Calculating the Value of Hidden Benefits of Energy Conservation

If you’re only identifying the direct, tangible benefits of energy conservation, you’re missing part of the equation – perhaps as much as 31% of it.

There are many extra hidden benefits that result from energy conservation efforts, and they are significant and quantifiable, according to recent peer-reviewed research. Read on for research results as well as some examples on how to calculate the impact of certain energy conservation strategies.

Part one of this discussion – which identifies the many hidden benefits from energy conservation measures – can be found here.

HOW TO CALCULATE BENEFITS

Among the hidden benefits are reduced maintenance costs, reduced labor, avoided capital investment, and reduces sales taxes and environmental penalties.

Provided after the article are three examples containing templates of equations that you can use to calculate those benefits (the full research article has more). The basic goal is to quantify each additional benefit associated with an Energy Conservation Measure (ECM), and then add the benefit values together to determine the total additional value per ECM.

For example, if you optimized a building system and it lasted longer, you could use the sample calculations below to estimate the values of avoided material, labor, etc. Then you would add these values together to determine the ECM’s total additional value. If you had implemented multiple ECMs, you would repeat this approach for each ECM and then use the sum to estimate the total additional value to the facility. Note that all cost estimates can be adjusted to reflect your local conditions.

Let’s apply this approach to a simple example and illustrate specific calculations. Consider a lighting system that has 10,000 fluorescent lighting fixtures, each with two lamps and one ballast. Each fixture consumes 60 watts. The baseline operational hours are 5,000 per year, and energy costs are $0.10 per kWh.

As a result, our baseline energy consumption is 3,000,000 kWh per year and at $0.10/kWh, the annual energy cost is $300,000.

If we implement an ECM that powers the lights off for 25% of the time, then we would reduce 750,000 kWh per year and thus save $75,000 annually in direct energy savings. However, using the calculations provided, you can calculate the additional benefits that extend beyond the energy savings. Although not all additional benefits will apply to this particular ECM, three calculations are shown as examples at the end of the piece.

Eric A. Woodroof, Ph.D., is the Chairman of the Board for the Certified Carbon Reduction Manager (CRM) program and he has been a board member of the Certified Energy Manager (CEM) Program since 1999. His clients include government agencies, airports, utilities, cities, universities and foreign governments. Private clients include IBM, Pepsi, GM, Verizon, Hertz, Visteon, JP Morgan-Chase, and Lockheed Martin.

Summary

It is clear that there is a high probability that facility managers will experience at least some additional benefits from energy conservation. Within an example application, we found that the additional benefits contributed an additional value worth 31% beyond the energy savings per year. Perhaps you will estimate more or less value at your facility, but it is clear that these efforts produce benefits that are significant and highly probable.

My hope is that you will be able to think about some of the extra benefits that you receive from energy projects – such as increased productivity, enhanced public image, and improving building value – and now calculate the impact of some of them. If you have interesting stories to share, feel free to write me: [email protected]. The full research article “Energy Conservation Also Yields: Capital, Operations, Recognition and Environmental Benefits” was published in Energy Engineering, Vol. 109 (5), 2012. PageBreak

Example #1: Reduced Maintenance Material Costs

Assume you turn off a lighting system 25% of the time. If lights are used 25% less, the lighting ballasts (and lamps) should last about 25% longer. Let’s calculate the impact on the ballast material first:

A ballast life is rated for 60,000 hours of operation. If your building operates the lights 5,000 hours per year, they would need to replace the ballasts at the year twelve. If there are 5,000 ballasts – each costing about $20 in material – then at the twelfth year, the material replacement cost would be:

= ($20/ballast)(5,000 ballasts)

= $100,000

Annualized ballast material replacement cost would be:

= ($100,000)(1/12 years)

= $8,333/year

If the lights are only on for 3,750 hours per year (a 25% reduction), the ballasts should last 16 years. This would reduce the annualized ballast material replacement cost to:

= ($100,000)(1/16 years)

= $6,250/year

Thus, the Annualized Material Savings for ballasts are:

= $8,333/year - $6,250/year

= $2,083/year in ballasts

We can use similar calculations to quantify the reduced maintenance material costs for the lamps:

If there are 10,000 lamps, each costing $2.50 (includes shipping and taxes), and they last 20,000 hours. If lamps are on 5,000 hours per year, then after 4 years they would need to be replaced and this would cost:

= ($2.5/lamp)(10,000 lamps)

= $25,000

The annualized lamp material replacement cost would be:

= ($25,000)(1/4 years)

= $6,250/year

Again, if the lights are only “on” 3,750 hours per year (a 25% reduction), the lamps should last 5.3 years. This would reduce the annualized lamp material replacement cost to:

= ($25,000)(1/5.3 years)

= $4,717/year

Thus, the Annualized Material Savings for lamps are:

= $6,250/year - $4,717/year

= $1,533/year in lamps

Therefore the total annual avoided maintenance material costs (lamps and ballasts) are $2,083 plus $1,533, or $3,616.

This same approach could be used to calculate maintenance material savings values for other ECMs that extend the lives of motors, filters, etc.PageBreak

Example #2: Reduced Maintenance Labor Costs

Continuing with the lighting ECM, if the lights are used 25% less, the ballasts and lamps should last longer and won’t need to be replaced as often, resulting in a labor savings. Let’s calculate the impact on the ballasts first.

A ballast lifecycle is 60,000 hours of operation. If your building operates the lights 5,000 hours per year, they would need to replace the ballasts at the year twelve. Assume it requires about 30 minutes of maintenance to replace a ballast, including set-up, re-wiring and disposing of the ballast. Assume the labor and disposal costs would be $15 per ballast. If there are 5,000 ballasts, then at the twelfth year, the labor cost to replace the ballasts would be:

= ($15 in labor and disposal costs per ballast)(5,000 ballasts)

= $75,000

Annualized ballast replacement labor cost would be:

= ($75,000)(1/12 years)

= $6,250/year

If the lights are only on for 3,750 hours per year (a 25% reduction), the ballasts should last 16 years. This would reduce the annualized ballast replacement labor cost to:

= ($75,000)(1/16 years)

= $4,688/year

Thus, the Annualized Ballast Replacement Labor Savings are:

= $6,250/year - $4,688/year

= $1,562/year in labor to replace ballasts

Now, we can use similar calculations to quantify the reduced maintenance labor costs for the lamps:

A typical fluorescent lamp lifecycle is 20,000 hours. If lights are on 5,000 hours per year, the building would need to replace lamps at year four. If there are 10,000 lamps, each costing about $5 in labor to re-lamp (including disposal expenses), the replacement expense at the fourth year would be:

= ($5 in labor/lamp)(10,000 lamps)

= $50,000 in labor

Annualized re-lamping labor cost would be:

= $50,000/4 = $12,500

If the lights are only on for 3,750 hours per year, the lamps should last 5.3 years longer, thereby reducing the annualized labor re-lamping cost to:

= $50,000/5.3 years

= $9,434/year

Thus, Annualized Labor Savings are:

= $12,500 - $9,434/year

= $3,066 per year

Therefore the total annual avoided maintenance labor costs (ballasts and lamps) are $1,562 plus $3,066 $4,628.

This same approach could be used to calculate maintenance labor savings values for other ECMs that involve motors, filters, etc.PageBreak

Example #3: Improved Building Value

Although this additional benefit might not apply within the lighting ECM example, we include an example that demonstrates the calculations below.

This additional benefit is only recognized if the building is solid. Similar to any piece of equipment, its value is partially dependent on the operations and maintenance expenses (for example, a hybrid car has less annual gas expenses, so it has additional market value). Thus, if a building owner is experiencing less operations and maintenance expenses, the building will be worth more when it is solid.

If an ECM saves $150,000 per year, those savings go directly to the bottom line. The building value would increase by a factor of 10 – the capitalization factor is 10% -- and would be calculated as follows: