CHAPTER 8. LIFE­CYCLE COST AND PAYBACK PERIOD ANALYSIS

TABLE OF CONTENTS

CHAPTER 8. LIFE­CYCLE COST AND PAYBACK PERIOD ANALYSIS ........................................8­i

8.1 INTRODUCTION............................................................................................................... 8­1

8.1.1 General Approach for Life­Cycle Cost and Payback Period Analysis................ 8­1

8.1.2 Overview of Life­Cycle Cost and Payback Period Inputs................................... 8­2

8.2 LIFE­CYCLE COST INPUTS

............................................................................................ 8­5

8.2.1 Definition............................................................................................................. 8­5

8.2.2 Total Installed Cost Inputs................................................................................... 8­5

8.2.2.1 Baseline Manufacturer Selling Price

.................................................... 8­6

8.2.2.2 Standard­Level Manufacturer Selling Price Increases.......................... 8­7

8.2.2.3 Overall Markup..................................................................................... 8­9

8.2.2.4 Installation Cost

.................................................................................. 8­10

8.2.2.5 Weighted­Average Total Installed Cost.............................................. 8­12

8.2.3 Operating Cost Inputs........................................................................................ 8­15

8.2.3.1 Electricity Price Analysis.................................................................... 8­16

8.2.3.2 Electricity Price Trend

........................................................................ 8­19

8.2.3.3 Repair Cost.......................................................................................... 8­20

8.2.3.4 Maintenance Cost................................................................................ 8­20

8.2.3.5 Lifetime............................................................................................... 8­23

8.2.3.6 Discount Rate...................................................................................... 8­23

8.2.3.7 Effective Date of Standard.................................................................. 8­27

8.3 PAYBACK PERIOD INPUTS.......................................................................................... 8­27

8.3.1 Definition........................................................................................................... 8­27

8.3.2 Inputs

................................................................................................................. 8­27

8.4 LIFE­CYCLE COST AND PAYBACK PERIOD RESULTS

......................................... 8­28

8.4.1 Life­Cycle Cost Results..................................................................................... 8­28

8.4.1.1 Life­Cycle Cost Breakdown Based on Average Input Values............ 8­28

8.4.1.2 Differences in Life­Cycle Cost Between Baseline and StandardLevel Equipment................................................................................. 8­29

8.4.2 Payback Period Results...................................................................................... 8­31

8.4.3 Rebuttable Presumption Payback Period........................................................... 8­35

8.5 LCC SENSITIVY STUDIES

............................................................................................ 8­36

8.5.1 Sensitivity to Fuel Escalation Rate.................................................................... 8­36

8.5.2 Sensitivity to Baseline Efficiency Level............................................................ 8­38

8.6 DETAILED RESULTS

..................................................................................................... 8­41

REFERENCES

.......................................................................................................................... 8­42

8­iLIST OF TABLES

Table 8.1.1 Summary Information of Inputs for the Determination of Life­Cycle Cost

and Payback Period.............................................................................................. 8­4

Table 8.2.1 Inputs for Total Installed Costs............................................................................ 8­6

Table 8.2.2 Products Evaluated for the Commercial Refrigeration Equipment Standard

Life­Cycle Cost and Payback Period Analysis

.................................................... 8­7

Table 8.2.3 Baseline Efficiency Levels for Commercial Refrigeration Equipment

Considered in the Life­Cycle Cost and Payback Period Analysis....................... 8­8

Table 8.2.4 Baseline Manufacturer Selling Prices per Unit.................................................... 8­8

Table 8.2.5 Standard­Level Manufacturer Selling Price Increases......................................... 8­9

Table 8.2.6 Overall Baseline Markups by Distribution Channel and Overall Weighted

Average, Including the Weighted­Average Sales Tax for Supermarkets

.......... 8­10

Table 8.2.7 Overall Incremental Markups by Distribution Channel and Overall

Weighted Average, Including the Weighted­Average Sales Tax for

Supermarkets...................................................................................................... 8­10

Table 8.2.8 Installation Costs for Baseline Commercial Refrigeration Equipment Units.... 8­12

Table 8.2.9 Installation Cost Indices..................................................................................... 8­12

Table 8.2.10 Costs and Markups for Determination of Weighted­Average Total

Installed Costs for Supermarkets

....................................................................... 8­13

Table 8.2.11 Weighted­Average Equipment Price, Installation Cost, and Total Installed

Costs for Vertical Open Refrigerated Display Case, Remote Condensing,

Medium Temperature at U.S. Average Prices

................................................... 8­15

Table 8.2.12 Inputs for Operating Costs................................................................................. 8­16

Table 8.2.13 Estimated Commercial Electricity Prices by State

............................................ 8­17

Table 8.2.14 Derived Average Commercial Electricity Price by Business Type

................... 8­18

Table 8.2.15 Annualized Lighting Maintenance Costs for Each Efficiency Level

Addressed in the Life­Cycle Cost Analysis....................................................... 8­22

Table 8.2.16 Annualized Maintenance Costs for Baseline Efficient Commercial

Refrigeration Equipment.................................................................................... 8­23

Table 8.2.17 Discount Rates by Company and Ownership Category..................................... 8­26

Table 8.4.1 Distribution of Life­Cycle Cost Savings from a Baseline Level by

Efficiency Level................................................................................................. 8­31

Table 8.4.2 Average Life­Cycle Cost Savings from a Baseline Level by Efficiency

Level and Equipment Class

............................................................................... 8­32

Table 8.4.3 Summary of Payback Period Results for Vertical Open Display Case,

Remote Condensing, Medium Temperature, Efficiency Level 4

...................... 8­34

Table 8.4.4 National Average Payback Periods by Efficiency Level and Equipment

Class................................................................................................................... 8­35

Table 8.4.5 Rebuttable Presumption Payback Periods by Efficiency Level and

Equipment Class

................................................................................................ 8­36

Table 8.5.1 Average Life­Cycle Cost Savings from a Baseline Level by Efficiency

Level and Equipment Class

– EIA Low Growth Scenario

................................ 8­37

Table 8.5.2 Average Life­Cycle Cost Savings from a Baseline Level by Efficiency

Level and Equipment Class

– EIA High Growth Scenario................................ 8­38

8­iiTable 8.5.3 Sensitivity of Average Life­Cycle Cost Savings and Payback Period to

Selection of Baseline Efficiency Level ­­VCT.RC.M Equipment Class........... 8­39

LIST OF FIGURES

Figure 8.1.1 Flow Diagram of Inputs for the Determination of Life­Cycle Cost and

Payback Period..................................................................................................... 8­4

Figure 8.2.1 Cumulative Probability Distribution Showing the Electricity Prices Paid

by Grocery Store/Food Market Sector............................................................... 8­18

Figure 8.2.2 Electricity Price Trends for Commercial Rates to 2042

.................................... 8­19

Figure 8.4.1 Effect of the Change in Efficiency Level on Life­Cycle Cost for Vertical

Open Display Case, Remote Condensing, Medium Temperature in

Supermarkets at Average U.S. Conditions

........................................................ 8­29

Figure 8.4.2 Cumulative Chart of Life­Cycle Cost Savings for Vertical Open Display

Case, Remote Condensing, Medium Temperature: Efficiency Level 4

........... 8­30

Figure 8.4.3 Effect of the Change in Efficiency Level on Payback Period for Vertical

Open Display Case, Remote Condensing, Medium Temperature, in

Supermarkets at Average U.S. Conditions.

....................................................... 8­33

Figure 8.4.4 Cumulative Chart of Payback Period for Vertical Open Display Case,

Remote Condensing, Medium Temperature: Efficiency Level 4

..................... 8­34

Figure 8.5.1 Sensitivity of Payback Period to Baseline Efficiency Level

– VCT.RC.M

Equipment Class

................................................................................................ 8­40

Figure 8.5.2 Sensitivity of Payback Period to Baseline Efficiency Level

– VOP.RC.M

Equipment Class

................................................................................................ 8­40

8­iii8­ivCHAPTER 8. LIFE­CYCLE COST AND PAYBACK PERIOD ANALYSIS

8.1 INTRODUCTION

This chapter describes the analysis the U.S. Department of Energy (DOE) has carried out

to evaluate the economic impacts on individual consumers of possible energy efficiency

standards developed for commercial refrigeration equipment (CRE). The effect of standards on

individual consumers includes a change in operating cost (usually decreased) and a change in

purchase cost (usually increased). This chapter describes two metrics used in the customer

analysis to determine the effect of standards on individual commercial customers:

• Life­cycle cost (LCC)

. The total customer cost over the life of an appliance or equipment, 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 equipment.

• Payback period (PBP)

. The amount of time it takes customers to recover the assumed

higher purchase price of more energy efficient equipment through lower operating costs.

Inputs to the LCC and PBP analysis of commercial refrigeration equipment are discussed

in sections 8.2 and 8.3, respectively. Results for each metric are presented in sections 8.4.1 and

8.4.2, respectively. Key variables and calculations are presented for each metric. The

calculations discussed here were performed with a series of Microsoft Excel spreadsheets which

are accessible over the Internet (http://www.eere.energy.gov/buildings/appliance_standards/

commercial _products.html).

Details and instructions for using the spreadsheets are discussed in appendix E. A more

complete set of results is presented in appendix G.

8.1.1 General Approach for Life­Cycle Cost and Payback Period Analysis

Recognizing that each commercial building that uses the commercial refrigeration

equipment is unique, DOE analyzed variability and uncertainty by performing the LCC and PBP

calculations detailed here for two prototype commercial buildings (stores) and four types of

businesses (two types of businesses for each prototype store). The first store prototype is a

“large” grocery store, which encompasses (1) supermarkets and (2) wholesaler/retailer multi­line

stores, such as “big­box,” “warehouse,” and “supercenters.” The second prototype is a “small”

store, which encompasses (1) convenience and small specialty stores, such as meat markets,

wine, beer, and liquor stores; and (2) convenience stores associated with gasoline stations.

Within a given prototype of stores, one CRE unit of various types can serve the store’s

refrigeration needs. The LCC and PBP model was developed using Microsoft Excel

spreadsheets.

Aside from the relationship between increasing selling price and increasing energy

efficiency, the most important factors influencing the LCC and PBP analysis are related to the

State to which each CRE unit is shipped. These factors include energy prices, installation cost,

markup, and sales tax. The LCC analysis presented here used the predicted energy consumption

based on the engineering analysis and reviewed in chapter 7, Energy Use Characterization.

8­1Energy consumption of commercial refrigeration equipment calculated using this approach is not

sensitive to climatic conditions, so energy consumption in the LCC analysis is not assumed to

vary by geographical location. Analysis presented in chapter 5, Engineering Analysis, and

chapter 7, Energy Use and Load Characterization, explores variation in energy consumption for

commercial refrigeration equipment by climate. At the national level, the spreadsheets explicitly

modeled variability in the model inputs for electricity price and markups using probability

distributions based on the shipment of units to different states and business types.

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

baseline conditions, which for purposes of the advance notice of proposed rulemaking (ANOPR)

are the Level 1 efficiency level (see section 8.2.2.1 for a description of the efficiency levels).

Results are presented at the end of this chapter and in appendix G of the technical support

document (TSD). A variety of graphic displays can be created to illustrate the implications of

the analysis. Examples of graphic displays are a cumulative probability distribution showing the

percentage of CRE units in U.S. commercial buildings that would experience a net savings at

each efficiency level, and a frequency chart depicting variation in life­cycle cost for each CRE

efficiency level considered.

8.1.2 Overview of Life­Cycle Cost and Payback Period Inputs

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

and operating cost (including energy cost). Future operating costs are discounted to the time of

purchase and summed over the lifetime of the equipment. The PBP is the change in purchase

cost due to an increased efficiency standard divided by the change in annual operating cost that

results from the standard. It represents the number of years it will take the customer to recover

the increased purchase cost through decreased operating costs. In the calculation of PBP, future

costs are not discounted.

Inputs to the LCC and PBP analysis are categorized as follows: inputs for establishing

the purchase cost, otherwise known as the total installed cost; and 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 : Baseline manufacturer selling price is the price

charged by the manufacturer to either a wholesaler or customer for equipment meeting

existing minimum efficiency (or baseline) standards. The manufacturer selling price

includes a markup that converts the cost (i.e., the manufacturer cost) to a manufacturer

selling price.

• Standard­level manufacturer selling price increase : Standard­level manufacturer selling

price increase is the incremental change in manufacturer selling price associated with

producing equipment at each of the higher standard levels.

• Markups and sales tax : Markups and sales tax are the markups and sales tax associated

with converting the manufacturer selling price to a customer price. The markups and

sales tax are described in detail in chapter 6, Markups for Equipment Price

Determination.

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

equipment. The installation price represents all costs required to install the equipment

but does not include the marked­up customer equipment price. The installation price

includes labor, overhead, and any miscellaneous materials and parts. Thus, the total

installed cost equals the customer equipment price plus the installation price.

The primary inputs for calculating the operating cost are:

• Equipment energy consumption : The equipment energy consumption is the site energy

use associated with the use of the commercial refrigeration equipment. Although there

are potentially some interactive effects on the overall heating and cooling of the building,

for purposes of the ANOPR the LCC analysis includes only the use of electricity by the

equipment itself. This approach is consistent with most other DOE equipment efficiency

rulemakings. Analysis results from whole building simulation of supermarkets suggest

that the overall impact of the design options for the refrigerated cases when taken

together did not significantly affect the HVAC energy consumption. Details on the

refrigeration equipment energy use simulations and their results are provided in chapter

7, Energy Use Characterization.

• Electricity prices : Electricity prices used in the analysis are the price per kilowatt­hour in

cents or dollars (e.g., $/kWh) paid by each customer for electricity. Electricity prices are

determined using average commercial electricity prices in each State, as determined from

Energy Information Administration (EIA) data for 2003. These prices were then

estimated for 2006 in two steps. First, they were ratioed from 2003 to 2005 values using

average national commercial electricity prices for 2003 and 2005. Second, they were

estimated for 2006 using the EIA national commercial electricity reference price

forecasts for 2005 and 2006. The 2006 average commercial prices derived were modified

to reflect the fact that the four types of businesses analyzed pay prices that on average are

either slightly higher or lower than the average commercial prices. Details on the

development of electricity prices and the data sources used are found in Section 8.2.3.1.

• Electricity price trends : The EIA’s Annual Energy Outlook 2006 1 (AEO 2006) is used to

forecast electricity prices. For the results presented in this chapter, DOE used the AEO

2006 reference case to forecast future electricity prices.

• Maintenance costs : The labor and materials costs associated with maintaining the

operation of the equipment (e.g., cleaning heat exchanger coils, checking refrigerant

charge levels, lamp replacement).

• Repair costs : The labor and materials costs associated with repairing or replacing

components that have failed.

• Lifetime : The age at which the commercial refrigeration equipment is retired from

service.

• Discount rate : The rate at which future costs 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. Table 8.1.1 summarizes the values for the

8­3Installation Costs Installation Costs

Repair Costs Repair Costs Lifetimes Lifetimes Annual Maintenance Electricity

Consumption

Electricity

Consumption

Manufacturer Base

Price

Total Installed Cost

(Std i Base) Manufacturer Base

Price

Contractor Markups

Markups Wholesaler/

Distributor Markup

Electricity Prices National Account

Markup Equipment Prices

Sales Tax

Manufacturer Base

Price

Installation Costs Manufacturer Std 1

Base Price Manufacturer Std 1

Base Price

Manufacturer Price

Standard i 1...n

Electricity

Consumption Annual Energy Costs

Annual Maintenance

Repair Costs Annual Operating

Cost (Std i Base) Payback

Period

Discount Rate

Lifetimes Lifetime

Operating

Cost (Std

i Base) Lifecycle

Cost

Annual Maintenance

Costs Installation Costs Installation Costs

Repair Costs Repair Costs Lifetimes Lifetimes Annual Maintenance Electricity

Consumption

ec r c y

onsumption Manufacturer Base

Price Manufacturer Base

Price

Markups Manufacturer Std 1

Base Price Manufacturer Std 1

Base Price

Annual Maintenance various inputs to the calculation of the LCC and PBP. As noted earlier, most of the inputs are

characterized by probability distributions that capture variability in the input. The values

provided in Table 8.1.1 are the weighted­average values from the distribution that is being used

to characterize the input. Also listed in Table 8.1.1 are chapters in the TSD where more detailed

information on the input can be found.

– =

Contractor Markups Wholesaler/

Distributor Markup

National Account

Markup

Sales Tax

­

– El t i it

C Total Installed Cost

(Std i Base)

Electricity Prices Equipment Prices

Manufacturer Base

Price

Installation Costs Manufacturer Price

Standard i= 1...n

Electricity

Consumption Annual Energy Costs

Repair Costs Annual Operating

Cost (Std i ­ Base) Payback

Period

Discount Rate

Lifetimes Lifetime

Operating

Cost (Std

i – Base) Lifecycle

Cost

Annual Maintenance

Costs

Figure 8.1.1 Flow Diagram of Inputs for the Determination of Life­Cycle Cost and

Payback Period

Table 8.1.1 Summary Information of Inputs for the Determination of Life­Cycle Cost and

Payback Period

Factor Weighted­Average Value TSD Reference Section

Total Installed Cost Primary Inputs

Baseline manufacturer selling price Varies with product Chapter 5

Standard­level manufacturer selling

price increases Varies with product and

efficiency level Chapter 5

Markups and sales tax Varies with distribution channel

and location Chapter 6

Installation price Varies with location Chapter 8

Operating Cost Primary Inputs

Equipment energy consumption Varies with product Chapter 7

Electricity prices Vary with location, building type Chapter 8

Electricity price trends Vary with price scenario Chapter 8

Maintenance costs Varies with product Chapter 8

Repair costs Varies with product Chapter 8

Lifetime Assumed to be 10 years Chapters 3, 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

sections 8.2 and 8.3.

8­48.2 LIFE­CYCLE COST INPUTS

8.2.1 Definition

Life­cycle cost is the total customer cost over the life of a piece of equipment, including

purchase cost and operating costs (which are comprised 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. Life­cycle cost is defined by the following equation:

N

LCC

= IC + 

# ∑ OC

t /(1 + r ) t Eq. 8.1

t = 1

where

LCC

= life­cycle 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,

t = year for which operating cost is being determined.

Because DOE gathered most of its data for the LCC analysis in 2006, DOE expresses all

the costs in 2006$. 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

2012.

8.2.2 Total Installed Cost Inputs

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

IC

= EQP + INST Eq. 8.2

where

EQP

= equipment price (i.e., customer price for the equipment only), expressed in

dollars,

INST

= installation cost or the customer price to install equipment (i.e., the cost for

labor and materials), also in dollars.

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

purchases the equipment. As discussed in chapter 6, Markups for Equipment Price

Determination, DOE defined three types of distribution channels to describe how the equipment

passes from the manufacturer to the customer: the manufacturer sells the equipment to a

wholesaler, who in turn sells it to the consumer; the manufacturer sells the equipment to a

wholesaler/distributor, who sells to a mechanical contractor, who purchases the equipment on

8­5behalf of the consumer; and the manufacturer sells the equipment directly to the consumer

through a national account.

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

calculate the total installed cost for commercial refrigeration equipment. Table 8.2.1 shows

inputs for the determination of total installed cost.

Table 8.2.1 Inputs for Total Installed Costs

Baseline manufacturer selling price ($)

Standard­level manufacturer selling price increases ($)

Wholesaler markup

Mechanical contractor markup

National accounts markup

Sales tax ($)

Installation cost ($)

8.2.2.1 Baseline Manufacturer Selling Price

The baseline manufacturer selling price is the price charged by manufacturers to either a

wholesaler/distributor or a very large customer for equipment meeting existing minimum

efficiency (or baseline) standards. The manufacturer selling price includes a markup that

converts the cost to manufacture (i.e., the manufacturing cost) to a manufacturer selling price.

DOE developed the baseline manufacturer selling prices through an efficiency level analysis

supplemented by certain design option considerations. Refer to chapter 5, Engineering Analysis,

for details. DOE developed manufacturer selling prices for equipment classes within ten

possible equipment families, with two possible modes of CRE operation (remote condensing and

self­contained) and three possible rating temperatures. Not all possible equipment classes have

significant actual shipments (see chapter 3, Market and Technology Assessment). The LCC and

PBP have been carried out on a set of 15 equipment classes identified in chapter 5. Table 8.2.2

shows the set of 15 equipment classes that DOE evaluated.

DOE was not able to identify a voluntary or industry standard that provided a minimum

baseline efficiency requirement or maximum energy consumption level for commercial

refrigeration equipment. Although it has been informally reported by the industry that the actual

shipments of commercial refrigeration equipment for many of the equipment classes cover a

range of efficiencies, no data were identified or made available to DOE. DOE does not have

actual shipment data for the various equipment classes by efficiency level and therefore could

not define a baseline efficiency level that accurately reflects shipments that may occur across all

efficiency levels. Accordingly, for the ANOPR, DOE selected the lowest efficiency equipment

(Level 1) from the engineering analysis and designated it as the baseline efficiency for the lifecycle cost analysis (Table 8.2.3). The design options incorporated in the Level 1 efficiency level

reflected input from CRE manufacturer interviews.

8­6Table 8.2.2 Products Evaluated for the Commercial Refrigeration Equipment Standard

Life­Cycle Cost and Payback Period Analysis

Description (Equipment Family. Operating Mode. Temperature) Symbol *

Vertical Open.Remote Condensing.Medium Temperature VOP.RC.M

Vertical Open.Remote Condensing.Low Temperature VOP.RC.L

Vertical Open.Self Contained.Medium Temperature VOP.SC.M

Vertical Closed Transparent.Remote Condensing.Medium Temperature VCT.RC.M

Vertical Closed Transparent.Remote Condensing.Low Temperature VCT.RC.L

Vertical Closed Transparent.Self Contained.Ice Cream Temperature VCT.SC.I

Vertical Closed Solid.Self Contained.Ice Cream Temperature VCS.SC.I

Semi­Vertical Open.Remote Condensing.Medium Temperature SVO.RC.M

Semi­Vertical Open.Self Contained.Medium Temperature SVO.SC.M

Service Over Counter.Remote Condensing.Medium Temperature SOC.RC.M

Horizontal Open.Remote Condensing.Medium Temperature HZO.RC.M

Horizontal Open.Remote Condensing.Low Temperature HZO.RC.L

Horizontal Open.Self Contained.Medium Temperature HZO.SC.M

Horizontal Open.Self Contained.Low Temperature HZO.SC.L

* Equipment class designations consist of a combination (in sequential order separated by periods) of a equipment family code (VOP=vertical

open, SVO=semivertical open, HZO=horizontal open, VCT=vertical transparent doors, VCS=vertical solid doors, HCT=horizontal transparent

doors, HCS=horizontal solid doors, or SOC=service over counter), an operating mode code (RC=remote condensing or SC=self­contained), and

a rating temperature code (M=medium temperature (38°F), L=low temperature (0°F), or I=ice­cream temperature (­15°F)). For example,

"VOP.RC.M refers to the "vertical open, remote condensing, medium temperature" equipment class. See chapter 3, market and technology

assessment, for a more detailed explanation of the equipment class terminology

Table 8.2.4 shows baseline manufacturer selling prices as developed in the engineering

analysis. For the remote­condensing equipment for which the Air­Conditioning and

Refrigeration Institute (ARI) provided cost­efficiency data, this was the equipment in each

reported equipment class with the highest energy use for similarly sized products within the

class. DOE believes that this may approximate the highest energy consuming (least efficient)

equipment of those equipment classes actually shipped. For the equipment for which DOE

performed a design option analysis as the basis of its engineering analysis, DOE designated the

highest­energy­use equipment as Level 1, and selected this as the baseline equipment.

8.2.2.2 Standard­Level Manufacturer Selling Price Increases

The standard­level manufacturer selling price increase is the change in manufacturer

selling price associated with producing equipment at higher efficiency levels associated with

higher standards. DOE developed manufacturer selling price increases associated with increases

in equipment efficiency levels through a combination of efficiency level and design option

analyses. Refer to chapter 5, Engineering Analysis, for details. Manufacturer selling price

increases as a function of equipment efficiency were developed for each of the 15 equipment

classes. Although DOE’s engineering analysis produced up to eleven efficiency levels,

depending on equipment type, only up to eight selected efficiency levels were used in the LCC

and PBP analysis. Appendix F discusses the selection of efficiency levels for the LCC and PBP

analysis.

8­7Table 8.2.3 Baseline Efficiency Levels for Commercial Refrigeration Equipment

Considered in the Life­Cycle Cost and Payback Period Analysis

Equipment Type Baseline Energy Consumption

(kWh/day)

Vertical Open.Remote Condensing.Medium (VOP.RC.M) 58

Vertical Open.Remote Condensing.Low (VOP.RC.L) 131

Vertical Open.Self Contained.Medium (VOP.SC.M) 38

Vertical Closed Transparent.Remote Condensing.Medium (VCT.RC.M) 35

Vertical Closed Transparent.Remote Condensing.Low (VCT.RC.L) 69

Vertical Closed Transparent.Self Contained. Ice Cream (VCT.SC.I) 63

Vertical Closed Solid.Self Contained.Very Low (VCS.SC.I) 24

Semi­Vertical Open.Remote Condensing.Medium (SVO.RC.M) 42

Semi­Vertical Open. Self Contained.Medium (SVO.SC.M) 29

Service Over Counter.Remote Condensing.Medium (SOC.RC.M) 49

Horizontal Open.Remote Condensing.Medium (HZO.RC.M) 8

Horizontal Open.Remote Condensing.Low (HZO.RC.L) 38

Horizontal Open.Self Contained.Medium (HZO.SC.M) 9

Horizontal Open.Self Contained.Low (HZO.SC.L) 25

Horizontal Closed Transparent.Self Contained.Ice Cream (HCT.SC.I) 8

Table 8.2.4 Baseline Manufacturer Selling Prices per Unit

Equipment Type Baseline Manufacturer Selling

Price (2006$)

Vertical Open.Remote Condensing.Medium (VOP.RC.M) $3,944

Vertical Open.Remote Condensing.Low (VOP.RC.L) $6,636

Vertical Open.Self Contained.Medium (VOP.SC.M) $2,438

Vertical Closed Transparent.Remote Condensing.Medium (VCT.RC.M) $6,546

Vertical Closed Transparent.Remote Condensing.Low (VCT.RC.L) $6,664

Vertical Closed Transparent.Self Contained. Ice Cream (VCT.SC.I) $5,368

Vertical Closed Solid.Self Contained.Very Low (VCS.SC.I) $3,024

Semi Vertical Open.Remote Condensing.Medium (SVO.RC.M) $3,890

Semi Vertical Open. Self Contained.Medium (SVO.SC.M) $1,980

Service Over Counter.Remote Condensing.Medium (SOC.RC.M) $7,960

Horizontal Open.Remote Condensing.Medium (HZO.RC.M) $3,922

Horizontal Open.Remote Condensing.Low (HZO.RC.L) $4,134

Horizontal Open.Self Contained.Medium (HZO.SC.M) $1,630

Horizontal Open.Self Contained.Low (HZO.SC.L) $2,069

Horizontal Closed Transparent.Self Contained.Ice Cream (HCT.SC.I) $1,047

The engineering analysis established a distribution of manufacturer selling price increases

for each standard level. Table 8.2.5 summarizes the estimated manufacturer selling price

increases for CRE standard levels considered in the LCC and PBP analysis.

8­8Table 8.2.5 Standard­Level Manufacturer Selling Price Increases (Price Increases Relative

to the Price of Level 1 Equipment)

Increase in Manufacturer Selling Price by Efficiency Level

Equipment Type Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M $339.79 $480.23 $636.14 $1,005.24 $1,226.70 $1,479.34 $1,835.12

VOP.RC.L $82.70 $282.17 $577.32 $615.35 $1,146.54 NA* NA

VOP.SC.M $72.86 $90.58 $119.08 $196.29 $274.23 $526.15 $991.84

VCT.RC.M $41.62 $71.15 $142.39 $209.78 $1,260.62 $2,111.55 NA

VCT.RC.L $259.07 $433.20 $622.04 $1,054.59 $1,304.51 $1,582.53 $2,261.74

VCT.SC.I $45.47 $125.42 $179.97 $261.59 $1,062.23 $1,357.03 $1,924.31

VCS.SC.I $17.72 $74.22 $116.96 $128.77 $157.16 $185.66 $278.29

SVO.RC.M $160.20 $280.20 $412.40 $559.20 $723.20 $947.20 NA

SVO.SC.M $61.81 $67.71 $81.96 $137.55 $164.48 $345.85 $522.91

SOC.RC.M $70.89 $241.86 $305.24 $393.74 $1,279.06 $1,646.02 NA

HZO.RC.M $23.63 $80.62 $110.23 NA NA NA NA

HZO.RC.L $43.24 $144.21 $255.30 $377.66 $457.47 NA NA

HZO.SC.M $5.91 $39.50 $53.74 $59.65 $81.03 $95.28 $165.04

HZO.SC.L $5.91 $48.04 $116.90 $131.15 $137.05 $274.52 $288.76

HCT.SC.I $22.76 $28.67 $139.87 $169.65 $183.90 NA NA

* NA means that no efficiency level was designated; e.g., SVO.RC.M had only seven efficiency levels and HZO.RC.L had only six.

8.2.2.3 Overall Markup

For a given distribution channel, the overall markup is the value determined by

multiplying all the associated retail markups and the applicable sales tax markup together to

arrive at a single overall distribution chain markup value. The overall markup in turn is

multiplied by the baseline or standard­level manufacturer selling price to arrive at the price paid

by the customer. Because there are baseline and incremental markups associated with the

wholesaler and mechanical contractor, the overall markup is also composed of a baseline markup

(i.e., a markup used to convert the baseline manufacturer selling price into a customer price) and

an incremental markup (i.e., a markup used to convert a standard­level manufacturer selling price

increase due to an increase in rated efficiency into an incremental customer price).

As discussed in chapter 6, Markups for Equipment Price Determination, DOE based

overall markups on one of three distribution channels, as well as whether the equipment is being

purchased for the new construction or the replacement market. DOE based a distribution

channel on whether equipment is purchased either through a wholesaler/distributor, mechanical

contractor, or national account.

Based on input received by DOE, approximately 7 percent of equipment purchased by

end­use customers is from wholesaler/distributors, 7 percent is from mechanical contractors, and

86 percent is through national accounts. DOE’s understanding is that most existing equipment

replacements are done through store remodels (as opposed to equipment failure), and that the

distribution channels and installation process are similar for the new and replacement markets.

DOE has assumed that the fraction of equipment purchased through the distribution channels is

the same for new and replacement equipment. With three distribution channels, there are a total

of six overall baseline and incremental markups possible. Table 8.2.6 and Table 8.2.7 present all

8­9six sets of overall markups and their associated components for the baseline and incremental

markups, respectively, for supermarkets. DOE calculated similar tables for the three other

building types.

Based on the percentages of the market attributed to each of the three distribution

channels, Table 8.2.6 and Table 8.2.7 present weighted­average overall markups. The overall

weighted­average baseline markup for supermarkets equals 1.389, while the overall weightedaverage incremental markup equals 1.152. The overall weighted­average incremental markup is

applied only to the increase in manufacturer selling price associated with higher efficiency

levels. See chapter 6 for details.

Table 8.2.6 Overall Baseline Markups by Distribution Channel and Overall Weighted

Average, Including the Weighted­Average Sales Tax for Supermarkets

Wholesaler Mechanical

Contractor (Includes

Wholesaler) National Account

(Mfg Direct) Overall

Weighted

Average

Distributor(s) Markup 1.436 2.182 1.218 1.301

Sales Tax Markup 1.068 1.068 1.068 1.068

Total Markup 1.533 2.330 1.300 1.389

Table 8.2.7 Overall Incremental Markups by Distribution Channel and Overall Weighted

Average, Including the Weighted­Average Sales Tax for Supermarkets

Wholesaler Mechanical

Contractor (Includes

Wholesaler) National Account

(Mfg Direct) Overall

Weighted

Average

Distributor(s) Markup 1.107 1.362 1.054 1.079

Sales Tax Markup 1.068 1.068 1.068 1.068

Total Markup 1.182 1.454 1.125 1.152

8.2.2.4 Installation Cost

Most refrigerated display cases are installed in fairly standard configurations, which helps

in estimating the cost of installation. For example, supermarkets commonly configure such

display cases as part of a “lineup” of similar cases. Horizontal open cases are commonly

installed as single units placed in appropriate store locations. Self­contained cases are used for

portable or temporary product displays, or sometimes used as end­caps of aisles.

Typical steps in the installation of refrigerated display cases in a lineup are as follows: 2

• Move new case to lineup position in store;

• Position case in lineup, providing shims for vertical spacing as needed;

• Caulk or seal adjacent cases together;

• Bolt adjacent cases together;

• Trim cases together for good visual look (installing bumpers and covering seams);

• Braze refrigerant lines as necessary to system piping (already in place);

8­10• If hot gas defrost is used, braze hot gas defrost refrigerant lines as necessary to defrost

piping (already in place);

• Provide electrical conduit and tie­in electrical connections to case;

• Install display lamps; and

• Set refrigerant and defrost control settings.

Note that final operational testing of cases is undertaken after initial installation of all

cases in a lineup and refrigerant is piped to each case.

The installation cost is the price to the customer of labor and materials (other than the

actual equipment) needed to install the refrigeration equipment. DOE derived installation costs

for commercial refrigeration equipment from data provided in RS Means Mechanical Cost Data. 3

RS Means provides estimates on the person­hours required to install commercial refrigeration

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 person­hours by the

corresponding labor rate. RS Means provides specific person­hour and labor rate data for the

installation of so­called “mercantile equipment” (equipment category 11100), which includes

refrigeration units. Labor rates vary significantly from region to region of the country and the

RS Means data provide the necessary information to capture this regional variability. RS Means

provides cost indices that reflect the labor rates for 295 cities in the United States. Several cities

in all 50 states and the District of Columbia are identified in the RS Means data. DOE

incorporated these cost indices into the analysis to capture variation in installation cost,

depending on the location of the customer.

Since data were not available to indicate how installation costs actually vary with CRE

type or efficiency level, DOE considered two scenarios where installation costs either varied in

direct proportion to the cost of the equipment, or remained flat (not varying with cost of the

equipment). For the former scenario, the life­cycle cost analysis developed linear relationships

of installation cost as a function of equipment efficiency level for CRE units. Thus, under this

scenario, installation costs varied linearly with equipment efficiency level.

Table 8.2.8 summarizes the nationally representative person­hours and labor rates

associated with the installation of CRE units as presented in RS Means: Mechanical Cost Data

28th Annual Edition (2005)

. Table 8.2.8, provides both bare installation costs (i.e., costs before

overhead and profit (O&P)), and installation costs including O&P. The basis for the installation

costs are 2005 bare labor costs (assumed to be the same cost in 2006) for installation of

mercantile equipment, plus overhead and profit. Daily rates were for a RS Means Q5 installation

crew, divided by 3 units of daily output for remote refrigeration equipment, 3.9 units for selfcontained refrigeration equipment. Remote­condensing operating mode units thus cost about

one­third (30 percent) more than self­contained units to install. Available information suggests

that all baseline units in a given product operating mode (remote condensing or self­contained)

have the same baseline installation costs. DOE decided that the installation costs, including

O&P, represent the installation costs for baseline units. Also, the installation costs used in the

ANOPR remain fixed regardless of efficiency level (a “flat” installation cost scenario).

However, the LCC spreadsheet allows for the alternative scenario—that the installation cost

8­11increases with higher efficiency levels—and this alternative was implemented in the LCC

spreadsheet by providing for an installation price that varies in proportion to increased

manufacturer cost above the baseline level. DOE did not however find a basis for the latter

view.

Table 8.2.8 Installation Costs for Baseline Commercial Refrigeration Equipment Units

System Type PersonHours Labor Base Costs (2006$) Labor Plus O&P (2006$)

Labor Rate Cost Labor Rate Cost

Remote Condensing Equipment 5.333 $36.85 $196.52 $55.38 $295.34

Self­Contained Equipment 4.103 $36.85 $151.20 $55.38 $227.22

Table 8.2.9 summarizes the cost indices for installations in each of the 50 states, plus the

District of Columbia, used to vary the nationally representative installation costs in Table 8.2.8.

To arrive at an average index for each state, DOE first weighted the city indices in each

state by their population within the state. DOE used population weights for the year 2000 from

the U.S. Census Bureau to calculate a weighted­average index for each state from the R.S.

Means data. For each business type (e.g. supermarkets) being examined, these state indices are

then renormalized based on the proportion of sales to each state for a given business type.

8.2.2.5 Weighted­Average 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 manufacturer selling price by the baseline markup and adding to it the

product of the incremental manufacturer selling price and the incremental markup. Because

manufacturer selling prices, markups, and the sales tax 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 single­point value, but rather a distribution of values.

Table 8.2.9 Installation Cost Indices (National Value = 100.0)

State Index State Index State Index

Alabama 65.4 Kentucky 73.2 North Dakota 67.0

Alaska 117.1 Louisiana 60.9 Ohio 103.0

Arizona 79.1 Maine 76.9 Oklahoma 67.3

Arkansas 53.7 Maryland 92.1 Oregon 115.3

California 123.8 Massachusetts 123.1 Pennsylvania 128.5

Colorado 88.3 Michigan 112.3 Rhode Island 120.9

Connecticut 111.7 Minnesota 122.8 South Carolina 42.6

Delaware 125.1 Mississippi 41.6 South Dakota 40.1

Dist. of Columbia 97.7 Missouri 104.0 Tennessee 75.2

Florida 64.8 Montana 80.9 Texas 66.7

Georgia 67.3 Nebraska 83.7 Utah 76.6

Hawaii 126.6 Nevada 113.1 Vermont 73.6

Idaho 78.5 New Hampshire 91.9 Virginia 70.8

Illinois 129.1 New Jersey 132.3 Washington 109.8

Indiana 91.7 New Mexico 78.3 West Virginia 93.5

Iowa 85.6 New York 166.3 Wisconsin 99.3

Kansas 75.0 North Carolina 46.4 Wyoming 56.4

8­12As an example, the weighted­average costs for the VOP.RC.M equipment class are

presented for the baseline level at national average markup rates and national average installation

costs. The section also applies the corresponding incremental values to provide an indication of

the increase in the total installed cost due to an increase in rated energy efficiency.

Derivation of the total installed cost is straightforward. The baseline manufacturer

selling price and the standard­level manufacturer selling price increases are the starting points for

determining the total installed cost (values are taken directly from Table 8.2.4 and Table 8.2.5).

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

convert the manufacturer selling prices into total installed costs for a case where the incremental

installation costs are held flat. Table 8.2.10 summarizes the weighted average or mean costs and

markups necessary for determining the weighted­average baseline and standard­level total

installed costs for supermarkets as an example.

Table 8.2.10 Costs and Markups for Determination of Weighted­Average Total Installed

Costs for Supermarkets (Vertical Open, Remote Condensing, Medium

Temperature Case)*

Variable Weighted Average or Mean Value

Baseline Manufacturer selling price $3944

Standard­Level Manufacturer Selling Price Increase (Efficiency Level 4) $636

Overall Markup Factor–Baseline 1.389

Overall Markup Factor–Incremental 1.152

Installation Cost–Baseline $295

Installation Cost Factor 0.99 **

* Incremental installation costs held flat

** National incremental cost index on a sales­weighted national basis is not quite equal to 1.00.

To illustrate the derivation of the weighted­average total installed cost shown in

Table 8.2.10, DOE presents the calculation below for the baseline (Level 1) and for a higher

efficiency level (Level 4) vertical open remote­condensing medium temperature equipment class

(VOP.RC.M). For the baseline product, the calculation of the total installed cost at national

average conditions is as follows:

IC BASE VOP.RC.M = EQP BASE­ VOP.RC.M +INST BASE­ VOP.RC.M x ISTINDEX Eq. 8.3

= MFG BASE­ VOP.RC.M x MU BASE­ VOP.RC.M + INST BASE­VOP.RC.M x

ISTINDEX

= $3944 x (1.389) + $295 x (0.99)

= $5478 + $295 x (0.99)

= $5773

8­13where

IC

= total installed cost, expressed in dollars,

EQP

= equipment price, expressed in dollars,

INST

= installation cost or the customer price to install equipment, expressed in dollars,

MFG

= manufacturer selling price, expressed in dollars,

MU

= markup.

In this specific example, MFG is the national average baseline manufacturer selling price

for the VOP.RC

. M equipment class and MU is the overall baseline markup. The calculation of

the higher efficiency level 4 total installed cost includes the use of a manufacturer selling price

adder. In addition, DOE derived an incremental markup.

In view of incremental equipment price changes, DOE based the derivation of the Level 4

total installed cost on determining the change in equipment price over the baseline equipment

price. The manufacturer selling price increment for a higher efficiency level is multiplied times

the incremental markup.

DOE calculated the Level 4 total installed cost ( IC VOP.RC.M LEVEL4 ) as follows:

IC

VOP.RC.M LEVEL4 = EQP

VOP.RC.M LEVEL1 + �EQP

VOP.RC.M LEVEL4 + INST

VOP.RC.M LEVEL4 Eq. 8.4

= MFG

BASE VOP.RC.M x MU

BASE VOP.RC.M + �MFG

VOP.RC.M LEVEL4

x MU

VOP.RC.M LEVEL4 + INST x ISTINDEX

= $3944 x (1.389) + $636 x (1.152) + $295 x (0.99)

= $6502

where

IC

= total installed cost, expressed in dollars,

EQP

= equipment price, expressed in dollars,

INST

= installation cost or the customer price to install equipment, expressed in dollars,

MFG

= manufacturer selling price, expressed in dollars,

MU

= markup,

ISTINDEX

= location dependent multiplier on installation costs, but approximately 1.0 at

a national average.

Table 8.2.11 presents the weighted­average equipment price, installation costs, and total

installed costs for the VOP.RC.M equipment classes at the baseline level and each higher

efficiency level examined.

8­14Table 8.2.11 Weighted­Average Equipment Price, Installation Cost, and Total Installed

Costs for Vertical Open Refrigerated Display Case, Remote Condensing,

Medium Temperature at U.S. Average Prices (2006$)

Efficiency

Level Equipment

Price Installation

Cost Total

Installed

Cost

1 (Baseline) $3,944 $292 $5,769

2 $4,284 $292 $6,160

3 $4,424 $292 $6,322

4 $4,580 $292 $6,502

5 $4,949 $292 $6,927

6 $5,171 $292 $7,182

7 $5,423 $292 $7,473

8 $5,779 $292 $7,883

8.2.3 Operating Cost Inputs

DOE based the operating cost for the LCC analysis on energy consumption data

developed from whole­building simulations on a sample of buildings from the 2003 Commercial

Buildings Energy Consumption Survey (CBECS). 4 After the LCC analysis was performed, DOE

generated a distribution of LCC differences (i.e., the LCC difference between the baseline

equipment and equipment with a higher efficiency level) to determine the mean LCC difference,

as well as the percentage of buildings analyzed that had LCC savings associated with more

efficient equipment.

DOE defined the operating cost by the following equation:

OC

= EC+ RC+ MC Eq. 8.5

where

OC

= operating cost, expressed in dollars,

EC

= energy cost associated with operating the equipment, expressed in dollars,

RC

= repair cost associated with component failure, expressed in dollars,

MC

= service cost for maintaining equipment operation, expressed in dollars.

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

calculate the operating cost for commercial refrigeration equipment.

Table 8.2.12 shows the inputs for the determination of operating costs. The lifetime,

discount rate, and effective date of the standard are required for determining the operating cost

and for establishing the operating cost present value. The electricity consumption for the

baseline (which by definition is efficiency level 1 for the ANOPR) and the other efficiency levels

examined (efficiency levels 2, 3, etc.) define the efficiency levels of interest for comparing

standards’ life operating costs.

8­15Table 8.2.12 Inputs for Operating Costs

Electricity price ($)

Electricity price trend

Repair cost ($)

Maintenance cost ($)

Lifetime

Discount rate

Effective date of standard

Baseline electricity consumption

Standard case electricity consumption

8.2.3.1 Electricity Price Analysis

Introduction to the analysis of electricity prices

. This section describes the electricity

price (cents/kWh) analysis used to develop the energy portion of the annual operating costs

(price times electricity consumption) for commercial refrigeration equipment in the grocery

sector.

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 divided the continental U.S. into the

50 states and the District of Columbia. DOE used reported average effective commercial

electricity prices at the state level from the EIA publication State Energy Consumption, Price,

and Expenditure Estimates (SEDS). 5 The latest available prices from this source are for the

calendar year 2003. These were adjusted to represent 2006$ prices in two steps. First, national

data on the reported average commercial electricity prices from the EIA website, Average Retail

Price of Electricity to Ultimate Customers by End­Use Sector 6

, were used to adjust the 2003

prices to 2005 prices. Next, because actual prices were not yet available for the entire year of

2006, the forecasted ratio between 2006 and 2005 national commercial retail electricity prices

was used to adjust the 2005 state­level prices to 2006$.

EPRICE

COM STATE 2006 = EPRICE

COM STATE 2003 x (EPRICE

COM US 2005 / EPRICE

COM US 2003 )

x (EPRICE

COM AEO FORECAST 2006 /EPRICE

COM AEO FORECAST 2005 ) Eq. 8.6

where

EPRICE

COM STATE YEAR =commercial sector average electricity price in a state or United

States (US) in a particular year,

EPRICE

COM AEO FORCAST YEAR = commercial sector reference case national average forecasted

electricity price in a specific year from the 2006 Annual Energy Outlook

.

Table 8.2.13 provides data on the adjusted electricity prices.

8­16Table 8.2.13 Estimated Commercial Electricity Prices by State (2006 cents/kilowatt hour)

State Commercial

Electricity

Price State Commercial

Electricity

Price State Commercial

Electricity

Price

Alabama 7.32 Kentucky 5.73 North Dakota 6.02

Alaska 11.20 Louisiana 7.92 Ohio 8.06

Arizona 7.57 Maine 11.04 Oklahoma 6.82

Arkansas 5.91 Maryland 7.42 Oregon 6.81

California 13.01 Massachusetts 11.18 Pennsylvania 9.20

Colorado 7.05 Michigan 8.06 Rhode Island 10.77

Connecticut 10.60 Minnesota 6.54 South Carolina 7.27

Delaware 7.81 Mississippi 7.74 South Dakota 6.44

Dist. of Col. 7.85 Missouri 6.17 Tennessee 7.13

Florida 7.62 Montana 7.31 Texas 8.37

Georgia 7.11 Nebraska 6.20 Utah 5.96

Hawaii 16.04 Nevada 9.38 Vermont 12.05

Idaho 5.94 New Hampshire 10.99 Virginia 6.13

Illinois 7.79 New Jersey 9.72 Washington 6.48

Indiana 6.54 New Mexico 7.85 West Virginia 5.82

Iowa 6.67 New York 13.80 Wisconsin 7.44

Kansas 6.85 North Carolina 7.10 Wyoming 6.13

Furthermore, DOE recognized that different kinds of businesses typically use electricity

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 CBECS data set to identify the

average prices paid by the four kinds of businesses in this analysis compared with the average

prices paid by all commercial customers. Equation 8.7 shows the ratios of prices paid by the

four types of businesses were used to increase or decrease the average commercial prices.

EPRICE

COM BLD I STATE 2006 = EPRICE

COM STATE 2006 x (EPRICE

BLDG I US 2003 / EPRICE

COM US 2003 ) Eq. 8.7

where

EPRICE

COM BLD I STATE 2006 = average commercial sector electricity price in building type I

(supermarkets) in a specific state in 2006,

EPRICE

COM STATE 2006 = average commercial sector electricity price in a specific state in

2006,

EPRICE

BLDG I US 2003 = national average commercial sector electricity price in building

type I in 2003 CBECS,

EPRICE

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

Table 8.2.14 shows the derivation of the EPRICE ratios from CBECS.

8­17Table 8.2.14 Derived Average Commercial Electricity Price by Business Type

Business Type Grocery

Store/Food

Market Convenience

Store* Convenience

Store with

Gas Station Other

Food

Sales** All

Food

Sales All

Commercial

Buildings

Electricity Price (cents/kWh) 7.2 8.6 7.7 8.2 7.6 7.8

Ratio of Electricity Price to

Average Price for all

Commercial Buildings 0.928 1.109 0.993 1.057 0.980 1.000

* This group is assumed to include convenience stores without gas stations, specialty stores (such as meat markets), and beer, wine, and liquor

stores.

** This group is assumed to include mainly large multi­line retailers and super centers that sell both grocery and non­grocery items.

Source : CBECS 2003

Once the electricity prices for the four commercial building types (stores) were adjusted,

DOE used the resulting prices in the analysis to represent 2006 electricity prices. Future prices

are forecasted as described in section 8.2.3.2. To obtain a weighted­average national price, DOE

weighted the prices paid by each business in each state by the estimated sales of CRE units in

each state to each prototype building. 7,8,9,10 The state/building type weights are the probabilities

that a given CRE unit shipped will be operated with a given price. For evaluation purposes, the

prices and weights can be depicted as a cumulative probability distribution. The effective prices

range from approximately 5 cents per kWh to approximately 14 cents per kWh. Figure 8.2.1

illustrates the results for the grocery store and food market sector.

Electricity Prices Faced by CREs Sold to Supermarkets

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Cents per kWhCumulativePercentofElectricityPrices

Electricity Price

Figure 8.2.1 Cumulative Probability Distribution Showing the Electricity Prices Paid by

Grocery Store/Food Market Sector (2006$)

8­188.2.3.2 Electricity Price Trend

The electricity price trend provides the relative change in electricity prices for future

years out to the year 2030. Estimating future electricity prices is difficult, especially considering

that there are efforts in many states throughout the country to restructure the electricity supply

industry.

DOE applied a projected trend in national average electricity prices to each customer’s

energy prices. The discussion in this chapter uses the AEO 2006 reference price scenario. In the

LCC analysis, the following four scenarios can be analyzed:

1. Constant (real) energy prices at 2006 values (Constant index of 1.0 in Figure 8.2.2)

2. AEO 2006

, High Economic Growth (“High” in Figure 8.2.2)

3. AEO 2006

, Reference Case (“AEO 2006” in Figure 8.2.2)

4. AEO 2006

, Low Economic Growth (“Low” in Figure 8.2.2)

Figure 8.2.2 shows the trends for the three AEO 2006 price projections where prices are

assumed to change. DOE extrapolated the values in later years (i.e., after 2030) from their

relative sources because AEO 2006 does not forecast beyond 2030. To arrive at values for these

later years, DOE used the price trend from 2020 to 2030 of the forecast to establish prices in the

years 2030 to 2042. This method of extrapolation is in line with methods currently used by the

EIA to forecast fuel prices for the Federal Energy Management Program.

Electricity Price Index ProjectionsIndex(2006=1.00) 1.10

1.05

1.00

0.95

0.90

0.85

0.80 High Growth

AEO 2006

Low Growth

2000 2010 2020 2030 2040

Year

Figure 8.2.2 Electricity Price Trends for Commercial Rates to 2042

8­19The default electricity price trend scenario used in the LCC analysis is the trend from the

AEO 2006 Reference Case, shown in Figure 8.2.2. Spreadsheets used in calculating the LCC

have the capability to analyze the other electricity price trend scenarios, namely, the AEO 2006

High Growth and the AEO 2006 Low Growth price trends and constant energy prices.

