Energy Management Handbook, 4th edition

ANA~E~ENT OURTH EDITION

~

"

~ ~ ~of 0~ n 0 ~1u s t y i a l

~ n ~ i nan^ e eM y iann~a ~ e ~ e n t ~ k l a ~State o ~ ~a n i ~ e r s i t ~ ~till~atey~ Okla~o~a

Eric Angevine School of Architecture Oklahoma State University Stillwater, OK Bradley Bracher Oklahoma City, OK Barney Burroughs Indoor Air Quality Consultant Alpharetta, GA Barney L. Capehart Industrial Engineering University of Florida Gainesville, FL Clint Christenson Industrial Engineering Oklahoma State University Stillwater, OK William E. Cratty Ventana Corporation Bethal, CT Keith Elder Coffman Engineers, Inc. Seattle, WA Carol Freedenthal, CEO Jofree Corporation, Houston, TX GSA Energy Consultants Arlington, VA Richard Wakefield Lynda White Jairo Gutiemez Dale A. Gustavson Consultant Orange, CA Michael R. Harrison, Manager Engineering & Technical Services J~~hns-Mansfield Corporation Denver, CO Russell L. Heiserman School of Technology Oklahoma State University Stillwater, OK

William J. Kennedy, Jr. Industrial Engineering Clemson University Clemson, SC

Wesley M. Rohrer Mechanical Engineering University of Pittsburgh Pittsburgh, PA

John M. Kovacik, Retired GE Industrial & Power System Sales Schenectady, NY

Philip S. Schmidt Department of Mechanical Engineering University of Texas Austin, TX

Konstantin Lobadovsky Motor Manager Penn Valley, CA

R. B.Scollon Manager, Energy Conservation Allied Chemical Corporation Morristown, NJ

Tom Lunneberg CTG Energetics, Inc. Irvine, CA William Mashburn Virginia PolytechnicInstitute and State University Blacksburg, VA Javier Mont Johnson Controls Chesterfield, MO

James R. Smith Johnson Controls, Inc. Milwaukee, W1 R. D. Smith Manager,Energy Generation & Feed Stocks Allied Chemical Corporation Morristown, NJ Mark B. Spiller Gainesville Regional Utilities Gainesville, FL

George Owens Energy and Engineering Solutions Columbia, MD

Albert Thumann Association of Energy Engineers Atlanta, GA

Les Pace Lektron Lighting Tulsa, OK

Alfred R. Williams Ventana Corporation Bethel, CT

Jerald D. Parker, Retired Mechanical & Aerospace Engineering Oklahoma State University Stillwater, OK

Larry C. Witte Department of Mechanical Engineering University of Houston Houston, TX

S.A. Parker Pacific Northwest National Laboratory Richland, WA David Pratt Industrial Enginneering and Management Oklahoma State University Stillwater, OK

ii

Jorge Wong Kcomt General Electric Evansville, IN Eric Woodroof Johnson Controls Oklahoma City,OK Alan J. Zajac Johnson Controls Inc. Milwaukee, W1

~ u b l i s ~ ebyd 700 Indian Trail Lilburn, GA 30047

200 1

Lilburn, GA30047 Printed in the United Statesof America

n ,publisher, authors, and While every effortis made to provide dependablei ~ ~ a t i othe editors cannot be held responsible for any errors or omissions. D i s ~ b u by ~ dPrentice Hall PTR Prentice-Hail, Inc. A Simon & Schuster Company Upper Saddle River, NJ 07458 Prentice-Hall Int~ational(UK) Limited, London Prentice-Hall of Australia Pty. Limited, Sydney hntice-Hall Canada Inc., Toronto ~entice-Hallhi spa no am^^^ S.A., Mexico Prentice-Hall of India Private Limited, New Delhi ntice-Hall of Japan, Inc., Tokyo Simon & Schuster Asia Pte. Ltd., Sing~ore Editora Prentice-Hall doBrasil, Ltda., Rio de Janeiro

~ c t i o n................................................................................................................................. 1 Background ......................................................................................................................... 1 The Value of Energy Management .................................................................................. 2 The Energy Management Profession............................................................................... 3 Some Suggested Principles of Energy Management ..................................................... 4 ~ n a ~ e m e. n. ..t............................................................................................. 7 Introductiox~......................................................................................................................... 7 Energy M ~ a g e m e nProgram t ......................................................................................... 7 Organizational Structure ................................................................................................... 8 Energy Policy .................................................................................................................... 11 Planning ............................................................................................................................. 11 Audit Planning.................................................................................................................. 12 Educational Planning................................ .'..................................................................... 12 .............~................1................ ..............~................~................................ 14 Strategic ~ 1. ~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............................................................. 14 Reporting Summary ............................................................................................................................ 15 References .......................................................................................................................... 16

3

............................................................................................................'~'..'.'..

21 Introduction ....................................................................................................................... 21 Energy Auditing Services................................................................................................ 21 ......................................................................... 21 Basic Components of an Energy Audit Specialized Audit Tools ................................................................................................... 30 Industrial Audits .............................................................................................................. 31 Commercial Audits .......................................................................................................... 34 Residential Audits ............................................................................................................ 35 Indoor Air Quality............................................................................................................ 36

... n~lysis .......................................................................... ..........-... ........................37 Objective ............................................................................................................................37 Introduction ....................................................................................................................... 37 General Characteristics of Capital Investments........................................................... 38 Sources of Funds ............................................................................................................... 39 Tax Considerations ........................................................................................................... 40 Time Value of Money Concepts ..................................................................................... 42 Project Measures of Worth .............................................................................................. 50 Economic Analysis ........................................................................................................... 55 Special Problems............................................................................................................... 61 V

Summary and Additional Example Applications ....................................................... 66 References .......................................................................................................................... 67 5

6

s

....................................................................................................... 85

..................................................................................................................... 85 Analysis of Boilers and Fired Systems .......................................................................... Key Elements for Maximum Efficiency ......................................................................... 87 Fuel Considerations ....................................................................................................... 114 Direct Contact Technology for Hot Water Production............................................. 121

stems ........................................................................................... 125 Introduction ..................................................................................................................... 125 Thermal Properties of Steam ........................................................................................ 126 Estimating Steam Usage andits Value ........................................................................ 133 Steam Traps and Their Application ............................................................................. 139 Condensate Recovery .................................................................................................... 147 Summary .......................................................................................................................... 154

7

............................................................................................................................ 155 Introduction ..................................................................................................................... 155 Cogeneration System Design and Analysis................................................................ 157 Computer Programs ....................................................................................................... 172 U.S. Cogeneration Legislation: PURPA ...................................................................... 175 Evaluating Cogeneration Opportunities: Case Examples ........................................ 177 References ........................................................................................................................ 186

8

astevery . ............................................................................................................ 187 Introduction ..................................................................................................................... 187 Waste-Heat Survey ......................................................................................................... 195 Waste-Heat Exchangers ................................................................................................. 202 Commercial Options in Was~e-Heat-Recovery~ ~ ~ i p m..e....n....t........................... 205 Economics of Waste-Heat Recovery ............................................................................ 213

9

e ............................................................................................................... ...215

~trod~cti. o... n................................................................................................................. 215 Principles of Envelope Analysis ................................................................................... 217 eta1 Elements in Envelope Components.................................................................. 219 Roofs ................................................................................................................................. 224 Floors ................................................................................................................................ 227 Fenestratio~..................................................................................................................... 229 Infiltration ........................................................................................................................ 232 Summarizing Envelope Performance with theBuilding Load Coefficient ...........234 Thermal “Weight” .......................................................................................................... 234 Envelope Analysis for Existing Buildings .................................................................. 234 Envelope Analysis for New Buildings........................................................................ 239 Updated Envelope Standards for New and Existing Construction ........................ 240 Summary .......................................................................................................................... 241 Ad~itionalReading ........................................................................................................ 241

vi

Human Thermal Comfort ............................................................................................. 244 HVAC System Types ..................................................................................................... 245 Energy Conservation Opportunities ........................................................................... 255 Cooling Equipment ........................................................................................................ 265 Domestic Hot Water ....................................................................................................... 268 Estimating HVAC Energy Consumption ................................................................... 268

ement . ............................................................................................... 269 Introduction ..................................................................................................................... 269 Power Supply .................................................................................................................. 269 Effects of Unbalanced Voltages onthe Performance of Motors .............................. 270 Effect of Performance-General ..................................................................................... 270 Motor ................................................................................................................................ 271 Glossary of Frequently Occurring MotorTerms ....................................................... 271 Power Factor ................................................................................................................... 275 Handy Electrical Formulas & Rules of Thumb .......................................................... 277 Electric motor Operating Loads ................................................................................... 277 Determining Electric Motor Operating Loads ........................................................... 2’78 Power Meter .................................................................................................................... 278 Slip Measurement ........................................................................................................... 280 Amperage Readings ....................................................................................................... 280 Electric Motor Efficiency ............................................................................................... 281 Comparing Motors ......................................................................................................... 286 Sensitivity of Load to Motor RPM ............................................................................... 286 Theoretical Power Consumption ................................................................................. 287 Motor Efficiency Management ..................................................................................... 289 Motors Are Like People ................................................................................................. 289 Motor Performance Management Process .................................................................. 289 How to Start MPMP ....................................................................................................... 290 Nameplate Glossary ....................................................................................................... 293 ent Control ~ s s t e . ~ ....s.......................................................................... 311 Energy Management Systems ...................................................................................... 311 Justification of EMCSs ................................................................................................... 317 Systems Integration ........................................................................................................ 322 EMCS Software Specifications ...................................................................................... 329 EMCS Installation Requirements ................................................................................. 336 The DDC Dictionary ...................................................................................................... 345 EMCS M~ufacturersDirectory ................................................................................... 347

.....................................................................................................................................

349 Introduction ..................................................................................................................... 349 Lighting Fundamentals ................................................................................................. 349 Lighting Energy Management Steps ........................................................................... 363 M a i n t e n ~ c e.................................................................................................................... 365 New Technologies & Products ..................................................................................... 366 Special Considerations ................................................................................................... 369 Daylighting ...................................................................................................................... 374 Common Retrofits .......................................................................................................... 376 Schematics ....................................................................................................................... 380 Summary .......................................................................................................................... 380

vii

aintenance . .............................................................................................. 393 Developing the Maintenance Program ....................................................................... 393 Detailed Maintenance procedures ............................................................................... 405 Materials Handling Maintenance ................................................................................ 414 Truck Operation and Maintenance .............................................................................. 415 Measuring ~struments................................................................................................. 418 Saving Energy Dollars in Materials Handling and Storage ..................................... 422 Recent Developments .................................................................................................... 425 ustrial ~nsulation. ............................................................................................................. 429 ~ u n d a ~ e n t aofl sThermal Insulation Design Theory ............................................... 429 Insulation Materials ....................................................................................................... 431 Insulation Selection ........................................................................................................ 434 ~ s u l a t i o nThickness Determination ............................................................................ 440 Insulation Economics ..................................................................................................... 453 lternati~eEnergy . .................................................................................................... 463 Introduction ..................................................................................................................... 463 Solar Energy .................................................................................................................... 463 Wind Energy ................................................................................................................... 476 ~efuse-per~ved Fuel ....................................................................................................... 481 Fuel Cells ......................................................................................................................... 485 uality . ................................................................................................................. 489 Introduction and Background ...................................................................................... 489 at is the Current Situation ....................................................................................... 491 Solutions and Prevention of IAQ Problems ............................................................... 491 ates for Commercial and ~ n ~ ~ s t r i a l C o n. .§... ~. ..m ....~.... r.499 s ~troduction..................................................................................................................... 499 Utility Costs ..................................................................................................................... 499 Rate Structures ................................................................................................................ 500 Innovative Rate Type ..................................................................................................... 501 Calculation of a Monthly Bill ........................................................................................ 502 Conducting a Load Study ............................................................................................. 505 Effects of Deregulation on Customer Rates ................................................................ 508 n ~ r g yStorage . .......................................................................................................523 ~troduction..................................................................................................................... 523 Storage Systems .............................................................................................................. 525 Storage Mediums ............................................................................................................ 527 System Capacity ............................................................................................................. 530 ....................................................................................................... 536 E c o n o ~ i Summary c Conclusions ..................................................................................................................... 538 Legi§lation. ........................................................................................... 543 licy Act of 1992 ...................................................................................... 543 State Codes ...................................................................................................................... 544 Model Energy Code ....................................................................................................... 545 Federal Energy Efficiency Requirements. ................................................................... 545 Indoor Air Quality Standards ....................................................................................... 546 Regulations &;Standards Impacting CFCs ................................................................. 547 viii

Regulatory and Legislative Issues Impacting Air Quality ....................................... 548 and Legislative Issues Impacting Cogeneration & Power ...................548 ies in the Spot Market ................................................................................ 550 The Climatic Change Action Plan................................................................................ 551 Summary .......................................................................................................................... 552 21

.........................................................................................................

