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					                                                 Simple Life-Cycle Energy Savings Calculator

                   Client
                  Project
   Alternative Description

                  Inputs                                                                                  Results

     Study Period (Years)                    7                                                Simple Payback Years (SPB)                 2.69
      M&O Inflation Rate                  3.0%                                           Simple Return on Investment (ROI)             39.01%
  Electricity Inflation Rate              3.0%
       Fuel Inflation Rate                4.0%                                      Net Present Value of Savings (NPV) $               56,104
  Hurdle (Re-invest) Rate                15.0%                                               Internal Rate of Return (IRR)                36%
             Discount Rate               10.0%                                    Modified Internal Rate of Return (MIRR)                 24%

  Initial Incremental Cost     $        55,000
        Annual M&O Cost        $         1,000
Annual Electricity Savings     $        17,705
     Annual Fuel Savings       $         3,750                                                 Total Annual Savings (Initial) $        20,455

                                                                           Annual Cash Flow

                               Year in Study   Incremental                 Electricity                                         Present Value
                               Period          Costs       M&O Costs       Savings           Fuel Savings      Total by Year   in Year 0
                                             0 $ (55,000)                                                       $ (55,000)      $      (55,000)
                                             1             $   (1,030)      $      18,236     $        3,900    $    21,106     $       19,187
                                             2             $   (1,061)      $      18,783     $        4,056    $    21,778     $       17,999
                                             3             $   (1,093)      $      19,347     $        4,218    $    22,472     $       16,884
                                             4             $   (1,126)      $      19,927     $        4,387    $    23,188     $       15,838
                                             5             $   (1,159)      $      20,525     $        4,562    $    23,928     $       14,857
                                             6 ($1,194.05) $   (1,194)      $      21,141     $        4,745    $    23,497     $       13,264
                                             7             $   (1,230)      $      21,775     $        4,935    $    25,480     $       13,075
                                             8             N/A              N/A               N/A               N/A             N/A
                                             9             N/A              N/A               N/A               N/A             N/A
                                            10             N/A              N/A               N/A               N/A             N/A
                                            11             N/A              N/A               N/A               N/A             N/A
                                            12             N/A              N/A               N/A               N/A             N/A
                                            13             N/A              N/A               N/A               N/A             N/A
                                            14             N/A              N/A               N/A               N/A             N/A
                                            15             N/A              N/A               N/A               N/A             N/A
                                            16             N/A              N/A               N/A               N/A             N/A
                                            17             N/A              N/A               N/A               N/A             N/A
                                            18             N/A              N/A               N/A               N/A             N/A
                                            19             N/A              N/A               N/A               N/A             N/A
                                            20             N/A              N/A               N/A               N/A             N/A
                                            21             N/A              N/A               N/A               N/A             N/A
                                            22             N/A              N/A               N/A               N/A             N/A
                                            23             N/A              N/A               N/A               N/A             N/A
                                            24             N/A              N/A               N/A               N/A             N/A
                                            25             N/A              N/A               N/A               N/A             N/A
                                            26             N/A              N/A               N/A               N/A             N/A
                                            27             N/A              N/A               N/A               N/A             N/A
                                            28             N/A              N/A               N/A               N/A             N/A
                                            29             N/A              N/A               N/A               N/A             N/A
                                            30             N/A              N/A               N/A               N/A             N/A
                               Totals           $ (56,194) $   (7,892)      $     139,733     $      30,803     $ 106,450       $       56,104
                                                      User Guide Table of Contents                                                 TOC Return

                                       Client
                                     Project
                      Alternative Description

                   Inputs                                                   Annual Cash Flow Table

                        Study Period (Years)                                         Year in Study Period
                           M&O Inflation Rate                                          Incremental Costs
                     Electricity Inflation Rate                                               M&O Costs
                            Fuel Inflation Rate                                        Electricity Savings
                     Hurdle (Re-invest) Rate                                                 Fuel Savings
                                 Discount Rate                                              Total by Year
                      Initial Incremental Cost                                    Present Value in Year 0
                            Annual M&O Cost
                   Annual Electricity Savings
                         Annual Fuel Savings

                  Results

                Simple Payback Years (SPB)
        Simple Return on Investment (ROI)
       Net Present Value of Savings (NPV)
                Internal Rate of Return (IRR)
     Modified Internal Rate of Return (MIRR)
                Total Annual Savings (Initial)

            Special Calculations

                   Future Incremental Costs

                                                  User Guide Terms (In Alphabetic Order)

Alternative Description

Briefly describe the project alternative being analyzed in this spreadsheet, so as to differentiate it from other alternative s.


Annual Electricity Savings (Inputs)

Insert the current year dollar value of estimated annual electricity savings for this alternative.


Annual Fuel Savings (Inputs)

Insert the current year dollar value of estimated annual fuel savings for this alternative.


Annual M&O Cost (Inputs)

Insert the current year dollar value of estimated annual maintenance and operations costs. If you believe that M&O costs do
not vary between project alternatives, you may enter zero for this value in all project worksheets.


Client

Insert the name or other brief description of the project owner.


Discount Rate (Inputs)

The rate of interest, reflecting the investor's Time Value of Money (or opportunity cost), that is used in Discount Formulas or
to select Discount Factors which in turn are used to convert ("discount") Cash Flows to a common time.

Unless you are specifically required to use a Real Discount Rate, use a Nominal Discount Rate in this spreadsheet.

Real Discount Rate

Real Discount Rates reflect Time Value of Money apart from changes in the purchasing power of the dollar (inflation) and are
used to discount Constant Dollar Cash Flows. They do not include an adjustment for inflation, since constant dollars are
used to discount Constant Dollar Cash Flows. They do not include an adjustment for inflation, since constant dollars are
used. However, when real discount rates are used, if specific items are being considered that vary from the base rate of
inflation, adjustments must be made to their inflation rate. As an example of real discounting, if fuel prices are inflating at 2%
more than the consumer price index rate (base rate), then fuel prices would need to be inflated only by the 2% not by sum of
the CPI inflation rate and the 2%.

Nominal Discount Rate

The rate of interest (market interest rate) reflecting the time value of money stemming from both changes in the purchasing
power of the dollar (inflation) and the real earning power of money over time. As an example of nominal discounting, if fuel
prices are inflating at 2% more than the consumer price index rate (base rate), than fuel prices would need to be inflated by
the sum of the CPI inflation rate and the 2% not just the fuel inflation excess rate of 2%.

Calculating the Discount Rate

A simple method that works well for use in this spreadsheet is to consider the marginal pretax rate of return on an average
investment in the private sector in recent years (7%) as the Real Discount Rate and then add to it the current base rate of
inflation (for this spreadsheet equal to the "M&O Inflation Rate") to create the Nominal Discount Rate. At the present time
this would yield a nominal discount rate of approximately 10-11%.

If the marginal pre-tax rate of return on an average investment for your organization is known, it can be substituted for the
7% number in the simple calculation above. (Note, this is different then the "Hurdle Rate" since it is the average of all
investment results, instead of the anticipated rate of return on investments.)




Electricity Inflation Rate (Inputs)

Insert your current estimate of the annual electricity inflation rate (percentage) for the duration of the study period.


Electricity Savings (Annual Cash Flow Table)

This column details the calculated electricity savings, adjusted for inflation, for each year of the study period.


Fuel Inflation Rate (Inputs)

Insert your current estimate of the annual fuel inflation rate (percentage) for the duration of the study period.


Fuel Savings (Annual Cash Flow Table)

This column details the calculated fuel savings, adjusted for inflation, for each year of the study period.


Future Incremental Costs (Inputs - Annual Cash Flow Table)

For Project Alternatives where the Study Period is more than 5 years, it is common that there will be major maintenance or
partial equipment replacements that have significant cost. As an example, a roof-top HVAC system with a 20 year life will
ordinarily require a compressor replacement/repair at 10 years which will cost about 1/3 of the price of a new complete roof-
top HVAC system.

These "future incremental costs" do not occur on an annual basis and, thus, can not be considered part of the annual
maintenance costs. They should be entered separately, in the year they occur, in the Incremental Costs column. When
entering them, they must be adjusted to the future value that they would have in the year that they occur.

Determining the Future Value

With regard to determining the future year value, normally one of two possible situations occurs.

The first situation is that the value in the year that it will occur is already known from other sources. In this case, simply enter
the correct value (as a negative number) in the appropriate Year in Study Period row in the Incremental Costs column
(column C, rows 25 through 54).

The second situation is that only the "Present Value" is known for the "future incremental cost" and its value in the year that it
will occur must be calculated. In this situation, enter the Microsoft Excel Formula for Future Value (described below) in the
appropriate Year in Study Period row in the Incremental Costs column (column C, rows 25 through 54) to calculate the
appropriate value.

The Microsoft Excel Formula for Future Value

Syntax:    =FV(rate,nper,pmt,pv,type)
Syntax:    =FV(rate,nper,pmt,pv,type)




Hurdle (Re-Invest) Rate (Inputs)

The rate of interest, reflecting the investor's Time Value of Money (or opportunity cost), that is used as a minimum qualifier
for any project to be funded. For considering projects to be funded, it is usually compared to each project's Internal Rate of
Return.

Determining the Hurdle Rate

Ordinarily, this rate is supplied by the management of the project owner organization. Usually it is higher than the Discount
Rate, which ordinarily only considers the cost of capital (and inflation). The Hurdle Rate is larger than the Discount Rate in
order to compensate for risk of project failure and the investor's desire for profit.

For use in the Simple Savings Calculator, use the value supplied by the management of the project owner organization. If no
value is available, a useful rule of thumb is 15% which is equivalent to a 5 year Simple Payback on equipment with a 10
year useful life.