8.2.3.3 Repair Cost

The repair cost is the cost to the consumer for replacing or repairing components in the

commercial refrigeration equipment that have failed. DOE based the annualized repair cost for

baseline energy consumption commercial refrigeration equipment (i.e., the cost the customer

pays annually for repairing the equipment) on the following expression:

RC= k x EQP/LIFE Eq 8.8

where

RC

= repair cost, expressed in dollars,

k

= fraction of the equipment price (a value of 0.5 was assumed),

EQP

= equipment price (customer price for the equipment only) expressed in dollars,

LIFE

= average lifetime of the equipment in years (a value of 10.0 years was assumed).

Because data were not available to indicate how repair costs vary with equipment

efficiency level, DOE considered two scenarios: repair costs that varied in direct proportion with

the manufacturer selling price of the equipment, and repair costs that were kept constant

(i.e., did not increase with higher efficiency levels).

DOE used repair costs that are constant with manufacturer selling price (the second

scenario above) as the default annualized repair cost scenario in the LCC and PBP analysis.

Spreadsheets used to calculate the LCC and PBP are able to calculate LCC and PBP based on the

first scenario as well.

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 above). Rather, it is the cost associated with general maintenance

(e.g., checking and maintaining refrigerant charge levels, cleaning heat exchanger coils).

DOE took annualized maintenance costs for commercial refrigeration equipment from

data in RS Means Facilities Maintenance & Repair Cost Data. 11 RS Means provides estimates

on the person­hours, labor rates, and materials required to maintain commercial refrigeration

equipment. RS Means specifies preventative maintenance activities for commercial display cases

expected to occur on a semi­annual basis as including the following actions: cleaning evaporator

coils, drain pans, fans and intake screens; lubricating motors; inspecting door gaskets and seals,

and lubricating hinges; cleaning condenser coils; checking refrigerant pressures and compressor

oil as necessary; checking starter panels and controls; and checking defrost system operation.

DOE did not break out these activities into separate line­item maintenance activities. Instead,

DOE used a single figure of $156/yr (2006$) for preventative maintenance activities for all CRE

classes.

8­20Because data were not available to indicate how maintenance costs vary with equipment

efficiency level, DOE decided to use preventative maintenance costs that remain constant as

equipment efficiency is increased.

DOE considered lamp replacements and other lighting maintenance activities as required

maintenance for commercial refrigeration equipment, and apart from preventative maintenance.

Thus, DOE did not itemize them in the preventative maintenance activities described by RS

Means

. Different CRE classes have different numbers of lamps (and ballasts), and many of the

efficiency options DOE considered in its design option engineering analysis involved changes to

the lighting configuration (lamp, ballast, or use of light emitting diode (LED) lighting systems).

Because the lighting configurations can vary by efficiency level, DOE estimated the relative

maintenance costs for lighting by each case type for which DOE performed a design option

analysis. DOE's methodology was to estimate the frequency of failure and replacement of

individual lighting components, to estimate the cost of replacement in the field, and to develop

an annualized maintenance cost based on the sum of the total lighting maintenance costs (in

2006$) over the estimated life of the equipment divided by the estimated life of the equipment.

Lifetime estimates for particular components were as follows:

• Fluorescent lamps would be replaced every 24 months in a preventative fashion.

• Fluorescent lamp ballasts would be replaced once over the estimated 10­year life of the

equipment based on a typical ballast life of 80,000 hours.

• LED lamps would be replaced once over the estimated 10­year life of the equipment

based on a typical fixture life of 50,000 hours (GE 2006). 12

DOE based cost estimates for fluorescent lamp and ballast replacements on review of the

original equipment manufacturer (OEM) costs used in the engineering analysis, RS Means

estimates and cost data from Grainger, 13 and previous studies. The final approach taken was to

estimate the costs of field replacement using labor cost hours from RS Means Electrical Cost

Data 14 for typical lamp or ballast replacement for other lighting fixtures, and to provide a

150­percent multiplier on OEM costs for lamps and ballasts (provided in the engineering

analysis spreadsheets) to reflect retail pricing.

Fluorescent lamp and ballast technology is mature. Available information suggests that

there would be no change in inflation adjusted costs for these components. However, because of

rapid technological improvement, costs for LED lamps are declining. DOE’s estimate for the

ANOPR was that costs for replacing LED lighting fixtures (which would occur first in

approximately 2018, or six years after the target date of the rule) would be 140 percent of the

OEM cost of LED case lighting fixtures today (in 2006$). DOE recognizes that both life and

cost assumptions for LED replacement are speculative and believes it has taken a conservative

approach to estimating price reduction over time for this technology. DOE did not consider

overhead and profit factors from RS Means.

The total costs for lamp, ballast or LED fixture replacement were annualized by dividing

the total estimated replacement costs over the CRE lifetime as shown in Eq. 8.9.

8­21Annualized LightingMa int enance =

1 ⎛ Bulb & Ballast

OEM × 150% + NBulb × Labor

Bulb + NBallast × Labor

Ballast ⎞ Eq. 8.9 

## ∑ ⎜ ⎜ ⎟ ⎟ Life Life ⎝ + LEDFixture

OEM × 140% ⎠

where

Annualized Lighting Maintenance

= Annualized Lighting Maintenance Cost (2006$),

Life

= CRE lifetime (years),

Bulb & Ballast OEM = OEM Costs for bulb and ballast from engineering analysis,

LED Fixture OEM = OEM Installed costs for LED fixtures from engineering analysis,

N

Bulb = Number of bulbs in particular CRE class analyzed,

N

Ballast = Number of ballasts in particular CRE class analyzed,

Labor Bulb = Labor cost to replace one bulb,

Labor Ballast = Labor cost to replace one ballast.

The Air­Conditioning and Refrigeration Institute provided cost­energy­consumption

curves for certain equipment classes, but without maintenance costs for lighting components.

For such equipment classes, DOE calculated a nominal lighting maintenance cost for all levels

on the basis that T8 lamp lighting represented the current market. 15

Table 8.2.15 shows the annualized lighting maintenance costs for each efficiency level

addressed in the LCC analysis.

Table 8.2.15 Annualized Lighting Maintenance Costs for Each Efficiency Level Addressed

in the Life­Cycle Cost Analysis

Equipment Annualized Lighting Maintenance Costs ($/yr)

Type Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M 133.56 133.56 133.56 133.56 133.56 133.56 133.56 133.56

VOP.RC.L 44.52 44.52 44.52 44.52 59.64 67.26 NA* NA

VOP.SC.M 41.49 41.49 41.49 41.49 41.49 55.08 55.08 59.78

VCT.RC.M 71.40 97.46 97.46 97.46 97.46 97.46 108.86 NA

VCT.RC.L 97.46 97.46 97.46 97.46 97.46 97.46 97.46 NA

VCT.SC.I 47.60 64.97 64.97 64.97 64.97 64.97 64.97 72.57

VCS.SC.I 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

SVO.RC.M 89.04 89.04 89.04 89.04 89.04 89.04 89.04 NA

SVO.SC.M 14.84 14.84 14.84 14.84 14.84 19.88 19.88 22.42

SOC.RC.M 74.20 74.20 74.20 99.40 99.40 112.10 112.10 NA

HZO.RC.M 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

HZO.RC.L 0.00 0.00 0.00 0.00 0.00 0.00 NA NA

HZO.SC.M 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

HZO.SC.L 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

HCT.SC.I 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Annualized Lighting Maintenance Costs from Design Option Analysis ($/yr)

VOP.RC.M 133.56 133.56 133.56 178.92 178.92 201.77 201.77 201.77

VCT.RC.L 71.40 97.46 97.46 97.46 97.46 97.46 108.86 NA

SVO.RC.M 89.04 89.04 89.04 119.28 119.28 134.52 134.52 134.52

HZO.RC.L 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

* NA means that no efficiency level was designated; e.g., SVO.RC.M had only seven efficiency levels and HZO.RC.L

had only six.

8­22Total annualized maintenance costs are the sum of the preventative maintenance and the

lighting maintenance costs. Table 8.2.16 summarizes the nationally representative annualized

maintenance costs for baseline refrigeration equipment.

Table 8.2.16 Annualized Maintenance Costs for Baseline Efficient Commercial

Refrigeration Equipment

Equipment Annualized Lighting Maintenance Costs for LCC ($/yr)

Type Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M 289.56 289.56 289.56 289.56 289.56 289.56 289.56 289.56

VOP.RC.L 200.52 200.52 200.52 200.52 215.64 223.26 NA* NA

VOP.SC.M 197.49 197.49 197.49 197.49 197.49 211.08 211.08 215.78

VCT.RC.M 227.40 253.46 253.46 253.46 253.46 253.46 264.86 NA

VCT.RC.L 253.46 253.46 253.46 253.46 253.46 253.46 253.46 NA

VCT.SC.I 203.60 220.97 220.97 220.97 220.97 220.97 220.97 228.57

VCS.SC.I 156.00 156.00 156.00 156.00 156.00 156.00 0.00 0.00

SVO.RC.M 245.04 245.04 245.04 245.04 245.04 245.04 245.04 NA

SVO.SC.M 170.84 170.84 170.84 170.84 170.84 175.88 175.88 178.42

SOC.RC.M 230.20 230.20 230.20 255.40 255.40 268.10 268.10 NA

HZO.RC.M 156.00 156.00 156.00 156.00 NA NA NA NA

HZO.RC.L 156.00 156.00 156.00 156.00 156.00 156.00 NA NA

HZO.SC.M 156.00 156.00 156.00 156.00 156.00 156.00 156.00 156.00

HZO.SC.L 156.00 156.00 156.00 156.00 156.00 156.00 156.00 156.00

HCT.SC.I 156.00 156.00 156.00 156.00 156.00 156.00 NA NA

* NA means that no efficiency level was designated; e.g., SVO.RC.M had only seven efficiency levels and HZO.RC.L

had only six.

8.2.3.5 Lifetime

DOE defines lifetime as the age when a CRE unit is retired from service. DOE based

equipment lifetime on discussions with industry experts, and concluded that a typical lifetime of

10 years is appropriate for commercial refrigeration equipment. Chapter 3, Market and

Technology Assessment, contains a discussion of equipment life and tabulates estimates from

various sources used in assessing equipment life. CRE units are typically replaced when stores

are renovated—about every 10 years 16 —which is before the CRE units would have physically

worn out. Because of this, there is a used­equipment market for commercial refrigeration

equipment. DOE understands, however, that the salvage value to the original purchaser is very

low and thus this has not been taken into account in the LCC.

8.2.3.6 Discount Rate

The discount rate is the rate at which future expenditures are discounted to establish their

present value. DOE derived the discount rates for the CRE analysis by estimating the cost of

capital for companies that purchase commercial refrigeration 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.

8­23DOE estimated the cost of equity financing by using the Capital Asset Pricing Model

(CAPM). 17 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

associated 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 using several variables, including the

risk coefficient of a company, 

### β (beta), 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

, 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.

The following equation gives the cost of equity financing for a particular company:

k

e = R f + (β x ERP) Eq. 8.10

where

k

e = the cost of equity for a company, expressed in dollars,

R

f = the expected return of the risk free asset, expressed in dollars,



### β

= the risk coefficient,

ERP

= the expected equity risk premium, expressed in dollars.

DOE defined the risk­free rate as the yield (January 2006) on long­term government

bonds. DOE used a 4.8­percent estimate for the ERP based on data from the Damodaran

Online 18 site.

The cost of debt financing is the yield or interest rate paid on money borrowed by a

company (for example, by selling bonds). As defined here, the cost of debt includes

compensation for default risk (the risk that a firm will go bankrupt) and excludes deductions for

taxes. DOE estimated the cost of debt for companies by adding a risk adjustment factor to the

current yield on long term corporate bonds (the risk free rate). It used this procedure to estimate

current (and future) company costs to obtain debt financing. It based the adjustment factor on

indicators of company risk, such as credit rating or variability of stock returns.

The weighted­average cost of capital (WACC) of a company is the weighted­average cost

of debt and equity financing:

k =k

e x w e + k d x w d Eq. 8.11

where

k

= the (nominal) cost of capital, expressed in dollars,

k

e = the expected rate of return on equity, expressed in dollars,

k

d = the expected rate of return on debt, expressed in dollars,

8­24w e = the proportion of equity financing in total annual financing,

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

The cost of capital is a nominal rate, because it includes anticipated 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 (2.2 percent) from the

average of the projected change in gross domestic product (GDP) prices in the Economic Report

of the President (February 2006). 19

To estimate the WACC of CRE purchasers, DOE used a sample of companies involved

in groceries and multi­line retailing drawn from a database of 7,319 U.S. companies given on the

Damodaran Online website. This database includes most of the publicly­traded companies in

the United States.

DOE divided the companies into the three ownership categories shown in Table 8.2.6

according to their type of activity (small grocery, in the last line of the table covers convenience

stores with and without gasoline stations). DOE sought financial information for all of the firms

in the full sample involved in the two lines of business. This resulted in a sample of about

30 firms. In cases where one or more of the variables needed to estimate the discount rate was

missing or could not be obtained, DOE discarded the firm from the analysis. Overall, it

discarded about 20 percent of the firms in the full database for this reason.