553

............................................................................................................................ 553 Introduction ..................................................................................................................... 554 Natural Gas As A Fuel ................................................................................................... 557 Buying Natural Gas ........................................................................................................ 570 New Frontiers for the Gas Industry ............................................................................. 581

22

...................................................................................................................... 583 Introduction ..................................................................................................................... 583 The Fun~amentalControl Loop ................................................................................... 583 Sensors ............................................................................................................................. 584 Controllers ....................................................................................................................... 586 Controlled Devices ......................................................................................................... 590 VAC Processes ............................................................................................................. 592 nal Con~itions............................................................................................................. 594 Feedback .......................................................................................................................... 594 Control Strategies ........................................................................................................... 595 Control of Air Handling Units ..................................................................................... 598 Control of Primary E~uipment..................................................................................... 601 Control of Distribution System .................................................................................... 603 Advanced T e c ~ o l o g yfor Effective Facility Control ................................................ 604 FMS Features ................................................................................................................... 608 Summary .......................................................................................................................... 613

3

~~ia~. i. .~..... i. .t...y.............................................................................. 615 roduction ..................................................................................................................... 615 sk Analysis eth hods .................................................................................................. 618 Co~termeasures ............................................................................................................ 625 Economics of Energy Security and Reliability ........................................................... 627 Links to Energy Management ...................................................................................... 628 Impact of Utility ~eregulation..................................................................................... 629 .................................................................................................................... 630 u ~ m a... r...~

24

~ t s o ~ r c. . i. .n....~........................................... 631

....................................................................................... 631 h Historical Perspective of the Electric Power Industry ........................................ 631

The Trans~issionSystem and The Federal Regulatory Commission's (FERC) Role in Promoting Competition inWholesale Power ....................... 632 Stranded Costs ................................................................................................................ 633 Status of State Electric Industry Restructuring Activity ........................................... 633 e Impact of Retail Wheeling ..................................................................................... 634 The Ten-Step Program to Successful UtilityDeregulation ...................................... 636 Aggregation ..................................................................................................................... 637 In-house vs .~utsourcinvEnergy Services................................................................. 637 sum mar^ .......................................................................................................................... 641

ix

rojects . ........................................................................... 643 Introduction ..................................................................................................................... 643 Financial Arrangements:A Simple Example ............................................................. 643 Financial Arrangements: Details and Terminology.................................................. 646 Applying Financial Arrangements: A Case Study .................................................... 647 "Pros" & "Cons" of Each Financial Arrangement....................................................... 658 CharacteristicsThat Influence Which Financial Arrangement Is Best ...................659 Incorporating Strategic Issues When Selecting Financial Arr~gements..............660 Chapter Summary .......................................................................................................... 660 eview

...................................................................................... 665 les . .......................................................... 687

lectrical Science . .............................................................................. '737 ex ....................................................................................................................................................751

X

The fourth edition of the ~ ~ n of Energy ~ ~ Mo ~ no~ g~e ~by e nDr. t Wayne Turner re most comprehensive and up-to-date reference on this important subject. Since its first lished 18 years ago, the energy industry has greatly changed and SO has this book. n the 1970’s we did not question how to purchase electricity and gas. Today the energy manager has many opportunities to reduce utility costs by using energy procurement strategies. In fact, the role of the energy manager has been greatly elevated as a result of a restructured utility marketplace. The energy manager is indeed involved in energy procurement decision making. In the 1970’s we questioned the merits of energy mana~ement.Today we find many companies saving 30% or more as a result of their programs. The advancement of performance contracting has opened up new opportunities to finance energy projects. New lighting and energy efficient products, which are better than ever before, are now available. Gas cooling and geoexchange products were not commercially available 30 years ago. Who knew that distributed generation and combined heat and power would play a crucial role in meeting new generation needs? As we look backon the energy arena one thing becomes clear:energy is the key element that must be managed to insure a company’s profitability. TheE n e r g ~ ~ n a g e ~~e an tn ~has ~ emerged o o ~ as the One definitive reference to guide energy managers through the maze of changes the industry has experienced.

xi

The energy ”roller coaster” never ceases with new turns and spirals which make for a challenging ride. Those who started onthis ride in the 1970’s have witnessed every event possible which certainly would make a good novel rather than an historical docudrama. In 1995 the winds of change are once again blowing and wiping away our preconceived notions about electric power. Who would have envisioned that the stable utility infrastructure would be turned upside down? ‘Utilities have downsi~edand reduced staff in the mid 1 9 9 0 ’ ~ utility ~ stock prices t u m ~ l e dby 30% or more and now there is the reality of retail competition, Global economiccompetition is creating pressures for lower electricity prices. Retail wheeling has already become a reality. The United ~ i n g d o m is implementing a common carrier electricity distribution system that allows retail customers to select from competing suppliers. Daily developments in ~alifornia,Michigan, Wisconsin and other states indicate that companies must reevaluate the way they purchase power. New opportunities will certainly open up, but with every new scenario there are hidden risks. Reliability of power and how to structure a power marketing deal are just some of the new factors energy managers must evaluate. At the start of 1995 there were over 100 companies which have been granted the status of power marketers. Their role in helping customers find power at the lowest cost will becomea new factor in buying power. Needless to stay the d e r ~ g u l a t i oof~the electric utility marketplace is one of the milestones in the ”energy roller coast ride” of the 1990’s. Energy managers need to have all the tools to evaluate both supply side and demand side options. They need to know how to put into perspective new technologies as they impact energy use. They need to see the whole picture and understand how the nontechnical issues impact their decision making. Probably the mostimportant reference source to help energy ~y ~ n ~ ~ y ~ ae y n C. e~ Turner. ~ 1 am n ~ managers cope with these challengesis the E n e ~ ~ pleased to have played a part in contributi~gto this impressive work which has guided energy managers for over a decade. This book has helped students learn the basic principles of energy management as well as shown seasoned professionals advanced energy tec~ologies.This newly revised edition in sure to play a key role in helping energy managers meet the new challenges ahead.

xii

This book began as an idea in 1978. It took more than a year to get it pu~lishedin early 1980, and that first edition lasted 10 years. The second edition lasted 4 and the third lasted 4 more. Thus, this book has been trying to be the ”go to” handbook for energy managers for 18 years and the sales are better today than they were 18 years ago. That tells me several things: The authors of the chapters contained herein have done a tremendous job at essentially no pay. They care enough for our profession to donate their time. If you ever meet any, please thank them. The book is meeting the market need. We are pleased with the sales and are extremely excited about the future. We (the authors and I) pledge to you that we will continue to strive to meet your needs. The book has been an important part of my professional life for mostof my professional life and I have had the pleasure of working directly with some of the top energy ma~agementprofessionals in the world. Some are in heaven advising Cod on energy management. (Let’s hope none is practicing air conditioning or waste heat recovery in extremely hot climates). The collection of talents presented in this book intimidates me. We hope it impresses and helps you. As another observation, I believe our field is developing at an accelerating rate. Look at lighting technology development, fuel cell and rnicro turbine development, etc. We have so many more tools available to us today than ever beforeand the future looks extremelybright. Our job is tostay up with these developments; hopefully, this book helps. In an attempt to help keep up with that development, this edition has added two new chapters on “Financing Energy ~ a n a g e m e nProjects” t and “Utility Deregulation.” Almost all of the chapters had revisions; some of them are major. A few chapters were left alone as the authors felt no revision was required. The book is bigger and will likely continue growing bigger. As editor, I have to make a decision as to what to drop. I have chosen to drop very little; thus, the book grows. I am proud to work with you and have had the chance to meet directly with several thousand of you through AEE programs and courses. Professionally, I am the luckiest guy in the world. I hope you enjoy and profit from the book.

xiii

The First Edition lasted 10 years before the Second Edition was published; but the Second Edition lasted only 4 years. Does this mean the Second Edition was not as noteworthy as the First or does it say the Energy ~ a n a g e m e n is t marching on at an accelerated pace, I believe it’s the latter, Look at the change in lighting technology over the last few years (especially fluorescent lights). Fluorescent technology existstoday that can provide equal lumens for slightly lessthan half the energy input for conventional bulbs. Other technologies are accelerating almost as rapidly. Look at the use of Thermal Energy Storage today compared to 10 years ago. Who would have thought that now we can build a system with chiller and ice storage for about the same cost as a conventional chiller and get better control with reduced humidity? This discussion couldgo on but the point is the T E ~ H N O L ~ G Y IS ~ATURINGMPIDLY, OPENING NEW DOORS FOR US ASENERGY ~ A N A ~ E R S . In a similar fashion, legislation, codes,and standards are changing rapidly. Just when westart to understand ASHME 62, the experts feel another dramatic change is needed and is being finalized as I print these words. Then, OSHA says IAQ is such a big problem that we need formal Indoor Air uality Programs. This has been proposed and is beingworked on now. EPACT 92 may very well lead to the most significant changes we energy managers have had to face. Some of these changes may be beneficial to us and some will likely not be so beneficial. Thus, a Third Edition was needed. Some new authors, some new chapters, some dramatic revisions to old chapters, and few with little to no revisions make up the changes that go into the Third Edition. We all hope you enjoy and profit from the Third Edition. Somevery talented people donated lots of time and effort to the Third Edition. With all my heart, I thank them. Finally, you should feel great about what you do. What other discipline can claim tosave money for our companies or clients, protect the environment, and save resources forfuture generations? Keep up the fight.

xiv

Few books last ten years without a revision; but this one did. Sales have been brisk but most importantly the profession has been extremely active.For example, the Association of Energy Engineers is now an international organizationwith members in several countries and they have never ex~erienceda year of declining membership. Energy consumed per dollar GNP continues to drop and energy engineers are still in high demand. Is the bloom off the energy rose?~efinitely not!!!! The profession is changing but the basics remain the same. That's why a second edition was not needed for so long, Now, however,we feel a second edition is required to bring in some new subjects and revise some old material. We have added several new chapters and have chosen to rewrite several of the older ones. New material has been added on cogeneration, thermal energy storage systems, fuels procurement, energy economics, energy management control systems, and a host of other fast changing and developing areas,~e are proud of the book after this second edition and sincerely hope you enjoyand profit fromusing it. I said some things about the energy crisis and about the professionals working on this crisis in the first edition. We have purposely left that Preface intact so you cansee some of the changes that have taken place and yet howthe basics stillhold. "The more things change, the more they stay the same." pecial thanks go to Mr. Mike Gooch of South Carolina Gas &: Electric who provided significant e~itorial comme~ts.

xv

REFACE TO T

"There is no such thing as a problem without a gift for you in its hands. You seek problems because you need their gifts." (RichardBach, ~llusions,Dell, New York, 1979, p. 71,) The energy crisis is here! It is also real, substantial, and will likely belong lasting, Energy costs are rising rapidly, conventional energy supplies are dwindling, and previously secure energy sources are highly questionable.With this myriad of energy-related problems, prudent management of any organization is orsoon will beinitiating and conducting energy management programs. This bookis a handbook for the practicing engineer or highly qualified technician working ~ a n d ~ to o obe~a practical in the area of energy management. The ~ n e r ~ y ~ a n a ~ e m e n t is designed and "stand-alone" reference. Attempts have been made to include all data and infor~ation necessary forthe successful conducting and management of energy management programs. It does not, of course, contain sufficient technical or theoretical development to answer all questions on any subject; but it does provide you, the reader, with enough information to successfully accomplishmost energy management activities. Industry is responding. This isdemonstrated vividly by the fact that energy to GNP ratio declined an average of 2.8% per year in the period 1973-1977, We have to askourselves, however, h can we do with moree ~ o r t ? if this much has been done thusfar, how m ~ cmore Large savings are possible. Most companies find that's to 15%comes easily. A dedicated program often yields 30%, and some companieshave reached 40,50, and even 60% savings. The potential for substantial cost reduction is real, Energy management may be defined as the judicious use of energy to a c c o m ~ l i s h ~ ~ e s c r i ~ e d o ~ j e c t i ~ eFor s , private enterprise, these objectives are normally to ensure survival, maximize profits, and enhance competitive positions. For nonprofit organizations, survival and cost reduction are normally the objectives. Thishandbook is designed to help you accomplishthese objectives. Several highly dedicated professionals worked many long, arduous hours pulling this handbook together. The list is toolong to repeat here, but the Associate Editors, allthe authors, and many graduate students at Oklahoma State University who helped review the material all spent many hours. As Senior Editor,I am grateful and can onlyhope that seeing this in print justifies their efforts. With professionals like this group, we will solve all our future energy problems.