(Note, the Hurdle Rate is also used in the Simple Savings Calculator for the calculation of the Modified Internal Rate of
Return.)




Incremental Costs (Annual Cash Flow Table)

This column details the incremental costs, adjusted for inflation, for each year of the study period and the initial period. If
Future Incremental Cost calculations have been added, their values are shown here, as well as the Initial Incremental Cost.
(See Future Incremental Costs for instructions on adding incremental costs that occur in the future.)



Initial Incremental Cost (Input)

Insert the estimated dollar cost of design, construction and miscellaneous soft costs for the installation of this project option.
(Depending on analysis scope this may be total project cost or an incremental option cost.) Only include costs that occur
prior to the start of use. Future incremental costs are considered separately (if at all) in the year they occur.



Internal Rate of Return (IRR) (Output)

The internal rate of return is the interest rate received for an investment consisting of payments (negative values) and
income (positive values) that occur at regular periods. The internal rate of return (IRR) is a capital budgeting metric used by
firms to decide whether they should make investments. It is an indicator of the efficiency of an investment, as opposed to ne t
present value (NPV), which indicates value or magnitude.

A project alternative is a good investment proposition if its IRR is greater than the internal rate of return that could be e arned
by alternate investments (investing in other projects, buying bonds, even putting the money in a bank account).

Mathematically the IRR is defined as any interest rate that results in a net present value (NPV) of zero of a series of cash
flows.

In general, if the IRR is greater than the project alternative's hurdle rate the alternative will add value for the company.



M&O Costs (Annual Cash Flow Table)

This column details the calculated annual M&O Costs, adjusted for inflation, for each year of the study period.


M&O Inflation Rate (Input)

Insert your current estimate of the annual maintenance & operations inflation rate (percentage) for the duration of the study
period. Normally, this is the general rate of inflation for the regional (USA) economy as a whole. Currently, as of 2008, it is
about 3-4%.



Modified Internal Rate of Return (MIRR) (Output)

Modified Internal Rate of Return (MIRR) is a financial measure used to determine the attractiveness of an investment. It is
generally used as part of a capital budgeting process to rank various alternative choices. As the name implies, MIRR is a
modification of the financial measure Internal Rate of Return (IRR). MIRR makes an explicit assumption about the rate of
modification of the financial measure Internal Rate of Return (IRR). MIRR makes an explicit assumption about the rate of
return of investment of those flows. (The Internal Rate of Return assumes, by leaving a specifc rate unstated, that interim
cash flows are re-invested at the IRR. If the IRR is significantly higher than the hurdle rate, this is unrealistic.)

The modified internal rate of return assumes all positive cash flows are re -invested to the terminal year of the project. In the
Simple Savings Calculator, this re-invest rate is equal to the hurdle rate. All negative cash flows are discounted (using the
discount rate) and included in the initial investment outlay. MIRR ranks project efficiency consistent with the present worth
ratio (variant of NPV/Discounted Negative Cash Flow), considered the gold standard in many finance textbooks.

The Simple Savings Calculator uses the following Microsoft Excel formula and values:

=MIRR(values,finance_rate,reinvest_rate)

=MIRR(values,Discount Rate,Hurdle Rate)

=MIRR(values,B14,B13)




Net Present Value of Savings (NPV) (Output)

Net present value (NPV) is a standard method for the financial appraisal of long -term projects. Used for capital budgeting,
and widely throughout economics, it measures the excess or shortfall of cash flows, in present value (PV) terms, once
financing charges are met. By definition:

NPV = Present value of net cash flows.



Present Value in Year 0 (Annual Cash Flow Table)

Values in this column are the discounted values of annual cash flows reflecting their values in Year 0 of the study period.




Project

Briefly describe the project that this alternative is being considered for.


Simple Payback Years (SPB) (Output)

This calculated output represents the time, in years, that it would take for the initial year annual savings amount to equal the
initial incremental cost.


Simple Return on Investment (ROI) (Output)

This calculated output represents the percentage return on investment that is equivalent to the Simple Payback Years
(SPB). It is equivalent to the initial incremental cost divided by the initial year annual savings amount.


Study Period (Years) (Input)

The period of study for this analysis, in years. Ideally, the study period should approximate the average life expectancy of
the alternatives being studied.


Total Annual Savings (Initial) (Output)

This is the calculated sum of Annual Electricity Savings plus Annual Fuel Savings minus Annual M&O Cost.


Total by Year (Annual Cash Flow Table)

The calculated outputs in this column represent the total annual cash flows for each year. They are displayed in current
dollar values for the year they represent. They are not discounted to the present.


Year in Study Period (Annual Cash Flow Table)

This column displays a number representing the year in the study period, for which the values on the row in the spreadsheet
This column displays a number representing the year in the study period, for which the values on the row in the spreadsheet
refer to.

				
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