyears Efficiency Level Level 1 Level 2 Level 3 Level 4 Median (50th Percentile) 7.9 8.4 14.4 27.3

5th Percentile 2.4 2.5 3.8 6.4

25th Percentile 4.0 4.2 6.9 12.1

75th Percentile 13.9 14.7 27.3 59.8

95th Percentile 28.3 30.3 65.0 266.6

Table 8.4.5 Median Payback Period for All Equipment Classes and Efficiency Levels

Product Class Median Payback Period

years
Level 1 Level 2 Level 3 Level 4

SPVAC < 65 kBtu /h 7.9 8.4 14.4 27.3

SPVHP < 65 kBtu /h 4.1 4.8 6.2 13.6

8.4.3 Rebuttable Presumption Payback Period

EPCA establish es a rebuttable presumption. The rebuttable presumption states that a standard is economically justified if the Secretary finds that “the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure ...” This rebuttable presumption test is an alternative path to establishing economic justification. (42 U.S.C. 6295(o)(2)(B)(iii) )

To evaluate the rebuttable presumption, DOE estimated the additional cost of purchasing

more

- efficient, standard s-compliant equipment, and compared this cost to the value of the energy 0 50 100 150 200 250 300

1 2 3 4Payback Period (years)

Efficiency Level Median8- 34 saved during the first year of operation of the equipment. DOE interprets that the increased cost of purchasing standards-compliant equipment includes the cost of installing the equipment for use by the purchaser. DOE calculated the rebuttable presumption payback period (RPBP), or the ratio of the value of the increased installed price above the baseline efficiency level to the first year’s energy cost savings. When RPBP is less than 3 years, the rebuttable presumpti on is satisfied; when RPBP is equal to or more than 3 years, the rebuttable presumption is not

satisfied. Note that this PBP calculation does not include other components to the annual operating cost of the equipment ( i.e.

, maintenance costs and repair cos ts). The RPBPs calculated

can thus be different from the PBPs calculated in section 8.4.2

.

DOE calculated the RPBPs for the distribution of installed costs and energy prices

discussed in section s 8.4.1 and 8.4.2 , which are representative of the same three building types

and all 50 s tates plus the District of Columbia

. The RPBP was calculated for each h igher efficiency level within each equipment class

.

Table 8.4.6 shows the nationally averaged median RPBP s calculated for all equipment classes and efficiency levels.

Table 8.4.6 Rebuttable Presumption Payba ck Periods by Efficiency Level and Equipment

Class

Product Class Rebuttable Payback Period

years
Level 1 Level 2 Level 3 Level 4

SPVAC < 65 kBtu /h 4.7 4.9 7.8 13.3

SPVHP < 65 kBtu /h 3.2 4.0 4.8 9.5

8.5 DETAILED RESULTS

DOE presents detailed results f rom the LCC analysis in appendix 8B. Plots similar to Figure 8.4.2 and Figure 8.4.3 are presented in the appendix for all equipment classes. In addition, summary tables with all the necessary data in one table for each equipment class are presented.

Table 8.5.1 illustrates with the summary table for the SPVAC <65,000 Btu/h equipment class

. This table presents the mean values of installed costs, annual operating costs, LCC, LCC savings, and median PBP values for all the efficiency levels. It also presents the percentage of customers who experience net cost, no impact, and net benefit. The average LCC savings and the percentage of customers experiencing a net benefit or cost are based on a distribution of efficiency choices. In the base case, not all customers are assumed to be buying equipment at the baseline efficiency. Some are assumed to be buying at higher efficiency levels. Customers experiencing no impact were assumed in the base case to be already buying more efficient equipment, so the efficiency level in question would not affect them. The LCC savings is an average of the savings achieved by customers who, in the base case, were buying less efficient equipment than the efficiency level examined (shown in the column labeled Affected Customers’ Average Savings)

.8- 35 Table 8.5.1 Summary of R esults of LCC and PBP Analysis for SPVAC <65,000 Btu/h

E quipment Class

TSL Efficiency

Level Life

- Cycle Cost, All Customers Life

- Cycle Cost Savings Payback Period,

Median

years Installed

Cost

2013 $ Total

Discounted Operating

Cost

2013 $ LCC,

All

Customers

2013 $ Affected

Customers'

Average Savings

2013 $ * % of Customers that Experience

Net

Cost

% No Impact

% Net

Benefit

%

Baseline ( ASHRAE ) 4,795 12,335 17,130

1 1 4,939 12,074 17,013 116 25 26 49 7.9

2 2 5,083 11,839 16,922 179 37 1 62 8.4

3 3 5,546 11,578 17,123 (24) 62 0 38 14.4

4 4 6,407 11,516 17,924 (825) 87 0 13 27.3

* Values in parentheses are negative values.8- 36 REFERENCES

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