[ Spotlight: Energy efficiency ]
requires information that should be available to a competent building services contractor. If the value of the installed measure is known and the savings per year and maintenance costs can be estimated, then these figures can be inserted into the spreadsheet, together with estimates of the inflation figure or ‘discount’ value. The spreadsheet will then calculate the payback time, NPV, and IRR, and indicate depreciation. The use of the FAS should enable contractors
to produce a general financial appraisal which will present values such as straight payback, NPV and IRR. These figures can be immensely valuable when helping a client to understand, or make their own, financial proposal.
Example calculation Let’s take a further example of 100 units priced at £450 each which, when installed, reduce the unit energy from 0.5 KW to 0.2 KW (for example, LED warehouse lighting). The units are used for 10 hours per day, six days per week and 52 weeks a year. The electricity price is 10p per unit during the day and energy inflation is estimated at 10 per cent per year. The discount rate, obtained from the client, is 8 per cent. Inserting these and other values into the FAS gives the following results:
Day hours/year Night hours/year
Hours/year operation Energy per year pre work Energy per year post work Energy saving/year kWh Cost of energy pre-work Cost of energy post-work Cost savings per year Savings over 10 years Total investment
Old maintenance/year New maintenance/year Payback period (years)
3,120 0
3,120
156,000 62,400 93,600
£15,600 £6,240 £9,360
£93,600 £45,000 £3,000
£333.33 4.8
The figures above give a simple payback period of under five years, with savings over 10 years of £93,600.
A further page in the FSA then allows the user to take the previous figures and generate an NPV and GPV, and to estimate the IRR. The IRR (which is based on the hypothetical example above, is 23.4 per cent) is usually compared by the client with their own view of what a good IRR looks like. It is not uncommon for energy saving IRRs to beat the IRR from the client’s core business. Maintenance costs can also be inserted into the
payback equations, along with any allowance for inflation.
Changing the energy price greatly affects the
final figures. If the rate of energy inflation is set at above 10 per cent, for example, then the financial case for installing energy saving measures becomes even more compelling.
Getting sorted The Energy Efficiency Financial Analysis Spreadsheet is freely available to ECA registered members. It is a simple tool that allows contractors and clients to communicate properly about the cost-effectiveness of various energy saving solutions options. It should remove some of the mystique surrounding financial appraisals and crucially, help convince the client that energy saving investments really do pay.
March 2013 ECA Today 31
SHUTTERSTOCK / VIKTORIYA
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