Table 8.2.17 describes the economic sectors represented in each of the ownership

categories as well as the number of companies used for determining discount rates.

Ultimately, DOE used a sample of 23 companies to represent the purchasers of

commercial refrigeration equipment. For each company in the sample, DOE derived the cost of

debt, percent debt financing, and systematic company risk from information provided at the

Damodaran Online website. It estimated the cost of debt financing from the long­term

government bond rate (4.39 percent) and the standard deviation of the stock price. Table 8.2.17

shows the weighted­average values for the cost of debt, percent debt financing and systematic

firm risk for each category of the sample companies. The cost of capital for small, independent

grocers, convenience store franchisees, gasoline station owner­operators and others with more

limited access to capital is more difficult to determine. Individual credit­worthiness varies

considerably, and some franchisees have access to the financial resources of the franchising

corporation. However, personal contacts with a sample of commercial bankers yielded an

estimate for the small operator weighted cost of capital of about 200 to 300 basis points

(2 percent to 3 percent) above the rates for large grocery chains. A central value equal to the

weighted average of large grocery chains, plus 2.5 percent, was used for small operators.

Deducting expected inflation from the cost of capital provides the estimates of the real

discount rate by ownership category shown in Table 8.2.17. The average after­tax discount rate,

weighted by the percentage shares of total CRE purchases, is 4.76 percent for large grocery,

5.66 percent for multi­line retailers, and 7.26 percent for convenience stores and convenience

stores associated with gasoline stations.

8­25Table8.2.17DiscountRatesbyCompanyandOwnershipCategory

_ 8­26CompanyCompanyValue(millions$)ValueLineBetaCostofEquity(E)E/(D+E)StdDevinStockCostofDebt(D)EffectiveTaxRateAfterTaxCostofDebtMarketDebttoCapital(D/(D+E)CostofCapitalA14,6730.88.23%53.06%21.89%4.89%34.89%3.18%46.94%5.86%B3060.557.03%99.31%30.24%5.39%40.60%3.20%0.69%7.00%C1,4110.858.47%89.32%23.81%4.89%35.31%3.16%10.68%7.90%D2700.356.07%18.48%27.27%5.14%38.00%3.19%81.52%3.72%E1380.56.79%24.60%26.22%5.14%56.18%2.25%75.40%3.37%F1,9971.19.67%65.10%71.79%6.39%0.00%6.39%34.90%8.53%G9550.67.27%40.37%0.00%4.64%38.02%2.88%59.63%4.65%H21,5871.059.43%63.07%17.02%4.64%36.22%2.96%36.93%7.04%I2790.456.55%25.44%28.20%5.14%36.41%3.27%74.56%4.10%J2790.56.79%25.13%28.47%5.14%36.49%3.26%74.87%4.15%K1,1941.059.43%43.50%29.44%5.14%0.00%5.14%56.50%7.01%L1,1970.858.47%85.89%64.08%6.39%36.09%4.08%14.11%7.85%M17,4570.958.95%61.26%23.28%4.89%29.44%3.45%38.74%6.82%N12.1514.71%28.57%28.49%5.14%0.00%5.14%71.43%7.87%O5250.98.71%77.96%0.00%4.64%38.00%2.88%22.04%7.42%P2310.657.51%82.56%55.00%5.89%41.54%3.44%17.44%6.80%Q1,1550.757.99%100.00%19.74%4.64%34.72%3.03%0.00%7.99%R10,81419.19%98.42%16.71%4.64%40.00%2.78%1.58%9.09%S51619.19%66.62%28.66%5.14%0.00%5.14%33.38%7.84%T6620.858.47%13.71%60.04%6.39%0.00%6.39%86.29%6.68%LargeGroceryWeightedAverage75,6450.9413398.91%66.03%22.35%4.86%32.92%3.29%33.97%7.07%Inflation­Adjusted4.76%UVWLargeMulti­LineRetailersandWholesalersWeightedAverage25,16558,378230,631314,1740.91.150.850.9097498.71%9.91%8.47%8.76%94.8%83.7%86.4%86.53%23.09%25.62%17.28%19.30%4.89%5.14%4.64%4.75%37.0%37.8%34.7%35.46%3.08%3.20%3.03%3.06%5.25%16.34%13.64%13.47%8.41%8.81%7.73%7.98%Inflation­Adjusted5.66%SmallGrocery,InflationAdjusted7.26%E=equity;D=debtSource:PacificNorthwestNationalLaboratory(PNNL)calculationsappliedtofirmssampledfromtheDamodaranOnlinewebsite.8.2.3.7 Effective Date of Standard

The effective date is the future date when a new standard becomes operative. Under

42 U.S.C. 6313(a)(6)(c), the effective date of any new energy conservation standard for

commercial refrigeration equipment will be three years after the final rule is published. DOE

calculated the LCC for all customers as if they each would purchase a new CRE unit in the year

the standard takes effect. Consistent with its published regulatory agenda, DOE assumed that the

final rule would be issued in 2009 and that, therefore, the new standards would take effect in

2012 and used these dates in the ANOPR analyses. It based the cost of the equipment on this

year; however, all dollar values are expressed in 2006$. DOE considered annual energy for the

life of the commercial refrigeration equipment. For the LCC analysis, the year of equipment

purchase is 2012.

8.3 PAYBACK PERIOD INPUTS

8.3.1 Definition

The payback period is the amount of time it takes the consumer to recover the assumed

higher purchase cost of more energy­efficient 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 efficient

design to a more efficient design) to the decrease in annual operating expenditures. This type of

calculation is known as a “simple” payback period, because is 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 equation for PBP is:

PBP =�IC/�OC Eq. 8.12

where

PBP

= payback period in years,

�IC

= difference in the total installed cost between the more efficient standard level;

equipment (efficiency levels 2, 3, etc.) and the baseline (efficiency level 1) equipment,



### � OC

= difference in annual operating costs.

Payback periods are expressed in years. Payback periods 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 equipment.

8.3.2 Inputs

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, the annual repair cost, and the annual maintenance

cost. The PBP uses the same inputs as the LCC analysis described in section 8.2, except that

electricity price trends and discount rates are not required. Since the PBP is a “simple”

8­27(undiscounted) payback, the required electricity cost is only for the year in which a new

efficiency standard is to take effect—in this case, the year 2012. The electricity price used in the

PBP calculation of electricity cost was the price projected for 2012, expressed in 2006 dollars,

but not discounted to 2006. Discount rates are not used in the PBP calculation.

8.4 LIFE­CYCLE COST AND PAYBACK PERIOD RESULTS

8.4.1 Life­Cycle Cost Results

This section presents LCC results for the higher efficiency levels specified in the

engineering analysis (chapter 5) and also presented in section 8.2.2.2, Standard­Level

Manufacturer Selling Price Increases. The results presented here are based on annual operating

costs calculated from average annual electricity prices developed for each business type.

Section 8.2 presents the electricity price inputs as well as all other LCC inputs.

Because the values of most inputs are variable in this analysis, DOE represents them as a

distribution of values rather than a single point­value. Thus, DOE represents the LCC results as

a distribution of values. Before proceeding with the presentation of the distribution of LCC

results, DOE presents average values for total installed costs, annual operating costs, and LCC to

show how these costs vary with efficiency level for each of the commercial refrigeration

equipment classes.

8.4.1.1 Life­Cycle Cost Breakdown Based on Average Input Values

Figure 8.4.1 shows how, on an average basis, the total installed costs and LCC vary with

efficiency level for a given building type. Similar figures for other equipment classes are

provided in appendix G.

DOE separated the figures for total installed cost into equipment price and installation

cost. It separated the figures for annual operating cost into annual electricity, repair, and

maintenance costs. It separated the figures for LCC into total installed cost and lifetime

operating cost. Although these figures show only mean or average values rather than

distributions of LCC results, they demonstrate how the various inputs impact LCC. In view of

the total installed cost results for both equipment classes, the equipment price is the largest

contributor to increased total cost since the installation cost remains relatively constant across

efficiencies.

Annual electricity cost is the largest contributor to the overall operating cost at any

efficiency level. As efficiency is increased, electricity cost decreases.

The LCC results reveal that as efficiency is increased, the lifetime operating cost has

more of an impact on the LCC than the total installed cost. In other words, the decrease in

lifetime operating costs offsets the increase in total installed cost that occurs with an increase in

rated efficiency. As a result, the LCC at all efficiency levels is lower than that for the baseline

level (Level 1).

8­28Installed Cost­LCC Tradeoff

Equipment= Vertical Open (VOP), Operating Mode=Remote Condenser (RC), Temperature=Medium (M),

Fuel Price=AEO 2006 ­ Reference Case, Start Year= 2012

$21,000LifeCycleCost $20,500

$20,000

$19,500 Installed Cost­LCC Tradeoff

$19,000

$18,500

$18,000

$17,500

$17,000

$5,769 $6,160 $6,322 $6,502 $6,927 $7,182 $7,473 $7,883

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

Installed Cost

Figure 8.4.1 Effect of the Change in Efficiency Level on Life­Cycle Cost for Vertical Open

Display Case, Remote Condensing, Medium Temperature in Supermarkets

(2006$) at Average U.S. Conditions (Level 1 is the Baseline Level).

Again, the results shown in Figure 8.4.1 are based on average input values rather than

input distributions and are depicted for only one building type. Thus, one can observe how the

various inputs impact LCC and, in turn, how the resulting LCC changes with an increase in

efficiency level in this example. Conclusions, however, should also take into account the

distribution of LCC results discussed in section 8.4.1.2.

8.4.1.2 Differences in Life­Cycle Cost Between Baseline and Standard­Level

Equipment

DOE’s first step in developing LCC results was to establish the baseline LCC for each of

the commercial refrigeration equipment classes. Unlike many previous rulemakings, commercial

refrigeration equipment has no pre­existing Federal standard, voluntary standard

(e.g., ASHRAE), or other convenient reference standard available to serve as a baseline. As

discussed in section 8.2.2.1, DOE’s baseline energy efficiency level for the ANOPR analysis is

Level 1.

8­29Cumulative LCC Savings at Level 4

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0 500 1000 1500 2000 2500 3000 3500

LCC Savings (2006$)CumulativeProbability

Cumulative LCC Savings at

Level 4 Equipment= Vertical Open (VOP), Operating Mode=Remote Condenser (RC), Temperature=Medium (M),

Fuel Price=AEO 2006 ­ Reference Case, Start Year= 2012

Figure 8.4.2 Cumulative Chart of Life­Cycle Cost Savings for Vertical Open Display Case,

Remote Condensing, Medium Temperature: Efficiency Level 4

This section presents the differences in the LCC of standard level equipment relative to

the baseline commercial refrigeration equipment. The LCC differences are depicted as a

distribution of values. DOE presents the results in a cumulative chart showing the cumulative

distribution of LCC differences along with the corresponding probability of occurrence for each

given efficiency level. In each chart, DOE provides the mean LCC difference along with the

percent of the population for which the LCC will decrease. In the case of commercial

refrigeration equipment, the population is the number of CRE units in commercial buildings

(grocery and convenience stores) that utilize commercial refrigeration equipment.

Figure 8.4.2 presents the LCC results for the case of efficiency level 4 in the VOP.RC.M

equipment class across all building types. Similar figures for other efficiency levels are found in

appendix G for all equipment classes. In Figure 8.4.2, the 50­percent line shows the median

change in LCC (a savings of $1,044 in this example). Half of the purchasers of this commercial

refrigeration equipment would save more than $1,044, while half would save less than $1,044.

The “0” horizontal line is the minimum savings value, which in this example is $473 savings due

to the increased efficiency at efficiency level 4 compared to the baseline efficiency level

(Level 1). The maximum LCC savings is $3,036.

Appendix G contains the cumulative charts for all the efficiency levels considered for all

commercial refrigeration equipment classes. These charts provide more complete information,

but DOE provides a summary of the change in LCC from the baseline by percentile groupings

(i.e., of the distribution of results) for each of the equipment classes in Table 8.4.1. Table 8.4.1

also shows the mean LCC savings and the percent of LCCs that are reduced for a standard set at

each efficiency level.

