Calculating the Cost of Delay by malj

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									ENERGY STAR in Energy Savings Performance Contracting (ESPC) Projects EPA Webcast Presentation April 17 & May 20

Overview
• Introduction to ENERGY STAR Tools • How ENERGY STAR Tools are used in ESPC Projects • Integrating ENERGY STAR Tools into ESPC Contract Documents

ENERGY STAR Tools
• Portfolio Manager • Delta Score Estimator • Cash Flow Opportunity Calculator
• ENERGY STAR Label

Portfolio Manager
Eligible Facilities
• Offices • Bank/Financial Institutions • Courthouses • K-12 Schools • Hospitals (Acute Care and Children's) • Hotels • Retail Stores • Supermarkets • Residence Halls/Dormitories • Warehouses • Medical Offices • Wastewater Facilities
• Other

Portfolio Manager

(cont’d)

• Manage energy/water consumption
– Set building performance goals – Track multiple meters – Benchmark facilities relative to past performance – Monitor energy and water costs – Share data

• Rate your building’s energy performance
– 1-100 point scale relative to other buildings

Portfolio Manager

(cont’d)

• Set investment priorities
– Compare cost savings opportunities across buildings – Calculate costs for specific projects

Portfolio Manager

(cont’d)

• Verify and track results
– Generate a Statement of Energy Performance to:
• Apply for the ENERGY STAR label

• Satisfy LEED-EB requirements • Document savings for Energy Performance Contracts (ESPC)

Portfolio Manager (cont’d)
Is 10 MPG high or low for an automobile? Is 80 kBtu/SF/YR high or low for a building?

Fuel Efficiency MPG

Energy Efficiency 1 - 100

Portfolio Manager

http://www.energystar.gov/index.cfm?c=evaluate_performance.bus_portfoliomanager

Delta Score Estimator
• Imbedded in Portfolio Manager • Estimates a new performance rating for a potential project
• Estimates the percentage of energy use reduction required to hit a rating target

Delta Score Estimator

(cont’d)

Cash Flow Opportunity Calculator (CFOC) • Simple to Use • Illustrates Cost of Delay • Customers Can Confirm Results • Answers…
– How much equipment can be paid for from savings – Whether it is better finance the project or wait and use future appropriations – If money is being lost waiting for a better interest rate

Cash Flow Opportunity Calculator

http://www.energystar.gov/ia/business/bus_financing_cfo_calculator.xls

ENERGY STAR Label
• Demonstrate environmental leadership • Earn public recognition and awards • Recognize successful public building and agency managers

ENERGY STAR Label

(cont’d)

http://www.energystar.gov/index.cfm?c=evaluate_performance.bus_portfoliomanager_intro

Using Portfolio Manager in ESPCs
• Include requirement that ESCOs include a Portfolio Manager rating score to confirm existing conditions
– Helps the ESCO and owner understand the savings opportunities – A low rating, which is an independent confirmation of savings potential, can help to overcome any owner resistance to the project

• Use Portfolio Manager to prioritize retrofit opportunities
– Buildings with low scores can receive immediate attention

Using Portfolio Manager in ESPCs
(cont’d)

• Track building and portfolio improvements
– Complements ESCOs Measurement & Verification Plans with an easy-to-understand rating of a building’s or portfolio’s progress – Can be used by public agencies to demonstrate progress toward meeting legislative or governors’ energy savings mandates

Using Delta Score Estimator in ESPCs
• Estimate impact of ESPC project in Portfolio Manager rating
– Have the ESCO project the potential impacts in the rating score if a specific ESPC measure is implemented or eliminated

• Set rating improvement targets
– Have the ESCO work to develop a costeffective project to meet or exceed the targeted percentage of savings

Using the CFOC in ESPCs
• Confirms the size of the project
– Shows that the project can pay for itself

• Estimates the cost of project delay
– Shows the economic value of savings lost from delaying projects

• Analyzes the impact of waiting for cash
– Shows that it often does not make financial sense to “do it ourselves”

• Analyzes the impact of waiting for a lower interest rate
– Shows that waiting for a lower rate is not often economically justified

CFOC Case Study of Florida Community College ESPC Project
1st APPROXIMATION DATA ENTRY TABLE
Name Select Scenario Sample Values Community College
1st Approximation Sample Values

1st APPROXIMATION

SF Group A Group B

Annual Energy Costs ($) - All Fuel Types

$/SF

Savings Target (%)

Potential Annual Savings

18,785 588,729

16,733 1,079,809

0.89 1.83

0 19

$0 $205,164

Total SF

Total Energy Cost ($) - All Fuel Types

$/SF

Weighted Savings Total Potential Target (%) Annual Savings ($)

607,514

1,096,542

1.80

18.71%

205,164

ENERGY STAR® does not guarantee that your project will generate the results presented herein. An investment grade audit performed by a qualified engineering organ determine the actual size of your savings opportunity.

0

1st APPROXIMATION INVESTMENT OPPORTUNITY
Group A Annual Utility Bills Annual Potential Savings $16,733 $0 Group B $1,079,809 $205,164 Total Utility Bill $1,096,542 $205,164

Potential Annual Savings = Cash Flow Opportunity
Use Sample Values

What Can This Annual Cash Flow Buy?
Assuming an interest rate of Assuming a term of Savings used to pay energy investments 5 10 90 % Year(s) %
You may change these values anytime. If you would like to see the sample values, please click on the Use Sample Values button.

Taken from operating funds, these savings could finance energy projects equal to: Contribution that your operating budget can make towards energy improvements Simple Payback

$1,451,000
$2.39 7 1

without increasing today's capital and operating budgets.
Median project investment ranges between $1 - 3/ft2.* Consider blending short- and long-term projects to maximize use of the savings.

/SF Year(s) Month(s)

*Market Trends in the U.S. ESCO Industry: Results from the NAESCO Database Project (http://www.naesco.org/ESCO_Mkt_Trends_final.pdf), May 2002

Disclaimer

1st APPROXIMATION CASH FLOW OPPORTUNITY
Click this button if you would like to transfer values from Investment Values page. Year(s) postponed is given as 2 years.

Use Investment Values
1,451,000 7 $ years month(s) %

Cumulative Cash Flow Impact Comparison
$1,000,000 $500,000 $0 1 ($500,000) ($1,000,000) 2 3 4 5 6 7 8 9 10 11 12

Project cost

Simple payback
1

Interest rate Financing term Year(s) postponed

5.00 10 1

years

($1,500,000)
Option A Option B

Year

Option A (Fast Track Financing)
Year 0 1 2 3 4 5 6 7 8 9 10 11 Savings $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 Cost ($184,681) ($184,681) ($184,681) ($184,681) ($184,681) ($184,681) ($184,681) ($184,681) ($184,681) ($184,681) $0 $0 Annual Cash Flow $20,482 $20,482 $20,482 $20,482 $20,482 $20,482 $20,482 $20,482 $20,482 $20,482 $205,164 $205,164 Cumulative Cash Flow $20,482 $40,965 $61,447 $81,930 $102,412 $122,895 $143,377 $163,859 $184,342 $204,824 $409,988 $615,152 Savings $0 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164

Option B (Waiting for Cash)
Cost $0 ($1,451,000) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Annual Cash Flow $0 ($1,245,836) $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 $205,164 Cumulative Cash Flow $0 ($1,245,836) ($1,040,673) ($835,509) ($630,345) ($425,181) ($220,018) ($14,854) $190,310 $395,473 $600,637 $805,801

Net Present Value of Option A

$392,358

Net Present Value of Option B

$306,924

For purposes of this calculation, all cash flows are being discounted at the interest rate indicated in cell G7 - financing paid monthly in arrears.

Summary of CFOC Case Study
• • • • • • • • • • Total Square Footage: Annual Energy Costs: Savings Target: Annual Interest Rate: Project Investment: Annual Finance Cost: Simple Payback: 12 Yr. NPV of Financed Project: NPV of Cash Project (1 year delay): Cost of Delay: 607,514 $1,096,542 ($1.80 s.f) 18.71% ($205,164/yr.) 5% (10 year finance term) $1,451,000 (90% of savings) $184,691 ($20,482 excess savings) 7.1 years $392,358 (cumulative cash flow) $306,924 $17,100/mo.

Integrating ES Tools into ESPCs
• US EPA has:
– Reviewed and analyzed common ESPC project procurement and contracting protocols from 10 different states – Reviewed and analyzed common procurement and contracting provisions
– Drafted generic language to require ESCOs to use ENERGY STAR tools

– Determined where ENERGY STAR language may best be located in procurement and contracting documents

• EPA is developing written guidance

Common ESPC Procurement & Contracting Documents
• RFQ or IFP to select ESCO • Investment Grade Audit (IGA) contract
• Guaranteed Energy Savings (GES) Agreement

ENERGY STAR Language in ESPC Procurement and Contracting Documents
• RFQ or IFP
– Portfolio Manager to determine pre-retrofit rating – Delta Score Estimator to estimate the post-retrofit rating

• Investment Grade Audit
– Delta Score Estimator – Cash Flow Opportunity Calculator results

• Energy Services Agreement
– Require an annually updated Portfolio Manager – Require an annually updated ENERGY STAR Label


								
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