CHAPTER 8. LIFE-CYCLE COST AND PAYBACK 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 Payback Period Analyses Inputs

................... 8-2 8.2 LIFE-CYCLE COST ANALYSIS INPUTS

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

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

................................................................................... 8-5 8.2.3 Operating Cost Inputs

........................................................................................ 8-12 8.3 PAYBACK PERIOD INPUTS

......................................................................................... 8-21 8.3.1 Definition

........................................................................................................... 8- 21 8.3.2 Inputs

.................................................................................................................. 8-21 8.4 RESULTS USING TARIFF-BASE D ELECTRICITY PRICES

..................................... 8-21 8.4.1 Life-Cycle Cost Results

..................................................................................... 8-21 8.4.2 Payback Period Results

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

LIST OF TABLES

Table 8.1.1 Summary Informati on of Inputs for the Determination of Life-Cycle Cost and Payback Period

.............................................................................................. 8-4 Table 8.2.1 Inputs for Total Installed Costs

................................................................................ 8-6
Table 8.2.2 Products Evaluated for the Bevera ge Vending Machine 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 Increases (Price Increa ses Relative to the Price of Baseline Efficiency Equipment at Level 1)

............................................ 8-7 Table 8.2.5 Overall Baseline Markups by Dist ribution Channel and Overall WeightedAverage, Including the Weighted Av erage Sales Tax, for Manufacturing Facilities

............................................................................................................... 8-8
Table 8.2.6 Overall Incremental Markups by Distributi on Channel and Ov erall WeightedAverage, Including the Weighted Aver age Sales Tax, for Manufacturing Facilities

............................................................................................................... 8-8
Table 8.2.7 Installation Costs for Baseline Beverage Vending Machine Equipment

................. 8-9
Table 8.2.8 Installation Cost Indi ces (National Value = 1.000)

................................................. 8-9 Table 8.2.9 Costs and Markups for Determ ination of Average Total Installed Costs (Beverage Vending Machine) *

................................................................. 8-10 Table 8.2.10 Average Equipment Price, Instal lation Cost, and Total Installed Costs for Beverage Vending Machine (B-L-IO) at U.S. Average Prices *

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

................................................................................... 8- 13
Table 8.2.12 Estimated Commercial and Indus trial Electricity Pr ices by State

....................... 8-13 Table 8.2.13 Derived Average Electri city Price Paid by Business Type *

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

8-i BVM_FINAL_FR_TSD_Chapter8_08-14-09.docTable 8.2.14 Nominal and Real Discount Rates by Ownership Category

.............................. 8-20 Table 8.4.1 Distribution of Life -Cycle Cost Savings from a Baseline Level (Level 1) for A-L-IN Beverage Vending Machine Equipment Category

.................... 8-20 Table 8.4.2 Summary of PBP Results for A- L-IN Beverage Vending Machine Equipment Category

....................................................................................................... 8-27 Table 8.4.3 Beverage Vending Machine Mean Life-Cycle Cost Savings for Class A Equipment With and Without LED-Rel ated Maintenance Savings

............ 8-29 Table 8.4.4 Beverage Vending Machine Mean Life-Cycle Cost Savings for Class B Equipment With and Without LED-Rel ated Maintenance Savings

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

LIST OF FIGURES

Figure 8.1.1 Flow Diagram of Inputs for th e Determination of Life-Cycle Cost and Payback Period

..................................................................................................... 8-4 Figure 8.2.1 Cumulative Probabi lity Distribution Showing th e Electricity Prices Paid by All Customers (2008$)

.................................................................................. 8-15 Figure 8.2.2 Electricity Price Trends for Commercial Rates to 2057

.................................... 8-16 Figure 8.2.3 Electricity Price Trends for Industrial Rates to 2057

......................................... 8-17 Figure 8.4.1 Effect of the Change in Effi ciency Level on Life-Cycle Cost for BottlerOwned A-L-IN Beverage Vending Mach ine in Manufactur ing Facilities (2008$) at Average U.S. Conditions (L evel 1 is the Baseline Efficiency Level)

................................................................................................................. 8-22 Figure 8.4.2 A-L-IN Beverage Vending Mach ine, Level 4 Efficiency: Cumulative Chart of LCC Savings

........................................................................................ 8-24 Figure 8.4.3 Effect of the Change in Effi ciency Level on Payback Period for A-L-IN Beverage Vending Machine Equipment Category, in Manufacturing Facilities at Average U.S. Conditio ns (Level 1 is Baseline)

.............................. 8-25 Figure 8.4.4 A-L-IN Beverage Vending Machin e Level 4 Efficiency: Cumulative Chart of PBP

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

8-ii BVM_FINAL_FR_TSD_Chapter8_08-14-09.docCHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES

8.1 INTRODUCTION

This chapter describes the methodology for an alyzing the economic impacts of possible energy efficiency standards being developed for beverage vending machines on individual customers. The effect of standards on individu al customers usually includes a reduction in operating cost and an increase in purchase cost. Th is 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 th e beverage vending machine equipment are discussed in sections 8.2 and 8.3, re spectively. Results for each metr ic are presented in section 8.4. Key variables and calculations are presented for each metric. The calculations discussed here were performed with a seri es of Microsoft Excel spreadsheets accessible at www1.eere.energy.gov/ buildings/appliance_standards/commercial/beverage_machines.html.

Details of and instructions for using the sp readsheets are discussed in Appendix E of the refrigerated beverage machines fi nal rule technical support document (TSD), User Instructions for Life Cycle Cost Spreadsheet. A more complete set of results of the analyses is presented in TSD Appendix F, Detailed Life-Cycle Cost Output.

8.1.1 General Approach for Life-Cycle Co st and Payback Period Analyses

Recognizing that each comme rcial building that uses th e beverage vending machine equipment is unique, the U.S. Department of Energy (DOE) analyzed va riability of costs by performing the LCC and PBP calculations detailed here for seven types of businesses 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 govern ments, such as prisons

 Federal – all Federal buildings, including m ilitary bases, offices, and housing facilities

8-1 BVM_FINAL_FR_TSD_Chapter8_08-14-09.doc Other – facilities such as hotels and motels , warehouses, airports, sporting arenas, movie theaters, exhibition halls, and other miscellaneous facilities

 A local bottler or vending m achine service company – 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 beverage vending machine or beverage vending machine unit may serve a motel/hotel, an office building, a break room in a factory, a convenience store with gas pumps, or a hospital. Beverage vending machines may be locat ed 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 beverage vending machine unit is shipped. These factors include energy prices, in stallation cost, markup, and sales tax. The LCC analysis presented here used the predicted ener gy consumption based on the engineering analysis and reviewed in chapter 7, Building Energy Us e Characterization. Energy consumption of beverage vending machines located in outdoor settings in this approach is sensitive to climate, so energy use varies by geographical location. At th e national level, the sp readsheets explicitly modeled both the uncertainty and the variability in the model’s inputs using probability distributions based on the shipment of beverage vending machine 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 dist ribution showing the percentage of beverage vending machine equipment in U.S. commercial bu ildings that would ex perience a net savings, and (2) a frequency chart depic ting variation in life-cycle co st for each beverage vending machine efficiency level considered.

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

The LCC is the total customer 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).

8-2 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docThe 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.

 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 th e installation price.

The primary inputs for calcula ting the operati ng cost are:

 Equipment energy consumption : The equipment energy consum ption is the site energy use associated with the use of the bevera ge vending machine equipment. Although there are potentially some interactive effects on th e overall heating and c ooling of the building, the LCC analysis for this final rule includes only the use of electricity by the equipment itself. This approach is consistent wi th most other DOE equipment efficiency rulemakings. Chapter 7, Energy Use Characteri zation, provides complete details on the beverage vending machine 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 calendar year 2008. 1 The two types of buildings that use industrial el ectricity are assumed to pay the average industrial price. The 2008 average commercial prices were modified to reflect the fact that the four types of buildings pay commercial prices and use beverage vending machine equipment pay prices that, on average, are either slightly higher or lower than the average commercial prices. 2

 Electricity price trends : The EIA’s April 2009 update to the Annual Energy Outlook 2009 ( AEO2009 ) is used to forecast electricity prices into the future. 3 For the results presented in this chapter, DOE used the updated AEO2009 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.

8-3 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docInstallation Costs Installation Costs

Repair Costs Repair Costs Lifetimes Lifetimes Annual Maintenance Electricit y Consumption Electricit y Consumption

Manufacturer Base Price

Total Installed Cos t (Std i Base) Manufacturer Base Price

Wholesaler/ Distributor Markup

Electricity Prices National Account Markup Equipment Prices

Manufacturer Base Price

Installation Costs Manufacturer Std 1 Base Price Manufacturer Std 1 Base Price

Manufacturer Price

Standard i= 1... n

Electricit y Consumption Annual Energy Costs

Annual Maintenance

Repair Costs A nnual 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 Electricit y Consumption Manufacturer Base Price Manufacturer Base Price

Manufacturer Std 1 Base Price Manufacturer Std 1 Base Price

Annual Maintenance  Lifetime : The age at which the beverage vendi ng machine or beverage vending machine 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 th e relationships between the installed cost and operating cost inputs for the calculation of the LCC a nd PBP. Table 8.1.1 summarizes the various inputs used for the calculation of th e LCC and PBP. As noted earl ier, most of the inputs are characterized by probability distributions that capture variability of the input variables. Also listed in Table 8.1.1 are chapters in the TSD where more detailed information on the input variables can be found.

–

Sales Tax

-

– Electricit y Consumption Total Installed Cos t (Std i

– Base) Wholesaler/ Distributor Markup

Electricity Prices National Account (Bottler) Markup Equipment Prices

Manufacturer Base Price

Installation Costs Manufacturer Price

Standard i= 1... n

Electricit y Consumption Annual Energy Costs

Repair Costs A nnual 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 Life-Cycle Cost and Payback Period

Table 8.1.1 Summary Information of Inputs for the Determination of Life-Cycle Cost and Payback Period
Factor Value Concept TSD Reference Total Installed Cost Primary Inputs Baseline manufacturer price Varies with product Standard-level manufacturer price increases Varies with product and ef ficiency level

Markups and sales tax Varies with distribution channel and location Installation price Varies with location Chapter 5 Chapter 5

Chapter 6 Chapter 8 Operating Cost Primary Inputs Equipment energy consumption Varies with prod uct, efficiency level, and location Electricity prices Vary with location, business/building type Electricity price trends Vary with price scenario Maintenance costs Varies with product Repair costs Varies with product Lifetime Assumed to be 10 years Discount rate Varies with type of business Chapter 7 Chapter 8 Chapter 8 Chapter 8 Chapter 8 Chapters 3, 8

Chapter 8

8-4 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docAll of the inputs depicted in Figure 8.1.1 a nd 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 cost 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 costs). Future operating costs are discounted to the time of purchase and summed over the lifetime of the equipment. Life-cycle co st is defined by the following equation:

N LCC  IC  

#  OC t /(1  r ) t Eq. 8.1

t  1

Where:

LCC = life-cycle cost ($), IC = total installed cost ($), ∑ = sum over the lifetime, from year 1–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 fo r the LCC analysis for the year 2008, and because 2008 is the last full year before the ru le is published, DOE expr esses all the costs in 2008$. Total installed cost, operating cost, lifetim e, and discount rate are discussed in the following sections.

8.2.2 Total Installed Cost Inputs

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

IC  EQP  INST Eq. 8.2

Where:

EQP = equipment price ( i.e ., customer price for the equipment only; $), and INST = installation cost or the customer price to install equipment ( i.e. , the cost for labor and materials; $).

