Energy Conservation Standards forCommercial Unitary Air Conditioners and Heat PumpsANOPR Public MeetingLife-Cycle Cost AnalysisBuilding Technologies ProgramOffice of Energy Efficiency and Renewable EnergyU.S. Department of EnergySeptember 30, 20042ANOPR Analyses Flow DiagramMarket &TechnologyAssessmentScreeningAnalysisEngineeringAnalysisEnergy Use &End-Use LoadCharacterizationShipmentsAnalysisNationalImpactAnalysisMarkups forEquipmentPriceDeterminationLife-CycleCost andPaybackPeriod Analyses3PurposeEnergy Use & End-Use Load Characterization•To develop electrical energy use and peakelectrical demand characteristicsfor buildings that use commercial unitary air-conditioning equipment.•To provide these characteristics for selected equipment efficiency levelsacross a diverse set of commercial buildings and climates.Markups for Equipment Price Determination•To characterize the channels for howequipment is distributed from themanufacturer to the customer.•To determine prices paid by customersbased on manufacturerprices of basecase and higher efficiency equipment.Life-Cycle Cost and Payback Period Analyses•To develop the customer life-cycle costsavings and payback periods of higherefficiency equipment.4ANOPR Issues for Public CommentBuilding Sample (ANOPR Issue #16a)Economizer Performance (ANOPR Issue #6)Fan Energy Consumption (ANOPR Issue #7 and Issue #16c)BLAST and CBECS Estimates of Energy Use (ANOPR Issue #16b)Equipment Markups (ANOPR Issue #8 and Issue #16d)Exclusion of Light Industrial Buildings (ANOPR Issue #5)Hourly Based Electricity Prices (ANOPR Issue #9)Forecasts of Electricity Prices (ANOPR Issue #10)Equipment Lifetime (ANOPR Issue #11)Effect of Income Taxes on LCC (ANOPR Issue #17)Rebound Effect (ANOPR Issue #20)5Energy Use & End Use Load CharacterizationThe Need for Building SimulationLack of an available data source providing a broad characterization ofcooling loads and their contribution to electrical loads profiles incommercial buildingsA need to capture diversity of cooling loads across different buildingtypes and climate zonesA need to characterize hourly and peak building electrical loads foruse in the LCC analysis6Energy Use & End Use Load CharacterizationSimulation OverviewCharacterizationof Building StockUsing CBECS1DataDevelopment andSimulation ofBuilding PrototypesUsing BLAST2 EnergyTimeHourlyWhole-BuildingEnergy End UseProfiles1CBECS:Commercial Building Energy Consumption Surveyconducted by DOE’sEnergy InformationAdministration (EIA)2 BLAST:Building Loads and System Thermodynamicsenergy simulation tool7Energy Use & End Use Load CharacterizationSimulation MethodologySize equipmentwith BLASTdesign-day runSimulate annualenergy usewith BLASTScale results tomatch actualbuilding geometryAdjust coolingand fan energyuse for less than100% packagedcooling15-zone, 3-storyPrototype(48,000 sf)CBECS –inferredsize andgeometry8Energy Use & End Use Load CharacterizationData Source for Key Simulation InputsData SourceSimulation InputsDirect from CBECSBuilding type, floor area, number of floors, wallconstruction, roof type,occupancy density, economizeruse, use of temperature setbackInferred from CBECSTypical Meteorological Year (TMY2) station for weatherdataWindow wall ratio (WWR)*, building aspect ratio*, buildinguse schedulesDerived from OtherSourcesLighting power density,equipment power density,occupancy density (where notavailable in CBECS),infiltration, peak ventilation, Energy Efficiency Ratio (EER),system over-sizing factor**Values forWWR, aspect ratio, andsystem over-sizing factorwere chosen randomly frompopulation distributions developed for these input variables9Energy Use & End Use Load CharacterizationSimulation OutputEach of the 1033 buildings was simulated for each of the 10 efficiencylevels. The results provided from this analysis are:•A stream of hourly electrical consumption data for each building end-use(including cooling)•The number of 7.5 ton or 15 ton air-conditioning units that would be installed inthe building to meet the peak loads10IssuesBuilding Sample(ANOPR Issue #16a)The Department seeks comments on the building sample selectionprocess.A sample of 1033 buildings selected from CBECS was simulated to developthe energy use characteristics for this analysis.This sample consists of six building types: assembly, education, foodservices, office, retail and non-refrigerated warehouse.This sample represents approximately 70% of the floor space cooled bypackaged air-conditioning equipment in CBECS.11IssuesEconomizer Performance(ANOPR Issue #6)Where economizer usage was indicated by CBECS in a particular building,the simulation assumed economizers were used.Where economizer usage was indicated by CBECS, the simulationsassumed that economizers operated flawlessly and with an enthalpy controlstrategy, maximizing benefits.The Department seeks comments on the economizer usage, controlstrategy, and performance assumptions.12IssuesFan Energy Consumption(ANOPR Issue #7 and Issue #16c)The Department seeks comments on the fan power and modelingassumptions.The fans used in unitary air conditioners and heat pumps typically provide forventilation during all building operating hours (cooling, heating and purelyventilating modes). This assumption was used in the simulation. Thusenergy savings from reductions in supply fan power accrue during all hoursof building operation.13IssuesBLAST and CBECS Estimates of Energy Use(ANOPR Issue #16b)The Department seeks comments on the value of comparing theaverage simulated cooling energy use with the CBECS-modeledresults.The Department seeks comments on the characterization of thebuilding energy use and end use loads.The average simulated cooling energy use from BLAST simulations onlyslightly exceeded the reported CBECS cooling energy for the buildingsample (developed through a separate modeling process). There is,however, significant variation between the BLAST and CBECS coolingenergy use for any individual building.14Markups for Equipment Price DeterminationPurpose, Inputs, and OutputPurpose•To determine customer prices based on manufacturer costs•Characterize distributionchannels and market segments•Analyze company direct costs, expenses, and profitsInputs•Firm balance sheets– Wholesalers: ARW1998 Wholesaler PROFIT SurveyReport for Wholesalers– Mechanical Contractors: ACCA1995 Financial Analysis for the HVACR ContractingIndustry•U.S. Census Bureau data– General Contractors:1997 Economic Census of Commercial and Industrial BuildingConstructionOutput•Baseline and incremental markups15Markups for Equipment Price DeterminationDistribution ChannelsDistribution Channels 1 & 2Distribution Channel 3 (Nat’l Acct)represents 82.5% of distributionrepresents 17.5% of distributionManufacturerWholesalerLarge Mech.Contractor32.5% of distributionGeneral Contractornot present for replacement marketSmall Mech. Contractor50% of distributionCustomerCustomerManufacturerCustomerGeneral Contractornot present for replacement marketyTwo construction types:Replacement (70%) andNew Construction (30%)16Markups for Equipment Price DeterminationBaseline and Incremental MarkupsMarkupsrelate customer price to cost of goods sold (COGS)Baseline markupsrelate price to cost prior to a change in efficiency•Baseline markups indicate a customer price that covers allof a wholesaler’s orcontractor’s expenses plus profit•Direct labor costs (salaries, payroll, rental and occupancy) are includedIncremental markupsrelate the incremental change in customer priceto the incremental change in COGS•Some costs remain constant with COGS increases•Incremental markups cover only expenses that vary with COGS – in this case,expenses that increase due to anincrease in equipment efficiency•For example, direct labor costs (salaries, payroll, rental and occupancy) do notvary with efficiency-inducedchanges in COGS Labor Expenses17Markups for Equipment Price DeterminationExample of Markup ResultsNew Construction - Range and Average Markup ValuesBaselineIncrementalRangeAverageRange1.361.00 – 1.221.08 – 1.29Small Mechanical Contractor1.34 – 1.611.481.14 – 1.371.26General Contractor1.10 – 1.381.241.00 – 1.261.13Sales Tax1.00 – 1.101.071.00 – 1.101.071.35AverageWholesaler1.02 – 1.701.11Large Mechanical Contractor1.22 – 1.471.18Replacement Market - Rangeand Average Markup Values1.371.17 – 1.411.701.54 – 1.86Small Mechanical Contractor1.00 – 1.101.08 – 1.291.00 – 1.22Range1.071.551.36AverageAverageRange1.071.00 – 1.10Sales TaxLarge Mechanical Contractor1.291.41 – 1.691.111.02 – 1.70WholesalerIncrementalBaseline1.241.60National AccountIncremental AverageBaseline Average1.562.31OVERALL MARKUPSIncremental Weighted-AverageBaseline Weighted-Average18IssuesEquipment Markups(ANOPR Issue #8 and Issue #16d)The Department