xvi

new skill must be learned. However, EPACT’s impact is further reaching, If utilities must compete with other producers of electricOklahoma State University ity, then they must be ”lean and mean.” As Mr. ThuStillwater, Ok. m m mentions in the Foreword, this means many of the Demand Side Management (DSM) and other conserva.c ss tion activities of the utilities are being cut or eliminated. University of Florida The roller coaster ride goes on. Gainesville, Fla. The Presidential Executive Orders mentioned in Chapter 20 created the Federal Energy ~ a n a g e m e nProt 1. gram (FEMP) to aid the federal sector in meeting federal Mr. A1 Thumam, Executive Director of the Asso- energy management goals. The potential FEMP savings ciation of Energy Engineers, said it wellin the Foreword. are mammoth and new professionals affiliated with Fed“The energy ’roller coaster’ never ceases with new turns eral, as well as State and Local~overnmentshave joined as Congress and spirals which make for a challenging ride.” Those theenergymanagerranks.However, professionals who boarded the ride in the late 7’0’s and changes complexion,the FEMP and even DOE itself may face at best uncertain futures. The roller coaster ride stayedonboardhaveexperiencedseveralupsand downs. First, being an energy manager was likebeing a continues. FEMP efforts are showing results. Figure 1.3 outmother, John Wayne, and a slice of apple pie all in one. Everyonesupportedtheconceptand success was lines the goals that have been established for FEMP and around every bend. Then, the mid-80’s plunge in energy reports show that the savings are apparently on schedule to meet all these goals. As with all such programs, prices caused some to wonder ”Do we really need to reporting and measuring is difficult and critical. Howcontinue energy manage men^?" Sometime in the late ~ O ’ S ,the decision was made. ever, that energy and money is being saved is undeniEnergy management is good business but it needs to be able. More irnportant, however, to most of this book’s run by professionals. The Certified Energy Manager Pro- readers are the TechnologyDemonstrationPrograms gram of the Association of EnergyEngineersbecame and Technology Alerts being published by the Pacific popular and started a very steep growth curve that is NorthwestLaboratories of attelle in cooperation with . continued to the USDOE.Bothof continuingtoday(January, ~ 0 0 0 )AEE these programs are dramatically grow in membership and stature. speeding the incorporation of new technology and the About the same time (late ~ O ’ S ) ,the impact of the Alerts are a great source of information for all energy Natural Gas Policy Act began to be felt. Now, energy managers. (Information is available on the WEB). managers found they could sometimes save significant As utility DSM programs shrink, while private secamounts of money by buying ”spot market” natural gas tor businesses and the Federal Government expand their and arranging transportation, About the only thing that needs for energy management programs, the door is openingfor the ESCOs (Energy Service Companies)/ could be done in purchasing electricity was to choose the appropriate rate schedule and optimize parameters Shared Savings Providers, Performance Contractors, and (power factor, demand, ratchet clauses, time of use, other similar organizations. These groups are providing etc.-see the chapter on energy rate schedules). Then, the auditing, energy and economic analyses, capital and the EnergyPolicyAct of 1992 burst upon the scene. monitoring to help other organizations reduce their enNow, some energy managers are able to purchase elec- ergy consumption and reduce their expenditures for tricity from wherever the best deal can be found, and energy services. By guaranteeing and sharing the savwheel the electric energy through the grid. At the time of ings from improved energy efficiency and improved this writing, many states are pushing forward to com- productivity, both groups benefit and prosper. Throughout it all, energy managers have proven plete retail wheeling where the energy manager chooses that energy management is cost the source of electric power. Energy managers through- timeandtimeagain, out the country and even the world are watching this effective. Furthermore, energy managementis vital to with great anticipation and a bit of apprehension as a our national security, environmental welfare, and ecoI

1

ENERGY ~ A N A G E M E N THANDBOOK

2

nomic productivity. This will be discussed in the next section.

field development and subsequent on-site pollution. Less energy consumption means less thermal pollution at power plants and less cooling water discharge. Reduced coolingrequirements or more efficient satisfaction of those needs means lessCFC usage and reduced ozone Business, industry and government organizations depletion in the stratosphere. The list could go on almost have all been under tremendous economic and environ- indefinitely, but the bottom line is that energy managemental pressures in the last few years. Being economi- ment helps improve environmental quality. cally competitive in the lobal marketplace and meeting increasing environmental standards to reduce airand Becoming-or continuing to be-economically water pollution have been the major driving factors in competitive in the global marketplace, whichremost of the recent operational cost and capital cost inquires reducing the cost of prod~ctionor services, vestment decisions forall organizations. Energymanreducingindustrialenergyintensiveness,and agement has been an important tool to help organizameeting customer service needs for quality and tions meet these critical objectives for their short term delivery times. survival and long-term success. Theproblems that organizations facefrom both Significant energy and dollar savings are available their individual and national perspectives include: through energy management, Most facilities (manufacturing plants, schools, hospitals, office buildings, etc) Meetingmorestringentenvironmentalquality can save according to the profile shown in Figure 1.1. standards, primarily related to reducing global Evenmore savings have been accomplished by some warming and reducing acid rain. programs. Energy management helps improv environmental quality. For example,theprimaryculpritin global 4 Lowcostactivities first yearortwo: 5 to15% warming is carbon dioxide, CO2. Equation 1.1, a balanced chemistry equation involving the combustion of Moderate cost, significant effort, three to five methane (natural gas is mostly methane), shows that years: 15 to 30% 2.75 pounds of carbon dioxide isproducedfor every pound of methane combusted. Thus, energy manageLong-term potential, higher cost,more engiment, by reducing the combustion of methane can dra30 to 50% neering: matically reduce the amount of carbon dioxide in the atmosphere and help reduce global warming. Gommer'cia1 and industrial energy use accounts for about 45 percent of the carbon dioxide released from the burning of fossil fuels,and about 70 percent of the sulfur dioxide Thus, large savings can be accomplished often with emissions from stationary sources. high returns on investments and rapid paybacks. Energy management can make the differencebetween profit and CH4 + 2 02 C02 + 2 H 2 0 loss and can establish real competitive enhancements for (12 -I- 4*1) +2(2*16) = (12 + 2%) + -1-16) 2(2*1 (1.1) most companies. Energy management in the form of implementing Thus, 16 pounds of methane produces 44 pounds new energy efficiency tec~ologies,new materials and of carbon dioxide; or 2.75 pounds of carbon dioxide new manufact~ringprocesses and the use of new technologies in equipment and materials for business and is produced for each pound of methane burned. industry is also helping companies improve their productivity and increase their product or service quality. Energy manage~entreduces the load onpower plants as fewer kilowatt hours of electricity are needed. Often, the energy savings is not the main driving factor If a plant burnscoal or fuel oil, then a significant amount whencompanies decide to purchase new equipment/ of acid rain is produced from the sulphur dioxide emit- use newprocesses, and use new high-tech materials. ted by the power plant. Acid rain problems then are However, the combination of increased productivity, increased quality! reduced environmental emissions, and reduced through energy management. Less enerev consumption means less petroleum reduced energy costs provides a powerful incentive for

~0 TJi

=T:

U J

A

A

v,

companies and organizations to implement these new technologies. Total Quality Management (TQM) is another emphasis that many businesses and other organizations have developed over the last decade. TQMis an integrated approach to operating a facility, and energy cost control should be included in the overall TQM program. TQM is based on the principle that front-line employees should have the authority to make changes and other decisions at the lowest operating levels of a facility. If employees have energy management training, they can make informed decisions and recommendations about energy operating costs. 0

Maintaining energy supplies that are: -Available without significant interruption, and -Available at costs that do not fluctuate too rapidly.

Once again, the country is becoming dependent on imported oil. During the time of the 1979 oil price crisis, the U.S. was importing almost 50%of our total oil consumption. By 1995, the US. was again importing 50% of our consumption. Today (2000) we are importing even more, and the price has dramatically increased. Thus, the U.S. is once again vulnerable to an oil embargo or other disruption of supply. The major difference is that there is a better balance of oil supply among countries friendly to the U.S. Nonetheless, much of the oil used in this country is not produced in this country. The trade balance would be much more favorable if we imported less oil, 0

Helpingsolve other national concernswhichinclude: -Need to create new jobs -Need to improve the balance of payments by reducing costs of imported energy -Need to minimize the effects of a potential limited energy supply interruption

None of these concerns can be satisfactorily met without having an energy efficient economy.Energy management plays a key role in helping move toward this energy efficient economy.

FESS Energy management skillsare important to people in many organizations, and certainly to people who perform duties such as energy auditing, facility or building management, energy and economic analysis, and maintenance. The number of companies employing professionally trained energy managers is large and growing. A partial list of job titles is given in Figure 1.2. Even though this is only a partial list, the breadth shows the robustness of the profession. For some of these people, energy management will be their primary duty, and they will need to acquire indepth skills in energy analysis as well as knowledge about existing and new energy using equipment and as maintenance managtechnologies. For others-such ers-energy management skills are simply one more area to coverin analready full plate of duties and expectations. The authors are writing this Energy ~ ~ ~ for both of these groups of readers and users. Fifteen years ago, few university faculty members wouldhave stated their primary interest was energy management, yet today there are numerous faculty who prominently list energy management as their principal specialty. In 2000, there were 30 universities throughout the country listed by DOE as Industrial Assessment Centers or Energy Analysis and Diagnostic Centers. Other Universities offer coursework and/or do research in energy management but donot have one of the above centers. Finally, several professional Journals and Magazines now publish exclusively for energy managers while we know of none that existed 15 years ago. The Federal Energy Management Program (FEMP) started during the Bush Administration but it received a significant boost onJune 3,1999 when President Clinton issued Executive Order 13123, A brief s u ~ ~ a ofr ythe requirements of that order is given in Figure 1.3. This ~~~~~~~~~

I

Plant Energy Manager Utility Energy Auditor StateAgencyEnergyAnalyst Consulting Energy Manager DSM Auditor/M~ager

Building /Facility Energy Manager * Utility Energy Analyst 0 FederalEnergy Analyst Consulting Energy Engineer

*

a n a ~ ~ ~Job e nTitles t

~

ENERGY

4

Reduce energy consumption per square foot in federal buildings by 10% between 1985 and 1995. Reduce energy consumption per square foot in federal buildings by 20% by 2000. Reduce energy consumption per square foot in federal buildings by 30% by 2005. Reduce energy Consumption by square foot in federal buildings by 35% by 2010 Reduce energy consumption in federal agency industrial facilities by 20% between 1990 and 2005. Reduce greenhouse gas emissions by30% (compared to 1990) Provide for federal agency participation in DSM services offered by utilities. igure 1.3

bjectives ~ u r n r n a r ~

program should dramatically reduce government expenditures for energy and water. Like energy management itself, utility DSM programshave had their upsanddowns. DSM efforts peaked in the late 80s and early 90s, and have since retrenched significantly as utility deregulation and the movement to retail wheeling have caused utilities to reduce staff and cut costs as much as possible. This shortterm cost cutting is seen by many utilities as their only way to become a competitive low-cost supplier of electric power. Once their large customers have the choiceof their power supplier, they want to be able to hold on to these customers by offering rates that are competitive with other producers around the country. In the meantime, the other energy services provided by the utility arebeingreducedoreliminatedinthiscorporate downsizing effort. This reduction in electric utility incentive andrebate programs, as well as the reduction in customer support, has produced a gap in energy service assistancethat is being met bya growing sectorof equipment supply companies and energy service consulting firms that are willing and able to provide the technical and financial assistance that many organizations previously got from their local electric utility. New business opportunities andmany

WANDBWK

new jobs are being created in this shift away from utility support to energy service company support. Energy management skills are extremely important inthis rapidly expanding field,and even critical to those companies that are in the business of identifying energy savings and providing a guarantee of the savings results. Thus, the future for energy mana~ementis extremely promising. It is cost effective, it improves environmental quality, it helps reduce the trade deficit, and it helps reduce dependence on foreign fuel supplies. Energy management will continue to grow in size and importance.

