CHAPTER 8. LIFE-CYCLE COST AND P AYBACK PERIOD ANALYSES

TABLE OF CONTENTS

8.1 INTRODUCTION .............................................................................................................. 8-1 8.1.1 General Approach for Life-Cycle Co st and Payback Period Analyses ...............8-1 8.1.2 Overview of Life-Cycle Cost and Pa yback Period Analyses Inputs ...................8-2 8.2 LIFE-CYCLE COST ANALYSIS INPUTS....................................................................... 8-4 8.2.1 Definition .............................................................................................................8-4 8.2.2 Total Installed Cost Inputs...................................................................................8-5 8.2.3 Operating Cost Inputs ........................................................................................ 8-11 8.3 PAYBACK PERIOD INPUTS......................................................................................... 8-19 8.3.1 Definition ...........................................................................................................8-19 8.3.2 Inputs.................................................................................................................. 8-20 8.4 RESULTS USING TARIFF-BASE D ELECTRICITY PRICES ..................................... 8-20 8.4.1 Life-Cycle Cost Results .....................................................................................8-20 8.4.2 Payback Period Results...................................................................................... 8-23

LIST O F TABLES

Table 8.1.1 Summary Information of Inputs for the Determination of LCC and PBP ........... 8-4

Table 8.2.1 Inputs for Total Installed Costs ............................................................................ 8-5

Table 8.2.2 Products Evaluated for the BVM Life -Cycle Cost and Payback Analyses ......... 8-6

Table 8.2.3 Baseline Manufacturer Prices per Unit ................................................................ 8-6

Table 8.2.4 Standard-Level Manufacturer Price Incr eases (Price Increases Relative to the Price of Baseline Efficiency Equipment at Level 1) ...................................... 8-7

Table 8.2.5 Overall Baseline Markups by Distribu tion Channel and Overall WeightedAverage, Including the Weighted Av erage Sales Tax, for Manufacturing Facilities ............................................................................................................... 8-8

Table 8.2.6 Overall Incremental Markups by Di stribution Channel and Overall Weighted-Average, Including the We ighted Average Sales Tax, for Manufacturing Facilities ...................................................................................... 8-8

Table 8.2.7 Installation Costs for Baseline BVM equipment ................................................. 8-9

Table 8.2.8 Installation Cost Indice s (National Value = 1.000) ............................................. 8-9

Table 8.2.9 Costs and Markups for Determination of Average Total Installed Costs (BVM)* .................................................................................................... 8-10

8-i8-ii Table 8.2.10 Average Equipment Price, Installation Cost, and Total Installed Costs for BVM (B-L-IO), at U.S. Average Prices (2008$) * ............................................. 8-11

Table 8.2.11 Inputs for Operating Costs ................................................................................. 8-12

Table 8.2.12 Estimated Commercial and Industr ial Electricity Prices by State (2008 cents/kWh) ............................................................................................... 8-13

Table 8.2.13 Derived Average Electricity Price Paid by Business Type ................................ 8-14

Table 8.2.14 .............................. 8-19 Nominal and Real Discount Rates by Ownership Category

Table 8.4.1 ............................. 8-23 Distribution of Life-Cycle Cost Savings from a Baseline Level (Level 1) for A-L-IN BVM Equipment Category by Efficiency Level

Table 8.4.2 ................................. 8-25 Summary of PBP Results fo r BVM Equipment Category

LIST OF FIGURES Figure 8.1.1 ....................... 8-4 Flow Diagram of Inputs for the Determination of LCC and PBP Figure 8.2.1 .............................................................................. 8-14 Cumulative Probability Distribution S howing the Electricity Prices Paid by All Customers (in 2008$) Figure 8.2.2 .................................... 8-16 Electricity Price Trends fo r Commercial Rates to 2042 Figure 8.4.1

..................................... 8-21Effect of the Change in Efficiency Level on Life-Cycle Cost for BottlerOwned A-L-IN BVM in Manufacturing Facilities (2008$) at Average U.S. Conditions (Level 1 is the Baseline Efficiency Level). Figure 8.4.2 ........... 8-22 A-L-IN BVM, Level 4 Efficiency: Cumulative Chart of LCC Savings Figure 8.4.3

....................................................... 8-24 Effect of the Change in Efficiency Level on Payback Period for A-L-IN BVM Equipment category, in Manufacturing Facilities at Average U.S. Conditions (Level 1 is the Baseline Level). Figure 8.4.4 ......................... 8-25 A-L-IN BVM Level 4 Efficien cy: Cumulative Chart of PBPCHAPTER 8. LIFE-CYCL E COST AND PAYBACK PERIOD ANALYSES

8.1 INTRODUCTION This chapter describes the me thodology for an alyzing the economic impacts of possible energy efficiency standards being developed for beverage vending machines (BVMs) on individual customers. The effect of standard s on individual custom ers usually includes a reduction in operating cost and an increase in purchase cost. This chapter describes two metrics used in the analysis to determine the economic impact of standards on individual commercial customers:

 Life-cycle cost (LCC) is 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 life time of the appliance or equipment.

 Payback period (PBP) measures the amount of time it takes customers to recover the assumed higher purchase price of more energy-efficient equipment through reduced operating costs. Inputs to the LCC and PBP analyses of the BVM equipment are discussed in sections 8.2 and 8.3 , respectively. Results for each me tric are presented in section 8.4 . Key variables and calculations are presented for each metric. The calculations d iscusse d here were performed with a series of Microsoft Excel spreadsheets that are acce ssible over the Internet (http://www.eere.energy.gov/buildings/appliance_standards/commer cial/beverage_machines.html). Details of and instructions for using the sp readsheets are discussed in appendix E, User Instructions for Life Cycle Cost Spreadsheet. A more complete set of results of the analyses is presented in appendix F, Detail ed Life-Cycle Cost Output.

8.1.1 General Approach for Life-Cycle Co st and Payback Period Analyses Recognizing that each commerc ial building that uses the BV M equipment is unique, the U.S. Departm ent of Energy (DOE) analyzed vari ability of costs by performing the LCC and PBP calculations detailed here for seven types of bus inesses, which can be categorized as follows:

 manufacturing facilities

 office/healthcare – a large number of firms engaged in financial and other services, headquarters functions, medical and dental offices, outpatien t care, nursing homes, longterm care, and assisted care facilities, and hospitals

 retail – most types of retail stores as we ll as food and beverage service facilities

 schools – primary and secondary, colleges, and universities, and large-group housing facilities owned by state governments, such as prisons

 federal – all federal buildings, including milita ry bases, offices, and housing facilities

 other – facilities such as hot els and motels, warehouses, ai rports, sporting arenas, movie theaters, exhibition halls, and other miscellaneous facilities

