Commercial Unitary Air Conditioners

and Heat Pumps

-. r,,.. X... ~r '~' ~Z"- .' ...:: :::.-.... · ,

Life Cycle Cost Analysis

James E. McMahon

(JEMcMahon@LBL.gov)

Ernest Orlando Lawrence Berkeley National Laboratory

U.S. DOE Workshop on Standards

for Commercial Unitary Air Conditioners

and Heat Pumps

September 12, 2001

EE-RM-STD-01-375 COMMENT 02JJ

, . 

Commercial Unitary Air Conditioners 

and Heat Pumps 

Life Cycle Cost Analysis 

James E. McMahon 

(JEMcMahon@LBL.gov) 

Ernest Orlando Lawrence Berkeley National·Laboratory 

U.s. DOE Workshop on Standards 

for Commercial Unitary Air Conditioners 

and Heat Pumps 

September 12, 2001 
Life Cycle Cost Analysis:

Purpose

Analyze "the savings in operating costs

throughout the average life of the covered

product in the type (or class) compared to

any increase in the price of, or in the initial

charges for, or maintenance expenses of, the

covered products which are likely to result

from the imposition of standards."

(§325 (0)(2)(B)(i)(II)) [EPCA]

III.E. 1

I EE-RM-STD-01-375 COMMENT 02JJ . 

.. 

Life Cycle Cost Analysis: 

Purpose • . ,.' ,ro'"." 'l.:-" 1'"~~.~~·~/:~;.!~'i::.~:;::; .;".' .,' . 

• Analyze "the savings in operating costs 

throughout the average life of the covered 

product in the type (or class) compare~ to 

any increase in the price of, or in the initial 

charges for, or maintenance expenses of, the . 

. covered products which are likely to result 

• I from the imposition of standards." 

(§325 (O)(2)(B)(i)(II)) [EPCA] 

lILE.l 
. . Life Cycle Cost is the Sum

of Initial Cost and Lifetime Operating Costs

. Cumulative Cash Flow (undiscounted)

L~* 4T~ T~P _ TNr~ $ ~I *Life Cycle Cost (discounted) WLCC =I | $ 5 Initial stalled cost

N[O/(l+r) t] where

- IC- Initial installed

cost

- O = Annual operating

expense

- r = Discount rate

- t = years (sum over IC

equipment lifetime)

Years

Product Life

II.E.2

EE-RM-STD-01-375 COMMENT 02JJ

Life Cycle Cost is the Sum 

. of Initial Cost and Lifetime Operating Costs 

. 

· Lee = Ie + 

L[O/(l +r)t] ·where 

- Ie = Initial installed 

cost 

- 0 = Annual operating 

expense 

- r = Discount rate 

- t = years (sum over 

equipment lifetime) 

Ie 

$ 

- _._ - ••• ·PM •••• _. • ••• ",' • • _ _. • _ •••••••••• _._._ •••• 

I mJ Cwnclative Cash Flow (unclli,c-~~ted) .. ! 

I • Life Cycle Cost (dis cOlmte d) I 

o Initial mstalled cost - .- - -- - _ ..... _. --- - ,-",.... -

Product Life 

- - - - - .. - _ .. ,.. " -.' -- -' 

Years 

III.E.2 
fIf. ~Life Cycle Cost Analysis:

DOE Requests Input from Stakeholders

· Are the proposed approaches reasonable?

* Should regional variations in climate and energy

price be analyzed in ANOPR stage or later

(NOPR) ?

* Are the proposed data sources reasonable?

* Should equipment lifetimes depend on operating

hours, climate, or other application-specific

variables? Should lifetimes be the same for all

product classes?

III.E.3

EE-RM-STD-01-375 COMMENT 02JJ

Life Cycle Cost Analysis: 

DOE Requests Input from Stakeholders 

• Are the proposed approaches reasonable? 

• Should regional variations in climate and energy 

price be analyzed in ANOPR stage or later 

(NOPR)? 

• "Are the proposed data sources reasonable? 

• Should equipment lifetimes depend on operating 

hours, climate, or other application-specific 

variables? Should lifetimes be the same for all 

product classes? 