(The material in this section is repeated verbatim from the first and second editions of this handbook. Mr. Roger Sant who wasthen director of the Energy Productivity Center of the Carnegie-Mellon Institute of Research in Arlington, Va., wrote this section for the first edition. It was unchanged for the second edition. Now, the fourth edition is being printed. The principles developed in this section are still sound, Some of the number quoted may now be a little old; but the principles are still sound. Amazing, but what was right 18 years ago for energy management is still right today. The game has changed, the playing field has moved; but the principles stay the same). If energy productivity is an important opportunity for the nation as a whole, it is a necessity for the individual company. It represents a real chance for creative management to reduce that component of product cost that has risen the most since 1973. Those who havetaken advantage of these opportunities have done so because of the clear intent and commitment of the top executive. Once that commitment is understood, managers at all levels of the organization can and do respond seriously to the opportunities at hand. Without that leadership, the best designed energy management programs produce fewresults. In addition, we would like to suggest four basic principles which, if adopted, may expand the effectiveness of existing energymanagementprogramsorprovidethestarting point of new efforts. The first of these is to contrul the costs of the energy ~ n c t ori service ~ ~ ~ r o v i ~but e ~not , the Btz4 of energy. As most operating people have noticed, energy is just a means of providing someservice or benefit. With the possible exception of feedstocks for petrochemical production, energy is not consumed directly. It is always converted into some useful function. The existing data

5

INTRODUCTION

are not as complete as one would like, but they do indi1.1 In~ustrialEner unctions by E x ~ e n ~ i t u r e cate some surprises. In 1978, for instance, the aggregate industrial expenditure for energy was $55 billion. ThirtyDollar five percent of that was spent for machine drive from Expenditure Percent of Percent of electric motors, 29% for feedstocks, 27% for process heat, Function (billions) Expenditure Total Btu 7% for electrolytic f ~ c t i o n sand , 2% for space conditioning and light. As shown in Table 1.1, this is in blunt Machine drive 19 35 12 contrast to measuring these functions in Btu.Machine 16 Feedstocks 29 35 drive, for example, instead of 35% of the dollars,steam re- Process 7 13 23 quired only 12% of the Btu. Direct heat 4 7 13 anizations it will pay to be even more Indirect heat 4 7 13 specificabout the functionprovided.Forinstance, Electrolysis 4 7 3 evaporation, distillation, drying, and reheat are all typi- Space conditioning cal of the uses to which process heat is put.Insome lightingand 1 1 1 cases it has also been useful to break down the heat in Total 100 55 100 terms oftemperature so thattheopportunitiesfor Source: Technical Appendix, The Least-Cost Energy Stmtegy, Carnegiematching the heat source to the work requirement canbe Mellon University Press, Pittsburgh, Pa., 1979,Tables 1.2.1 and 11.3.2. utilized. In addition to energy costs, it is useful to measure the depreciation, maintenance, labor, and other operat- Table 1.2 Cost of In ing costs involved in providing the conversionequipFuel Cost ment necessary to deliver required services. 'These costs add as much as 50% to the fuel cost. Steam coal $1.11 It is the total cost of these functions that must be Natural gas 2.75 managed and controlled, not the Btu of energy. The Residual oil 2.95 large difference in cost of the various Btu of energy can Distillate oil 4.51 make the commonly used Btu measure extremely mis- Electricity 10.31 leading. In November 1979, as shown in Table 1.2, the ConzparafiveFuel S ~ p ~ l e ~ rNovember ent, 1979. cost of 1 Btu of electricity was nine times that of 1 Btu of Source: Monf~ly steam coal. Availabilities also differ and the cost of maintain'The minimum theoretical energy expenditure to ing fuel flexibility can affect the cost of the product. And produce a given product can usually be determined en as shown before, the average annual price increase of route to establishing a standard energy cost for that natural gas has been almost three t h e s that of electric- product. The seconds of 25-hp motor drive, the minutes ity. There-fore, an energy management system that con- necessary in a 2200°F furnace to heat a steel part for trols Btu per unit of product may completely miss the fabrication, or the minutes of 5-V electricity needed to effect of the c h a ~ g i n economics and availabilities of make an electrolytic separation, for example, can be deenergy alternatives the major differences in usability termined as theoretical m i n ~ u m sand compared with of each fuel. con troll in^ the total cost of energyfunc- the actual figures. As in all production cost functions, tions is much more closely attuned to one of the princi- the minimum standard is often difficult to meet, but it pal interests of the executives of an organization-con- can serve as m indicator of the size of the o p p o r t ~ i t y . In comparing actual values with minimum values, A second principle of energy management isto four possible approaches can be taken to reduce the varicontr~lenergy ~ n c t i o n sas a p r o ~ ~cost, c t not as a part of ance, usually in this order: ~ a n ~ f ~ c tor~ grei~~z egro~v~e r ~ ~Ite ~is~ surprising . how An hourly or daily control system can be installed many companies still lump all energy costs into one 1. to keep the function cost at the desired level. generalor manufacturing overhead account without identifying those products with the highest energy func- 2. Fuel requirements can be switched to a cheaper tion cost. In most cases, energy functions must become and more available form, part of the standard cost system so thateachfunction 3. A changecan be made tothe process methodology can be assessed as to its specific impact on the product to reduce the need for the function. cost. ~

ENERGY

6

4.

New equipment can be installed to reduce the cost of the function.

HANDBOOK

the beginning. To quote the energy director of a large chemical company: ”Longtermresults will be much greater.’’ The starting point for reducing costs should be in Although no one knows exactly how much we can achieving the minimum cost possible with the present improve productivity in practice, the American Physical equipment and processes. Installing management con- Society indicatedintheir 1974 energyconservation trol systems can indicate what the lowest possible en- study that it is theoretically possible to achieve an eightergy use is in a well-controlled situation. It is onlyat that fold improvement of the 1972 energy/production ratio? point when a change in process or equipment configura- Mostcertainly,we are a long way from an economic tion should be considered. h equipment change prior saturation of the o p p o r t ~ i t i e s(see, e.g.,Ref. 10). The toactuallyminimizingtheexpenditureunderthe common argument that not much can be done after a 15 present system may lead to oversizing new equipment or 20% improvement has been realized ought to be disor replacing equipment for unnecessary functions. missed as baseless, Energy productivity provides an The third principle is to contrffZ and meter only the expanding op~ortunity,not a last resort. The chapters in ~ z a i ~energy z functions-the roughly 20% that make up this book provide the information that is necessary to 80% of the costs. AsPeterDrucker pointed out some make the most of that opportunity ineach organization. time ago, a few functions usually account for a majority of the costs. It is important to focus controls on those :Table 1.2contains numbers that are 20 years old. that represent the meaningful costs and aggregate the Numbers for 1998 are given below. Note how there has remaining items in a general category. Many manufac- been little change, [Editor] turing plants in the United States have only one meter, the that leading from the gas main or electric main into (1998) Cost Fuel plant from the outside source. Regardless of the reason$1.408 Coal Steam ableness of the standard cost established, the inability to Natural Gas 2.819 measure actual consumption against that standard will 2.583 Oil Residual render such a system useless. Submetering the main OilDistillate 4.791 functions can provide the information not only to mea13.023 Electricity sure butto control costs in a short time interval. The cost of metering and submetering is usually incidental to the potential for realizing significant cost improvements in the main energy functions of a production system. The fourth principle is to put the ma~orefort of an 1. S~atistica~ Abstract of the United States, U.S. Government Printing energy ~zanage~zent ~rffgr~ into m installi?zg controls and Office, Washington, D.C., 1999. ac~zievingresl~lts.It is common to find general knowledge 2. Energy User Nezus, Jan. 14, 1980. o ~ in ~ the o rUnited States to about how large amounts of energy could be saved in a 3. JOHN G. WINGER et al., O ~ ~ ~ oEnergy 1985, The Chase Manhattan Bank, New York, 1972, p 52. plant. The missing ingredie~tis the discipline necessary 4. DONELLA H. MEADOWS et al., The Linzi~sto Grozut~~, Universe Books, New York, 1972, pp. 153-154. to achieve these potential savings. Each step in saving energy needs to be monitored frequently enough by the 5. JIMMY E. CARTER, July 15, 1979, ”Address to the Nation,” Washington Post, July 16, 1979, p. A14. managerorfirst-linesupervisorto seenoticeable 6. ~ o n t h l yEnergyReview, Jan. 1980,U.S. Department of Energy, changes. Logging of important fuel usage or behavioral Washington, D.C., p. 16. 7. ~ o n Energy ~ hReview, ~ ~ Jan. 1980, US. Department of Energy, observations are almost always necessary beforeany Washington D.C., p. 8; Stafistic~l Abstrac~ of fhe United States, US. particular savings results can be realized. Therefore, it is Government Printing Office, Washington, D.C.,1979, Table 1409; critical that an energy director or committee have the Energy User Nezus, Jan. 20, 1980, p. 14. authority from the chief executive to install controls, not 8. American Association for the Advancement of Science, “U.S. EnScience, Apr. 14,1978, p. ergy Demand: Some Low Energy Futures,” just advise line management.Those energy managers 143. who have achieved the largest cost reductions actually 9. American Physical Society Summer Study on Technical Aspects of Efficient Energy Utilization, 1974. Available as W.H. CAWAHAN install systems and controls; they do not just provide from ~ e ,NTIS PB-242et al., Eflicie~tUse of Energy, a Plzysics P e r s ~ e c t ~ good advice. 773, or in Eflicient Energy Use, Vol. 25of the American Institute of As suggested earlier, the overall potential for inPhysics Conference Proceedings. creasing energy productivity and reducing thecost of 10. R.’(;V.SANT, The Least-Cost En-ergy Strategy, Carnegie-Mellon University Press, Pittsburgh, Pa., 1979 energy services is substantial. The 20% or so improvement in industrial energy productivity since 1972 is just

Most manufacturing companies are looking for a competitive edge. A reduction in energy costs to manufacture the product can be immediate and permanent. In addition, products that use energy, such as motor driven machinery, are being evaluated to make them more energy efficient, and therefore more marketable. Many foreign countries where energy is more critical, now want to h o w the maximum power required to operate a piece of equipment.

I

Professor Emeritus Mechanical Engineering Department Virginia Polytechnic Institute &: State University Blacksburg, Virginia

A headline in the local newspaper at the end of the Energy technology is changing so rapidly that year 1999 stated, “Lower energy use leaves experts state-of-the-art techniques have a half life of ten pleased but puzzled.” The article went on to state ”Alyears at the most. Someone in the organization though the data are preliminary, experts are baffled that must be in a position to constantly evaluate and the country appears to have broken the decades-old link update this technolo between economic growth and energy consumption.” For those involved in energy management for the Energy security is a part of energy management. past few years, this comes as no surprise. We have seen Without a contingency plan for temporary shortcompanies becoming more efficient in their use of enages or outages,and a strategic plan for long range ergy, and that’s showing in the data. Those that have plans, organizations run a risk of major problems extracted all possible savings from downsizing, are now without immediate solutions. looking for other ways to become more competitive. Better management of energy is a viable way, so there is Future price shocks will occur. When worldenergy an upward trend in the number of companies that are markets swing wildly with only a five percent deestablishing an energy mana~ementprogram. Managecrease in supply, as they did in 1979, it is reasonment is now beginning to realize they are leaving a lot able to expect that such occurrences will happen of money on the table when they do not instigate a good again. energy management plan. With the new technologies and alternative energy Those people then who choose-or in many cases sources now available, this country could possibly re- are drafted-to manage energy will do well to recognize duce its energy consumption by 50%--if there were no this continuing need, and exert the extra effort to bebarriers to the implementation. But of course, there are come skilled in this emerging and dynamic profession. economic. Therefore, we might conclude The purpose of this chapter is to provide the fundanot a just technical challen~eI mentals of an energy management program thatcan be, t thosetechnical and have been,adapted to organizations large and small. Developing a working organizational structuremay be the most important thing an energy manager cando. Unlike other management fads that have come and gone, such as value analysis and quality circles, the need to manage energy will be permanentwithin our society. There are several reasons for this: All the components of a comprehensive energy management program are depicted in Figure 2-1.These There is a direct economic return. Most opportuni- components are the organizational structure, a policy, ties found in an energy survey have less than a two and plans for audits, education, reporting, and strategy. year payback. Some are immediate, such as load It is hoped that by understanding the fundamentals of shifting or going to a new electric rate schedule. managing energy, the energy manager can then adapt a 7

ENERGY ~ A N A G E M E N THANDBWK

8

good working program to the existing organizational structure. Each component is discussed in detail below. .3

person selected for this position should be one with a vision of what managing energy can do for the company. Every successful program has had this one thing in common-one person who is a shaker and mover that makes things happen. The program is then built around this person. There is a great tendency for the energy manager to become an energy engineer, or a prima donna, and attempt to conduct the whole effort alone. Much has been accomplished in the past with such individuals working alone, but for the long haul, managing the program by involving everyone at the facility is much more productive and perman ganizational s t r ~ ~ t ~ r e st im~ortantthing

The organizational chart for energy management shown in Figure 2-1 is generic. It must be adapted to fit into an existing structure for each organization. For example, the presidential block may be the general manager, and VP blocks may be division managers, but the fundamental principles are the same. The main feature of the chart is the location of the energy manager. This position should be high enough in the organizational structure to have access to key players in management, and to have a knowledge of current events within the company. For example, the timing for presenting energy S of the energy manager projects can be critical. Funding availability and other have changed substantially in the past few years, caused management priorities should be known and undermostly by EPAC92 requiring certification of federal enstood. The organizational level of the energy manager is ergy managers, deregulation of the electric utility indusalso indicative of the support management is willing to try bringing both opportunity and uncertainty, and by give to the position. performance contracting requiring more business skills than engineering. In her book titled "Performance Contracting: Expanded Horizons," Shirley Hansen give the following requirements for an energy management: One very important partof an energy management nt program is to have top management support. More imSet up an Energy M a ~ a g e ~ ePlan Establish energy records portant, however, is the selection of the energy manager, Identify outside assistance who can among other things secure this support. The I

F i g ~ r e2.

EFFECTWE ENERGY ~ANAGEMENT

Assess future energy needs Identify financin Make energy recommendations ~mplementrecommendations Provide liaison for the energy committee

9

Electrical utility rates and structures, as well as effects of unbundling of electric utilities, can be evaluated at corporate level. Some Drecautions are: L

Many people at division level may have already done a good job of saving energy, and are cautious about corporate level staff coming in and taking credit for their work.

Plan communication strategies Evaluate program effectiveness Energy management programs can, and have, originated within one division of a large corporation. The division, by example and savings, motivates people at corporate level to pick up on the program and make ~anagementcorporate wide. Many also origicorporate level with people who have facilities responsibility, and have implemented a good corporate facilities program. They then see the importance and potential of an energy m ~ a g e m e nprogram, t and take a

If initiated at corporate level, there are some advantages and some precautions. Some advantages are: More resources are available to implement the program, such as budget, staff, and facilities. If top management support is secured at corporate level, getting management support atdivision level is easier, Total personnel expertise througho~tthe corporation is better known and can be identified and made known to division energy managers. Expensive test equipment can be purchased and maintained at corporate level for use by divisions as needed. A unified reporting system can be put in place.

Creative financing may bethe most neededand the most porta ant assistance to be provided from corporate level. Impacts of energy and environmental legislation can best be determined at corporate level.

All divisions don't gressatthesamespeed. Work with those W most interested first, then through the report stem to top management give them credit. Others will then request assistance. .3.2

The coordinators shown inFigure 2-1 represent the energy management team within one given organizational structure, such as one company within a corporation. This group is the core of the program. The main criteria for membershipshould be an indication of interest. There should be a representative from the administrative group such as accounting or purchasing, someone from facilitiesand/or maintenance, and a representative from each major d e ~ a r ~ e n t . This energy team of coordinators should be appointed for a specific time period, such as one year. Rotation can then bring new people with new ideas, can provide a mechanism for tactfully removing non-performers, and involve greater numbers of people in the program in a meaningful way. Coordinators should be selected to supplement skills lacking in the energy manager since, as pointed out above, it is unrealistic to think one ener can have all the qualifications outlined. So, total skills needed for the team, including the energy manager may be defined as follows: Have enough technical knowledge within the group to either understand the technology used by the organization, or be trainable in that technology. Have a knowledge of potential new technology that may be applicable to the program. Have planning skills that will help establish the organizational structure, plan energy surveys, determine educational needs, and develop a strategic energy management plan.

ENERGY

10

U n d e r s t ~ ~the d economic evaluation system used ample. They have learned that most actions taken by by the organization, particularly payback and life people are done to satisfy a physical need-such as the cycle cost analysis. need for food-or an emotional need-such as the need for acceptance, recognition, or a c ~ i e v e ~ e n t . Have good commul~ication andmotivational skills Research has also shown that many efforts to mosince energy managemel~t involves everyone tivate employees deal almost exclusively with trying to within the organization. satisfy physical needs, such as raises, bonuses, or fringe benefits. These methods are effective only for the short The strengths of each team member should be term, so we must look beyond these to other needs that evaluated in light of the above desired skills, and their may be sources of releasing motivation, assignments made accordingly. A study doneby Heresy and ~lanchard[l] in 1977 asked workers to rank job related factors listed below. The results were as follows: t of the organ’

-

~ ~ e m e ~rogram. nt A struceir ideas for more efficient use of energy will prove to be the most productive effort of the energy managel~entprogram. A good energy manager will devote 20% of total time working with employees. Too many times employee involvement is limited to posters that say “Save Energy.” Employees in manufacturing plants generally know more about the equipment than anyone elsein the facility becausethey operate it. They know how to make it run more efficiently/ but because there is no mechanism in place for them to have an input, their ideas go unsolicited. An understanding of the psychology of motivation is necessary before an employee involvement program can be successfully conducted. Motivation may be defined as the amount of physical and mental energy that a worker is willing to invest in his or her job. Three key factors of motivation are listed below:

1. Full appreciation for work done

2. Feeling ”in” on things 3. Underst~dingof personal problems 4. Job security 5. Good wages 6. Interesting work 7. Promoting and growth in the company 8. Management loyalty to workers 9. Good working conditions 10. Tactful discipline of workers

This priority list would no doubt change with time and with individual companies,but the rankings of what supervisors thought employees wanted werealmost diametrically opposed. They ranked good wagesas first. It becomes obvious from this that jo is a key to motivation. Knowing this, the energy man~g that can ager can plan a program i n v o ~ employees provide job enrichment by some simple and inexpensive recognitions. Some things to consider in employee moti~ation ~ o t i v a t i o nis already within people. The task of are as follows: the supervisor is not to provide motivation, but to know how to release it. There appears to be a positive relationship between fear arousal and persuasion if the fear appeals deal The amount of energy and enthusiasm people are with topics primarily of significance to the indiwilling to invest in their work varies with the individual; e.g., personal well being. vidual. Not all are over-achievers, but not all are lazy either. The success of persuasive communication is directly related to the credibility of the source of The amount of personal satisfaction to be derived communication and may be reduced if recomdetermines the amount of energy an employee will mended changes deviate too far from existing beinvest in the job. liefs and practices, Achieving personal satisfaction has been the subWhen directing attention to conservation, display ject of much research by industrial psychologists, and the reminder at the point of action at the approprithey have emerged with some revealing facts. Forex-

EFFECTIVE

~ A N A ~ E M E N ~

ate time for action, and specify who is responsible for taking the action and when it should occur. Generic posters located in the work area are not effective. Studies have shown that pro-conservation attitudes and actions will be enhanced through associations with others with similar attitudes, such as being part of an energy committee. Positive effects are achieved with financial incentives if the reward is in proportion to the savings, and represents respectable increments of spendable income. Consumers place considerable importance on the potential discomfort in reducing their consumption of energy. Changing thermostat settings from the comfort zone should be the last desperate act for an energy manager. Social recognition and approval is important, and can occur tlzrou h such things as the award of medals, designation of employee of the month, and selection to membership in elite sub-groups. Note that the dollar cost of such recognitions is minimal.

ENERGY

11

Objectives-this can contain the standard motherhood and flag statements about energy, but the most important is that the organization will incorporate energy efficiency into facilities and new equipment, with emphasis on life cycle cost analysis rather than lowest initial cost. Accountability-This should establish the organizational structure and the authority for the energy manager, coordinators, and any committees or task groups. Reporting-Without authority from top management, it is often difficult for theenergy manager to require others within the organization to comply with reporting requirements necessary to properly manage energy. The policy is the place to establish this. It also provides a legitimate reason for requesting funds for instrumentation to measure energy usage. Training-If training requirements are established in the policy, it is again easier to include this in budgets. It should include training at all levels within the organization.

The potentially most powerful source of social incentives for conservation behavior-but the least used-is the commitment to others that occurs in the course of group decisions.

Many companies, rather that a comprehensive policy encompassing all the features described above, choose to go with a simpler policy statement. Appendices A and B give two sample energy poliRefore entering seriously into a program involving cies, Appendix A is generic and covers the items disemployees, be prepared to give a heavy commitment of cussed above. Appendix B is a policy statement of a time and resources. In particular, have the resources to multinational corporation. respond quickly to their suggestions. G A well written energy policy that has been authorized by management is as good as the proverbial license to steal. It provides the energy manager with the authority to be involved in business planning, new facility location and planning, the selection of production equipment, purchase of measuring equipment, energy reporting, and training -things that are sometimes difficult to do. If you already have an energy policy, chances are that it is too long and cumbersome. To be effective, the policy should be short-two pages at most. Manypeople confuse the policy with a procedures manual. It should be bare bones, but contain the following items as a minimum:

Planning is one of the most important parts of the energy management program, and for most technical people is the least desirable. It has two major functions in the program. First, a good plan can be a shield from disruptions. Second, by scheduling events throughout the year, continuous emphasis can be applied to the energy management program, and will play a major role in keeping the program active. Almost everyone from top management to the custodial level will behappy to givean opinion on what can be done to save energy. Most suggestions are worthless. It is not always wise from a job security standpoint to say this to top management. However, if you inform people-especially top management-that you will evaluate their suggestion, and assign a priority to it in

ENERGY MANAGEMENT HANDBOC~K

12

your plan, not only will you not be disrupted, but may be considered effective because you do have a plan. Many programs were started when the fear of energy shortages was greater, but they have declined into oblivion.Byplanningtohaveeventsperiodically through the year, a continued emphasis will be placed onenergymanagement.Suchevents can be training S, audits,planningsessions, demonstrations, research projects, lectures, etc.

should be conducted prior to the actual audits. The planning should include types of audits to be performed, team makeup, and dates, By making the audits specific rather than general in nature, much more energy can be saved. Examples of some types of audits that might be considered are:

Tuning-O~eration-~aintenance (TOM) Compressed air Motors

ss. Peoplefeel a commitment to

~ighting if they have been a part of the deSteam system sign. This is fundame~talto m y management planning, Water but more often that not is overlooked. However, in order to prevent the most outspoken members of a committee Controls from do mina tin^ with their ideas, andrejectingideas HVAC from less outspoken members, a technique for l ~ m a g i n g Employee suggestioI~s committees must be used. A favorite of the author is the Nominal Group Technique developed at the University By defining individual audits in this m ~ n e r it, is of is cons in in thelate 1980’s by AndreDelbecq m d easy to identify the proper team for the audit. Don’t AndreaVan de Ven [ 1. This techniqueconsists of the neglect to bring in outside people such as electric utility and natural gas representati~esto be team members. Scheduling the audits, then, can contribute to the events 1. Problem definition-T~e problem is clearly defined to members of the group. ance contracting, enor the energy audit 2. Grouping-Dividelargegroupsintosmaller ntracting process to groups of seven to ten, then have the group elect rmmce contractor, a recording secretary, or they can set up their own teamand conduct audits, or 3. Silent generation of ideas-Each person silently in some cases such as a corporate energy manager, perand independently writes as many answers to the formancecontrac may be selected for one facil for mother. Each has advanta problem as can be generated within a specified time. 4, Round-robin listing-Secretary lists each idea in-

dividuallyon corded.

an easel until all havebeenre-

5. isc cuss ion-Ideas are discussed for clarification, elaboratioI~,evaluation and combining.

6. Ranking-Each person ranks the five most important items. The total number of pointsreceived for each idea will determine the first choice of the group.

The details of c o n d u c t ~ gaudits are discussed in a comprehensivemanner inChapter 4, but planning

Advantages of performance contractin No ~ v e s ~ e isn required t of the c o ~ p a n ~ - o t h e r thanthat involvedinthecontractingprocess, which can be very time consuming. A m i ~ i m u mof in-housepeopleareinvolved, namely the energy manager and financial people.

Technical resources aregenerallylimitedto Performancecontractingisstillmaturin many firms underestimate the work required

the

EFFECTIVE

MANA~EMENT

ENERGY

13

The contractor may not have the full spectrum of skills needed.

uch of management’s time, so subtleways must be developed to get them upto The contractor may not have aninterestin low/ speed. Getting time on a regularmeeting to provide updates on the program is one way. When the momencost nolcost projects. tum of the program gets going, it may be advantageous to have a half or one day presentation for ~anagement. Advantages of setting up an audit team are: A good concise report periodically can be a tool to educate management. Short articles that are pertinent to The team can be selected to match equipment tobe your educationalgoals,takenfrommagazinesand audited, and can be made up of in-house personnewspaperscan be attachedtoreports and sentselecnel, outside specialists, or best, a combination of tively. Having management be a part of a training proboth. gram for either the energy team or employees, or both, can be an educational experience since we learn best They can identify all potential energy conservation when we have to make a presentation. projects, both low/cost no/cost as well as large Ultimately, the energy manager should aspire tobe capital investments. a part of business planning for the organization. A strategic plan for energy should be a part of every business The audit can be an excellent training tool by inplan. This puts the energy manager into a position for volving others in the process, and by adding a more contact with management people, and thus the optraining component as a part of the audit. portunity to inform and teach. Disadvantages of an audit team approach: F i n a n c ~ gid en ti fie^ projects becomes a separate issue for the energy manager. Ittakes a wellorganizedenergymanagement structure to take full advantage of the work of the audit team. 2.7

G

A major part of the energy manager’s job is to provide some energy education to persons within the organization. In spite of the fact that we e been concerned with it forthepast two decades, t is still a sea of Raising the energy education level throughout the organization can have big dividends. The program will operate much more effectively if management understands the complexities of energy, and particularly the potential for economic benefit; the coordinators will be more effective is they are able to prioritize energy conservation measures, and are aware of the latest techology; thequalityandquantity of employeesuggestions will improve significantly with training.. Educationaltrainingshouldbeconsidered for three distinct groups-management,the energy team, and employees.

2.7.2 Energy Tea

Since the energy team is the core group of the energy management program, proper and thorough training for them should have the highest priority. Training is available from many sources and in many forms. Self study-this necessitates having a good library of energyrelatedmaterialsfromwhichcoordinators can select. In-house training-may be done by a qualified member of the team-usually the energy manager, or someone from outside. Shortcoursesoffered by associationssuch as the Association of Energy Engineers [3], by individual consultants, by corporations, and by colleges and universities. Comprehensive courses of one to four weeks duration offered by universities, such the one at the University of Wisconsin, and the one being run cooperatively by Virginia Tech and N.C. State University. For large decentralized organizations with perhaps ten or more regional energy managers, an annual two or three-dayseminarcan be the base forthe educational program. Such a program should be planned carefully.

ENERGY

14

The following suggestions should be incorporated into such a program: Select quality speakers from both inside and outside the organization. This is an opportunity to get top management support. Invite a top level executive fromthe organization to give opening remarks. It may be wise to offer to write the remarks, or at least to provide some material for inclusion. Involve the participants in workshop activities so they have an opportunity to have an input into the program. Also, provide some practical tips on energy savings that they might go back and implement immediately; One or two good ideas can sometimes pay for their time in the seminar. Make the seminar first class with professional speakers; a banquet with an entertaining-not technical-after dinner speaker; a manual that includes a schedule of events, biosketches of speakers, list of attendees, information on each topic presented, and other things that will help pull the whole seminar together. Vendors will contribute things for door prizes. You may wish to develop a logo for the program, and include it on small favors such as cups, carrying cases, etc.

A systematic approach for involving employees should start with some basictraining in energy. This will produce a much higher quality of ideas from them. Employees place a high value on training, so a side benefit is that morale goes up. Simply teaching the difference between electricaldemand andkilowatt hours of energy, and that compressed air is very expensive is a start, Short training sessions on energy can be injected into other ongoing training for employees, such as safety. A more comprehensive training program should include: Energy conservation in the home Fundamentals of electric energy Fundamentals of energy systems How energy surveys are conducted and what to look for

HANDBOOK

G

Developing an objective, strategies, programs, and action items constitutes strategic planning for the energy management program. It is the last but perhapsthe most important step in the process of developing the program, and unfortunately is where many stop. The very name ”Strategic Planning” has an ominous sound for those who are more technically inclined. However, by using a simplified approach and involving the energy management team in the process, a plan can be developed using a flow chart that will define the program for the next five years. If the team is involved in developing each of the components of objective, strategies, programs, and action items-using the Nominal Group Technique-the result will be a simplified flow chart that can be used for many purposes. First, it isa protective plan that discourages intrusion into the program, once it is established and approved. It provides the basis for resources such as funding and personnel for implementation. It projects strategic planning into overall planning by the organization, and hence legitimizes the program at top management level. By involving the implementers in the planning process, there is a strong commitment to make it work. Appendix C contains flow charts depicting a strategic plan developed in a workshop conducted by the author by a large defense organization. It is a model plan in that it deals not only with the technical aspects of energy management but also the funding, communications, education, and behavior modification.

There is no generic form to that can be used for reporting. There are too many variables such as organization size, product, project requirements, and procedures already in existence. The ultimate reporting system is one used by a chemical company making a textile product. The Btu/lb of product is calculated on a computer system that gives an i n s t a n t ~ e o ureading. s This is not only a reporting system, but one that detects maintenance problems. Very few companies are set up to do this, but many do have some type of energy index for monthly reporting. In previous years when energy prices were fluctuating wildly, the best energy index was one based on Btu’s. Now that prices have stabilized somewhat, the best index is dollars. However, there are still many factors that will influence any index, such as weather, production, expansion or contraction of facilities, new tech-

EFFECTIVE

nologies, etc. The bottom line is that any reporting system has to be customized to suit individual circumstances. And, while reporting is not always the most glamorouspart of managing energy, it can make a contribution to the program by providing the bottom line on its effectiveness.It is also a straight pipeline into management, and can be a tool for promoting the program. The report is probably of most value to the one who prepares it. It is a forcing function that requires all information to be pulled together in a coherent manner. This requires much thought and analysis that might not otherwise take place. By making reporting a requirement of the energy policy, getting the necessary support can be easier. In many cases, the data may already be collected on a periodic basis and put into a computer. It may simply require combining production data and energy data to develop an energy index. Keep the reporting re~uirementsas simple as possible. "he monthly report could be something as simple as adding to an ongoing graph that compares present usage to some baseline year. Any narrative should be short, with data kept in a file that can be provided for any supporting in-depth information.

cilities report in this manner, and then has an award for those that complete all energy conservation measures listed on the audit.

"he key to a successful energy management program is within this one word-ownership. This extends to everyone within the organization. Employees that operate a machine "own" that machine. Any attempt to modify their "baby" without their participation will not succeed. They have the knowledge to make or break the attempt. Members of the energy team are not going to be interested in seeing one person-the energy mangerget all the fame and lory for their efforts. Management people that invest in energy projects want to share in the recognition for their risk taking. A corporate energy team that goes into a division for an energy audit must help put a person from the division in the energy management position, then make sure the audit belongs to the division. Below are more tips for success that have been compiled from observing successful energy management programs.

ENERGY

15

Have a plan. A plan dealing with organi~ation, surveys, training, and strategic planning-with events scheduled-has two advantages. It prevents disruptions by non-productive ideas, and it sets up scheduled events that keeps the program active. Give away-or at least share-ideas for saving energy. The surest way to kill a project is to be possessive. If others have a vested interest they will help make it work. Be aggressive. The energy team-after some training-will be the most energy owle edge able group within the company. Too many management decisions are made with a meager knowledge of the effects on energy. Use proven technology. Many pro bogged down trying to make a new technology work, and lose sight of the easy projects with good payback. Don't buy serial number one. h spite of price breaks and promise of vendor support, it can be all consuming to make the system work. Go with the winners. Not every department within a company will beenthused about the energy program. Make those who are look good through the reporting system to top management, and all will follow. A final major tip-ask the machine operator what should be done to reduce energy. Then make sure they get proper recognition for ideas.

Let's now summarize by assuming you have just been appointed energy manager of a fairly large company. M a t are the steps you might consider in setting up an energy management program? Here is a suggested procedure. 2.11.1 ~ i t u a t i oAnalysis ~

Determine what hasbeen done before. W a s there a previous attempt to establish an energy management program? What werethe results of this effort? Next, plot the energy usage for all fuels for the past two-or more-years, then project the usage, and cost, for the next five yearsat the present rate. "his will not only help you sellyour program, but will identify areas of concentration for reducing energy.

ENERGY MANAGEMENT HANDBOOK

16

2.

1. Hersey, Paul and Kenneth H. Blanchard, M a n ~ g e ~ofe ~Ort Harper ganizatio~al~ e ~ ~ v iUtilizing or: ~ z t ~ Xesoztrces, a n and Row, 1970 2. Delbecq, Andre L., Andrew H. Van de Ven, and David H. Gustafson, Group T e c ~ n ~ ~ z ~ ~e sr of ogrr Pa ~ ~ ~Green ~ ~ ~ Briar Press, 1986. 3. Mashburn, William H., M a ~ ~ Egn e~~ s~yXesozwces s in Times of Set up the energy committee and/or coordinators. ~ y n u ~ i c C ~Fairmont ~ n s e , Press, 1992 4. Turner, Wayne, Energy M a n a g e ~ e ~ ~ ~2nd a nedition, ~~oo~, Chapter 2, Fairmont Press, 1993.

Develop some kind of acceptable policy that gives authority to the program. This will help later on with such things as reporting requirements, and need for measurement instrumentation.

With the committee involvement, develop a train-

Again with the committee involvement, develop an auditing plan for the first year.

Develop a simple reporting system.

From the above information develop a schedule of events for the next year, timing them so as to give periodic actions from the program, which will help keep the program active and visible.

Energy management has now matured tothe point that it offers outstanding opportunities for those willing to invest time and effort to learn the fundamentals. It requires technical and management skills which broadens educational needs for both technical and management people desiring to enter this field. Because of the economic return of energy management, it is attractive to top management, so exposure of the energy manager at this level bringddedopportunity forrecognition and advancement. aging energy willbe a continuous need, so persons with this skill will have personal job security as we are caught up in the down sizing fad now permeating our society.

Acme Manufacturing Company Policy and Procedures Manual Subject: Energy Management Program

nergy M a n a ~ e m eshall ~ t be practiced in all areas of the Company’s operation. j~ctiv~~ ive to use energy efficiently and provide energy security for the organization for both immediate and long range by:

Utilizingenergyefficientlythroughoutthe Company’s operations. Incorporating energy efficiency into existing equipment and facilities, and in the selection and purchase of new equipment. Complying with government regulations-federal, state, and local. Putting in place an Energy Management Program to accomplish the above objectives.