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

8-5 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docmachine operator through a nationa l account. The remainder of this section provides information about the variables DOE used to calculate the total installed co st for beverage vending machine equipment. Inputs for the determination of tota l 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 Sales 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 Bever age Vending Machine Life-Cycle Cost and Payback Analyses Equipment Category Symbol Class A, Large, Indoor Only Class A, Medium, Indoor Only Class A, Small, Indoor Only Class B, Large, Indoor-Outdoor Class B, Medium, Indoor-Outdoor Class B, Small, Indoor-Outdoor A-L-IN A-M-IN A-S-IN B-L-IO B-M-IO B-S-IO
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 Manufacturer Price 2008$ A-L-IN 2,426.95 A-M-IN 2,222.07 A-S-IN 1,856.20 B-L-IO 1,779.80 B-M-IO 1,716.84 B-S-IO 1,521.33

8-6 BVM_FINAL_FR_TSD_Chapter8_08-14-09.doc8.2.2.2 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 categor ies. The engineering analysis produced nine efficiency levels (Levels 0–8) that were used in the LCC and PBP analyses . Most of the analysis presumes at least ENERGY STAR Ti er 1 efficiency (Level 1) in the market. As of 2008, most currently shipped beverage ve nding machine equipment meets th e ENERGY STAR Tier 1 level. By 2012, a large fraction (but not all) is expect ed to meet the ENERGY STAR Tier 2. DOE often establishes the baseline level for the LCC analysis on what best represents the bottom end of the efficiencies currently shipped, in th is case the ENERGY STAR Tier 1 level.

The highest (Level 8 for Class A, Level 7 for Class B) is considered the maximum technologically achievable effici ency level. Appendix D discusse s the selection of efficiency 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 th e estimated manufacturer price increases for beverage vending machine 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 Efficien cy Equipment at Level 1) Equipment Level Type $ 2 3 4 5 6 7 8 A-L-IN 27 65 106 136 166 198 1,419 A-M-IN 47 56 113 157 187 217 1,234 A-S-IN 37 80 122 147 172 199 1,116 B-L-IO 23 40 75 87 507 1,660 NA B-M-IO 23 44 79 91 511 1,530 NA B-S-IO 23 70 70 82 502 1,388 NA

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

8-7 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docbased 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 10 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 85 percent is purchased by bottlers and distributors through national accounts. DOE’s understanding is that most existing equipment re placements are done as a result of obsolescence or failure after one round of machine refurbishmen t. DOE has assumed that this split of percent of equipment purchases among the distribution channels is the same for new and replacement equipment, although based on information pr ovided by bottlers and manufacturers, DOE assumes that all future sales are for replacement only. With three distribution channels, there are a potential total of six overall baseline and in cremental markups possible. However, since the distribution channel markups for local vendor s and site owners th rough wholesalers are essentially the same, the overall markups and their associated compone nts are collapsed in Table 8.2.5 and Table 8.2.6 into ju st four channels for detailed baseline and incremental markups for Manufacturing Facilities. Similar tables were calculated for the six other business types.

Table 8.2.5 Overall Baseline Markups by Distribution Channel and Overall WeightedAverage, Including the Weighted Average Sales Tax, for Manufacturing Facilities

Baseline Markup Type Wholesaler/Distributor to Site Owner or to Vendor Manufacturer Direct to Vendor Overall Weighted Average Distributor(s) Sales Tax Total 1.460 1.071 1.564 1.000 1.071 1.071 1.069 1.071 1.145
Table 8.2.6 Overall Incremental Markups by Distribution Channel and Overall WeightedAverage, Including the Weight ed Average Sales Tax, fo r Manufacturing Facilities

Baseline Markup Type Wholesaler/Distributor to Site Owner or Vendor Manufacturer Direct to Vendor Overall Weighted Average Distributor(s) Sales Tax Total 1.200 1.071 1.285 1.000 1.071 1.071 1.030 1.071 1.103
Based on the percentages of the market attri buted to each of the detailed distribution channels, weighted-average overall markups are al so presented in Table 8.2.5 and Table 8.2.6. The overall weighted-average ba seline markup for Manufacturing Facilities equals 1.145, while the overall weighted-average incremental mar kup equals 1.103. See chapter 6 for details.

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 beve rage vending machine equipment. DOE derived installation costs for beverage vending machine equipment from da ta in Foster-Miller, Inc., which provides estimates on the person-hours required to install beverage vending machine and the labor rates associated with the type of crew required to install the equipment. 4 The installation cost was calculat ed 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 Statistics (B LS) provides the necessary inform ation to capture this regional

8-8 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docvariability. 5 BLS provides median wage rates for inst allation, maintena nce, and repair occupations that reflect labor ra tes for each individual State and a llows the computation of State labor cost indices relative to the national averag e for these occupations. These cost indices were incorporated into the analysis to capture vari ation in installation cost, depending on customer location.

Since data were not availabl e to indicate how installation costs actually vary with beverage vending machine or beverage vending m achine equipment category or efficiency, DOE considered two scenarios: (1) in stallation costs varied in direct proportion to th e cost of the equipment; or (2) installation cost s remained flat (not varying w ith cost of the equipment). For the former case, the engineering an alysis developed linear relationshi ps of installation cost as a function of efficiency for beverage vending m achine equipment. All baseline equipment, however, in a given equipment category, is assume d to have the same baseline installation costs.

Table 8.2.7 summarizes the nationally re presentative person-hour s and labor rates associated with the installation of beverage ve nding machine equipment as presented in FosterMiller Inc. 4 In Table 8.2.7, both “bare” installation costs ( i.e. , costs before overhead and profit [O&P]) and installation costs in cluding O&P are provided. DOE decided that the installation costs that include O&P represent the installati on costs for baseline equipment. The installation costs are assumed to remain fixed regardless of efficiency level (a “f lat” installation cost scenario). However, the LCC spreadsheet allows fo r an alternative scenario; that the installation cost increase with higher efficiency levels, a nd 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 Baselin e Beverage Vending Machine Equipment Equipment Type Person-Hours Labor Base Costs 2008$ Labor Rate Cost All beverage vending machines 2.0 (1 hr  2 workers) 40.34/hr 80.67

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 servi ce call driving time) on average to set up a beverage vending machine.

Table 8.2.8 summarizes the BLS labor rates in dices described above for installations in each of the 50 States, plus the District of Colu mbia, used to vary the nationally representative installation costs in Table 8.2.8.