8-1 a local bottler or vending m achine service comp any – the most common building type that typically leases space in any one of the six types of buildings, provides vending services, and splits the profits with the owner of the host site through a contract that splits the annual coin box receipts. Vending companies do not typically pay the elec tricity bill associated with their vending machines, but some portion of that bill may be shared with the site owner through the coin box contract. One BVM or BVM unit may serve a mote l/hotel, an office building, a break room in a factory, a convenience store with gas pumps, or a hospital. Beverage vending machines may be located either inside the building or in some cases outside, frequently in a kiosk-like setting. Aside from energy, the most important fact ors influencing LCC a nd PBP analyses are related to the State within the United States to which each BVM unit is shipped. These factors include energy prices, installati on cost, markup, and sales tax. Th e LCC analysis presented here used the predicted energy consumption based on the engineering analys is and reviewed in chapter 7, Building Energy Use Characterizati on. Energy consumption of BVMs located in outdoor settings in this approach is sensitive to climate, so energy us e varies by geographical location. At the national level, the spreadsheets explicitly modeled both the uncertainty and the variability in the model’s input s using probability dist ributions based on the shipment of BVM equipment to different states. The LCC and PBP results are displayed as di stributions of impacts compared to the baseline efficiency level. Results are presented at the end of this chapte r. A variety of graphic displays can be created to illustrate the impli cations of the analysis. Examples of graphic displays are (1) a cumulative probability distri bution showing the percen tage of BVM equipment in U.S. commercial buildings that would expe rience a net savings, and (2) a frequency chart depicting variation in life-cycle cost fo r each BVM efficiency level considered.

8.1.2 Overview of Life-Cycle Cost and Payback Period Analyses Inputs

The LCC is the total cu stomer cost over the life of the equipment, including purchase cost and operating cost (including ener gy cost). Future operating costs are discounted to the time of purchase and summed over the lifetime of the equi pment. The PBP is the increase in purchase cost of higher efficiency equi pment divided by the decrease in annual operating cost (because of the lower energy consumption) of the equipment. 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 analyses are categorized as follows: (1) inputs for establishing the purchase cost, otherwise known as the total installed cost, and (2) inputs for calculating the operating cost ( i.e ., energy, maintenance, and repair costs). The primary inputs for establishing the total installed cost are:

 Baseline manufacturer price : The price charged by the manufacturer to either a wholesaler or customer for equipment meeting existing minimum efficiency (or baseline) standards. The manufacturer price includes a markup that converts the cost to manufacture to a manufacturer price.

8-2 Standard-level manufacturer price increases : The incremental change in manufacturer price associated with producing equipment at ea ch of the proposed hi gher standard levels.

 Markups and sales tax : The markups and sales tax a ssociated with converting the manufacturer price to a customer price. The markups and sales tax are described in detail in chapter 6, Markups for Equipment Price Determination.

 Installation price : The cost to the customer of inst alling the equipment. The installation price represents all costs required to inst all the equipment but does not include the marked-up customer equipment price. The in stallation price include s labor, overhead, and any miscellaneous materials and parts. Thus, th e total installed cost equals the customer equipment price plus the installation price. The primary inputs for calcula ting the operating cost are:

 Equipment energy consumption : The equipment energy consum ption is the site energy use associated with the use of the BVM equi pment. Although there are potentially some interactive effects on the overall heating and cooling of the building, for purposes of the NOPR, the LCC analysis includes only the use of electricity by the equipment itself. This approach is consistent with most othe r DOE equipment efficiency rulemakings. Chapter 7, Energy Use Characterization, provides complete details on the BVM equipment energy use simulations and their results.

 Electricity prices : Electricity prices used in the anal ysis are the price per kilowatt-hour ($/kWh) paid by each customer. Electricity prices are determined using average commercial and industrial electri city prices in each State, as determined from Energy Information Administration (EIA) data for 2008. 1 The two types of buildings that use industrial electricity are assumed to pay the average industrial price. The 2008 average commercial prices were modified to reflect the fact that th e four types of buildings pay commercial prices and use BVM equipment pa y prices that, on average, are either slightly higher or lower than the average commercial prices. 2

 Electricity price trends : The EIA’s Annual Energy Outlook 2009 (AEO 2009) is used to forecast electricity prices into the future. 3 For the results presented in this chapter, DOE used the AEO 2009 reference case to forecast future electricity prices.

 Maintenance costs : The labor and material costs a ssociated with maintaining the operation of the equipment ( e.g ., cleaning heat exchanger coils, checking refrigerant charge levels).

 Repair costs : The labor and material costs associ ated with repairing or replacing components that have failed.

 Lifetime : The age at which the BVM or BVM equipment is retired from service.

 Discount rate : The rate at which future costs are discounted to estab lish their present value. Figure 8.1.1 graphically depicts the re lationships between the in stalled cost and operating cost inputs for the calculation of the LCC and PBP. Table 8.1.1 summarizes the various inputs used for the calculation of th e LCC and PBP. As noted earl ier, m ost of the inputs are characterized by probability distributions that capture variability of the input variables. Also

8-3listed in Table 8.1.1 are chapters in the technical suppor t document (TSD) where m ore detailed information on the input variables can be found.

Installation 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 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

Figure 8.1.1 Flow Diagram of Inputs fo r the Determination of LCC and PBP
Table 8.1.1 Summary Information of Inputs for the Determination of LCC and PBP

Factor Value Concept TSD Reference Section Total Installed Cost Primary Inputs Baseline manufacturer price Varies with product Chapter 5 Standard-level manufacturer 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, efficiency level, and location Chapter 7 Electricity prices Vary with location, business/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

. 8.2 LIFE-CYCLE COST ANALYSIS INPUTS

8.2.1 Definition Life-cycle c ost is the total customer cost over the life of a piece of equipment, including purchase cost and operating costs (which comprise energy costs, maintenance costs, and repair

8-4costs). Future operating costs are discounted to the time of purchase and summed over the lifetim e of the equipment. Life-cycle co st is defined by the following equation:

Eq. 8.1 

# 

   N

t t t rOCICLCC

1 )1/(

Wh ere: LCC = life-cycle cost ($), IC = total installed cost ($), ∑ = sum over the lifetime, from year 1 to year N, where N = lifetime of equipment (years), OC = operating cost ($),

r = discount rate, and t = year for which operating cost is being determined. Because DOE gathered most of its data for the LCC analysis in 2008, DOE expresses all the costs in 2008$. Total installed cost, operating cost, lifetime, a nd discount rate are discussed in the following sections.

8.2.2 Total Installed Cost Inputs The total installed cost to the customer is defined by the following equation: Eq. 8.2 INST EQPIC   Wh ere: EQP = equipment price ( i.e ., customer price for the e quipment only), expressed in dollars, and INST = installation cost or the customer price to install equipment ( i.e. , the cost for labor and materials), also expressed in dollars. The equipment price is based on how the customer purchases the equipment. As discussed in chapter 6, Markups for Equipment Pr ice Determination, DOE defined three types of distribution channels to desc ribe how the equipment passes from the manufacturer to the customer: (1) the manufacturer sells the equipment to a wholesaler , who in turn, sells it to the vending machine operator; (2) the manufacturer sells the equipment to a wholesaler/distributor, who sells to a site owner; or (3) the manufacturer sells the equipment to the local vending machine operator through a nationa l account. The remainder of this section provides information about the variables DOE used to calculate the total in stalled cost for BVM equipment. Inputs for the determination of total installed cost are shown in Table 8.2.1

. Table 8.2.1 Inputs for Total Installed Costs Baseline manufacturer price ($) Standard-level manufactur er price increases ($) Wholesaler markup Mechanical contractor markup General contractor markup National accounts markup

8-5Sales tax (%) Installation cost ($)

8.2.2.1 Baseline Manufacturer Price The baseline manufacturer price is the pr ice charged by manufacturers to either a wholesaler/distributor or ve ry large customer for equipment meeting existing minimum efficiency (or baseline) standard s. The manufacturer price incl udes a markup that converts the cost to manufacture ( i.e. , the manufacturing cost) to a manuf acturer price. DOE developed the baseline manufacturer prices th rough an efficiency level analysis supplemented by certain design-option considerations. Refe r to chapter 5, Engineering An alysis, for details. The LCC and PBP have been carried out on a set of six equipm ent size categories in tw o equipment classes (A and B) identified in chapter 5. The set of six equipment categor ies evaluated is shown in Table 8.2.2

. Table 8.2.2 Products Evaluated for the BVM Life-Cycle Cost and Payback Analyses Equipment Category Symbol Class B, Large, Indoor-Outdoor B-L-IO Class B, Medium, Indoor-Outdoor B-M-IO Class B, Small, Indoor-Outdoor B-S-IO Class A, Large, Indoor Only A-L-IN Class A, Medium, Indoor Only A-M-IN Class A, Small, Indoor Only A-S-IN DOE developed the manufacturer selling prices for the baseline efficiency equipment as a part of the engineering analysis, which are shown in Table 8.2.3

. Table 8.2.3 Baseline Manufacturer Prices per Unit Equipment

Category Baseline Manufactu rer Price (2008$)

B-L-IO $1,725.34 B-M-IO $1,667.51 B-S-IO $1,468.18 A-L-IN $2,368.67 A-M-IN $2,187.45 A-S-IN $1,817.34

8.2.2.2 Standard-Level Manufacturer Price Increases The standard-level manufacturer price incr ease is the change in manufacturer price associated with producing equipment at propos ed higher efficiency levels. DOE developed manufacturer price increases associated with in creases in equipment efficiency levels through a combination of efficiency level and design-optio n analyses. Refer to chapter 5, Engineering Analysis, for details. Manufacturer price increases as a function of equipment efficiency were developed for each of the six equipment cate gories. The engineering analysis produced 9 efficiency levels (Levels 0–8) that were used in the LCC and PBP analyses . Most of the analysis presumes at least ENERGY STAR Tier 1 efficiency (Level 1) in the market. As of 2008 most currently shipped BVM equipment meets the ENER GY STAR TIER 1 leve l. By 2012, a large fraction (but not all) is expect ed to meet the ENERGY STAR TIER 2. DOE often establishes the

8-6baseline level for the L CC analysis on what best repres ents the bottom end of the efficiencies currently shipped, in this case the ENERGY STAR Tier 1 level. The highest (Level 8) is considered the ma ximum technologically achievable efficiency level. Appendix D discusses the selection of e fficiency levels for the LCC and PBP analyses. The efficiency level analysis established a di stribution of manufacturer price increases for each efficiency level. Table 8.2.4 summarizes the estimated manufacturer price increases for BVM efficiency levels considered in the LCC and PBP analyses.

Table 8.2.4 Standard-Level Manufacturer Price Increases (Price Increases Relative to the Price of Baseline Efficiency Equipment at Level 1) Equipment Type Level 2 Level 3 Level 4 Le vel 5 Level 6 Level 7 Level 8 $23 $40 $75 B-L-IO $87 $507 $1,660 $1,660 $23 $44 $79 B-M-IO $91 $511 $1,530 $1,530 $23 $70 $70 B-S-IO $82 $502 $1,388 $1,388 $27 $65 $106 A-L-IN $136 $166 $198 $1,419 $47 $56 $113 A-M-IN $157 $187 $217 $1,234 $37 $80 $122 A-S-IN $147 $172 $199 $1,116

8.2.2.3 Overall Markup For a given distribution channel, the ove rall markup is the value determined by multiplying all the associated retail markups an d the applicable sales tax. Because there are baseline and incremental markups associated with the wholesaler and mechanical contractor, the overall markup is also divide d into a baseline markup ( i.e. , a markup used to convert the baseline manufacturer price into a customer price) and an incremental markup ( i.e. , a markup used to convert a standard-level manufact urer price increase because of an efficiency increase into an incremental customer price). As discussed in chapter 6, Markups for Equi pment Price Determination, overall markups are based on one of three assumed distribution channels, as well as whether the equipment is being purchased for the new construction or the replacement market. The distribution channel is based on whether equipment is purchased through (1) a wholesaler/distributor, or (2) a national account. Based on input from equipment manufacturer s, for the new construction market it appears that 27 percent of equi pment is purchased by vendors or local bottlers directly from wholesaler/distributors, 5 percen t is purchased by site owners fr om wholesaler/distributors, and 68 percent is purchased by local vendors thr ough national accounts. DOE’s understanding is that most existing equipment replacements are done as a result of obsolescence or failure after two rounds of machine refurbishment. DOE has assume d that this split of percent of equipment purchases among the distribution ch annels is the same for new and replacement equipment. With three distribution channels, there are a total of six overall baseline and incremental markups possible. All six sets of overall markups and their associated compone nts are presented in Table 8.2.5 and Table 8.2.6 for the baseline and incremental markups, respectively, for Manufacturing Facilities . Sim ilar tables were calculated for the six other business types.

8-7Based on th e percen tages of the market attr ibuted to each of the three distribution channels, weighted-average overall markups are also presented in Table 8.2.5 and Table 8.2.6

. The overall weighted-average ba seline m a rkup for Manufacturing Facilities equals 1.14, while the overall weighted-average incremental mar kup equals 1.10. See chapter 6 for details.Table 8.2.5 Overall Baseline Markups by Distribution Channel and Overall WeightedAverage, Including the Weighted Average Sales Tax, for Manufacturing Facilities

Wholes aler/Di stributor to Site Owner or Vendor Manufacturer Direct to Vendor Overall Weighted Average Distributor(s) Markup 1.460 1.000 1.069 Sales Tax 1.070 1.070 1.070 Total Markup 1.562 1.070 1.144 Table 8.2.6 Overall Incremental Markups by Distribution Channel and Overall Weighted-Average, Including the Weighted Average Sales Tax, for Manufacturing Facilities

Wholes aler/Di stributor to Site Owner or Vendor Manufacturer Direct to Vendor Overall Weighted Average Distributor(s) Markup 1.200 1.000 1.030 Sales Tax 1.070 1.070 1.070 Total Markup 1.284 1.068 1.102
8.2.2.4 Installation Cost The installation cost is the price to the cust omer of labor and materials (other than the actual equipment) needed to install the BVM equipment. DOE derived installation costs for BVM equipment from data in Foster-Miller, Inc., which provides estimates on the person-hours required to install BVM and the la bor rates associated with the t ype of crew required to install the equipment. 4 The installation cost was calculated by multiplying the number of person-hours by the corresponding labor rate. Labor rates vary significantly from region to region of the country and the U.S. Bureau of Labor Statisti cs (BLS) provides the necessary information to capture this regional variability. 5 BLS provides median wage rates for installation, maintenance, and repair occupations that reflect labor ra tes for each individual State and allows the computation of State labor cost indices relative to the national average for these occupations. These cost indices were incorporated into the an alysis to capture variation in installation cost, depending on customer location.

Since data were not available to indicate how installation costs actually vary with BVM or BVM equipment category or efficiency, DOE c onsidered two scenarios: (1) installation costs varied in direct proportion to th e cost of the equipment, or (2) installation costs remained flat (not varying with cost of the equipment). For th e former case, the engine ering analysis developed linear relationships of installation cost as a function of efficiency for BVM equipment. All baseline equipment, however, in a given equipm ent category, is assumed to have the same baseline installation costs.

Table 8.2.7 summarizes the nationally represen tative person-hours and labor rates associated w ith th e installation of BVM e quipment as presented in Foster-Miller Inc. 4 In

8-8Table 8.2.7 , both “bare” inst alla tion costs ( i.e. , costs before overhead and profit [O&P]) and installation costs including O&P are provided. DOE decided that the installation costs that include O&P represent the installation costs for baseline equipment. The installation costs are assumed to remain fixed regardless of efficiency level (a “flat” installation cost scenario). However, the LCC spreadsheet allows for an al ternative scenario; that the installation cost increase with higher efficiency levels, and this alternative was implemented in the LCC spreadsheet by providing for an installation pr ice that varies in proportion to increased manufacturer cost above the base line efficiency level. DOE did not, however, find a basis for the latter assumption. Table 8.2.7 Installation Costs for Baseline BVM equipment Labor Base Costs (2008$) Equipment Type Person-Hours Labor Rate Cost All BVMs 2.0 (1 hr • 2 workers) $37.95/hr $75.96

The basis for the installation costs ar e 2002 labor costs (adjusted to 2008$) for installation of mercantile equipment. Daily ra tes were for a two-person installation crew, requiring one hour (including se rvice call driving time) on av erage to set up a BVM.

Table 8.2.8 summarizes the cost indices for installations in each of the 50 States, plus the District of Colum bia, used to vary the na tionally representative installation costs in Table 8.2.7

. Table 8.2.8 Installation Cost I ndices (National Value = 1.000)

State Index State Index State Index Alabama 0.916 Kentucky 0.927 North Dakota 0.948 Alaska 1.341 Louisiana 0.885 Ohio 0.998 Arizona 0.958 Maine 0.912 Oklahoma 0.908 Arkansas 0.854 Maryland 1.060 Oregon 1.038 California 1.105 Massachusetts 1.147 Pennsylvania 0.989 Colorado 1.042 Michigan 1.121 Rhode Island 1.030 Connecticut 1.153 Minnesota 1.083 South Carolina 0.914 Delaware 1.009 Mississippi 0.817 South Dakota 0.871 Dist. of Columbia 1.167 Missouri 0.957 Tennessee 0.907 Florida 0.889 Montana 0.932 Texas 0.878 Georgia 0.962 Nebraska 0.929 Utah 1.000 Hawaii 1.095 Nevada 1.081 Vermont 0.953 Idaho 0.898 New Hampshire 1.009 Virginia 1.002 Illinois 1.089 New Jersey 1.146 Washington 1.140 Indiana 1.004 New Mexico 0.867 West Virginia 0.836 Iowa 0.922 New York 1.070 Wisconsin 1.027 Kansas 0.986 North Carolina 0.952 Wyoming 1.056

8.2.2.5 Weighted-Average Total Installed Cost As presented in Eq. 8.2 , the total installed cost is the sum of t he equipment price and the installation cost. DOE derived the customer e quipment price for any given standard level by multiplying the baseline manufactur er price by the baseline markup and adding to it the product of the incremental manufacturer price and the in cremental markup. Because manufacturer prices, markups, and the sales tax all can take on a variety of values, depending on location, the

8-9resulting total ins t alled cost for a particular effi ciency level will not be a single-point value, but rather a distribution of values. As an example, the average costs for the B- L-IO equipment category (manufacturer sale price of $1,780) are presented for the baseline level at national average markup rates and national average installation cost s. The section also applies the corresponding incremental values to provide an indication of the increas e in the total installed cost of the higher efficiency equipment.

The derivation of the total installed cost is relatively straightfo rward. The baseline manufacturer price and the standard-level manufact urer price increases are the starting points for determining the total installed cost (values are taken directly from Table 8.2.3 and Table 8.2.4 ). The baseline and incremental m a r kups, the sales tax, and installa tion costs are used to convert the manufacturer prices into total installed costs for BVM equipment where the incremental installation costs are held flat. Table 8.2.9 summarizes the average or mean costs and markups necessary for determ ining the averag e baseline and standard-level total installed costs. Table 8.2.9 Costs and Markups for Determ ination of Average Total Installed Costs (BVM)*

Variable Average or Mean Value Baseline Manufacturer Sale Price $1,780 Standard-Level Manufacturer Price Increase (Efficiency Level 4) $75 Overall Baseline Markup 1.144 Overall Incremental Markup 1.102 Installation Cost–Baseline $76 1.00 ** Installation Cost Factor –Incremental

* Incremental installation costs held flat

** National incremental cost index on a populatio n-weighted national basis is equal to 1.00. To illustrate the derivation of the weighted-average total installed cost shown in Table 8.2.10 , DOE presents the calculation below for the baseline efficiency and higher efficiency (Level 4) BVM. For baseline product, the calculation of the total installed cost at national average conditions is as follows:

IC BASE BVM = EQP BASE- BVM +INST BASE- BVM Eq. 8.3 = MFG BASE- BVM • MU BASE- BVM + INST BASE-BVM = $1,780 • (1.144) + $76 =$2,036 + $76 = $2,112 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 price, expressed in dollars, and MU = markup. In this specific example, MFG is the national average baselin e manufacturer price for the BVM equipment category and MU is the overall baseline markup. The calculation of the higher

8-10efficiency (Level 4) total installed co st incl udes the use of a m anufacturer price adder. In addition, DOE derived an incremental markup. Based on incremental equipment price change s, the derivation of the Level 4 total installed cost is based on determining the change in equipment price over the baseline equipment price. The manufacturer price increment for higher efficiency equipment is multiplied by the incremental markup. DOE calculated the Level 4 total installed cost ( IC BVM LEVEL4 ) as follows:

IC BVM LEVEL4 = EQP BVM LEVEL4 + ∆ EQP BVM LEVEL4 + INST BVM LEVEL4 •(MFG BVM LEVEL4 / Eq. 8.4 MFG BASE BVM )

= MFG BASE BVM •MU BASE BVM + ∆ MFG BVM LEVEL4 •MU BVM LEVEL4 + INST• ISTINDEX = $1,780 • (1.144) + $75 • (1.102) + $76 • (1.00) = $2,195

Where: IC = total installed cost, expressed in dollars, EQP = equipment price, expressed in dollars, Δ EQP = change in the equipment price, expressed in dollars, INST = installation cost or the customer price to install equipment, expressed in dollars, MFG = manufacturer sale pr ice, expressed in dollars, MU = markup, ISTINDEX = location dependent, but approxi mately 1.0 at a national average.

Table 8.2.10 presents the weighted-average equipment price, installation costs, and total installed costs for the B V M equipment category at the baseline level and each proposed higher efficiency level. Table 8.2.10 Average Equipment Price, Installa tion Cost, and Total Installed Costs for BVM (B-L-IO), at U.S. Average Prices (2008$) *

Efficiency

Level Equipment Installation Total Installed Price Cost Cost 1 $2,036 $76 $2,111 2 $2,061 $76 $2,137 3 $2,079 $76 $2,155 4 $2,118 $76 $2,194 5 $2,131 $76 $2,207 6 $2,594 $76 $2,670 7 $3,865 $76 $3,941 *Results may not match text due to rounding.
8.2.3 Operating Cost Inputs DOE based the operating cost for the L CC analysis on energy consumption data developed from whole-building si mulations on a sample of build ings from the 2003 Commercial

8-112 Building Energy Consumption Survey (CBECS)

. After the LCC analysis was perform ed, DOE generated a distribution of LCC differences ( i.e ., the LCC difference between the baseline efficiency equipment and equipment with a higher efficiency level) to determine the mean LCC difference, as well as the percentage of customer s analyzed that had LCC savings associated with more energy-efficient equipment. DOE defined the operating cost by the following equation:

OC = EC+ RC+ MC Eq. 8.5

Where: OC = operating cost, EC = energy cost associated with operating the equipment, RC = repair cost associated with component failure, and MC = service cost for maintaining equipm ent operation (all of the above expressed in dollars). The remainder of this section provides inform ation about the variables that DOE used to calculate the operating cost for BVM equipment.

Table 8.2.11 shows the inputs for the determinati on of operating costs. The lifetim e, discount rate, and effective date of the efficiency standard ar e required f or determining the operating cost and for establishi ng the operating cost present valu e. The electricity consumption for the baseline efficiency and standard cases (effi ciency levels 1, 2, etc.) is used to determine the operating costs of the equipment. Table 8.2.11 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 o f electricity prices . This section describes the electricity price (cents/kWh) analysis used to develop the energy portion of th e annual operating costs (price multiplied by the electricity consumption) for BVM equipment in the hotel/motel sector. Subdivision of the country

. Because of the wide variati on in electricity consumption patterns, wholesale costs, and retail rates across th e country, it is important to consider regional differences in electricity prices. For this reason, DOE divided the continental United States into the 50 States and the District of Columbia. DOE used reported averag e effective commercial electricity prices (which appl y to four of the six building types) and the lower industrial

8-12electricity prices (which are assu m ed to apply to the m anufacturi ng plants and federal facilities) at the state level from an EIA database on commercial and industrial electricity prices. 1 The latest available prices from this source are for the calendar year 2008. Table 8.2.12 provides data on the state electricity prices.

Table 8.2.12 Estimated Commercial and Indus trial Electricity Prices by State (2008 cents/kWh)

Co m mercial Electricity

Price Industrial Commercial Electricity

Price Industrial Commercial Electricity

Price Industrial Electricity

Price Electricity Price Electricity Price State State State Alabama 9.61 5.92 Kentucky 7.10 4.78 North Dakota 6.72 5.54 Alaska 13.11 14.41 Louisiana 10.24 8.04 Ohio 9.15 6.16 Arizona 8.95 6.70 Maine 13.00 11.93 Oklahoma 8.19 6.04 Arkansas 7.72 5.97 Maryland 12.68 10.50 Oregon 7.55 4.97 California 13.07 10.28 Massachusetts 16.01 14.24 Pennsylvania 9.40 7.03 Colorado 8.72 6.63 Michigan 9.41 6.87 Rhode Island 15.25 14.21 Connecticut 15.94 13.83 Minnesota 7.86 6.00 South Carolina 8.47 5.30 Delaware 11.98 10.31 Mississippi 9. 94 6.39 South Dakota 6.79 5.30 Dist. of Col. 13.74 11.52 Missouri 6.67 5.00 Tennessee 8.60 6.02 Florida 10.01 8.19 Montana 8.47 6.46 Texas 10.83 8.97 Georgia 9.16 6.70 Nebraska 6.59 5.14 Utah 6.77 4.68 Hawaii 29.64 26.01 Nevada 10.14 8.28 Vermont 12.50 9.01 Idaho 5.63 4.56 New Hampshire 14.12 13.05 Virginia 7.15 5.45 Illinois 8.79 6.91 New Jersey 14.94 12.82 Washington 6.72 4.78 Indiana 7.62 5.42 New Mexico 8.65 6.46 West Virginia 5.99 4.15 Iowa 7.26 4.92 New York 17.02 10.34 Wisconsin 9.19 6.50 Kansas 7.74 5.83 North Carolina 7.61 5.53 Wyoming 6.63 4.47 Furthermore, DOE recognized that different ki nds of businesses typically use electricity in different amounts at different times of the da y, week, and year, and therefore face different effective prices. To make this adju stment, DOE used the 2003 CBECS data 2 set to identify the average prices paid by the four kinds of commercial businesses in this analysis compared with the average prices paid by all commercial cust omers (manufacturing and federal facilities are assumed to pay the average industrial price). Th e ratio of prices paid by the five types of commercial buildings was used to increase or de crease the average commercial electricity prices as shown in Eq. 8.6.

EPRICE COM BLD I STATE 2008 = EPRICE COM STATE 2008 • (EPRICE BLDG I US 2003 /EPRICE COM US 2003 ) Eq. 8.6

Where: EPRICE COM BLD I STATE 2008 = average commercial sector electricity price paid by business type I in a sp ecific state in 2008, EPRICE COM STATE 2008 = average commercial sect or electricity price in a specific state in 2008, EPRICE BLDG I US 2003 = national average commercial sector electricity price paid by business type I in 2003 CBECS, and EPRICE COM US 2003 = national average commercial sector electricity price in 2003 CBECS.

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

8-13Table 8.2.13 Derived Average Electricit y Price Paid by Business Type*

Office an d

Health

Care Business Type Manufacturing (Use Industrial) Retail School Military (Use Industrial) Other All Commercial

Buildings Electricity Price 6.4 7.7 8.5 7.4 6.1 7.9 7.9 (cents/kWh) Ratio of Electricity Price to Average Price for all Commercial Buildings 1.000 x Industrial 0.975 1.074 0.937 1.000 x Industrial 0.996 1.000

*Source: CBECS 2003 Once the building types have prices adjusted, the resulting estimated prices paid are the electricity prices used in the analysis. To obtai n a weighted average national price, the prices paid by each building in each state are weighted by the estimated sales of BVM equipment in each state to each prototype bu ilding type, based on population. 6 The state/building type weights are the probabilities that a given BVM or BVM e quipment shipped will be operated with a given price. For evaluation purposes, the prices a nd weights can be depicted as a cumulative probability distribution. The effective prices ra nge from approximately 4.2 cents per kWh to approximately 32 cents per kWh. Figure 8.2.1 illustrates the results for all customers.

Figure 8.2.1 Cumulative Probability Distribution Showing the Electricity Prices Paid by All Customers (in 2008$)

8-148.2.3.2 Electricity Price Trend The electricity price trend provides the relativ e change in electricity prices for future years out to the year 2030. Estima ting future electricity prices is difficult, especially considering that there are efforts in many st ates throughout the country to re structure the electricity supply industry. DOE applies a projected trend in national aver age electricity prices to each customer’s energy prices. Of the following four scenarios, the LCC analysis uses the AEO 2009 1 reference price scenario:

1. Constant energy prices at 2008 values (Constant at 1.0 in Figure 8.2.2 )

2. AEO 2009 , High Price (“High” in Figure 8.2.2 )

3. AEO 2009 , Reference Case (“AEO 2009” in Figure 8.2.2 )

4. AEO 2009 , Low Price (“Low” in Figure 8.2.2 ) Figure 8.2.2 shows the trends for the three AEO 2009 commercial price projections where prices are assumed to change. DOE extr apolated the values in later years ( i.e. , after 2030) from their relative sources because AEO 2009 does not forecast beyond 2030. To arrive at values for these later years, DOE used the price trend from 2020–2030 of the forecast to establish prices in 2030–2042. This method of extrapolation is in line with methods currently used by the EIA to forecast fuel prices for the Federal Energy Management Program.



### Commercial Electricity Price Projections

0.80 0.90 1.00 1.10 1.20 1.30 1.40 1.50

2002 2012 2022 2032 2042 2052 YearIndex (2008=1.00) High AEO 2009 Low

8-15Figure 8.2.2 Electricity Price Tren ds for Commercial Rates to 2042
The default electricity price trend scenario used in the LCC analysis is the trend from the AEO 2009 Reference Case, 1 which is the middle line in Figure 8.2.2 . Spreadsheets used in calculating the LCC have the cap ability to analyz e the other electricity price trend scenarios, namely, the AEO 2009 High Price and the AEO 2009 Low Price 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 BVM equipment that have failed. DOE based the a nnualized repair cost for baseline efficiency equipment on the Foster-Miller Inc. 2002 report 4 and were adjusted to 2008 prices. Because data were not available to indicate how repair costs vary with equipment efficiency, DOE considered two scenarios: (1) re pair costs that varied in direct proportion with the manufacturer price of the equipment and (2) repair costs that were kept constant ( i.e. , did not increase with efficiency). DOE used repair costs that increase with manuf acturer price (the first scenario above) as the default annualized repair cost scenario in the LCC and PBP an alysis. Spreadsheets were used to calculate LCC and PBP based on the second scenario as well.

8.2.3.4 Maintenance Cost

The maintenance cost is the cost to the c onsumer of maintaini ng 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). Virtually no data are available on annual ma intenance cost per unit. DOE estimated the annualized maintenance costs for BVM equipm ent from data in comments provided by stakeholders at the ANOPR. The cost of the ba sic preventative maintena nce for an individual BVM or BVM unit is $97 per year (2008$) and the annualized value of the single refurbishment/remanufacturing (one-time cost of approximately $550 at the 5-year point in the equipment lifetime) is about $57 (2008$), which varies with the discount rate. Total annualized maintenance cost is approximately $154 per ye ar for the largest BV M equipment market segment (bottlers).

Because data were not available to indicate how maintenance costs vary with equipment efficiency, DOE decided to use preventative maintenance costs that remain constant as equipment efficiency increases.

8.2.3.5 Lifetime DOE defined lifetime as the age when a BVM un it is retired from service. DOE based the lifetime on comments received during the ANOPR, which concluded that a typical lifetime of 10 years is appropriate for BVM equipment, whic h is typically replaced when buildings are renovated about every 10 years before the e quipment would have physically worn out. Furthermore, DOE modeled the lifetime BVM equipment as a We ibull statistical distribution

8-16with an average lifetim e of 10 years and a m aximu m lifetime of 15 years. Because of this, there is a used-equipment market for these produc ts. DOE understands, however, that the salvage value to the original purchaser is very low and th us this has not been taken into account in the LCC analysis. Chapter 3, Market and Tec hnology Assessment, contains a discussion of equipment life.

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 fo r the LCC analysis by estimating the cost of capital for companies that purchase BVM equipment. The cost of capital is commonly used to estimate the present value of cash flows to be derived from a typica l company project or investment. Most companies use both debt and equ ity capital to fund investments, so their cost of capital is the weighted average of the cost to the company of equity and debt financing. DOE estimated the cost of equity financi ng by using the Capital Asset Pricing Model (CAPM). Among the most widely used models to estimate the cost of eq uity financing, CAPM 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 financ ing by using several va riables, including the risk coefficient of a company ( 

### β -beta), the expected retu rn on “risk-free” assets ( R f ), and the additional return expected on assets facing averag e 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 a nd 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 equ ity financing for a particular company:

k

e = R f + ( β • ERP) Eq. 8.7

Where: ke = the cost of equity for a company, expressed in dollars, Rf = the expected return of the risk-free asset, expressed in dollars. β = the risk coefficient, and ERP = the expected equity risk premium, expressed in dollars. DOE defined the risk-free rate as the yiel d (January 2007) on long-term government bonds. DOE used a 5.5 percent estimate for the ERP based on data from the Damodaran Online site. 7
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

8-17taxes. DOE estim ated th e cost of debt for companies by adding a risk adjustment factor to the current yield on long-term corporat e bonds (the risk-free ra te). It used this procedure to estimate current (and future) company costs to obtain debt financing. It based th e adjustment factor on indicators of company risk, such as credit rating or variabilit y of stock returns. The weighted average cost of capital (WACC) of a company is the weighted average cost of debt and equity financing: k = k e • w e + k d • w d Eq. 8.8 Where: k = the (nominal) cost of capita l, expressed as a percentage, k e = the expected rate of return on equity, expressed as a percentage, k d = the expected rate of return on debt, expressed as a percentage,

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

w d = the proportion of debt financi ng 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 re al discount rate or WACC deducts expected inflation ( r ) from the nominal rate. DOE calculated expe cted inflation (2.0 percent) from the average of the projected change in gr oss domestic product (GDP) prices in the Economic Report of the President

. 8
To estimate the WACC of BVM equipment purchasers, DOE used a sample of companies involved in large hotel/motel chai ns drawn from a database of over 7,000 U.S. companies given on the Damodaran Online website, 7 which includes most of the publicly traded companies in the United States. DOE divided the companies into the six ownership categories shown in Table 8.2.14 accord ing to their type of activity. DOE sought financial information for all of the firms in the full sample involved in the six lines of busine ss. This resulted in a final sample of about 4,139 firms. In cases where one or more of the va riables 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 th e full database for this reason.

8-18Table 8.2.14 Nominal and Real Discount Rates by Ownership Category

No . of Com panies Weighted Average Cost of Capital Standard Deviation Weighted Real Cost of Capital Ownership Category Bottlers 10 7.65% 1.29% 5.54% Manufacturing 1894 8.37% 1.87% 6.25% Office and Health Care (Financial, Services, and Diversified Companies) 1760 6.90% 1.88% 4.81%
Retail Trade (Restaurants, Building Supplies, Retail Automotive, Retail (Special Lines), General Retail, Pharmacy Services) 243 8.12% 1.65% 6.00%

Schools NA 4.40% 0.0% 2.35% Military NA 5.09% 0.0% 3.03% Other ( Arts and Entertainment, Transportation/Warehousing, Wholesale 232 7.63% 1.54% 5.23%
Hotels/Motels) Source: Pacific Northwest National Laboratory (PNNL) calcula tions applied to firms samp led from the Damodaran Online website. 7 Deducting expected inflation from the cost of capital provides the estimates of the real discount rate by owners hip category shown in Table 8.2.14 . The overall weighted average is 5.54 percen t because of the m arket dominance of bottlers. Although bottlers represent only 10 companies in Table 8.2.14 , they purchase the vast majority of BVMs.

8.2.3.7 Effective Date of Standard

The effective date is the future date when a new standard becomes operative. Pursuant to 42 U.S.C. 6313(a)(6)(c), the effective date of any new energy efficiency standard for BVM equipment will be 3 years after the final rule is published. DOE calculated the LCC for all customers as if they each would purchase a ne w BVM or BVM unit in the year the standard takes effect. Consistent with its published regu latory agenda, DOE assumed that the final rule would be issued in 2009 and that, therefore, th e new standards would take effect in 2012 and used these dates in the NOPR analyses. It based the cost of the equipmen t on this year; however, all dollar values are expressed in 2008$. Annual energy prices are considered for the life of the BVM equipment.

8.3 PAYBACK PERIOD INPUTS

8.3.1 Definition The payback period is the amount of time it ta kes the customer to recover the assumed higher purchase cost of more energy-efficient eq uipment 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 operati ng expenditures. This type of calculation is known as a “simple” payback period, because it does not take into account changes in operating cost over time or th e time value of money; that is , the calculation is done at an effective discount rate of 0 percent. The equation for PBP is:

8-19PBP = ∆ IC/ ∆ OC Eq. 8.9

Where: PBC = 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 equipment, and ∆ OC = difference in annual operating costs. Payback periods are expressed in years. Pa yback periods greater than the life of the equipment mean that the increased total installed cost of the more efficient equipment is not recovered fast enough in reduced operating costs.

8.3.2 Inputs

The data needed for the PBP calculation are th e 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 installe d cost are the equipment price and the installation cost. The inputs to the operating costs are the an nual energy cost, the annual repair cost, and the annual maintenance cost. The PBP uses the same i nputs as the LCC analysis described in section 8.2 , except that electricity price trends and discou nt rates are not requ ired. Since the PBP is a “simple” (undiscounted) payback, the re quired electricity cost is only for the year in which a new efficient standard is to take effect (in this case, 2012). The electricity price used in the PBP calculation was the price projected for 2012, ex pressed in 2008$, but not discounted to 2008. Discount rates are not used in the PBP calculation.

8.4 RESULTS USING TARIFF-BASE D ELECTRICITY PRICES

8.4.1 Life-Cycle Cost Results This section presents LCC results for the effi ciency improvement levels specified in the engineering analysis (c hapter 5) and also presented in section 8.2.2.2 , Standard-Level Manufacturer Price Increases. The results p r es ented here are based on annual operating costs calculated from average annual electricity pri ces developed for each business type. Section 8.2 presents the electricity price inpu ts as well as all other LCC inputs.

Because the values of most i nputs are uncertain in this anal ysis, DOE represents them as a distribution of values rather than a single point-value. Thus , DOE represents the LCC results as a distribution of values. Before proceeding with the presentati on of the distribution of LCC results, DOE presents average values for total in stalled costs, annual opera ting costs, and LCC to show how these costs vary with efficiency for each of the BVM equipment categories.

8.4.1.1 LCC Breakdown Based on Average Input Values For each equipment category, Figure 8.4.1 and Figures F.8.4.2–F.2.21 in appendix F show how on an average basis the total installed costs, annua l operating costs, and LCC vary with efficien cy. Figure 8.4.1 and Figures F.2.1–F.2.2.1 pertain to each equipment category.

8-20Owner's Installed Cost-LCC Tradeoff

$6,594 $6,083 $6,030 $6,007 $5,983 $5,965 $5,960 $5,974 $7,701

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000

$2,785 $2,852 $2,881 $2,923 $2,969 $3,002 $3,035 $3,070 $4,415
Level 0 (Market Baseline) Level 1 (Energy Star Tier 1) Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 (Max Tech)
Installed Cost and Efficiency LevelLife Cycle Cost

Installed Cost-LCC Tradeoff Equipment= A-L-Indoor-Only, Fuel Price=AEO 2009 - Reference Case, Start Year= 2012

Figure 8.4.1 Effect of the Change in Efficien cy Level on Life-Cycle Cost for BottlerOwned A-L-IN BVM in Manufacturing Facili ties (2008$) at Average U.S. Conditions (Level 1 is the Baseline Efficiency Level).
DOE divided the figures for total installed cost into equipment price and installation cost. DOE divided the figures for annual operating cost into annual elec tricity, repair, and maintenance costs. DOE also divided the figures for LCC into total installed cost and lifetime operating cost. Although these figur es are based on mean or averag e values rather than results from the Monte Carlo simulation analysis, the fi gures demonstrate how the various inputs affect LCC. In view of the total installed cost results for the equipment categories, the equipment price is the largest contributor to increased total cost since the installation cost remains relatively constant across the efficiency levels. Annual electricity cost is th e largest contributo r to the overall operating cost at any efficiency level. As efficiency incr eases, electricity cost decreases. The LCC results reveal that as efficiency increases, 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 insta lled cost that occurs with increased equipment efficiency. As a result, the LCC at efficiency le vels is lower than that for the baseline level (Level 0) at levels 1-7.

8-21Figure 8.4.1 Again, the results shown in and the corresponding fi gures in appendix F are based on average input values ra ther than input distributions. Thus, one can observe how the various inputs im pact LCC and, in turn, how the resulting L CC changes with efficiency for this example. Conclusions, however, should be drawn from the distribution of LCC results presented in section 8.4.1.2

. 8.4.1.2 Differences in LCC between Baseli ne and Standard-Level Equipment DOE’s first step in developing LCC results wa s to establish the baseline LCC for each of the equipment categories. The baseline effici ency level for the NOPR analysis is the ENERGY STAR Tier 1 leve l (Efficiency Level 1). This section presents the differences in the LCC of standard-level equipment relative to the baseline efficiency equipment. The LCC differ ences are depicted as a distribution of values. DOE presents the results in a cumulative char t showing the cumulative distribution of LCC differences along with the corres ponding probability of occurrence for each proposed efficiency level. In each chart, DOE provides the LCC diff erence along with the pe rcent of the population for which the LCC will decrease. In this analysis , the population is the number of BVM units in hotels, health care (nursing homes, assisted livin g, etc.), and small offices (mainly medical and dental). Figure 8.4.2 presents the LCC results for the case of Efficiency Level 4 in the A-L-IN (BVM) equipm ent categ ory. Additional cases are shown as Figures F.2.2 through F.2.24 in appendix F. In Figure 8.4.2 , the 50-percent line shows the median change in LCC (a savings of 202$ in this exam ple). Half of the purchasers of this BVM unit would save m ore than 202$ while half would save less than 202$. The “0” horizontal line is the minimum savings value, which in this example is 23$. The maximum LCC savings is 442$.

Figure 8.4.2 A-L-IN BVM, Level 4 Efficiency: Cumulative Chart of LCC Savings

8-22Appendix F contain s the cum ulative charts for al l the efficiency levels considered for all BVM equipment categories. These are Figures F. 2.2 through F.2.24 in appendix F. These charts provide more complete information, but DOE pr ovides 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 category in Table 8.4.1 , which also shows the mean LCC sa vings and the percent of equipm ent with LCC savings for each efficiency level. Table 8.4.1 Distribution of Life-Cycle Cost S avings from a Baseline Level (Level 1) for A-L-IN BVM Equipment category by Efficiency Level

Decrease in LCC from Baseline Efficiency (Level 1) Shown by Percentiles of the Dist ribution of Results (2008$) Percen t of

Units with LCC SavingsEfficiency

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

2 $26 $29 $50 $52 $68 $80 $97 $106 $121 $138 $177 $91 100% Level

3 $24 $32 $70 $74 $103 $124 $155 $175 $201 $233 $304 $145 100% Level

4 $23 $35 $91 $99 $142 $202 $219 $250 $288 $337 $442 $204 100% Level

5 $22 $37 $106 $116 $170 $206 $265 $304 $351 $412 $542 $246 100% Level

6 $13 $31 $110 $122 $184 $224 $293 $340 $393 $463 $613 $272 100% Level

7 -$11 $9 $94 $109 $177 $218 $293 $344 $402 $481 $642 $271 93% Level

8 -$1,759 -$1,759 -$1,663 -$1,557 -$1,521 -$1,447 -$1,415 -$1,361 -$1,269 -$1,147 -$992 -$1,419 0%
As an example of how to interpret the information in Table 8.4.1 , a review is provided of the overall r esults for the A-L-IN BVM equipmen t category. The Level 4 efficiency level in Table 8.4.1 (row 3) shows that the change in LCC (0 percentile colum n) is a m inimum savings of 23$. For 90 percent of the cases studied (90 th percentile), the change in LCC is a reduction of 337$ or less. The largest reduction in LCC is 442$ (100 th percentile). The mean change in LCC is a net savings of 204$. The last column shows th at 100 percent of the sample has LCC savings ( i.e ., reductions in LCC greater than zero). Appendix F Figures F.2.1–F.2.2 graphically de pict the LCC results. The first figure for each equipment category shows mean LCCs at U.S. average prices and market conditions, while the second figure shows the percentage of equi pment at each efficiency level with reduced LCCs.

8.4.2 Payback Period Results This section presents PBP results for the effi ciency improvement levels specified in the engineering analysis (c hapter 5) and also presented in section 8.2.2.2 , Standard-Level Manufacturer Price Increases. The results p r es ented here are based on annual operating costs calculated from state average commer cial electricity prices. Section 8.4 describes the tariff-based elec tricity pr ice 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 cost s that prevail acr oss the country for each efficiency level and each building (building) type. Figure 8.4.3 shows the effect on

8-23payback period as th e level of efficiency ch anges from Level 1 (the baseline), for BVM equipment in Manufacturing Facilities at U.S. national average energy pr ices, sales taxes, and installation costs.

Owner's Installed Cost-Payback Tradeoff

2.7 4.1 4.3 4.6 5.1 100.0

3.7 0.0 20.0 40.0 60.0 80.0 100.0 120.0

$2,881 $2,923 $2,969 $3,002 $3,035 $3,070 $4,415 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 (Max Tech) Installed Cost and Efficiency LevelPayback Period (Years) Installed Cost-Payback Period Tradeoff Equipment= A-L-Indoor-Only, Fuel Price=AEO 2009 - Reference Case, Start Year= 2012

Figure 8.4.3 Effect of the Change in Efficien cy Level on Payback Period for A-L-IN BVM Equipment Category, in Manufacturing Facilities at Average U.S. Conditions (Level 1 is the Baseline Level).
Similar to the LCC differences, DOE depicted PBP results as a di stribution of values. Thus, it presents the results as a cumulative pr obability chart showing th e distribution of PBPs with the corresponding cumulative pr obability of occurrence. Each chart provides the mean PBP. Figure 8.4.4 is an example of a cumulative probability chart showing the overall distribution of payback periods for the increas ed efficiency levels for th e A-L-IN BVM equipment category. Appendix F co ntains the frequency charts fo r all the efficiency levels considered for all BVMs in this analysis. In Figure 8.4.4 , the y-axis shows cumulative percent of all BVM eq uipm ent (“Probability” at left y-axis). The x-axis 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 B V M equipmen t with a median PBP of 3.0 years, a mean payback period of 3.2 years, and a payback pe riod range from just about 1.4 years to approximately 6.2 years. (Note that these cannot be read with precision from the chart; rather, the analysis output data provides these values in a statistical summary.)

8-24Figure 8.4.4 A-L-IN BVM Level 4 Efficiency : Cumulative Chart of PBP

Table 8.4.2 summarizes the PBP results for the BVM equipment category. Results are summarized for PBP by percentile groupings ( i.e ., percentile of the dist ribution of results). The chart also shows the mean PBP for each efficiency level. Table 8.4.2 Summary of PBP Results for A-L-IN BVM Equipment Category

Payback Period in Years Shown by Percentiles of the Distribution of Results Percen t Less t han 3 Years PaybackEfficiency

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Mean Level 2 1.0 1.1 1.2 1.6 1.7 1.9 2.1 2.3 2.4 3.3 4.0 2.1 85% Level 3 1.4 1.5 1.6 2.2 2.4 2.5 2.8 3.1 3.2 4.5 5.6 2.9 67% Level 4 1.4 1.6 1.8 2.4 2.6 3.0 3.1 3.4 3.5 5.0 6.2 3.2 53% Level 5 1.6 1.7 1.9 2.5 2.7 3.0 3.2 3.5 3.7 5.2 6.5 3.3 51% Level 6 1.7 1.8 2.0 2.7 2.9 3.1 3.4 3.8 3.9 5.6 7.0 3.5 45% Level 7 1.8 1.9 2.2 3.0 3.2 3.4 3.8 4.2 4.4 6.3 7.9 3.9 29% Level 8 18.6 20.8 26.3 54.4 65.9 85.0 100.0 100.0 100.0 100.0 100.0 74.0 0%

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