III.EJ 
Life Cycle Cost Analysis:

iiy Inputs (1)

Installed Cost:

The price paid for an air conditioner or heat pump,

including installation

Possible data sources

- Current or recent purchase prices

- Calculated from manufacturer costs plus

markups (manufacturer, dealer, distributor,

contractor) plus sales tax and installation cost

III.E.4

EE-RM-STD-01-375 COMMENT 02JJ

Life Cycle Cost Analysis: 

Inputs (1) • I. ,...,;~. .\' j'" ~ ~.~~:Y':~~.':':~.ii:"'::'" J ..... ~ .~;. 

• Installed Cost: 

The price paid for an air conditioner or heat pump, 

including installation 

. • Possible data sources 

- Current or recent purchase prices 

- Calculated from manufacturer costs plus 

markups (manufacturer, dealer, distributor, 

contractor) plus sales tax and installation cost 

III.EA 
-J ^ 'Life Cycle Cost Analysis:

'| EInputs (2)

Operating Expenses:

- Energy and maintenance costs

- Lifetime of the air conditioner or heat pump

- Discount rate (for calculating present value of future

operating expenses)

Possible approach and data sources - Annual energy consumption by air conditioner or heat

pump (derived from CBECS, other commercially

available 'data sets and/or simulations)

- Current and forecasted regional energy price trends

(from EIA/AEO) applied to marginal prices

- Gather and analyze data on lifetimes, discount rates

- Survey of commercial tariffs and utility marginal costs III.E.5

EE-RM-STD-01-375 COMMENT 02JJ

Life Cycle Cost Analysis: 

Inputs (2) .... iiiiiiii ... _________ .•. ·.~~~iff~~"·\~~~':r~:·:~~····:::·~:/:· ":, .' 

• Operating Expenses: 

- Energy and maintenance costs 

- Lifetime of the air conditioner or heat pump 

_. Discount rate (for calculating present value of future 

operating expenses) 

• Possible approach and data sources 

- Annual energy consumption by air conditioner or heat 

pump (derived from CBECS, other commercially 

available 'data sets and/or simulations) 

- Current and forecasted regional energy price trends 

(from EIAIAEO) applied to marginal prices 

- Gather and analyze data on lifetimes, discount rates 

, - Survey of commercial tariffs and utility· marginal costs III.E.5 
3t:' ~ Life Cycle Cost Analysis:

| Illustrative LCCs for Generic Options

A range of efficiencies will I

be analyzed and compared to a!.. E UOperating and maintenance costs

1baseln. I Installed costs baseline.

In this example, 3 options

have reduced operating costs

- Option 1 = lower LCC

-Option 2 = lowest LCC, but

higher installed costs

- Option 3 = higher LCC and . .

highest installed costs Baseline Option 1 Option 2 Option 3

Efficiency Options

III.E.6

EE-RM-STD-01-375 COMMENT 02JJ

Life Cycle Cost Analysis: 

Illustrative LCCs for Generic Options 

• A rang~ of efficiencies will 

be 'analyzed and compared to 

baseline. 

• In this example, 3 options 

have reduced operating costs 

- Option 1 = lower Lee ' , ' 

,-, Option 2 = lowest Lee, but 

higher installed costs 

Option 3 = higher Lee and 

highest installed costs 

.. -.... - -

--- H -- ,-, 'I 

o Operating and maintenance costsl 

I 

• Installed costs I 

---.1,·-· , ,----.i..,,--.- -· ...... _ .. 1 

I 

I 

Baseline Option 1 Option 2 Option 3 

Efficiency Options . .- -- - -. -- .... . .. --_. .... . - ..... . ... _----_ ... -...... __ ....... . 

III.E.6 
Life Cycle Cost Analysis:

Analyze Variability and Uncertainty

Obj ectives:

- Analyze variability among applications and operating

conditions (e.g., climate, building characteristics, operation,

electricity prices)

- Rigorous treatment of uncertainty

Technical Approach:

- Use commercially available software

- Use distributions for each input, not point estimates

- Public access via Web, training

III.E.7

EE-RM-STD-01-375 COMMENT 02JJ

Life Cycle Cost Analysis: 

Analyze Variability and Uncertainty 

. ..: .', y... "Ii"·.. !t> .~ 

• Objectives: 

,- Analyze variability among applications and operating 

conditions (e.g., climate, building characteristics, operation, 

electrici ty prices) 

- Rigorous treatment of uncertainty 

• Technical Approach: 

, - Use commercially available software 

- Use distributions for each input, not point estimates 

- Public access via Web, training 

III.E.7 
||' Life Cycle Cost Analysis:

Analysis Issues

Whose Perspective

- Owner

- User

Demand Charges

- Highly variable

Utility Deregulation

- Future developments

- Price impacts

III.E.8

EE-RM-STD-01-375 COMMENT 02JJ

Life Cycle Cost Analysis: 

Analysis Issues 

• Whose Perspective 

- Owner 

- User 

• Demand Charges 

- Highly variable 

,. Utility Deregulation 

- Future developments 

- Price impacts 

.,- . '. :.~; .' . "', . ":,. 

III.E.8 
e» ~Life Cycle Cost Analysis:

Results

Summarize Results for Each Possible

Efficiency Improvement

- Average (or median) LCC savings

- Percent of consumers with net savings or with

net costs

Importance analysis

- Identify key inputs that contribute most to

uncertainty or variability

III.E.9

EE-RM-STD-01-375 COMMENT 02JJ

Life Cycle Cost Analysis: 

Results 

• Summarize Results for Each Possible 

Efficiency Improvement 

- Average (or median) LCC savings 

- Percent of consumers with net savings or with 

net costs 

I '. Importance analysis 

- Identify key inputs that contribute most to 

uncertainty or variability 

III.E.9 
BACKUP SLIDES

Life Cycle Cost Analysis

EE-RM-STD-01-375 COMMENT 02JJ

• "" ".' • • ':,' " •• '~' j ~ 

BACKUP SLIDES 

Life Cycle Cost Analysis 
Life Cycle Cost Analysis:

Uncertainty and Variability

Identify key sources of uncertainty and variability

- Uncertainty: incomplete information

- Variability: range of values

Estimate input ranges rather than point values

- Minimum, likeliest, maximum values

Conduct scenario ("what-if') analysis

Simulate over input ranges

Express output as ranges

- Summarize with percent of consumers having lower life

cycle cost III.E. 1

EE-RM-STD-01-375 COMMENT 02JJ

Life Cycle 'Cost Analysis: 

Uncertainty and Variability •• ",'J" ........ ' • 

• Identify key sources of uncertainty and variability 

- Uncertainty: incomplete information 

- Variability: range of values 

• Estimate input ranges rather than point values 

- Minimum, likeliest, maximum values 

'.' Conduct scenario ("what-if') analysis· 

• Simula~e over input ranges 

• ,Express output as ranges 

- Summarize with percent of consumers having lower life 

cycle cost III.E.II 
'g ~ Life Cycle Cost Analysis:

Simulation Method

Select one building from sample population

- Use weighted sampling (to represent appropriate fraction

of total population)

- Actual monthly energy bills

- Estimate annual energy consumption by air conditioner

or heat pump

Calculate price of energy

- Calculate marginal price for electricity

- Apply time trends to estimate future prices

Sample given uncertainties

- Manufacturers' costs, markups, lifetime, discount rate

Calculate LCC

III.E. 12

EE-RM-STD-01-375 COMMENT 02JJ

Life Cycle Cost Analysis: 

Simulation Method 

• Select one building from sample population 

- Use weighted sampling (to represent appropriate fraction 

. of total population) 

- Actual monthly energy bills 

- Estimate annual energy consumption by air conditioner 

or heat pump 

• Calculate price of energy 

- Calculate marginal price for electricity 

- Apply time trends to estimate future prices 

• Sample given uncertainties 

- Manufacturers' costs, markups, lifetime, discount rate 

• Calculate Lee 

III.E. J 2 
Process for making models

transparent and robust

Make models as simple as possible

Make copies of models accessible to public

- On Internet

- Available from US DOE or contractor

Make models easy to use

- Graphical user interface, option menus

- Develop documentation

Provide training

- Central location (e.g., public workshop)

- On-site at stakeholder location

- Computer link or videoconference

III.E. 13

EE-RM-STD-01-375 COMMENT 02JJ

· , 

Process for making models 

transparent and robust 

, • ;." ......... : J.,.A, 

• Make models as simple as possible 

• Make copies of models accessible to public 

- On Internet 

- Available from US DOE or contractor 

• Make models easy to use 

- Graphical user interface, option menus 

- Develop documentation 

• Provide training 

- Central location (e.g., public workshop) 

- On-site at stakeholder location 

- Computer link or videoconference 

III.E.I3