5.1 Introduction
Due to time and cost constraints, pressures often exist to select maintenance options and strategies that are based solely on capital costs, as it is the easiest to quantify and has the most immediate fi nancial implications. However, this approach is unlikely to deliver the best long term outcome for many of the Stakeholders. The long term benefi ts from best practice maintenance and operation in buildings are now well accepted and these are described in Chapter 1 of this document. Investing some additional time on simple economic analysis can lead to more informed judgements and deliver signifi cant fi nancial benefi ts over the subsequent years.
During the process of making routine site visits to carry out maintenance, the HVAC Maintenance Service Provider is best placed to identify opportunities that can reduce energy and water consumption. These opportunities range from repairing an existing item of equipment, replacement with like for like, upgrading with a more effi cient model and enhancements to the system to improve effi ciency and performance.
The correct analysis and presentation of the potential benefi ts and cost effectiveness of these measures to the Facilities Manager is essential, if the best option for long term benefi ts is to be understood and appreciated. An assessment of potential environmental benefi ts, which would enhance the ‘green performance’ of the building and deliver the Building Owners objectives as stated in the Environmental Policy, is also important. A presentation which quantifi es the potential benefi ts and offers a credible business case is likely to improve the chances of gaining the Facilities Managers approval to implement these measures. This approach presents opportunities for the Maintenance Contractor to add value to an existing contract and to achieve a ‘win-win’ situation. This section outlines some of the methods available for Maintenance Contractors to assess the cost effectiveness and environmental outcomes, and to
assist Facilities Managers achieve better economic and environmental benefi ts from measures that reduce energy and water consumption.
5.2 Simple Payback Period
This is the most basic of economic analysis methods and it is only applicable for situations where a reduction in operating costs relative to business as usual (or some other alternative) will be achieved by a system repair, replacement or upgrade. This method estimates the number of years it takes to recover capital cost, but does not take into account savings beyond that. Therefore, this analysis does not calculate return on investment (ROI) or any tax savings due to depreciation.
The simple payback period is calculated as: Payback Period (Years) = Capital Investment ($) / Annual Savings ($)
5.3 Net Present Value
A Net Present Value (NPV) calculation is the recommended method for identifying the economic outcome of an action and the optimal outcome from a number of options. As the name indicates it calculates the net value (benefi ts minus costs) of an action in today’s dollars so that fair and direct comparisons can be made.
The major benefi t of this tool is that it acknowledges the time value of money; that is $1 today is worth more than $1 in a year’s time. The time value of money is represented in the calculations by a ‘discount rate’ which reduces the value of money in future years by a certain rate per year (usually in the range of 5–10%/y depending on the application). The ability to include discount and infl ation rates as well as other factors as required, gives a good indication of the economic outcome of an action. However, as these rates are assumptions of future trends they inevitably include a degree of uncertainty and the opportunity could exist for
5.6 Benefi ts of Economic Analysis
Conducting NPV calculations requires extra effort, however, the potential benefi ts could be substantial as shown in the fi gure below which plots effi ciency against Life Cycle Costs (LCC). NPV has an inverse relationship with LCC, NPV increases as LCC decreases.
Figure 5.1 (on page 34) illustrates that for a
hypothetical building operating at point 1 effi ciency can be improved while increasing the NPV until point 2. NPV analysis aims to result in operation at point 2. Effi ciency can continue to be improved until point 2 without costing any more than ‘business as usual’. There will always be a point where the LCC cannot be reduced any further (point 2) because the capital cost of increasing effi ciency is higher than the present value of the possible savings.
The blue region from point 2 to point 3 is generally the best region to operate a building, however, in some cases increasing effi ciency beyond this range is required to achieve a building performance rating that is desired or has been committed to. The installation of co-generation, tri-generation or renewables might fall within this category. these assumptions to be manipulated to support
a particular position.
There are a number of online NPV calculators which can assist with assessments.
Further Information
1. CIBSE Guide M: Maintenance Engineering and Management: ISBN 978 1 903287 934.
5.4 Internal Rate of Return
Internal Rate of Return (IRR) is similar to NPV, however, rather than attempting to calculate a monetary value as the output it simply identifi es the discount rate at which the NPV is zero, therefore, eliminating one of the assumptions required for NPV calculations.
IRR has benefi ts over NPV. However, it requires some understanding of the underlying economics for the output to be meaningful and is, therefore, not always easy to apply.
5.5 Life Cycle Analysis
Life Cycle Analysis (LCA) is a detailed analysis technique that aims to quantify all environmental costs – past, present and future, attributable to an action or product whether they are direct or indirect. This goes beyond simply maximising the economic return to the Building Owner. LCA is more altruistic in nature, aiming to minimise environmental costs rather than costs borne by the Building Owner. Due to the detailed, time-consuming and costly nature of conducting a LCA it is unlikely to be used in the development of HVAC maintenance strategies. However, the benefi ts of a positive LCA should be understood and products or services that have a LCA conducted for them and have achieved a positive result should be given preference in the procurement process.
When presented with a LCA the scope and goals should always be scrutinised as they are critical factors and the outcomes are largely meaningless unless presented in context.
Note: Life Cycle Analysis is not related to Life Cycle Cost which is referred to in the next section.
Fi n a n c ia l & Env ir o n m e n ta l Ev a lua ti on 5
Once the potential reductions to energy and/or water consumption through effi ciency measures have been estimated, it is a simple task to input the revised fi gures to the NABERS online calculator and to obtain an assessment of the improvement to the rating. It must be noted that the NABERS ratings increment in steps of 0.5 star bands, however, the NABERS calculator will display the improvement gained within a 0.5 star band.
It may also be necessary to estimate the savings of greenhouse gas emissions, through the
implementation of measures to enhance effi ciency. This information can be used for reporting, and also in news letters to announce the success of ‘green measures’ implemented. Once the potential energy savings in kWh or MJ are assessed, the equivalent CO2 emissions can be obtained from www. climatechange.gov.au under National Greenhouse Accounts (NGA) Factors, the current fi gures for electricity consumed from the grid and for natural gas and diesel are shown in Table 5.1
Figure 5.1 Life Cycle Cost Vs. Effi ciency
5.7 Environmental Evaluation
When evaluating the benefi ts of high performance maintenance contracts and specifi c energy and water effi ciency upgrades, potential environmental benefi ts must be assessed, in addition to the fi nancial benefi ts.
The potential enhancement to a building’s NABERS energy and water ratings can be assessed by using the online calculator freely accessible on the NABERS website. Any existing rating would be available from the last accredited NABERS rating carried out on the building. If such a rating has not been previously carried out for the building, then the Facilities Manager or the Maintenance Contractor can carry out an informal NABERS assessment using the on line calculator. Key information required is the location (post code) of the site, the electricity/ gas/diesel/water consumption data for the previous 12 months, information regarding the net lettable area (which should be available from the Facilities Manager) and the hours of service provided by the HVAC systems for the tenancies, including after-hours operation.