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. DOE has established a methodology for evaluating the energy and economic performance of model commercial energy codes and standards, as well as proposed changes. This method serves to ensure DOE proposals are both energy efficient and cost-effective.
The DOE methodology contains two primary assessments:
- Energy savings
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. Published analyses using the DOE methodology are also available on the Energy & Economic Analysis page.
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.
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:
- 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.
- 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.
- 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. Specific parameters are selected at the time an individual analysis is conducted, and will be documented, as appropriate, in the published report.
|Parameter||Scenario 1 (Publicly-Owned Method)||Scenario 2 (Privately-Owned Method)||Scenario 3 (ASHRAE 90.1-2016 Scalar Method)|
|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 or local (depending on purpose of analysis) annual average prices based on current DOE EIA data*||$0.1013/kWh
|Energy Escalation Rates||Price escalation rates taken from 2013 NIST Handbook 135 Supplement||NIST year-by-year rates (same as scenario 1) plus 2.38% inflation|
|Loan Term||N/A||Measure life, up to 30 years||Measure life, up to 40 years|
|Loan Interest Rate||N/A||6.00%||7.00%|
|Nominal Discount Rate||N/A||6.00% (same as loan rate)||9.34%|
|Real Discount Rate||3.00%||4.06%||5.0%|
|Inflation Rate||N/A||1.87% annual||2.38% annual|
|Property Tax Rate||N/A||2.04%||N/A|
|Federal Income Tax Rate||N/A||34.0%||0%***|
|State Income Tax Rate||N/A||State values vary; highest marginal corporate rate used||0%***|
|*Average EIA prices from EIA. State prices from EIA are used for individual state analysis. National analysis of Standard 90.1 may use the Scenario 3 prices established by ASHRAE.
**The ASHRAE Scalar Method identifies a fossil fuel rate that is primarily applied to heating energy use. For this reason, the fossil fuel rate is a blended heating rate and includes proportional (relative to national heating fuel use) costs for natural gas, propane, heating oil, and electric heat. Heating energy use in the prototypes for fossil fuel equipment is calculated in therms based on natural gas equipment, but in practice, natural gas equipment may be operated on propane, or boilers that are modeled as natural gas may use oil in some regions.
***Income tax rates are 0% for Scenario 3 because the current discount rate is based on pre-tax rate of return.