8­30Table 8.4.1 Distribution of Life­Cycle Cost Savings from a Baseline Level (Level 1) by

Efficiency LevelEfficiencyLevel

Decrease in LCC from Baseline (Level 1) Shown by Percentiles of the Distribution of Results (2006$) Mean

Savings Percent

of Units

with

LCC

Savings

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Level 2 $145 $238 $301 $340 $361 $398 $425 $509 $711 $878 $1,285 $485 100%

Level 3 $317 $471 $569 $634 $665 $730 $775 $911 $1,238 $1,512 $2,169 $871 100%

Level 4 $473 $686 $822 $911 $952 $1,044 $1,106 $1,294 $1,748 $2,127 $3,036 $1,239 100%

Level 5 $717 $1,048 $1,260 $1,399 $1,464 $1,606 $1,703 $1,995 $2,701 $3,290 $4,704 $1,910 100%

Level 6 $797 $1,186 $1,435 $1,600 $1,681 $1,845 $1,958 $2,303 $3,135 $3,828 $5,497 $2,203 100%

Level 7 $842 $1,288 $1,576 $1,769 $1,863 $2,047 $2,177 $2,574 $3,533 $4,330 $6,255 $2,459 100%

Level 8 $835 $1,349 $1,694 $1,911 $2,021 $2,230 $2,379 $2,839 $3,950 $4,871 $7,105 $2,707 100%

As an example of how to interpret the information in Table 8.4.1, here is a review of the

results for the VOP.RC.M equipment class. The Level 4 efficiency level in Table 8.4.1 (row 3)

shows that the change in LCC in the zero­percentile column is a minimum saving of $473. This

means that the 100% of the market are estimated to have LCC savings of $473. For 90 percent

of the cases studied (90 th percentile), the change in LCC for Level 4 is a LCC reduction of $2,127

or less compared with the base case. Consequently, 10% of the cases have LCC savings of

greater than $2,127. The largest reduction in LCC for Level 4 is $3,036 at the 100 th percentile.

The mean change in LCC is a net savings of $1,239. The last column shows that 100 percent of

the sample has LCC savings (i.e., reductions in LCC greater than zero) when compared to the

baseline efficiency level.

Table 8.4.2 provides the national average life cycle cost savings calculated for each

efficiency level when compared to the baseline (Level 1) for all product categories. Review of

Table 8.4.2 shows that every efficiency level analyzed generated national average life cycle cost

savings compared with the baseline.

8.4.2 Payback Period Results

This section presents PBP results for each of the higher efficiency levels defined in

section 8.2.2.2. The results presented here are based on annual operating costs calculated from

state average commercial electricity prices. Section 8.2 describes the tariff­based electricity

price inputs as well as all other PBP inputs.

Similar to LCC, the analysis provides an estimate of the simple payback period at

different ranges of energy prices, sales taxes, and installation costs that prevail across the country

for each efficiency level and each building (store) type. Figure 8.4.3 shows the effect on

payback period as the efficiency level changes from Level 1 (the baseline), for VOP.RC.M

equipment class in supermarkets at U.S. national average energy prices, sales taxes, and

installation costs.

8­31Table 8.4.2 Average Life­Cycle Cost Savings from a Baseline Level (Level 1) by

Efficiency Level and Equipment Class

Equipment National Average LCC Savings (2006$)

Class Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M 0 485 871 1239 1910 2203 2459 2707

VOP.RC.L 0 1209 2604 3512 3470 3443 NA NA

VOP.SC.M 0 759 883 1006 1265 1328 1487 1482

VCT.RC.M 0 1046 1309 1596 1750 2362 1925 NA

VCT.RC.L 0 1179 1650 2105 2949 3333 3684 4272

VCT.SC.I 0 1371 2581 3020 3285 5313 5613 5398

VCS.SC.I 0 398 961 1383 1451 1559 1619 1609

SVO.RC.M 0 227 500 758 1000 1223 1458 NA

SVO.SC.M 0 552 588 644 824 841 1200 1186

SOC.RC.M 0 835 1779 1718 1901 1868 1540 NA

HZO.RC.M 0 208 435 490 NA NA NA NA

HZO.RC.L 0 234 591 935 1267 1459 NA NA

HZO.SC.M 0 66 286 354 381 445 466 543

HZO.SC.L 0 68 555 1071 1136 1155 1448 1457

HCT.SC.I 0 250 315 731 809 835 NA NA

Percent of Units with Positive LCC Savings

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M 0% 100% 100% 100% 100% 100% 100% 100%

VOP.RC.L 0% 100% 100% 100% 100% 100% NA NA

VOP.SC.M 0% 100% 100% 100% 100% 100% 100% 100%

VCT.RC.M 0% 100% 100% 100% 100% 100% 100% NA

VCT.RC.L 0% 100% 100% 100% 100% 100% 100% 100%

VCT.SC.I 0% 100% 100% 100% 100% 100% 100% 100%

VCS.SC.I 0% 100% 100% 100% 100% 100% 100% 100%

SVO.RC.M 0% 100% 100% 100% 100% 100% 100% NA

SVO.SC.M 0% 100% 100% 100% 100% 100% 100% 100%

SOC.RC.M 0% 100% 100% 100% 100% 100% 100% NA

HZO.RC.M 0% 100% 100% 100% NA NA NA NA

HZO.RC.L 0% 100% 100% 100% 100% 100% NA NA

HZO.SC.M 0% 100% 100% 100% 100% 100% 100% 100%

HZO.SC.L 0% 100% 100% 100% 100% 100% 100% 100%

HCT.SC.I 0% 100% 100% 100% 100% 100% NA NA

8­32Installed Cost­Payback Tradeoff

Equipment= Vertical Open (VOP), Operating Mode=Remote Condenser (RC), Temperature=Medium (M),

Fuel Price=AEO 2006 ­ Reference Case, Start Year= 2012PaybackPeriod(Years) 4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

$5,769

Level 1 $6,160

Level 2 $6,322

Level 3 $6,502

Level 4 $6,927 $7,182 $7,473 $7,883

Level 5 Level 6 Level 7 Level 8 Installed Cost­Payback Period Tradeoff

Installed Cost

Figure 8.4.3 Effect of the Change in Efficiency Level on Payback Period for Vertical

Open Display Case, Remote Condensing, Medium Temperature, in

Supermarkets at Average U.S. Conditions (Level 1 is the Baseline Level).

Similar to the LCC differences, DOE depicted PBP results as a distribution of values.

Thus, it presents the results as a cumulative probability chart showing the distribution of PBPs

with the corresponding cumulative probability of occurrence. Each chart provides the mean

PBP.

Figure 8.4.4 is an example of a cumulative probability chart showing the distribution of

payback periods for each of the higher efficiency levels analyzed for the VOP.RC.M equipment

class. Appendix G contains the frequency charts for all the efficiency levels considered for all

commercial refrigeration equipment in this analysis. In Figure 8.4.4, the y­axis shows

cumulative percent of all VOP.RC.M units (“Probability” at left y­axis). The x­axis is the PBP

of a higher efficiency level (in this example, Level 4) relative to the baseline efficiency level

(Level 1). In Figure 8.4.4, a Level 4 efficiency level provides commercial refrigeration units in

this equipment class with a median PBP of 2.7 years, a mean payback period of 2.6 years, and a

payback period range from just greater than 1.1 years to approximately 3.9 years depending on

the placement of the unit. (Note that these cannot be read with precision from the chart; rather,

the analysis output data provides these values in a statistical summary.)

8­33Cumulative Payback Period at Level 4

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

YearsCumulativeProbability

Cumulative Payback at

Level 4 Equipment= Vertical Open (VOP), Operating Mode=Remote Condenser (RC), Temperature=Medium (M), Fuel

Price=AEO 2006 ­ Reference Case, Start Year= 2012

Figure 8.4.4 Cumulative Chart of Payback Period for Vertical Open Display Case,

Remote Condensing, Medium Temperature: Efficiency Level 4

Table 8.4.3 summarizes the PBP results for each of the VOP.RC.M equipment class

efficiency levels. Results are summarized for PBP by percentile groupings (i.e., percentile of the

distribution of results). The table also shows the mean PBP for each efficiency level.

Table 8.4.3 Summary of Payback Period Results for Vertical Open Display Case,

Remote Condensing, Medium Temperature, Efficiency Level 4

Efficiency Payback Period in Years Shown by Percentiles of the Distribution of

Results

Mean Level 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Level 2 1.4 2.1 2.3 2.8 3.1 3.3 3.5 3.6 3.8 4.1 4.7 3.2

Level 3 1.2 1.8 2.0 2.4 2.7 2.9 3.0 3.1 3.3 3.6 4.1 2.8

Level 4 1.1 1.8 1.9 2.3 2.5 2.7 2.9 3.0 3.2 3.4 3.9 2.6

Level 5 1.2 1.8 1.9 2.3 2.6 2.8 2.9 3.0 3.2 3.5 4.0 2.7

Level 6 1.2 1.8 2.0 2.4 2.7 2.9 3.0 3.1 3.3 3.6 4.1 2.8

Level 7 1.3 1.9 2.1 2.5 2.8 3.0 3.2 3.3 3.5 3.8 4.3 2.9

Level 8 1.4 2.1 2.2 2.7 3.0 3.2 3.4 3.5 3.8 4.0 4.6 3.1

Table 8.4.4 provides the national average payback calculated for each efficiency level

when compared to the baseline (Level 1) for all equipment classes. Table 8.4.4 also shows the

percentage of units reporting payback periods of less than 3 years. The results of the analysis

shown that payback period for purchases of higher efficiency levels (with respect to purchase of

baseline units) was less than 4 years for any of the efficiency levels considered for any

equipment class. The right­hand column of Table 8.4.4 shows the highest efficiency level that

provides for a national average payback of less than 3 years, as well as the level of highest

efficiency level that provides a payback of less than 3 years to at least 50 percent of units

shipped. These two levels are the same for all equipment classes examined.

8­34Table 8.4.4 National Average Payback Periods by Efficiency Level and Equipment Class

Equipment National Average Payback Period (Years)

Type Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M NA 3.2 2.8 2.6 2.7 2.8 2.9 3.1

VOP.RC.L NA 0.5 0.8 1.1 1.2 2.0 NA NA

VOP.SC.M NA 0.7 0.7 0.8 1.1 1.4 2.0 3.1

VCT.RC.M NA 0.3 0.4 0.7 0.9 2.7 3.9 NA

VCT.RC.L NA 1.4 1.6 1.8 2.1 2.2 2.3 2.7

VCT.SC.I NA 0.3 0.4 0.5 0.6 1.3 1.5 2.1

VCS.SC.I NA 0.3 0.6 0.6 0.7 0.7 0.8 1.2

SVO.RC.M NA 3.2 2.8 2.7 2.8 2.9 3.0 NA

SVO.SC.M NA 0.8 0.8 0.9 1.1 1.3 1.8 2.4

SOC.RC.M NA 0.6 1.0 1.2 1.4 3.1 3.9 NA

HZO.RC.M NA 0.8 1.2 1.5 NA NA NA NA

HZO.RC.L NA 1.2 1.6 1.7 1.8 1.9 NA NA

HZO.SC.M NA 0.7 1.0 1.1 1.1 1.2 1.4 1.8

HZO.SC.L NA 0.6 0.6 0.8 0.8 0.9 1.3 1.3

HCT.SC.I NA 0.7 0.7 1.3 1.4 1.4 NA NA

Percent of Units with Payback Period less than 3 Years

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M 0% 38% 58% 74% 64% 58% 50% 40%

VOP.RC.L 0% 100% 100% 100% 100% 100% NA NA

VOP.SC.M 0% 100% 100% 100% 100% 100% 98% 41%

VCT.RC.M 0% 100% 100% 100% 100% 60% 24% NA

VCT.RC.L 0% 100% 100% 100% 98% 94% 88% 64%

VCT.SC.I 0% 100% 100% 100% 100% 100% 100% 98%

VCS.SC.I 0% 100% 100% 100% 100% 100% 100% 100%

SVO.RC.M 0% 38% 57% 60% 58% 50% 42% NA

SVO.SC.M 0% 100% 100% 100% 100% 100% 100% 87%

SOC.RC.M 0% 100% 100% 100% 100% 40% 25% NA

HZO.RC.M 0% 100% 100% 100% NA NA NA NA

HZO.RC.L 0% 100% 100% 100% 100% 100% NA NA

HZO.SC.M 0% 100% 100% 100% 100% 100% 100% 100%

HZO.SC.L 0% 100% 100% 100% 100% 100% 100% 100%

HCT.SC.I 0% 100% 100% 100% 100% 100% NA NA

8.4.3 Rebuttable Presumption Payback Period

Sections 325(o)(2)(B)(iii) and 345(e)(1)(A) of EPCA (42 U.S.C. 6295(o)(2)(B)(iii) and

42 U.S.C. 6316(e)(1)(A)), establish a rebuttable presumption for commercial refrigeration

equipment. 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 rebuttable­presumption test is an

alternative path to establishing economic justification.

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

more efficient, standard­compliant equipment, and compared this cost to the value of the energy

saved during the first year of operation of the equipment as determined by ARI 1200­2006.

DOE interprets that the increased cost of purchasing standard­compliant equipment includes the

cost of installing the equipment for use by the purchaser. DOE calculated the rebuttable

8­35presumption 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 this payback

period is less than three years, the rebuttable presumption is satisfied; when this payback period

is equal to or more than three years, the rebuttable presumption is not satisfied. Note that this

payback period calculation does not include other components to the annual operating cost of the

equipment (i.e. maintenance costs and repair costs). The rebuttable presumption payback

periods calculated can thus be different from the payback periods calculated in section 8.4.2.

DOE calculated the rebuttable presumption payback periods for the distribution of

installed costs and energy prices discussed in sections 8.4.1 and 8.4.2 representative of the same

four types of businesses and all 50 States. The baseline efficiency level for the rebuttable

presumption calculation is the Level 1 baseline efficiency. The rebuttable presumption payback

period was calculated for each higher efficiency level within each equipment class.

Table 8.4.5 shows the nationally­averaged rebuttable presumption payback periods

calculated for all equipment classes and efficiency levels. The highest efficiency level with a

rebuttable presumption payback period of less than three years is also shown in Table 8.4.5 for

each equipment class.

Table 8.4.5 Rebuttable Presumption Payback Periods by Efficiency Level and

Equipment Class

Equipment Rebuttable Presumption Payback Period (Years)

Class Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M NA 3.2 2.8 2.6 2.7 2.8 2.9 3.1

VOP.RC.L NA 0.5 0.8 1.1 1.2 1.9 NA NA

VOP.SC.M NA 0.7 0.7 0.8 1.1 1.3 2.0 2.9

VCT.RC.M NA 0.3 0.4 0.6 0.8 2.6 3.7 NA

VCT.RC.L NA 1.4 1.6 1.8 2.1 2.2 2.3 2.7

VCT.SC.I NA 0.2 0.4 0.4 0.6 1.3 1.5 2.0

VCS.SC.I NA 0.3 0.6 0.6 0.7 0.7 0.8 1.2

SVO.RC.M NA 3.2 2.8 2.7 2.8 2.9 3.0 NA

SVO.SC.M NA 0.8 0.8 0.9 1.1 1.3 1.7 2.3

SOC.RC.M NA 0.6 1.0 1.1 1.3 2.9 3.6 NA

HZO.RC.M NA 0.8 1.2 1.5 NA NA NA NA

HZO.RC.L NA 1.2 1.6 1.7 1.8 1.9 NA NA

HZO.SC.M NA 0.7 1.0 1.1 1.1 1.2 1.4 1.8

HZO.SC.L NA 0.6 0.6 0.8 0.8 0.9 1.3 1.3

HCT.SC.I NA 0.7 0.7 1.3 1.4 1.4 NA NA

8.5 LCC SENSITIVY STUDIES

Sensitivity analyses were conducted to evaluate how the LCC and PBP results change

with changes in fuel escalation rate and baseline efficiency level. The results of these are

discussed in sections 8.5.1 and 8.5.2

8.5.1 Sensitivity to Fuel Escalation Rate

Sensitivity to fuel escalation rate was examined using the escalation rates provided in the

AEO 2006 high growth and low growth scenarios. Table 8.5.1 and Table 8.5.2 examine the

national average LCC savings for the AEO 2006 low growth scenario and AEO 2006 high

8­36growth scenarios respectively. For the low growth scenario, while the average LCC savings is

reduced for all efficiency levels above the baseline when compared with the reference case (see

Table 8.4.2), there are no changes in the level showing the highest LCC savings when compared

with the results using AEO 2006 reference case. For the high growth scenario the average LCC

savings is increased for all efficiency levels above the baseline when compared with the

reference case. Two equipment classes, VOP.SC.M and SOC.RC.M show a change in the

efficiency level with the maximum LCC savings. Under the AEO 2006 high growth scenario for

VOP.SC.M, the level with the maximum LCC savings is Level 5, compared to Level 4 in the

AEO 2006 reference case. For SOC.RC.M, the level with the maximum LCC savings is Level 6,

compared to Level 5 in the AEO reference case.

Payback period is calculated based on first year energy savings and thus is insensitive to

fuel escalation rate scenarios.

Table 8.5.1 Average Life­Cycle Cost Savings from a Baseline Level (Level 1) by

Efficiency Level and Equipment Class

– EIA Low Growth Scenario

Equipment National Average LCC Savings (2006$)

Class Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M 0 458 827 1178 1815 2090 2330 2557

VOP.RC.L 0 1168 2513 3382 3337 3290 NA NA

VOP.SC.M 0 732 853 971 1219 1274 1419 1396

VCT.RC.M 0 1006 1260 1536 1682 2237 1781 NA

VCT.RC.L 0 1134 1584 2017 2820 3183 3514 4058

VCT.SC.I 0 1323 2492 2916 3169 5106 5386 5156

VCS.SC.I 0 385 928 1336 1402 1505 1562 1549

SVO.RC.M 0 214 474 720 949 1159 1379 NA

SVO.SC.M 0 533 568 621 794 807 1149 1129

SOC.RC.M 0 806 1716 1648 1822 1755 1425 NA

HZO.RC.M 0 201 419 471 NA NA NA NA

HZO.RC.L 0 225 567 897 1214 1397 NA NA

HZO.SC.M 0 64 276 341 367 428 448 521

HZO.SC.L 0 66 536 1033 1096 1114 1393 1401

HCT.SC.I 0 242 304 703 778 803 NA NA

Percent of Units with Positive LCC Savings

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M 0% 100% 100% 100% 100% 100% 100% 100%

VOP.RC.L 0% 100% 100% 100% 100% 100% NA NA

VOP.SC.M 0% 100% 100% 100% 100% 100% 100% 100%

VCT.RC.M 0% 100% 100% 100% 100% 100% 100% NA

VCT.RC.L 0% 100% 100% 100% 100% 100% 100% 100%

VCT.SC.I 0% 100% 100% 100% 100% 100% 100% 100%

VCS.SC.I 0% 100% 100% 100% 100% 100% 100% 100%

SVO.RC.M 0% 100% 100% 100% 100% 100% 100% NA

SVO.SC.M 0% 100% 100% 100% 100% 100% 100% 100%

SOC.RC.M 0% 100% 100% 100% 100% 100% 100% NA

HZO.RC.M 0% 100% 100% 100% NA NA NA NA

HZO.RC.L 0% 100% 100% 100% 100% 100% NA NA

HZO.SC.M 0% 100% 100% 100% 100% 100% 100% 100%

HZO.SC.L 0% 100% 100% 100% 100% 100% 100% 100%

HCT.SC.I 0% 100% 100% 100% 100% 100% NA NA

8­37Table 8.5.2 Average Life­Cycle Cost Savings from a Baseline Level (Level 1) by

Efficiency Level and Equipment Class

– EIA High Growth Scenario

Equipment National Average LCC Savings (2006$)

Class Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M 0 515 920 1307 2015 2326 2602 2872

VOP.RC.L 0 1253 2704 3655 3617 3612 NA NA

VOP.SC.M 0 787 917 1045 1316 1388 1562 1576

VCT.RC.M 0 1090 1363 1663 1825 2499 2084 NA

VCT.RC.L 0 1230 1724 2201 3092 3499 3873 4507

VCT.SC.I 0 1424 2679 3135 3412 5541 5863 5665

VCS.SC.I 0 413 996 1435 1506 1619 1682 1675

SVO.RC.M 0 241 528 801 1057 1293 1545 NA

SVO.SC.M 0 574 611 669 858 877 1256 1249

SOC.RC.M 0 866 1850 1795 1988 1992 1668 NA

HZO.RC.M 0 216 453 511 NA NA NA NA

HZO.RC.L 0 244 616 977 1326 1527 NA NA

HZO.SC.M 0 68 298 368 397 463 485 568

HZO.SC.L 0 71 575 1112 1180 1200 1508 1518

HCT.SC.I 0 260 327 761 843 871 NA NA

Percent of Units with Positive LCC Savings

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

VOP.RC.M 0% 100% 100% 100% 100% 100% 100% 100%

VOP.RC.L 0% 100% 100% 100% 100% 100% NA NA

VOP.SC.M 0% 100% 100% 100% 100% 100% 100% 100%

VCT.RC.M 0% 100% 100% 100% 100% 100% 100% NA

VCT.RC.L 0% 100% 100% 100% 100% 100% 100% 100%

VCT.SC.I 0% 100% 100% 100% 100% 100% 100% 100%

VCS.SC.I 0% 100% 100% 100% 100% 100% 100% 100%

SVO.RC.M 0% 100% 100% 100% 100% 100% 100% NA

SVO.SC.M 0% 100% 100% 100% 100% 100% 100% 100%

SOC.RC.M 0% 100% 100% 100% 100% 100% 100% NA

HZO.RC.M 0% 100% 100% 100% NA NA NA NA

HZO.RC.L 0% 100% 100% 100% 100% 100% NA NA

HZO.SC.M 0% 100% 100% 100% 100% 100% 100% 100%

HZO.SC.L 0% 100% 100% 100% 100% 100% 100% 100%

HCT.SC.I 0% 100% 100% 100% 100% 100% NA NA

8.5.2 Sensitivity to Baseline Efficiency Level

Sensitivity to the baseline efficiency level was carried out using the LCC analysis

spreadsheet to calculate LCC Savings and Payback Period for each efficiency level using

alternative efficiency levels (e.g. Level 2) selected as the baseline level. The analysis was first

carried out for a single equipment class (VCT.RC.M) and one business type (large grocery),

using national average energy prices for this business type. The results of this analysis,

assuming baseline levels at Level 1, Level 2, Level 3, and Level 4 are shown in Table 8.5.3. For

this product and business type, it is clear that as the assumed baseline level moves from Level 1

to Level 4, the average LCC savings calculated for each level higher than the baseline are

reduced, and the average payback period calculated for each higher efficiency level increases.

The maximum life cycle cost savings is achieved at Level 6, regardless of baseline level

assumed, however this analysis showed positive LCC savings at Level 7 for the three alternative

baseline efficiency Levels (Levels 2­4) examined.

8­38Payback periods to reach a given efficiency level (e.g. Level 7) increase as higher

baseline levels are assumed. For Level 7, the PBP was 3.9 years calculated with a Level 1

baseline. PBP is increased to 6.2 years for a Level 4 baseline.

Table 8.5.3 Sensitivity of Average Life­Cycle Cost Savings and Payback Period to

Selection of Baseline Efficiency Level ­­VCT.RC.M Equipment Class

Baseline Average LCC Savings (2006$)

Level Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

Level 1 0 983 1232 1503 1646 2175 1709 NA

Level 2 NA 0 249 520 664 1193 726 NA

Level 3 NA NA 0 271 414 944 477 NA

Level 4 NA NA NA 0 144 673 206 NA

Average Payback Period (Years)

Level 1 NA 0.3 0.4 0.7 0.9 2.7 3.9 NA

Level 2 NA NA 0.8 1.2 1.5 3.7 5.2 NA

Level 3 NA NA NA 1.6 1.9 4.0 5.6 NA

Level 4 NA NA NA NA 2.4 4.5 6.2 NA

Table 8.5.3 results are for one equipment class and one business type using national

average electricity rates. The behavior of other equipment classes is qualitatively similar, i.e. the

LCC savings is reduced and the payback period is increased when higher efficiency levels are

assumed as the baseline level. However, the degree of change in LCC or payback depends on

the relative shape of the cost­efficiency curves. To examine the impact of baseline level on a

national basis, the LCC spreadsheet was exercised for all business types and equipment classes

and state­by­state electricity prices. The resulting LCC savings and payback periods were

aggregated to national average values. These results are found in appendix G. Figure 8.5.1 and

Figure 8.5.2 illustrate the impact on PBP for two different products, VOP.RC.M and

VCT.RC.M, respectively. The data points on each line on these charts indicate the calculated

PBPs for the efficiency level indicated assuming the baseline shown on the horizontal axis. The

variation in the height of points along a given line (each line representing a specific target

efficiency level) indicates the sensitivity of that level to the choice of baseline. Figure 8.5.1

shows the PBP for the VCT.RC.M equipment class is sensitive to the choice of baseline level,

and that the overall PBP to reach Level 5, 6, or 7 can will vary by approximately 2 years

depending on the choice of baseline level up through a baseline level of Level 5. With a

baseline level selected at Level 6, the payback to reach Level 7 is 12.7 years. By contrast,

Figure 8.5.2 shows that the PBP for VOP.RC.M is less sensitive to the choice of baseline level,

with no more than a 1.3 year variation in average payback period to reach a specific higher

standard level (e.g. level 6) from a possible choice of baseline efficiency level. This is an

indicator of the relative linearity of the cost­efficiency curve for VOP.RC.M (see chapter 5).

8­39National Average Payback Period versus Baseline Level Selection

VCT.RC.M Equipment Class

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0PaybackPeriod(years)

PBP to Level 7

PBP to Level 6

PBP to Level 5

PBP to Level 4

PBP to Level 3 P BP t o

L e v e l 2

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6

Assumed Baseline Level

Figure 8.5.1 Sensitivity of Payback Period to Baseline Efficiency Level

– VCT.RC.M

Equipment Class

National Average Payback Period versus Baseline Level Selection

VOP.RC.M Equipment Class

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0PaybackPeriod(years)

PBP to Level 8

PBP to Level 6

PBP to Level 5

PB P t o L e v e l 4

PBP to Level 3 PB P t o

L e v e l 2 PBP to Level 7

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7

Assumed Baseline Level

Figure 8.5.2 Sensitivity of Payback Period to Baseline Efficiency Level

– VOP.RC.M

Equipment Class

8­408.6 DETAILED RESULTS

DOE presents more detailed results and supporting data for the LCC analysis in

appendix D.

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8­43