Table 8.2.8 Installation Cost Indices (National Value=1.000)
State Index State Index State Index Alabama 0.933 Kentucky 0.936 North Dakota 0.959 Alaska 1.254 Louisiana 0.915 Ohio 0.991 Arizona 0.971 Maine 0.929 Oklahoma 0.913 Arkansas 0.858 Maryland 1.055 Oregon 1.033 California 1.105 Massachusetts 1.134 Pennsylvania 0.976 Colorado 1.024 Michigan 1.079 Rhode Island 1.012

8-9 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docConnecticut 1.127 Minnesota 1.051 South Carolina 0.903 Delaware 1.043 Mississippi 0.860 South Dakota 0.889 Dist. of Columbia 1.154 Missouri 0.963 Tennessee 0.935 Florida 0.914 Montana 0.943 Texas 0.901 Georgia 0.962 Nebraska 0.931 Utah 0.971 Hawaii 1.089 Nevada 1.065 Vermont 0.956 Idaho 0.906 New Hampshire 1.018 Virginia 1.021 Illinois 1.091 New Jersey 1.101 Washington 1.119 Indiana 0.995 New Mexico 0.914 West Virginia 0.862 Iowa 0.919 New York 1.077 Wisconsin 1.001 Kansas 0.958 North Carolina 0.956 Wyoming 1.049

8.2.2.5 Weighted-Average Total Installed Cost

As presented in Eq. 8.2, the total installed co st is the sum of the 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 resulting total installed 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 ta ken directly from Table 8.2.3 and Table 8.2.4). The baseline and incremental mar kups, the sales tax, and installa tion costs are used to convert the manufacturer prices into total installed co sts for beverage vending machine equipment where the incremental installation costs are held flat. Table 8.2.9 summarizes the average or mean costs and markups necessary for determining 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 (Beverage Vending Machine) *

Variable Average or Mean Value Baseline Manufacturer Sale Price Standard-Level Manufacturer Price Increase (Efficiency Level 4) Overall Baseline Markup Overall Incremental Markup Installation Cost–Baseline Installation Cost Factor–Incremental $1,780 $75 1.145 1.103 $83 1.00 **

* Incremental installation costs held flat.

** National incremental cost index on a population-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 be low for the baseline efficiency and higher

8-10 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docefficiency (Level 4) beverage vending machine. 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 =MFG BASE- BVM  MU BASE- BVM + INST BASE-BVM = $1,780  (1.145) + $83 = $2,038 + $83 = $2,121 Eq. 8.3

Where:

IC = total installed cost ($), EQP = equipment price ($), INST = installation cost or the custom er price to install equipment ($), MFG = manufacturer price ($), and MU = markup.

In this specific example, MFG is the national average baselin e manufacturer price for the beverage vending machine equipment category and MU is the overall baseline markup. The calculation of the higher efficiency (Level 4) total installed cost includes the use of a manufacturer 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 (using rounded values):

IC BVM LEVEL4 = EQP BVM LEVEL4 + ∆ EQP BVM LEVEL4 + INST BVM LEVEL4  (MFG BVM LEVEL4  MFG BASE BVM ) = MFG BASE BVM  MU BASE BVM + ∆ MFG BVM LEVEL4  MU BVM LEVEL4 + INST  ISTINDEX = $1,780  (1.145) + $75  (1.103) + $81  (1.00) = $2,202 Eq. 8.4

Where:

IC = total installed cost ($), EQP = equipment price ($), Δ EQP = change in the equipment price ($), INST = installation cost or the custom er price to install equipment ($), MFG = manufacturer sale price ($), MU = markup, and ISTINDEX = location dependent, but approximately 1.0 at a national average.

Table 8.2.10 presents the weighted-average eq uipment price, installation costs, and total installed costs for the beverage vending machine equipment categ ory at the baseline level and each proposed higher efficiency level.

8-11 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docTable 8.2.10 Average Equipment Price, Installa tion Cost, and Total Installed Costs for Beverage Vending Machine (B-L-IO) at U.S. Average Prices * Efficiency Cost

Level 2008$ Equipment Installation Total Installed $ 1 2,038 81 2,118 2 2,063 81 2,143 3 2,081 81 2,162 4 2,121 81 2,201 5 2,133 81 2,214 6 2,597 81 2,678 7 3,869 81 3,950

* Results may not match totals 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 Building Energy Consumption Survey (CBECS). 2 After the LCC analysis was performed, 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 equipment ope ration (all of the above expressed in $).

The remainder of this section provides inform ation about the variables that DOE used to calculate the operating cost for beve rage vending machine equipment.

Table 8.2.11 shows the inputs for the determination of operating co sts. The lifetime, discount rate, and effective date of the efficiency standard ar e required for 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.

8-12 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docTable 8.2.11 Inputs for Operating Costs Electricity price ($/kWh) Electricity price trend Repair cost ($) Maintenance cost ($) Lifetime (years) Discount rate (%) Effective date of standard (2012) Baseline electricity consumption (kWh) Standard case electric ity consumption (kWh)

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 th e annual operating costs (price multiplied by the electricity consumption) for beverage vending machine 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 electricity prices (which are assu med to apply to the manufacturi 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. Ta ble 8.2.12 provides data on the state electricity prices.

Table 8.2.12 Estimated Commercial and Industrial Electricity Prices by State State Electricity Price 2008 ¢/kWh Comm Indust State Electricity Price 2008 ¢/kWh Comm Indust State Electricity Price 2008 ¢/kWh Comm Indust Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Dist. of Col. Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas 9.85 6.18 13.33 14.04

8.86 6.60

7.76 6.04 13.05 10.20 8.56 6.65 15.93 13.90 12.04 10.09 13.64 11.52 10.20 8.36 9.19 6.76 29.72 26.05 5.72 4.49

8.53 7.83 7.81 5.51 7.28 4.86

7.55 5.79 Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina 7.25 4.81 10.16 7.97 12.95 11.80 12.82 10.40 16.05 14.21

9.43 6.86 7.86 5.96 9.98 6.53 6.59 4.98 8.54 5.73 6.64 5.05 10.15 7.99 14.28 13.17 14.72 12.42

8.56 6.31 16.45 11.97

7.67 5.62 North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming 6.80 5.50 9.26 6.23 8.04 6.01 7.59 4.91 9.42 7.02 15.49 14.22

8.53 5.42 6.83 5.30 9.02 6.13 10.71 8.86

6.72 4.59 12.51 9.00

7.38 5.83 6.79 5.23 6.06 4.20 9.28 6.54 6.70 4.51

8-13 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docDOE recognized that different kinds of businesses typically use electricity in different amounts at different times of the day, week, a nd year, and therefore f ace different effective prices. To make this adjustment, 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 custom ers (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 electr icity price paid by business type I in a specific state in 2008, EPRICE COM STATE 2008 = average commercial sector electr icity 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 se ctor electricity price in 2003 CBECS.

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

Table 8.2.13 Derived Average Electricity Price Paid by Business Type * Business Type Manufacturing Use Industrial Office and Health

Care Retail School Military Use Industrial Other All Commercial

Buildings Electricity Price, ¢/kWh 5.1 7.7 8.5 7.4 5.1 Ratio of Electricity Price to Average Price for All Commercial Buildings 1.000  Industrial 0.975 1.074 0.937 1.000  Industrial 7.9 0.996 7.9 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 beverage vending machine equipment in each state to each prototype building type, based on population. 6 The state/building type weights ar e the probabilities that a give n beverage vending machine or beverage vending machine equipment shipped will be operated with a given price. For evaluation purposes, the prices and weights can be depicted as a cumulativ e probability distribution. Taking into account the variation among building types, the effective prices range from approximately 4.2 cents per kWh to approximately 32 cents per kWh.

Figure 8.2.1 illustrates the results for all customers.

8-14 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docFigure 8.2.1 Cumulative Probability Distributio n Showing the Electrici ty Prices Paid by All Customers (2008$)

8.2.3.2 Electricity Price Trend

The electricity price trend provides the relativ e change in electricity prices for future years to 2030. Estimating future electricity prices is difficult, especially considering that there are efforts in many states throughout the country to restructure the elect ricity 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 April 2009 update to AEO2009 reference price scenario:

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

2. AEO2009 , High Growth (“high” in Figure 8.2.2)

3. AEO2009 , Reference Case (“AEO 2009” in Figure 8.2.2)

4. AEO2009 , Low Growth (“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. Also, the April 2009 update did not c ontain an update to the AEO 2009 High Growth and Low Growth scenarios. DOE derived the ratios of each year’s price in the high and low cases as published in March 2009 forecast to 2030, and applied these ratios to the April 2009 update of the reference forecast, then calcula ted the high and low growth rates 2020-2030 and extrapolated the high and low growth forecasts. Th is method of extrapolation is in line with

8-15 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docmethods currently used by the EIA to forecast fu el prices for the Federal Energy Management Program. Because the Reference Case forecast is growing more rapidly than the High Growth forecast from 2020–2030, the commercial sector forecast converges toward the High Growth forecast after 2030.



### Commercial Electricity Price Projections

1.30

1.25

1.20

1.15

1.10

1.05

1.00

0.95

0.90

0.85

0.80
2002

Year

Figure 8.2.2 Electricity Price Tren ds for Commercial Rates to 2057

As shown in Figure 8.2.3, the industrial Refere nce Case forecast eventually crosses over the High Growth forecast; however the crossover occurs very la te and has no impact on the LCC calculation.Index (2008=1.00) High AEO 2009 Low

2012 2022 2032 2042 2052

8-16 BVM_FINAL_FR_TSD_Chapter8_08-14-09.doc

### Industrial Electricity Price Projections

0.70 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)

AEO 2009 High
Low

Figure 8.2.3 Electricity Price Tren ds for Industrial Rates to 2057

The default electricity price trend scenario used in the LCC analysis is the trend from the April 2009 update to the AEO 2009 Reference Case, 1 which is the middle line in Figure 8.2.2 and Figure 8.2.3. Spreadsheets used in calculati ng the LCC have the capability to analyze other electricity price trend scenarios, namely the AEO 2009 High Growth and the AEO 2009 Low Growth 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 beverage vending machine equipment that have fa iled. DOE based the annualized repair cost for baseline efficiency equipment on the Foster-Miller Inc. 2002 report 4 and were adjusted to 2008 prices, resulting in a annualized base repair cost of $129. Becau se data were not available to indicate how repair costs vary with equipment efficiency, DOE considered two scenarios: (1) repair costs that varied in dire ct 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.

8-17 BVM_FINAL_FR_TSD_Chapter8_08-14-09.doc8.2.3.4 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 beverage vendi ng machine equipment. The cost of the basic preventative maintenance for an individual beve rage vending machine or unit is $90 per year (2008$) and the annualized value of the single refurbishment/reman ufacturing (one-time cost of approximately $550 at the 5-year point in the equipment lifetime) is about $56 (2008$), which varies with the discount rate. Total annualized maintenance cost is approximately $146 per year for the largest beverage vending machine 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 beve rage vending machine unit is retired from service, which is 10 years when buildings are re novated (also about ever y 10 years) and before equipment is physically worn. Furthermore, DOE modeled the lifetime beverage vending machine equipment as a Weibull statistical distri bution with an average lifetime of 10 years and a maximum lifetime of 15 years. Because of th is, there is a used-equipment market for these products. 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 analysis. Chapter 3, Market and Technology 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 beverage ve nding machine equipment. The cost of capital is commonly used to estimate the present value of ca sh flows to be derived from a typical company project or investment. Most companies use both de bt and equity capital to fund investments, so their cost of capital is the weighted average of the cost to the company of equity and debt financing.

DOE 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 return on “risk-free” assets ( R f ), and the

8-18 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docadditional 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 ($), Rf = the expected return of the risk-free asset ($). β

= the risk coefficient, and ERP = the expected equity risk premium ($).

