Heating and Air Conditioning I

1. Heating and Air Conditioning I Principles of Heating, Ventilating and Air Conditioning R.H. Howell, H.J. Sauer, and W.J. Coad ASHRAE, 2005 basic textbook/reference material For ME 421 John P. Renie Adjunct Professor – Spring 2009

2. Chapter 10 – Life-Cycle Costs • General Concepts. • Properly engineered HVAC system must also be economical • Compromise between performance and economic merit • Selection due to • User’s needs • Designer’s experience • Local building codes • First costs • Most efficiency use of source energy • Any of these may affect the choice – among choices given same results – system with the lowest-life cycle cost – not necessarily the lowest first-cost • Overall cost may be divided into two main categories • Owning costs • Operating costs

3. Chapter 10 – Life-Cycle Costs • General Concepts. • Overall cost may be divided into two main categories • Owning costs • Operating costs • See Tables 10-1 and 10-2 • Also Chapter 36 of the ASHRAE Handbook – HVAC Applications

4. Chapter 10 – Life-Cycle Costs • General Concepts. • See Table 10-1 – Owning and Operating Cost Data Summary

5. Chapter 10 – Life-Cycle Costs • General Concepts. • See Table 10-1 – Owning and Operating Cost Data Summary

6. Chapter 10 – Life-Cycle Costs • General Concepts. • See Table 10-1 – Owning and Operating Cost Data Summary

7. Chapter 10 – Life-Cycle Costs • General Concepts. • See Table 10-2 – Initial Cost Checklist

8. Chapter 10 – Life-Cycle Costs • General Concepts. • See Table 10-2 – Initial Cost Checklist

9. Chapter 10 – Life-Cycle Costs • General Concepts. • Life-cycle costs consider expenses that are experienced over an extended period. • Economic procedures project long-term costs so that comparisons can be made between systems with different initial and operating costs. • Must include all cost factors – initial costs, service life, interest, energy costs, operating expenses, and cost escalation • Life-cycle cost techniques • Present worth • Uniform annual owning and operating costs • Rate of return • Rate of return of investment • Benefit cost analysis • Years to pay back • Cash flow – more sophisticated analysis – need of investors/owners

10. Chapter 10 – Life-Cycle Costs • Owning Costs. • Expressed as annual costs that are distributed over an extended period or as an equivalent total value – present worth (includes initial costs, salvage value, property taxes, rents, and insurance.) • Initial Costs • Included construction costs of the system – cost of design, administration, and raise capital • Interest – money has a true value because it most be borrowed, obtained from investors, or diverted (cost of borrowed capital, cost of capital, or discount rate) • Time period – used by owners and engineers to analyze the system – defined in the following manner • Depreciation period – allocated first cost over the estimated useful life (IRS: straight-line, accelerated procedures such as declining balance or sum of the years. ) • Amortization period – time over which periodic payments of monies are made to discharge a debt

11. Chapter 10 – Life-Cycle Costs • Owning Costs. • Initial Costs • Service life – time value that reflects the expected life of the specific component (not useful life or the depreciation period used for IRS) • High life is variable – depends on maintenance, environment, technical advancements of new equipment, and personal opinions • Service life can be used to set amortization period or help is decisions of preventive maintenance • See Table 10-3 for Estimates of Service Lives of Various Components • Capital recovery factor (CRF) • Calculated from the established interest rate and the amortization period n that determines the uniform annual cost needed to repay a debt or initial cost. • See Table 10-4 ($1,000 at 8 percent for 20 years – CFR = 0.10185, or $101.85 per year

12. Chapter 10 – Life-Cycle Costs • Owning Costs. • Initial Costs (Amortization Table)

13. Chapter 10 – Life-Cycle Costs

14. Chapter 10 – Life-Cycle Costs

15. Chapter 10 – Life-Cycle Costs • Owning Costs. • Initial Costs • Present worth – initial cash required (or present worth) is the current value of monies to be spent over the selected amortization period – money needed today for initial investment and all future expenditures. • Present worth factor, uniform annual series (PWuas) – given in tables and is used to calculate the present worth when given a uniform annual cost. • PW = Annual costs x PWuas (or 1/CFR) • Series compounded amount factor, uniform annual series (SCAF) – used to determine a future sum of money when a uniform annual payment is made. • Actual sum = Annual costs x SCAF • 1/SCAF is the sinking fund factor (SFF) • Annual costs= Actual sum at end x SFF

16. Chapter 10 – Life-Cycle Costs • Owning Costs. • Present worth factor, single payment (PWFsp) – used to calculate the present worth of a future one-time payment • Actual cost times this number gives the present worth of a one-time cost, such as an overhaul or equipment replacement. • Reciprocal is referred to as the compound amount factor, single payment.

17. Chapter 10 – Life-Cycle Costs • Owning Costs. • Property Tax • Included as an owning tax and is a percentage of the market value of the buildings • Engineer needs to assess whether appreciation or depreciate of property values will occur. • Incentives for energy conservation may be an important consideration in determining justifiable long-term investment • Insurance • Means by which a property owner can be reimbursed for a financial loss from property damage that requires repair or replacement • Financial recovery also from loss of income, rents, or profits resulting from the property damage • State-wide regulation (premium, liabilities, deductibles, etc.) • Salvage Value • Terminal value of the equipment at the end of the life or amortization period – often assumed to be zero

18. Chapter 10 – Life-Cycle Costs • Operating Costs. • Energy • Utility costs require monthly calculation considering energy consumption and peak demands. • Most reliable are hourly procedures – each component as a function of weather, internal loads, building heat gains and losses and ventilation • Cost escalation – loss of purchasing power due to inflation • Real return = difference between interest and inflation (1 to 5%) • Present worth of an annual cost over a selected time period, n, using an interest of money, I, and a cost escalation, j, is the present worth escalation factor (PWEF) – when interest and fuel cost rises are not equal … use

19. Chapter 10 – Life-Cycle Costs • Operating Costs. • Energy costs

20. Chapter 10 – Life-Cycle Costs • Operating Costs. • Energy costs

21. Chapter 10 – Life-Cycle Costs • Operating Costs. • Maintenance • Expenses for labor and material necessary to make repairs, as well as for cleaning, painting, inspection, testing, etc. • Usually operation engineer handles routine maintenance • Extraordinary repairs covered by maintenance divisions • Technique for estimating building HVAC maintenance cost for various equipment combinations (Dohrmann and Alereza – 1986) • Assume that the base HVAC system consists of fire-tube boilers for heating equipment, centrifugal chillers for cooling, variable-air-volume (VAV) distribution. • Costs are $0.3338 per square foot with adjustment from Table 10-5 to account for building age and various types of HVAC equipment.

22. Chapter 10 – Life-Cycle Costs • Operating Costs. • Maintenance (Table 10-5)

23. Chapter 10 – Life-Cycle Costs • Operating Costs. • Labor for Operations • System operators are often necessary due to scope of facility or local regulation • Water Costs • Heat can be rejected either through purchased water or cooling towers • Water conservation • Water Treatment • Income Tax • Can be considered as an operating cost • Tax rate is the marginal rate – next dollar • Allowances for depreciation and other deductions strongly influence investments by reducing life-cycle costs • Significant tax-credits should be included in life-cycle costs.

24. Chapter 10 – Life-Cycle Costs • Life-Cycle Cost Techniques. • Present Worth • Most common technique – comparing the equivalent cash needed on hand to own and operate over an entire selected time. – single investment dollar amount.

25. Chapter 10 – Life-Cycle Costs • Life-Cycle Cost Techniques. • Uniform Annual Owning and Operating Costs • Compares the cost of both investment and annual costs on an annual base –spread the costs of owning the building spread over the full amortization period • Consider the additional costs at some particular point in its life due to replacements or major overhauls. • Rate of Return • The average annual net benefit/original cost x 100.

26. Chapter 10 – Life-Cycle Costs • Life-Cycle Cost Techniques. • Rate of Return • The average annual net benefit/original cost x 100.

27. Chapter 10 – Life-Cycle Costs • Life-Cycle Cost Techniques. • Benefit/Cost Analysis • Comparative procedure that provides the engineer and owner the ratio of cost versus savings – after both have been converted to present worth.

28. Chapter 10 – Life-Cycle Costs • Life-Cycle Cost Techniques. • Years to Payback • Similar to benefit cost analysis in that it does not look for system cost comparisons at a specific life – agreement between engineer and owner that YTP is reasonable and less than life expectancy • Years required for the present worth of the investment is equal to the savings.

29. Chapter 10 – Life-Cycle Costs • Life-Cycle Cost Techniques. • Years to Payback

30. Chapter 10 – Life-Cycle Costs • Life-Cycle Cost Techniques. • Cash Flow • A discounted cash flow approach provides the owner with a technique to incorporate variable annual outlays and taxes, with the amount and year of the cash income. • To account for interest and time, net cash flows are converted to single-payment present worths – the interest at which the summations of present worth of net cash flow is zero gives the rate of return. • If acceptable to the investor – proposal should be approved. • Another way would be to obtain an investment value at a given rate of return by adding the present worth of the net cash flows, but not including the investment costs.

31. Chapter 10 – Life-Cycle Costs • Household Energy Use

32. Chapter 10 – Life-Cycle Costs • Household Energy Use (from Energy and the Environment, 2nd Edition, Ristinen and Kraushaar, 2006, John Wiley)