Payback for Boiler Installation Project
Payback for Boiler Installation Project
(OP)
I'm working on a $4M boiler install for a federal building. The building currently purchases district steam. Savings for self-generation are substantial. I've a good handle on the costs and savings involved and have arrived at a payback of 10-12 years. Is there guidance, either federal (GSA, DOD, etc) or in industry on what a sensible payback for a project of this sort might be? I understand one can have an opinion, but what I am looking for is "official" guidance.
The reference will be used by management decision makers to support a thumbs up or down on the project. Boilers going in have a 30 year life. There are, of course, a number of other variables involved in the decision in addition to payback, but it certainly would be useful to point to an official source. I've looked at GSA on-line docs and haven't found what I'm looking for. I will probably contact FEMP directly and see what they can offer, but I'd also like to get other sources to weigh in.
The reference will be used by management decision makers to support a thumbs up or down on the project. Boilers going in have a 30 year life. There are, of course, a number of other variables involved in the decision in addition to payback, but it certainly would be useful to point to an official source. I've looked at GSA on-line docs and haven't found what I'm looking for. I will probably contact FEMP directly and see what they can offer, but I'd also like to get other sources to weigh in.





RE: Payback for Boiler Installation Project
HAZOP at www.curryhydrocarbons.ca
RE: Payback for Boiler Installation Project
As a practical matter, your economic analysis should consider the economic effects of the lost practical space in the building due to the boiler installation, reasonable projections for boiler operation and maintenance costs, and reasonable forecasts for future fuel costs. Also, I would pay close attention to the boiler efficiency used as the basis for the analysis. Part-load efficiency is usually significantly less than the stated efficiency that is based on optimum-load conditions. This difference can result in significantly greater actual fuel usage than anticipated.
You probably have the advantage of knowing a historical pattern of steam usage from the building's steam billing records, so projection of the future steam production requirements for the boiler can probably be predicted with good accuracy unless some significant changes in building usage and occupancy are also involved.
Another additional cost that should get some attention is the greater cost of insurance due to the presence of the boiler on the property.
Valuable advice from a professor many years ago: First, design for graceful failure. Everything we build will eventually fail, so we must strive to avoid injuries or secondary damage when that failure occurs. Only then can practicality and economics be properly considered.
RE: Payback for Boiler Installation Project
To answer your first question, there's no real guidance on what a nominal or average payback for your project might be. It varies so widely, based on energy rates. Your 10-12 year figure doesn't raise any red flags.
If we were doing this for the government under an energy audit / LEED / other program, we would be required to simulate the whole building according to ASHRAE 90.1 Appendix G to support the savings dollars. If you already have a good estimate, that's OK too.
For decision-making, the above comments are all applicable. You'll only need, as owg noted, the government's discount rate. You can snag anything out of the newspaper for that. It's their cost of borrowing -- use the average yeild on US treasuries for the 30-year time frame, anything longer than your project life cycle. It really doesn't matter nowadays, since they're all just about zero. OR, ask the FEMP which rate to use.
Do the whole life-cycle cost analysis thing. IRR, net present value, discounted payback, etc... With a projected life of over twice the simple payback period, it will all look great and you can recommend a thumbs-up.
I have not seen an official federal form, rule, or format, but that doesn't mean there aren't any for your particular case. The principle involved in saying go or no-go is a generally-accepted economics and finance concept.
In any event, please be sure and tell us what you find out, and how it all works for you!
Good on ya,
Goober Dave
Haven't see the forum policies? Do so now: Forum Policies
RE: Payback for Boiler Installation Project
We have addressed fuel, non-fuel, and demand costs on the district steam side. They are using all natural gas like we will and have installed cogeneration equipment that will give them an edge of about 7% on carbon emissions, assuming a 10% system loss (they are looking at giving us a better number for this, they apparently don't have it handy). I'm waiting on our energy guy to give me a figure for the value of the carbon difference, which will subtract from the boiler install side, though at first glance, he believes it is not significant.
For natural gas, we are using the current interruptible rate, which is running about $6.50/MCF. We have included the cost of a maintenance contract and time for building maintenance personnel (about 1 hr/day) on the boiler plant side--plant will be low pressure. Savings amount to about $400,000/year with the boiler install (30 year boilers) and we feel pretty good about that number. Simple payback of 10 years. Discounted payback (2%, per OMB circular A-94, see link below) adds a year or two. I was just wondering at what point does a project like this begin to be questionable from a payback standpoint. Is it 13 years? This is not an energy conservation project, though we do intend on doing some down the road that could adversely impact the return on the boiler install (higher consumption favors the boiler install, lower consumption favors keeping district steam). We estimate we can probably get annual consumption down to 33,000 Mlb/year (10% reduction) and also reduce our peak somewhat. I intend on running some different payback scenarios to see how sensitive the payback is to various cost assumptions.
Certainly there are a number of factors to consider beyond payback, but back to my original question, is there guidance out there, similar to this Presidential Memorandum, but applicable to this type of project (non energy conserving)? I'm trying to track down someone at GSA who could have some insight.
Presidential Memorandum -- Implementation of Energy Savings Projects and Performance-Based Contracting for energy savings | The White House (for energy conservation projects, this not being one)-- 10 years or less.
http:/
OMB Circular A-94 (discount rate source)
http: