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Related Commercial ResourcesCHAPTER 36OWNING AND OPERATING COSTSOwning Costs . 36.1Operating Costs . 36.4Maintenance Costs. 36.6Refrigerant Phaseouts. 36.8Other Issues. 36.8Economic Analysis Techniques. 36.9Symbols . 36.11OWNING and operating cost information for the HVAC systemshould be part of the investment plan of a facility. This infor-mation can be used for preparing annual budgets, managing assets,and selecting design options. Table 1 shows a representative formthat summarizes these costs.Table 1 Owning and Operating Cost Data and SummaryOWNING COSTSI.Initial Cost of System Periodic Costs_II.A properly engineered system must also be economical, but thisis difficult to assess because of the complexities surrounding effec-tive money management and the inherent difficulty of predictingfuture operating and maintenance expenses. Complex tax structuresand the time value of money can affect the final engineering deci-sion. This does not imply use of either the cheapest or the mostexpensive system; instead, it demands intelligent analysis of finan-cial objectives and the owners requirements.Certain tangible and intangible costs or benefits must also beconsidered when assessing owning and operating costs. Local codesmay require highly skilled or certified operators for specific types ofequipment. This could be a significant cost over the life of the sys-tem. Similarly, such intangible items as aesthetics, acoustics, com-fort, safety, security, flexibility, and environmental impact may varyby location and be important to a particular building or facility.A. Income taxesB. Property taxesC. Insurance_D. RentE. Other periodic costsTotal Periodic Costs_III. Replacement CostIV. Salvage ValueTotal Owning Costs_OPERATING COSTSV.Annual Utility, Fuel, Water, etc., CostsA. UtilitiesOWNING COSTS1. Electricity_2. Natural gasThe following elements must be established to calculate annualowning costs: (1) initial cost, (2) analysis or study period, (3) inter-est or discount rate, and (4) other periodic costs such as insurance,property taxes, refurbishment, or disposal fees. Once established,these elements are coupled with operating costs to develop an eco-nomic analysis, which may be a simple payback evaluation or an in-depth analysis such as outlined in the section on Economic AnalysisTechniques.3. Water/sewer4. Purchased steam5. Purchased hot/chilled waterB. Fuels1. Propane_2. Fuel oil3. DieselInitial Cost4. CoalMajor decisions affecting annual owning and operating costs forthe life of the building must generally be made before completion ofcontract drawings and specifications. To achieve the best perfor-mance and economics, comparisons between alternative methods ofsolving the engineering problems peculiar to each project should bemade in the early stages of design. Oversimplified estimates canlead to substantial errors in evaluating the system.The evaluation should lead to a thorough understanding of instal-lation costs and accessory requirements for the system(s) under con-sideration. Detailed lists of materials, controls, space and structuralrequirements, services, installation labor, and so forth can be pre-pared to increase accuracy in preliminary cost estimates. A reason-able estimate of capital cost of components may be derived fromcost records of recent installations of comparable design or fromquotations submitted by manufacturers and contractors, or byC. On-site generation of electricityD. Other utility, fuel, water, etc., costsTotal_VI. Annual Maintenance Allowances/CostsA. In-house labor_B. Contracted maintenance serviceC. In-house materialsD. Other maintenance allowances/costs _(e.g., water treatment)Total_VII.Annual Administration CostsTotal Annual Operating Costs_The preparation of this chapter is assigned to TC 7.8, Owning and Operat-ing Costs.TOTAL ANNUAL OWNING AND OPERATING COSTS_36.1 36.22007 ASHRAE HandbookHVAC Applications (SI)Table 2 Initial Cost ChecklistTable 3 Median Service LifeEnergy and Fuel Service CostsMedian Service Life, YearsTotalNo. ofUnitsNo. ofUnits ReplacedFuel service, storage, handling, piping, and distribution costsElectrical service entrance and distribution equipment costsTotal energy plantEquipment TypeDX air distribution equipmentChillers, centrifugalCooling towers, metalBoilers, hot-water, steel gas-firedControls, pneumatic24252222187190723417011710168284342424256Heat-Producing EquipmentBoilers and furnacesSteam-water convertersHeat pumps or resistance heatersMakeup air heatersHeat-producing equipment auxiliarieselectronicPotable hot-water heaters, electric2130436Refrigeration EquipmentFig. 1 Survival Curve for Centrifugal ChillersCompressors, chillers, or absorption unitsCooling towers, condensers, well water suppliesRefrigeration equipment auxiliariesHeat Distribution EquipmentPumps, reducing valves, piping, piping insulation, etc.Terminal units or devicesCooling Distribution EquipmentPumps, piping, piping insulation, condensate drains, etc.Terminal units, mixing boxes, diffusers, grilles, etc.Air Treatment and Distribution EquipmentAir heaters, humidifiers, dehumidifiers, filters, etc.Fans, ducts, duct insulation, dampers, etc.Exhaust and return systemsFig. 1 Survival Curve for Centrifugal ChillersBased on data in Abramson et al. (2005)Heat recovery systemsSystem and Controls AutomationTerminal or zone controlsSystem program controlAlarms and indicator systemEnergy management systemcost data to be continually updated and current. The database wasseeded with information gathered from a sample of 163 commercialoffice buildings located in major metropolitan areas across theUnited States. Abramson et al. (2005) provide details on the distri-bution of building size, age, and other characteristics. Table 3 pre-sents estimates of median service life for various HVAC componentsin this sample.Building Construction and AlterationMechanical and electric spaceChimneys and fluesBuilding insulationSolar radiation controlsAcoustical and vibration treatmentDistribution shafts, machinery foundations, furringMedian service life in Table 3 is based on analysis of survivalcurves, which take into account the units still in service and the unitsreplaced at each age (Hiller 2000). Conditional and total survivalrates are calculated for each age, and the percent survival over timeis plotted. Units still in service are included up to the point where theage is equal to their current age at the time of the study. After thatpoint, these units are censored (removed from the population).Median service life in this table indicates the highest age at whichthe survival rate remains at or above 50% while the sample size is 30or more. There is no hard-and-fast rule about the number of unitsneeded in a sample before it is considered statistically large enoughto be representative, but usually the number should be larger than 25to 30 (Lovvorn and Hiller 2002). This rule-of-thumb is used becauseeach unit removal represents greater than a 3% change in survivalrate as the sample size drops below 30, and that percentage increasesrapidly as the sample size gets even smaller.Figure 1 presents the survival curve for centrifugal chillers,based on data in Abramson et al. (2005). Note that, although thepoint at which survival rate drops to 50% based on all data in the sur-vey is 31 years, the median service life based on a minimum samplesize of 30 is approximately 25 years. For this reason, Table 3 givesthe median service life of centrifugal chillers as 25 years.Table 4 compares the estimates of median service life in Abram-son et al. (2001) with those developed with those in Akalin (1978).Most differences are on the order of one to five years.consulting commercially available cost-estimating guides and soft-ware. Table 2 shows a representative checklist for initial costs.Analysis PeriodThe time frame over which an economic analysis is performedgreatly affects the results. The analysis period is usually determinedby specific objectives, such as length of planned ownership or loanrepayment period. However, as the length of time in the analysisperiod increases, there is a diminishing effect on net present-valuecalculations. The chosen analysis period is often unrelated to theequipment depreciation period or service life, although these factorsmay be important in the analysis.Service LifeFor many years, this chapter has included estimates of servicelives for various HVAC system components, based on a survey con-ducted in 1976 under ASHRAE Research Project RP-186 (Akalin1978). These estimates have been useful to a generation of practitio-ners, but changes in technology, materials, manufacturing tech-niques, and maintenance practices now call into question thecontinued validity of the original estimates. For this reason, ASH-RAE funded research project TRP-1237 to develop an Internet-baseddata collection tool and database on HVAC equipment service lifeand maintenance costs, to allow equipment owning and operatingEstimated service life of new equipment or components of sys-tems not listed in Table 3 may be obtained from manufacturers,associations, consortia, or governmental agencies. Because of theproprietary nature of information from some of these sources, the Owning and Operating Costs36.3Table 4 Comparison of Service Life EstimatesMedian Service Life, YearsMedian Service Life, YearsMedian Service Life, YearsAbramson Akalin et al. (2005) (1978) Equipment ItemAbramson Akalin et al. (2005) (1978) Equipment ItemAbramson Akalin et al. (2005) (1978)Equipment ItemAir ConditionersWindow unitResidential single or split packageCommercial through-the-wallWater-cooled packageHeat pumpsResidential air-to-airCommercial air-to-airCommercial water-to-airRoof-top air conditionersSingle-zoneAir TerminalsCondensers Air-cooledEvaporativeInsulationMoldedN/A*N/A*N/A*2410151515Diffusers, grilles, and registersInduction and fan-coil unitsVAV and double-duct boxesAir washersDuctworkDampersFansCentrifugalAxialPropellerN/A*N/A*N/A*N/A*N/A*N/A*N/A*N/A*N/A*N/A*N/A*272020173020N/AN/A*2020N/A*N/A*2024BlanketPumpsN/A*N/A*2415b1519Base-mountedPipe-mountedSump and wellCondensateReciprocating enginesSteam turbinesElectric motorsMotor startersElectric transformersControlsPneumaticElectricElectronicValve actuatorsHydraulicN/A*N/A*N/A*N/A*N/A*N/A*N/A*N/A*N/A*20101015203018173025201520N/A*N/A*1515MultizoneVentilating roof-mountedCoils24 (30) DX, water, or steam25 (25) ElectricBoilers, Hot-Water (Steam)Steel water-tubeSteel fire-tubeCast ironElectricBurnersFurnacesGas- or oil-firedUnit heatersGas or electric22N/A*N/A*2015N/A*N/A*N/A*35 (30) Heat Exchangers1521Shell-and-tubeReciprocating compressorsPackaged ChillersReciprocatingCentrifugalN/A*N/A*2420N/A*N/A*N/A*201615N/A*18N/A*25N/A*202323N/A*N/A*1320AbsorptionN/A*N/A*152010Hot-water or steamRadiant heatersElectricCooling TowersGalvanized metalWoodPneumaticSelf-contained22N/A*N/A*202034N/A*N/A*1025Hot-water or steamCeramic*N/A: Not enough data yet in Abramson et al. (2005). Note that data from Akalin (1978) for these categories may be outdated and not statistically relevant. Use these data with cau-tion until enough updated data are accumulated in Abramson et al.variety of criteria used in compiling the data, and the diverse objec-tives in disseminating them, extreme care is necessary in comparingservice life from different sources. Designs, materials, and compo-nents of equipment listed in Table 3 have changed over time andmay have altered the estimated service lives of those equipment cat-egories. Therefore, establishing equivalent comparisons of servicelife is important.As noted, service life is a function of the time when equipment isreplaced. Replacement may be for any reason, including, but notlimited to, failure, general obsolescence, reduced reliability, exces-sive maintenance cost, and changed system requirements (e.g.,building characteristics, energy prices, environmental consider-ations). Service lives shown in the tables are based on the age of theequipment when it was replaced, regardless of the reason it wasreplaced.Not only is it important to know the products being emittedfrom the industrial plant being designed, but also the adjacentupwind or downwind facilities. HVAC system design for a plantlocated downwind from a paper mill requires extraordinary cor-rosion protection or recognition of a reduced service life of theHVAC equipment. Urban areas generally have high levels of automotive emissionsas well as abundant combustion by-products. Both of these con-tain elevated sulfur oxide and nitrogen oxide concentrations. Maintenance factors also affect life expectancy. The HVACdesigner should temper the service life expectancy of equipmentwith a maintenance factor. To achieve the estimated service lifevalues in Table 3, HVAC equipment must be maintained properly,including good filter-changing practices and good maintenanceprocedures. For example, chilled-water coils with more than fourrows and close fin spacing are virtually impossible to clean evenusing extraordinary methods; they are often replaced with multi-ple coils in series, with a maximum of four rows and lighter finspacing.Locations in potentially corrosive environments and uniquemaintenance variables affect service life. Examples include the fol-lowing: Coastal and marine environments, especially in tropical loca-tions, are characterized by abundant sodium chloride (salt) that iscarried by sea spray, mist, or fog.Many owners require equipment specifications stating thatHVAC equipment located along coastal waters will have corro-sion-resistant materials or coatings. Design criteria for systemsinstalled under these conditions should be carefully considered.DepreciationDepreciation periods are usually set by federal, state, or local taxlaws, which change periodically. Applicable tax laws should be con-sulted for more information on depreciation.Interest or Discount Rate Industrial applications provide many challenges to the HVACdesigner. It is very important to know if emissions from the indus-trial plant contain products of combustion from coal, fuel oils, orreleases of sulfur oxides (SO , SO ) and nitrogen oxides (NOx)Most major economic analyses consider the opportunity cost ofborrowing money, inflation, and the time value of money. Oppor-tunity cost of money reflects the earnings that investing (or lending)the money can produce. Inflation (price escalation) decreases thepurchasing or investing power (value) of future money because itcan buy less in the future. Time value of money reflects the fact that23into the atmosphere. These gases typically accumulate and returnto the ground in the form of acid rain or dew. 36.42007 ASHRAE HandbookHVAC Applications (SI)money received today is more useful than the same amount receiveda year from now, even with zero inflation, because the money isavailable earlier for reinvestment.large part of total operating costs. Chapter 32 of the 2005ASHRAEHandbookFundamentals outlines how fuel and electrical require-ments are estimated. Because most energy management activitiesare dictated by economics, the facility manager must understand theutility rates that apply to each facility. Electric rates are usuallymore complex than gas or water rates. In addition to general com-mercial or institutional electric rates, special rates may exist such astime of day, interruptible service, on-peak/off-peak, summer/winter,and peak demand. Electric rate schedules vary widely in NorthAmerica. The facility manager should work with local utility com-panies to identify the most favorable rates and to understand how toqualify for them. The local utility representative can help the f
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