seeks comments on the type of wholesaler,mechanical contractor, and general contractor expenses that need tobe covered by the incremental markup.Baseline and incremental markups were developed for wholesalers,mechanical contractors, and general contractors to transform manufacturerprices into customer prices.Incremental markups cover only those expenses associated with achangeinmanufacturer price. For example, because direct labor expenses do notchange with an increase in the manufacturer price (such as office salaries),they arenotcovered by incremental markups.Because fewer expenses are covered, the incremental markup has a lowervalue than the baseline markup.19Life-Cycle Cost Analysis FlowchartBaselineManufacturerPriceStd-LevelManufacturerPriceWholesalerMarkupGeneralContractorMarkupSales TaxMechanicalContractorMarkupInstallationCostTotal InstalledCostEquipmentPriceFromEngineeringAnalysis(Price is afunction ofEER)From Markupsfor EquipmentPriceDeterminationAnalysisEnergyConsumptionPowerDemandElectricityPricesAnnual EnergyExpenseRepair CostMaintenanceCostAnnualOperatingExpenseLifetimeDiscount RateElectricityPrice TrendLifetimeOperatingExpenseFrom EnergyUse & End UseLoadCharacterizationAnalysis(Energy Use &Load are afunction of EER)PaybackPeriodProcess FlowchartLife-CycleCost20Life-Cycle Cost and Payback Period AnalysesTariff-based and Hourly based Electricity PricesTariff-based approach•Primary approach for developing electricity prices•Based on non-residential electricutility tariffs collected in 2001Hourly based approach•Secondary approach for developing electricity prices•Based on a scenario in which customers are directly charged for the costsincurred by an electricity providerto supply energy for air-conditioning– Based on wholesale cost andutility system lambda data•Prices that may exist assuming all electricity markets are deregulatedMarginal prices are developed from both approaches•Tariffs and hourly costs are applied tobuilding energy use and demand data•Electricity bill savings and marginalprices calculated from an efficiencyimprovement to air-conditioning equipment•National average marginal commercial prices are 10 ¢/kWh21Life-Cycle Cost and Payback Period AnalysesElectricity Price ResultsNational average tariff-based and hourly based marginal prices arevirtually the same•Tariff-based and hourly basedprices vary regionally•Large component of marginalprice is due to demandUnitTariff-based Marginal PriceHourly based Marginal PriceNo. Subdivision StatesWeightingCents/kWh % demandCents/kWh % capacity1 New England CT,MA,ME,NH,RI,VT4.79.553%10.743%2.1 New York NY7.414.653%10.535%2.2 Mid Atlantic NJ,PA5.610.527%8.748%3 EN Central IL,IN,MI,OH,WI13.710.846%11.065%4.1 W-WN Central KS,ND,NE,SD0.86.244%8.460%4.2 E-WN Central IA,MO,MN4.77.130%9.860%5.1 N-S Atlantic DE,MD,VA,WV5.67.941%9.963%5.2 Mid-S Atlantic GA,NC,SC7.97.322%7.468%5.3 Florida FL6.68.036%11.066%6.1 N-ES Central KY,TN5.16.538%8.068%6.2 S-ES Central AL,MS5.46.139%12.870%7.1 N-WS Central AR,LA,OK5.35.826%11.676%7.2 TexasTX9.510.023%10.875%8.1 N-Mountain ID,MT,WY0.66.120%4.543%8.2 S-Mountain AZ,CO,NM,NV,UT4.28.835%9.569%9.1 N-Pacific OR,WA1.74.533%5.424%9.2 California CA11.218.521%8.546%USA100.010.035%9.960%22IssuesExclusion of Light Industrial Buildings(ANOPR Issue #5)The Department seeks comments on whether light industrial buildingshave substantially different electrical loads and electricity prices fromcommercial buildings.If light industrial buildings have substantially different loads and prices,the Department seeks comments on whether there are significantcommercial unitary air conditioner shipments to these buildings towarrant their inclusion into the analysis.Building simulations were performed on commercial buildings with commercialunitary air conditioners in order to generate electrical loads. Electrical loadswere coupled with electricity prices (either tariff based or hourly based) togenerate customer utility bills.Light industrial buildings were not analyzed due to insufficient data.By not analyzing industrial buildings, theLCC analysis implicitly assumes thatthe electrical loads and electricity prices in light industrial buildings are notsubstantially different than those in commercial buildings.23IssuesHourly Based Electricity Prices(ANOPR Issue #9)The Department seeks comments on other price models for calculatingannual utility bills from hourly cost data.The Department seeks comments on the use of hourly based prices asa secondary approach for developing marginal prices.Hourly based prices were used as a secondary approach to establish marginalelectricity prices. Tariff-based prices were the primary approach.Extensive data were used to characterize hourly costs. Hourly wholesale costdata were collected from deregulated regions of the country and hourly systemlambda data were collected from regulated regions.Hourly cost data were input into a customer price model to compute annualutility bills. The price model wasbased on avoided-cost methodologiestraditionally used by utilities to characterize demand reduction programs.24Life-Cycle Cost and Payback Period AnalysesOther InputsInstallation Costs•Based on RS Means data: $1585 for baseline 7.5 ton unit, $2142 for 15 ton unit•Costs vary in direct proportion to equipment weightElectricity Price Forecasts•Based upon trends from the2003 Annual Energy OutlookDiscount Rates•Derived from estimates of the cost of capital of companies thatpurchase unitary a/c•Cost of capital is calculatedfrom the weighted-average cost ofcapital to the firm (WACC) toobtain equity and debt financing•Weighted-average value equals 6.1% realEquipment Lifetime•Median age of 15 years based upon1999 ASHRAE HVAC Applications Handbook•Survival function based uponWeibull probability distributionRepair Costs•Baseline annual repair cost: $158 for 7.5 ton unit, $291 for 15 ton unit•Increases in direct proportion toequipment manufacturing priceMaintenance Costs•Based on RS Means data for 3 to24 ton roof top air conditioners•Annual maintenance costequals $200 and does not vary with capacity or efficiency25IssuesForecasts of Electricity Prices(ANOPR Issue #10)The Department seeks comments on any other credible electricityprice forecasts.Electricity price forecasts from the2003 Annual Energy Outlookwere usedto estimate future electricity prices.The Department plans on using the most recentAnnual Energy Outlookavailable in its analyses for the NOPR.26IssuesEquipment Lifetime(ANOPR Issue #11)The Department seeks comments on the lifetime of commercialunitary air conditioners.Based on the1999 ASHRAE HVAC Applications Handbook, the Departmentused a value of 15 years as the median lifetime of commercial unitary airconditioners.A Weibull probability distribution with a median value of 15 years was usedto characterize the survival function for commercial unitary air conditioners.27Life-Cycle Cost and Payback Period AnalysesExample of LCC Results:7.5 ton (≥65,000 Btu/h and <135,000 Btu/h), 11.0 EERFrequency ChartCertainty is 92.60% from $0 to +InfinityMean = $533.000.011.022.032.0430108216324432($1,200)$200$1,600$3,000$4,40010,000 TrialsForecast: LCC Savings28Life-Cycle Cost and Payback Period AnalysesExample of Payback Period Results:7.5 ton (≥65,000 Btu/h and <135,000 Btu/h), 11.0 EERFrequency ChartYearsMean = 3.5 years.000.010.020.030.0410101.5203304.54060.05.010.015.020.010,000 TrialsForecast: Payback29IssuesEffect of Income Taxes on LCC(ANOPR Issue #17)For firms that purchase commercial unitary air conditioningequipment, the Department seeks comments on the number of firmswhich face a net tax liability.For those firms with a net tax liability, the Department seekscomments on how equipment is expensed and depreciated over time.The Department did not include the effect of income taxes in the LCCanalysis for this ANOPR.The Department believes the net impact of taxes on the LCC analysisdepends upon how a firm's accounting procedures expense the purchasecost of commercial equipment and measure profitability.30IssuesRebound Effect(ANOPR Issue #20)The Department seeks comments on the presence of a rebound effectfor commercial unitary air conditioner customers.If a rebound effect does exist, the Department seeks data for basingthe calculation of the rebound effect.The rebound effect occurs when a piece of equipment that is made moreefficient is used more intensively, so that the expected energy savings fromthe efficiency improvement do not fully materialize.The rebound effect was not taken into account when estimating the energysavings from more efficient equipment.31IssuesOther IssuesThe Department seeks comments and recommendations fromstakeholders on any other aspects related to the Life-Cycle CostAnalysis.