DOE defined the risk-free rate as the yield (January 2007) on long-term government bonds. DOE used a 5.5 percent estimate for the ERP based on data from th e 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 taxes. DOE estimated the 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 capital (%), k e = the expected rate of return on equity (%), k

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

w e = the proportion of equity 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 (1.6 percent) from the average of the projected change in gr oss domestic product (GDP) prices in the Economic Report of the President

. 8

8-19 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docTo estimate the WACC of beverage vending machine equipment purchasers, DOE used a sample of companies involved in large hotel/mot el chains 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 ow nership categories shown in Table 8.2.14 according 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.

Table 8.2.14 Nominal and Real Discount Rates by Ownership Category Ownership Category Number of Companies Discount Rate % Weighted Average

Cost of Capital Standard Deviation Weighted Real Cost of Capital Bottlers 12 7.15 1.56 Manufacturing 1,880 8.08 1.37 Office and Health Care (Financial, Services, and Diversified Companies) 1,760 7.50 1.46

Retail Trade (Restaurants, Building Supplies, Retail Automotive, Retail (Special Lines), General Retail, Pharmacy Services) 250 7.54 1.26

Schools NA * 3.47 0.0 Military NA 5.10 0.0 Other (Arts and Entertainment, Transportation/ Warehousing, Wholesale, Hotels/Motels) 678 7.32 1.58 5.46 6.38 5.81

5.85

1.84 3.44 5.63

Source: Pacific Northwest National Laboratory (PNNL) calculations applied to firms sampled from the Damodaran Online website. 7

* NA=Not available.
Deducting expected inflation from the cost of capital provides the estimates of the real discount rate by ownership categor y shown in Table 8.2.14. The ove rall weighted average is 5.54 percent because of the market dominance of bottlers. Although bottlers represent only 10 companies in Table 8.2.14, they purchase the vast majority of beverage vending machines.

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 effec tive date of any new energy effi ciency standard for beverage vending machine equipment will be 3 years after the final rule is published. DOE calculated the LCC for all customers as if they each would pur chase a new beverage vending machine or unit in the year the standard takes eff ect. Consistent with its publishe d regulatory agenda, DOE assumed the final rule issuance in 2009 (a nd therefore new standa rds taking effect in 2012) and used these dates. It based the cost of the equipment on this year; however, all dollar values are expressed in 2008$. Annual energy prices are considered fo r the life of the beverage vending machine equipment.

8-20 BVM_FINAL_FR_TSD_Chapter8_08-14-09.doc8.3 PAYBACK PERIOD INPUTS

8.3.1 Definition

The PBP is the amount of time it takes the customer to recover the assumed higher purchase cost of more energy-efficient equi pment 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” PBP because it does not take into account changes in operating cost over time or the time value of money; i.e. , the calculation is done at an effective discount rate of 0 percent.

The equation for PBP is:

PBP = ∆ IC/ ∆ OC Eq. 8.9

Where:

PBP = payback period (years), ∆ IC = difference in the total installed cost between the more efficient standard level equipment (2, 3, etc.) and the baseline efficiency equipment, and ∆ OC = difference in annual operating costs.

PBPs greater than the life of the equipment m ean that the increased to tal installed cost of the more efficient equipment is not recove red 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 disc ount rates are not required. 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 (chapter 5) and also presented in sec tion 8.2.2.2, Standard-Level Manufacturer Price Increases. The results pres ented 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.

8-21 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docBecause 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 beverage ve nding machine equipment categories.

8.4.1.1 Life-Cycle Cost Breakdown Based on Average Input Values

For each equipment category, Figure 8.4.1 and Figures F.2.1–F.2.21 in Appendix F of the TSD show how on an average basis the total in stalled costs, annual ope rating costs, and LCC vary with efficiency. Figure 8.4.1 and Figures F.2.1–F.2.21 pertain to each equipment category.

Owner's Installed Cost-LCC Tradeoff

Equipment= A-L-Indoor-Only, Fuel Price=AEO 2009 - Reference Case, Start Year= 2012Life Cycle Cost $9,000

$8,000

$7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

$0 $6,079 $6,028 $6,008 $5,986 $5,970 $5,966 $5,982 $7,742

$2,859 $2,889 $2,931 $2,977 $3,010 $3,043 $3,078 $4,425

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 Level Installed Cost-LCC Tradeoff

Figure 8.4.1 Effect of the Change in Efficien cy Level on Life-Cycle Cost for BottlerOwned A-L-IN Beverage Vending Machine in Manufacturing Facilities (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

8-22 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docis 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.

Again, the results shown in Figure 8.4.1 a nd the corresponding figur es in Appendix F of the TSD are based on average input values rather than input dist ributions. Thus, one can observe how the various inputs impact LCC and, in turn , how the resulting LCC 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 efficiency level for the final rule is the ENERGY STAR Tier 1 level (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 analys is, the population is the number of beverage vending machine units in hotels, health care (n ursing homes, assisted living, 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 (beverage vending machine) equipment category. Additional cases are shown as Figures F.2.2– F.2.22 in Appendix F. In Figure 8.4.2, the 50-pe rcent line shows the median change in LCC (a savings of $158 in this example). Half of th e purchasers of this beverage vending machine unit would save more than $158, while half would sa ve less than $158. The “0 ” horizontal line is the minimum savings value, which in this exampl e is $-45. The maximum LCC savings is $509.

8-23 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docFigure 8.4.2 A-L-IN Beverage Vending Machine, Level 4 Efficiency: Cumulative Chart of LCC Savings

Appendix F contains the cumulative charts for al l the efficiency levels considered for all beverage vending machine equipment categories. These are Figures F.2.2–F.2.22 in Appendix F. 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 category in Table 8.4.1, which also shows the mean LCC savings and the percentage of equipment (units) 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 Beverage Vending Machine Equipment CategoryEfficiencyLevel Decrease in LCC from Baseline Efficiency (Level 1) Shown by Percentiles of the Distribution of Results 2008$ 0 10 20 30 40 50 60 70 80 90 100 Mean Savings $ Units with LCC Savings % 2 -1 32 46 55 65 73 83 95 111 3 -22 37 62 80 97 113 131 152 181 4 -45 42 80 106 132 155 182 214 257 5 -62 45 93 125 157 185 219 259 312 6 -83 39 94 132 168 201 240 286 348 7 -112 18 77 118 159 194 236 285 352 8 -1,886 -1,736 -1,664 -1,616 -1,568 -1,541 -1,487 -1,445 -1,347 137 230 331 404 454 468 -1,215 201 349 509 624 708 744 -935 84 132 184 222 244 240 -1,481 99 99 97 97 97 95

0
As an example of how to interpret the informa tion in Table 8.4.1, a review is provided of the overall results for the A-L-IN beverage vending machine equipment category. The Level 4 efficiency level in Table (row 3) shows that the change in LCC (0 percentile column) is a minimum savings of -$45. For 90 percent of the cases studied (90 th percentile), the change in LCC is a reduction of $331 or less. The largest reduction in LCC is $509 (100 th percentile). The mean change in LCC is a net savings of $184. The last column shows that 97 percent of the sample has LCC savings ( i.e ., reductions in LCC greater than zero).

8-24 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docAppendix F Figures F.2.1–F.22 gr aphically depict the LCC resu lts. The first figure for each equipment category shows mean LC Cs at U.S. average prices an d market conditions, while the second figure shows the percenta ge of equipment at each effici ency 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 (chapter 5) and also presented in sec tion 8.2.2.2, Standard-Level Manufacturer Price Increases. The results pres ented here are based on annual operating costs calculated from state average commercial electricity prices. Section 8.4 de scribes the tariff-based electricity price inputs as well as all other PBP inputs.

Similar to LCC, the analysis provides an estimate of the simple PBP at different ranges of energy prices, sales taxes, and installation co sts that prevail across the country for each efficiency level and each building type. Figure 8.4.3 shows the effect on PBP as the level of efficiency changes from Level 1 (the baseline ), for beverage vending machine equipment in manufacturing facilities at U.S. national average energy prices, sale s taxes, and installation costs.

Owner's Installed Cost-Payback Tradeoff

Equipment= A-L-Indoor-Only, Fuel Price=AEO 2 009 - Reference Case, Start Year= 2012Payback Period (Years) 120.0

100.0

80.0

60.0

40.0

20.0

0.0 2.9
$2,889

Level 2 3.9 $2,931

Level 3 4.4

$2,977

Level 4 4.6 4.9 5.5 100.0

$3,010 $3,043 $3,078 $4,425
Level 5 Level 6 Level 7 Level 8 (Max Tech) Installed Cost-Payback Period Tradeoff

Installed Cost and Efficiency Level
Figure 8.4.3 Effect of the Change in Efficiency Level on Payback Period for A-L-IN Beverage Vending Machine Equipment Categor y, in Manufacturing Facilities at Average U.S. Conditions (Level 1 is Baseline)

8-25 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docSimilar to the LCC differences, DOE depicted PBP results as a distribution of values. Thus, Thus, it presents the results as a cumulative probability chart showing the distribution of with the corresponding cumulative probabilit y 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 PBPs for the in creased efficiency levels for the A-L-IN beverage vending machine equipment category. Appendix F contains the frequency charts for all the efficiency levels considered for all beverage ve nding machines in this analysis. In

Figure 8.4.4, the y-axis shows cumulative percent of all beverage vending machine equipment (“Probability” at left y-axis). The x-axis is the PBP of a higher efficiency level (in this example, Level 4) relative to the base line efficiency level (Level 1). In

Figure 8.4.4, a Level 4 efficiency level pr ovides beverage vending machine equipment with a median PBP of 3.28 years, a mean PBP of 3.445 years, and a PBP range from just about approximately 0.8–6.8 years. (Note that these ca nnot be read with prec ision from the chart; rather, the analysis output data provides these values in a statistical summary.)

Figure 8.4.4 A-L-IN Beverage Vending Machine Le vel 4 Efficiency: Cumulative Chart of PBP

Table 8.4.2 summarizes the PBP results for the beverage vending machine equipment category. Results are summarized fo r PBP by percentile groupings ( i.e ., percentile of the distribution of results). The ch art also shows the mean PBP for each efficiency level.

8-26 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docTable 8.4.2 Summary of PBP Results for A-L- IN Beverage Vending Machine Equipment CategoryEfficiencyLevel PBP Shown by Percentiles of th e Distribution of Results
years
0 10 20 30 40 50 60 70 80 90 100 Mean Less than 3 Years Payback % 2 0.5 1.3 1.5 1.8 1.9 2.1 2.3 2.5 2.8 3.3 3 0.7 1.7 2.0 2.4 2.6 2.9 3.1 3.4 3.9 4.5 4 0.8 1.8 2.2 2.7 2.9 3.2 3.5 3.8 4.4 5.1 5 0.8 1.9 2.3 2.8 3.0 3.3 3.6 3.9 4.5 5.3 6 0.8 2.0 2.5 3.0 3.2 3.5 3.8 4.2 4.8 5.6 7 0.9 2.2 2.7 3.3 3.5 3.9 4.3 4.7 5.4 6.3 8 7.2 29.3 46.4 87.8 100.0 100.0 100.0 100.0 100.0 100.0 4.3 6.1 6.8 7.1 7.7 8.7 100.0 2.3 3.1 3.4 3.6 3.8 4.3 83.8 85 51 41 39 29 25

0

8.4.3 Lighting Maintenance Sensitivity Analysis

DOE conducted a sensitivity analysis to es timate the net economic effect of reduced maintenance costs for using light-emitting di ode (LED) lighting for product or machine illumination in place of baseline T8 fluores cent lighting in beverage vending machine equipment. The sensitivity analysis estimated the annualized life cycle cost savings for LED lighting. The sensitivity analysis used an estimated average na tionwide cost of $3.00 (including sales tax) per T8 fluorescent lamp. 9 Average fluorescent lamp lifetime was assumed to be 24,000 hours. Average lamp lifetime is based on today’s fluorescent lamps for use in a commercial facility where lamps are cycled on and off every 3 hours. GE ( www.geconsumerproducts.com), Osram-Sylvania ( www.osram.com ), Philips ( www.lighitng.philips.com) and other lamp manufacturers, offer T8 fluores cent lamps with a service lif e rated at 24,000 to 46,000 hours depending upon cycle time (3 hour cycle or 12 hour cycle). Three-hour cycl e means that a lamp is turned on for 3 hours, turned off for 20 minutes and repeated until the end of the lamp life. For a 12-hour cycle, the lamp is turned on for 12 hour s, off for 20 minutes and repeated until end of lamp life. Lamp suppliers web sites accessed on August 3, 2009. The longer the cycle time (period of time between the lamp on and the lamp off), the longer the rated lifetime of the lamp. For this analysis, the lower lifetime of the range reported by manufacturers was used and thus the lifetime is considered conservative.

The fluorescent lamp ballast (1 ballast fo r 3 lamps) lifetime was assumed to be 49,000 hours 1 (approximately 5.6 years at continuous operation). The analysis also used an estimated average nationwide cost of $17.00 for a matching el ectronic T8 ballast that services 3 T8 lamps in a beverage vending machine. The estimated co st of a 3-lamp T8 ballast for the beverage vending machine refurbishment industry was determ ined from ballast cost data provided in Appendix 7A of the TSD for the Energy Conser vation Standards and Test Procedures for General Service Fluorescent Lamps and Incandescent Reflector Lamps. 9

According to the vending industry, manufact urers of LED strips for beverage vending machine product illumination in place of fluoresce nt lighting will guarantee a lifetime of 4 years, which is approximately 35,000 hours at continuous vending machine operation. 10 Other industry sources indicate that LED lifetimes can be up to 100,000 hours (approximately 11 years) although the LED brightness will diminish over time before the end of life. 11 Based on these

8-27 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docdata, a conservative lifetime of 50,000 hours (approximately 5.7 years at continuous operation) was assumed for LED fixtures for beverage vendi ng machines. Consistent with the final rule, the beverage vending machine lifetime was assumed to be 10 years with a machine refurbishment undertaken at approximatel y 5 years of life.

For beverage vending machines with fluorescen t lamps and ballasts, the labor costs were estimated to be $75 to visit and replace 3 lamps in a machine. 3 DOE assume that maintenance visits for lamps (only) replacement would ta ke place two times duri ng the lifetime of the machine; one visit (at approximately 24,000 operating hours or at approximately 2.7 years) before refurbishment and one visit (at approxim ately 24,000 operating hours or at approximately 2.7 years) after refurbishment. The replacement of the lamp ballast is assumed to take place once during the lifetime of the machine during the mach ine refurbishment. Also during refurbishment, 3 lamps are replaced. Therefore the equipmen t cost for lamp and ballast replacement at refurbishment (at approximately 5 years or at approximately 44,000 hours) is assumed to be $26 (cost of 3 lamps plus a ballast) wi th $0 in maintenance labor cost since this activit y is undertaken during refurbishment.

For equipment with LED lighting, no lighting maintenance visits would be required over the lifetime of the machine prior to refurbishment as well as after refurbishment. It is assumed that replacement of the LED lighting strips woul d take place during refurbishment at a capital cost of $50 each or $150 for 3 strips with $0 labor maintenance costs.

The lighting-related maintenance labor cost s for a beverage vending machine with T8 lighting is estimated to be $150 over the lifetim e of the machine (2 maintenance visits @ $75 each). The lamps cost is $27 over the lifetime of the machine (3 lamps @ $3.00/lamp replaced 3 times) plus a ballast replacement during the refu rbishment ($17). The total maintenance cost is estimated to be $194, versus $150 for LED-equi pped machines. Taking into account the timing and costs of the various maintenance events at ye ars 2, 5, and 8, the ne t present value of the maintenance savings is $35.37 at the average di scount rate of 5.46 percent, or $4.86 per year annualized over the 10-year life of the equipment.

This sensitivity analysis estim ated that the annualized net maintenance cost savings is $4.86 for LED used to light a machine compared to the beverage vending machine using T8 lighting. This net annualized maintenance cost savings is small. It increases the LCC savings at efficiency levels at efficiency level 5 and above for Class A equipment (a maximum of 16 percent for Class A units; Table 8.4.3) and at ef ficiency level 6 and above for Class B equipment (a maximum of 6.2 percent; Table 8.4.4). Howeve r, the initial cost ga p is large enough where LED lighting is introduced between efficiency levels 4 and 5 for Class A and between efficiency levels 5 and 6 that the savings in maintenance cost does not make Level 5 more cost-effective than efficiency level 4 for Class A equipment, nor does it make efficiency level 6 more costeffective than efficiency level 5 for Class B equipm ent. It also does not ha ve a significant impact on relative life cycle cost savings between efficiency levels above or below these efficiency levels and does not impact the energy c onservation standards for the final rule.

8-28 BVM_FINAL_FR_TSD_Chapter8_08-14-09.docTable 8.4.3 Beverage Vending Machine Mean Life-Cycle Cost Savings for Class A Equipment With and Without LED-R elated Maintenance Savings

Efficiency A-L-IN A-M-IN A-S-IN

Level $ $ $ With No With No With No Maintenance Maintenance Maintenance Maintenance Maintenance Maintenance Savings Savings Savings Savings Savings Savings 2 84 84 162 162 130 130 3 132 132 207 207 179 179 4 184 184 235 235 227 227 5 257 222 331 296 290 255 6 278 244 340 305 300 265 7 275 240 330 295 290 255 8 -1,446 -1,481 -1,148 -1,183 -1,118 -1,153

Table 8.4.4 Beverage Vending Machine Mean Life-Cycle Cost Savings for Class B Equipment With and Without LED-Related Maintenance Savings

Efficiency B-L-IN B-M-IN B-S-IN

Level $ $ $ With No With No With No Maintenance Maintenance Maintenance Maintenance Maintenance Maintenance Savings Savings Savings Savings Savings Savings 2 43 43 41 41 35 35 3 46 46 49 49 16 16 4 40 40 36 36 16 16 5 30 30 26 26 2 2 6 -510 -545 -523 -558 -577 -612 7 -2,380 -2,414 -2,195 -2,230 -2,094 -2,129

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