Commercial Energy and Cost Analysis Methodology

The U.S. Department of Energy (DOE) evaluates published model codes and standards to help states and local jurisdictions better understand the impacts of updating commercial building energy codes and standards. A methodology was used for evaluating the energy and economic performance of commercial energy codes and standards and proposed changes thereto. This method serves to ensure DOE proposals are both energy efficient and cost-effective.

The DOE methodology contains two primary assessments:

  1. Energy savings
  2. Cost-effectiveness

Energy and economic calculations are performed through a comparison of baseline and improved buildings for both energy savings and cost effectiveness. Depending on the complexity of the proposal being analyzed, analysis or modeling of changes between representative building types is performed to find savings. Incremental costs for the improvements is developed using engineering cost estimates of a typical upgrade. National or climate zone energy savings are typically reported. In considering cost-effectiveness, longer term energy savings are balanced against incremental initial costs through a Life-Cycle Cost perspective.

Energy Savings

Energy savings is determined by comparing two cases, one for the baseline and one for the proposed or comparison case. Energy use for each case can be simulated with the DOE EnergyPlus™ software for 16 prototype buildings that cover 80% of the commercial building floor area in the United States for new construction, including both commercial buildings and mid- to high-rise residential buildings. These prototype buildings were created by researchers at the Pacific Northwest National Laboratory (PNNL). The DOE EnergyPlus software covers almost all aspects of commercial envelopes; heating, ventilation, and air conditioning; water heating; lighting systems; plug and process loads. As necessary, this analysis may also include post-processing of EnergyPlus prototype results, temperature bin analysis, engineering analysis of individual affected components, or other accepted approaches appropriate to the particular cases.

Cost-effectiveness

The DOE methodology accounts for the benefits of energy-efficient building construction over a multi-year analysis period, balancing initial costs against longer term energy savings. DOE evaluates energy codes and code proposals based on life-cycle cost analysis over a multi-year study period, accounting for energy savings, incremental investment for energy efficiency measures, and other economic impacts. The value of future savings and costs are discounted to a present value, with improvements deemed cost effective when the net savings (savings minus cost) is positive. Because there is a variation in the economic criteria of different commercial building owners, up to three scenarios may be used:

  1. Scenario 1 (also referred to as the publicly-owned method): Life cycle cost analysis method representing government or public ownership (without borrowing or taxes). This scenario uses economic inputs that have been established for Federal projects.
  2. Scenario 2: (also referred to as the privately-owned method): Life cycle cost analysis method representing private or business ownership (includes loan and tax impacts). This scenario uses typical commercial economic inputs, with initial costs being financed, and considers tax impacts for savings, interest and depreciation.
  3. Scenario 3: (also referred to as the ASHRAE 90.1 committee scalar method): Represents a private ownership point of view, and uses economic inputs established by the 90.1 ASHRAE Standing Standard Project Committee.

Life-cycle cost is the method DOE uses to assess the cost-effectiveness of commercial energy codes. Maintenance costs and interim equipment replacements are considered along with residual value at the end of the analysis period. DOE also includes a calculation of simple payback, or the number of years required for energy cost savings to exceed the incremental first costs of a new code or code change proposals. Simple payback is not used as a measure of cost effectiveness as it does not account for the time value of money, the value of energy cost savings that occur after payback is achieved, or any maintenance or replacement costs that occur after the initial investment. The commercial sector economic factors currently used in life cycle cost analysis for the three scenarios are shown below.

Table 1. Summary of Current Economic Parameter Estimates
Parameter Scenario 1 (publicly-owned) Scenario 2 (privately-owned) Scenario 3 (ASHRAE 90.1-2013)
Period of Analysis Measure life, up to 30 years Measure life, up to 30 years Measure life, up to 40 years
Energy Prices Latest national average prices based on current Energy Information Administration data or local current prices depending on purpose of analysis $0.1032/kWh
$0.990/therm
Energy Escalation Rates From latest Annual Energy Outlook 3.76%
Loan Term N/A Measure life, up to 30 years Measure life, up to 40 years
Loan Interest Rate N/A 6.00% 6.25%
Nominal Discount Rate 3.90% 6.00% 7.00%
Real Discount Rate 3.00% 4.60% 6.05%
Inflation Rate 0.90% 1.30% 0.90%
Federal Income Tax Rate N/A 34.00% 34.00%
State Income Tax Rate N/A State values vary; highest marginal corporate rate used 6.50%