A. Orrranization The Company’s Energy Management Program shall be administered through the Facilities ~epartment. Energy ~ ~ n ~ g e r The Energy Manager shall report directly to the Vice President of Facilities, and shall have overall responsibility for carrying out the Energy Management Program. 1.

EFFECTIVE ENERGY ~ANAGEMENT

17

2.

Energy C u ~ ~ i ~ t e e nagermayappointandEnergy rised of representatives fromvarierswillservefor a specified period of time. The purpose of the Energy Committee is toadvisetheEnergyManagerontheoperationofthe Energy Management Program, and to provide assistance on specific tasks when needed. 3.

Energy ~ ~ o r ~ i ~ ~ t u ~ s Energy Coordinators shall be appointed to represent a specific department or division. The Energy Manager shall establish minimum qualification standards for Coordinators, and shall havejoint approval authority for each Coordinator appointed. Coordinators shall be responsible for maintain~g anongoingawareness of energyconsumptionandexpenditures in theirassigned areas.Theyshallrecommend and implement energy conservation projects and energy management practices. Coordinatorsshallprovidenecessaryinformation for reporting from their specific areas. They may be assigned on a full-time or part-time basis; as required to implement programs in their areas,

B.

I_

The energy Coordinator shall keep the Energy Office advised of all efforts to increase energy efficiency in their areas. A summary of energy cost savings shall be submitted each quarter to the Energy Office. The Energy Manager shall be responsible for consolidating these reports for top management. ergy Manager shall provide energy training at all levels of the Company. TheEnergyManagerand the EnergyAdvisory Committee shall review this policy annually and make recommendations for updating or changes.

Acme International Corporation is committed to the efficient, cost effective, and environmentally responsible use of energy throughoutits worldwide operations. Acme will promote energy efficiency by implementing cost-effectiveprogramsthatwillmaintain or improve thequalityoftheworkenvironment,optimizeservice reliability, increase productivity, and enhance the safety of our workplace.

18 ENERGY

HANDBOOK

EFFECTIVE

ENERGY

m

5

19

ENERGY MANAGEMENT HANDBOOK

20

TO CUSTO

\

sh a

CHAPTER 3

.c

.~ P ~ L ~ E

University of Florida Gainesville Regional Utilities Gainesville, FL 3.

Some utilities also perform audits for their induscommercial customers, They have professional S on their staff to perform the detailed audits needed by companies with complex process e ~ u i ~ m e n t and operations, When utilities offer free or low-cost energy audits for commercial customers, they usually only provide walk-through audits rather than detailed audits. Even so, they generally consider lighting, HVACsystems, water heating, insulation and some motors. Large commercialor industrial customers may hire an engineering consulting firm to perform a complete energy audit. Other companies may elect to hire an energy manager or set up an energy ma whose job is to conduct periodic audits with the available energy efficiency technology. The US.Department of Energy (U.S.DOE) funds a program where universities around the country operate Industrial Assessment Centers which perform free energy audits for small and medium sized manufacturing companies. There are currently 30 IAC’s funded by the Industrial Division of the U.S. ROE. The Institutional Conservation Program (ICP) is another energy audit service funded by the U.S. Repartment of Energy. It is usually administered through state energy offices. This program pays for audits of schools, hospitals, and other institutions, and has some funding assistance for energy conservation improvements.

Saving money on energy bills is attractive to businesses, industries, and individuals alike. Customers whose energy bills use up a large part of their income, and especially those customers whose energy bills represent a substantial fraction of their company’s operating costs, have a strong motivation to initiate and continue an on01 program. No-cost or very lows can often save a customer or an industry 10-20% on utility bills; capital cost programs with payback times of two years or less can often save an additional ~ 0 - 3 0 ~In 0 .many cases these energy cost control programs will also result in both reduced energy consumption and reduced emissions of environmental pollutants. The energy audit is one of the first tasks to be performed in the accomplishment of an effective energy cost control program. h energy audit consists of a detailed examination of how a facility uses energy, what the facility pays for that energy, and finally, a recommended program for changes in operating practices or energy-consuming e~uipmentthat willcost-effectively save dollars on energy bills. The energy audit is sometimes called an energy survey or an energy analysis, so that it is not hampered with the negative connotation of an audit in the sense of an IRS audit. The energy audit h initial s u m ~ a r yof the basic steps involved in is a positive experience with significant benefits to the conduct in^ a successful energy audit is provided here, business or individual, and the term ”audit” should be and these steps are explained more fully in the sections avoided if it clearly produces a negative image in the that follow. This audit description primarily addresses mind of a particular business or individual. the steps in an industrial or large-scale commercial audit, and not all of the procedures described in this section are required for every type of audit. The audit process starts by collecting information Energy audits are performed by several different about a facility’s operation and about its past record of groups. Electric and gas utilities throughout the country utility bills. Thisdata is then analyzed to get a picture of offer free residential energy audits. A utility’s residential how the facility uses-and possibly wastes”energy, as energy auditors analyze the monthly bills, inspect the well as to help the auditor learn what areas to examine construction of the dwelling unit, and inspect all of the to reduce energy costs. Specific changes-called Energy energy-consuming appliances in a house or an apart- Conservation Opportunities (EC0’s)-are identified and ment. Ceiling and wall insulation is measured, ducts are evaluated to determine their benefits and their cost-efinspected, appliances such as heaters, air conditioners, fectiveness. These ECO’s are assessed in terms of their water h refrigerators, and freezers are examined, costs and benefits, and an economic comparisonis made to rank the various ECO’s.Finally, an ActionPlan is and the g system checked. is 21

22

ENERGY ~ A

N A ~ ~ M HANDBOOK ~ N T

created where certain ECO's are selected for implemen- terchangeable probes are now available to measure temtation, and the actual process of saving energy and sav- peratures in both these areas. Some common types ining money begins. clude an immersion probe, a surface temperature probe, and a radiation shielded probe for measuring true air temperature. Other types of infra-red thermometers and thermographic equipment are also available. An infraTO obtain the best information for a successful en- red "gun" is valuable formeasuring temperatures of ergy cost control program, the auditor must make some steam lines that are not readily reached without a ladmeasurements during the audit visit. The amount of der. equipment needed depends on the type of energy-consuming equipment used at the facility, and onthe range ~ o l t m e t e r of potential ECO's that mightbe considered. ForexAn inexpensive voltmeter is useful for determining ample, if waste heat recovery is being considered, then operating voltages onelectrical equipment, and espethe auditor must take substantial temperature measurement data from potential heat sources. Tools commonly cially useful when the nameplate has worn off of a piece of equipment or is otherwise unreadable or missing. The needed for energy audits are listed below: most versatile instrument is a combined volt-ohm-ammeter with a clamp-on feature for measuring currents in conductors that are easily accessible. This type of multiThemost basic measuring device needed is the meter is convenient and relatively inexpensive. tape measure. A 25-foot tape measure l" wide and a 100foot tape measure are used to check the dimensions of walls, ceilings,windows anddistances between pieces of A portable hand-held wattmeter and power factor equipment for purposes such as determining the length meter is very handy for determining the powerconof a pipe for transferring waste heat from one piece of sumption and power factor of individual motors and equipment to the other. otherinductivedevices. This metertypically has a clamp-on feature which allows an easy connection to the current-carrying conductor, and has probes for voltage One simple and useful instrument is the lightmeter connections. which is used to measureillumination levels in facilities. A lightmeterthatreadsin footcandles allows direct analysis of lighting systems and comparison with recCombustion analyzers are portable devices capable ommended light levels specified by the Illuminating Enof estimating the combustion efficiencyof furnaces, boilgineering Society. A small lightmeter that is portable ers, or other fossil fuel burning machines. Two types are and can fit into a pocket is the most useful. Many areas available: digitalanalyzers and manual combustion inbuildingsandplantsarestillsignificantlyoveranalysis kits. Digital combustion analysis equipment lighted, and measuring this excess illumination then alperforms the measurements and reads out in percent lows the auditor to recommend a reduction in lighting combustion efficiency. These instruments are fairly comlevels through lamp removal programs or by replacing plex and expensive. inefficientlamps with high efficiencylamps that may The manual combustion analysis kits typically renot supply the same amount of illumination as the old quire multiple measurements including exhaust stack: inefficient lamps. temperature, oxygen content, and carbon dioxide content. Theefficiency of the combustion process can be calculatedafterdeterminingtheseparameters. The Several thermometers are generally needed to mea- manual process is lengthy and is frequently subject to sure temperatures in offices and other worker areas, and human error. to measure the temperature of operating equipment. evices Knowing process temperatures allows the auditor to determine process equipmentefficiencies, and alsoto Measuring air flow from heating, air conditioning identify waste heat sources for potential heat recovery or ventilating ducts, or from other sources of air flow is programs. Inexpensive electronic thermometers with in-

ENERGY AUDITING: SEARCH A SYSTEMATIC

FOR

ENERGY-SAVLNG OPPORTUNITIES

one of the energy auditor’s tasks. Airflow measurement devices can be used to identify problems with air flows, such as whether the combustion air flow into a gas heater is correct. Typical airflow measuring devices include a velometer, an anemometer, or an airflow hood. See section 3.4.3 for moredetail on airflow measurement devices.

23

auditor makes the actual energy audit visit to a facility. Data should be collected on the facility’s use of energy through examination of utility bills, and some prelhinary information should be compiled on the physical description andoperation of the facility. This data should then be analyzed so that the auditor can do the most complete job of identifying Energy Conservation ~ ~ ~ o r t ~ during i t i e the s actual site visit to the facility.

t

Building or structure tightness can be measured with a blower door attachment. This device isfrequently used in residences and in office buildings to determine the air leakage rate or the number of air changes per hourin thefacility.This is oftenhelpsdetermine whether the facility has substantial structural or duct leaks that need to be found and sealed. See section 3.4.2 for additional information on blower doors.

A simple smoke generator can also be used in residences, offices and other buildings to find air infiltration and leakage around doors, windows, ducts and other structural features. Care must be taken in using this device,since the chemical”smoke”producedmaybe hazardous, and breathing protection masks may be needed. See section 3.4.1 for additional information on the smoke generation process, and use of smoke generators. t

The energy auditor should start by collecting data on energy use, power demand and cost for at least the previous 12 months. Twenty-four months of data might benecessaryto adequately understand some types of billing methods. Billsfor gas, oil,coal,electricity,etc. should be compiled and examined to determine both the amount of energy used and the cost of that energy. This data should then be put into tabular and graphic form to see what kind of patterns or problems appear from the tables or graphs. Any anomaly in the pattern of energy use raises the possibility for some significant energy or cost savings by identifying and controlling that anomalous behavior, Sometimes an anomaly on the graph or in the table reflects an error in billing, but generally the deviation shows that some activity is going on that has not been noticed, or is not completely understood by the customer. ate ~ t r ~ C t ~ r e s

To fully understand the cost of energy, the auditor must determine the rate structure under which that enThe use of safety equipment is a vital precaution ergy use is billed. Energy rate structures may go from for any energy auditor. A good pair of safety glasses is the extremely simple ones-for example, $1.00 per galan absolute necessity for almost any auditvisit. Hearing lon of Number 2 fuel oil, to very complex ones-for exprotectors may also be required on audit visits to noisy ample, electricity consumption which may have a cusplants or areas with high horsepower motors driving tomer charge, energy charge, demand charge, power fans and pumps. Electrical insulated gloves should be factor charge, and other miscellaneous charges that vary used if electrical measurements will be taken, and asbes-from month to month. Few customers or businesses retos gloves should be used for working around boilers ally understand the various rate structures that control and heaters. Breathing masks may also be needed when the cost of the energy they consume. The auditor can hazardous fumes are present from processes ormaterials help here because the customer must h o w the basis for used. Steel-toe and steel-shank safety shoes maybe the costs in order to control them successfully, needed on audits of plants where heavy materials, hot or Electrical Demand Charges: The demand charge is sharp materials or hazardous materials are being used. (See section 3.3.3 for an additional discussion of safety based on a reading of the maximum power in kW procedures.) that a customer demands in one month. Power is the rate at which energy is used, and it varies quite rapidly for many facilities, Electricutilities average the power reading over intervals from fifteen minSome preliminary work must be done before the utes to one hour, so that very short fluctuations do

ENERGY ~ A N A G E M E N THANDBOOK

24

not adversely affect customers. Thus, a customer might be billed for demand for a month based on a maximum value of a fifteen minute integrated average of their power use. Ratchet Clauses: Someutilities have a rachet clause in their rate structure which stipulates that the minimum power demand charge will be the highest demand recorded in the last billing period or some percentage (i.e., typically 170%) of the highest power demand recorded in the last year. The rachet clause can increase utility charges for facilities during periods of low activity or wherepower demand is tied to extreme weather.

most useful for improving the power factor at the service drop. Capacitance added near the loads c m effectivelyincrease the electrical system capacity. Turning off idling or lightly loaded motors can also help. Wastewater char es: The energy auditor also frequently looks at water and wastewater use and costs as part of the audit visit. These costs are often related to the ene costs at a facility. Wastewater charges are usua based onsome proportion of the metered water use since the solids are difficult to meter. This can needlessly result in substantial increases in the utility bill for processes which do notcontribute to thewastewaterstream (e.g., makeup water for cooling towers m d other evaporative devices, irrigation, etc.). A water meter c m be installed at the service main to supply the loads ter to the sewer system. This can S by up to two-thirds.

~iscounts/Penalties:Utilities generally provide discounts on their energy and power rates for customers who accept power at high voltage and provide transformers on site. They also commonly assess penalties when a customer has a power factor less than 0.9. Inductive loads (e.g., lightly loaded electric motors, old fluorescent lighting ballasts, Energy bills should be broken down into the cometc.) reduce the power factor. Improvement can be ponents that can be controlled by the facility. These cost made by adding capacitance to correct for lagging components c m be listed individually in tables and power factor, and variable capacitor banksare plotted. For example, electricity bills should be br

DITING:

ENERGY

SEARCH A SYSTEMATIC

OPPORTUNITIES FOR ENERGY-SAVING

25

down into power demand costs per kW per month, and location, weather data, facility layout and construction, energy costs per kWh. The following example illustrates operating hours, and equipment can all influence energy the parts of a rate structure for an industry in Florida.use. Example: A company that fabricates metal prod~ e o ~ r a ~ Lhoic ca t i o ~ / ucts gets electricity from its electric utility at the followgraphic location of the facility should be noted, toing general service demand rate structure. gether with the weather data for that location. ConRate structure: tact the local weather station, the local utility or the Customer cost = $21.00 per month state energy officeto obtain the average degree Energy cost days for heating and cooling for that location for = $0.051 per kWh Demand cost the past twelve months. This degree-day data will = $6.50 per kW per month Taxes = Total of 8% be very useful in analyzing the need for energy for Fuel adjustment = A variable amount per heating or cooling the facility. Bin weather data kwh each month would also be useful if a thermal envelope simulation of the facility were going to be performed as The energy use and costs for that company fora year are part of the audit, summarized below: The auditor must be sure toaccountfor all the taxes, the fuel adjustment costs, the fixed charges, and any other costs so that the true cost of the controllable energy cost components can be determined. In the electric rate structure described above, the quoted costs for a kW of demand and a kwh of energy are not complete until all these additional costs are added. Although the rate structure says that there is a basic charge of $6.50 per kW per month, the actual cost including all taxes is $7.02 per kW per month. The average cost per kWh is most easily obtained by taking the data for the twelve month period and calculating the cost overthis period of time. Using the numbers from the table, one can seethat this company has an average energy cost of $0.075 per kwh. These data are used initially to analyze potential ECO’s and will ultimately influence which ECO’s are recommended. For example, an ECO that reduces peak demand during a month would save $7.02 per kW per month. Therefore, the auditor should consider ECO’s that would involve using certain equipment during the night shift when the peak load is signific~tlyless than the first shift peak load. ECO’s that save both energy and demand on the first shift would save costs at a rate of $0.075 per kwh. Finally, ECO’s that save electrical the off-peak shift should be examined too, but they may not be as advantageous; they would only save at the rate of $ 0 . 0 ~ 3per kwh because they are already used off-peak and there would not be any additional demand cost savings,

The auditor must gather information on factors likely to affect the energy use in the facility. Geographic

cility Layout: Next the facility layout or plan ould be obtained, and reviewed to determine the facility size, floor plan, and construction features such as wall and roof material and insulation levels, as well as door and window sizes and construction. A set of building plans could supply this information in sufficient detail. It is important to make sure the plans reflect the ”as-built” features of the facility, since many original building plans do not get used without alterations. ours: Operating hours for the facility should also be obtained. Is there only a single shift? Are there two shifts? Three? Knowing the operating hours in advance allows some determination as to whether some loads could be shifted to off-peak times. Adding a second shift can often be cost effective froman energy cost view, sincethe demand charge can then be spread over a greater amount of kwh. e

t: Finally, the auditor

should get an equipment list for the facility and review it before conducting the audit. All large pieces of energyconsuming equipment such as heaters, air conditioners, water heaters, and specific process-related equipment should be identified. This list, together with data on operational uses of the equipment allows a good understanding of the major energyConsuming tasks or equipment at the facility. As a general rule, the largest energy and cost activities should be examined first to see what savings could be achieved. The greatest effort should be devoted to the ECO’s which show the greatest savings, and the least effort to those with the smallest savings potential.

26

ENERGY

The equipment found at an audit location will deb. Securely lock off circuits and switches before pend greatly on the type of facility involved. Residential working on a piece of equipment. audits for single-family dwellings generally involve c.Alwayskeepone hand in your pocket while smaller-sized lighting, heating, air conditioning and remaking measurements on livecircuits to help frigeration systems. Commercial operations such as groprevent cardiac arrest. cery stores, office buildings and shopping centers usu- 2. Respiratory: ally have equipment similar to residences, but much a. Whennecessary,wear a full face respirator larger in size and in energy use, However, large residenmask with adequate filtration particle size. tial structures such as apartment buildings have heating, b. Use activated carbon cartridges in the mask air conditioning and lighting that is very similar to many when working around low concentrations of commercial facilities. Business operations is the area noxious gases, Change the cartridgeson a wherecommercial audits begin to involve equipment regular basis. substantially different from that found in residences. c. Use a self-contained breathing apparatus for Industrial auditors encounter the mostcomplex work in toxic environments. equipment. Commercial-scale lighting, heating, air con- 3. Hearing: ditioning and refrigeration, as well as office business a. Use foam insert plugs while working around equipment, is generally used at most industrial facilities. loud machinery to reduce sound levels up to The major difference is in the highly specialized equip30 decibels. ment used for the industrial production processes. This can include equipment for chemical mixing and blending, metal plating and treatment, welding, plastic injection molding, paper making and printing, metal refinOnce theinformationonenergybills,facility ing, electronic assembly, and making glass, for example. equipment and facility operation has been obtained, the audit equipment can begathered up, and the actual visit to the facility can be made. Safety is a critical part of any energy audit. The audit person or team should be thoroughly briefed on safety The audit person-or team-should meet with the equipment and procedures, and should never place themselves in a position where they could injure them- facilitymanager and the maintenance supervisor and selves or other people at the facility. Adequate safety briefly discuss the purpose of the audit and indicate the equipment should be worn all at appropriate times. Au- kind of information that is to be obtained during the ditors should be extremely careful making anymeasure- visit tothe facility. If possible, a facility employeewho is ments onelectrical systems, or on high temperaturede- in a position to authorize expenditures or make operatvices such as boilers, heaters, cookers, etc. Electrical ing policy decisions should also be at this initial meetgloves or asbestos gloves should be wornas appropriate. ing. The auditor should be careful when examining any operating piece of equipment, especially those with open drive shafts, belts or gears, or any form of rotating Getting the correct information on facility equipmachinery.Theequipmentoperator orsupervisor ment and operation is important if the audit is going to should be notified that the auditor is going to look at that piece of equipment and might need to get informa- be most successfulin identifying ways to save money on tion from some part of the device. If necessary, the au- energy bills. The company philosophy towards investditor may need to come back when the machine or de- ments, the impetus behind requesting the audit, and the vice is idle in order to safely get the data. The auditor expectations from the audit can be determined by intershould never approach a piece of equipment and inspect viewing the general manager, chief operating officer, or it without the operator or supervisor being notified first. other executives. The facility manager or plant manager is one person that should have access to much of the operational data on the facility, and a file of data on facility equipment. The finance officer can provide any necessary financial records (e.g.; utility bills for electric, 1. Electrical: gas, oil, other fuels, water and wastewater, expenditures a. Avoid working on live circuits, if possible.

-

ENERGY AUDITING: A SEARCH SYSTEMATIC

~~

FOR ENERGY-SAVING OPPORTUNITIES

for maintenance and repair, etc.). The auditor must also interview the floor supervisors and equipment operators to understand the building and process problems. Line or area supervisors usually have the best information on times their equipment is used. The maintenance supervisor is often the primary person to talk to about types of lighting and lamps, sizes of motors, sizes of air conditioners and space heaters, andelectrical loads of specialized process equipment. Finally, the maintenance staff must be interviewed to find the equipment and performance problems. The auditor should write down these people’s names, job functions and telephone numbers, since it is frequently necessary to get additional information after the initial audit visit,

A walk-through tour of the facility or plant tour should be conducted by the facility/plant manager, and should be arranged so the auditor or audit team can see the major operational and equipment features of the facility. The main purpose of the walkthrough tour is to obtain general information. Morespecific infor~ation should be obtained from the maintenance and operational people after the tour.

lity or plant tour, the auditor or ire the detailed data on facility equipment and operation that willleadto identifying thesignificantEnergyConservationOpportunities (ECO’s) that may be appropriate for this facility.This includes data on lighting, HVAC equipment, motors, water heating, and specialized equipment such as refrigerators, ovens, mixers, boilers, heaters, etc. This data is most easily recorded on individualized data sheets that have been prepared in advance.

king a detailed inventory of all lighting is important. Data should be recorded on numbers of each type of light fixtures and lamps, wattages of lamps, and hours of operation of groups of lights. A lighting inventory data sheet should be usedto record this data. Using a lightmeter, the auditor should also record light intensity readings for each area. Taking notes on types of tasks performed in each area will help the auditor select alternativelighting technologies thatmight be

27

more energy efficient. Other items to note are the areas that may be infrequently used and may be candidates for occupancy sensor controls of lighting, or areas where daylighting may be feasible. ment: All heating, air conditio~ing and ventilating equipment should be inventoried. Prepared data sheets can be used to record type, size, model numbers, age, electrical specifications or fuel use specifications, and estimated hours of operation. The equipment should be inspected to determine the condition of the evaporator and condenser coils, the air filters, and the insulation on the refrigerant lines. Air velocity measurement may alsobe made and recorded to assess operating efficiencies or to discover conditioned air leaks. This data will allow later analysis to examine alternative equipment and operations that wouldreduce energy costs for heating, ventilating, and air conditioning. otors: An inventory of all electric motors over 1 horsepower should also be taken. Prepared data sheets can be used to record motor size, use, age, model number, estimated hours of operation, other electrical characteristics, and possibly the operating power factor. ~easurementof voltages, currents, and power factors may be appropriate for some motors. Notes should be taken on the use of motors, particularly recording those that are infrequently used and might be candidates for peak load control or shifting use to off-peak times. All motors over 1 hp and with times of use of ~ 0 0 0 hours per year or greater, are likely candidates for replacement by high efficiencymotors-at least when they fail and must be replaced. eaters: All water heaters should be examined, and data recorded on their type,size,age, model number, electricalcharacteristics or fuel use. What the hot water is used for, how much is used, and what time it is used should all be noted. Temperature of the hot water should be measured. o ~ r c e Most ~ : facilities have many sources of waste heat, providing possible opportunitiesfor waste heat recoverytobe used as the substantial or total source of needed hot water. Waste heat sources are air conditioners, air compressors, heaters and boilers, process cooling systems, ovens, furnaces, cookers, and many others, Temperaturemeasurements for these waste heat

ENERGY MANAGEMENT

28

sources are necessary to analyze them for replacing the operation of the existing water heaters, The auditor should parany piece of electrically powered equipment that is used infrequently or whose use could be controlled and shifted to offpeak times. Examples of infrequently used equipment include trashcompactors, firesprinklersystempumps (testing), certain types of welders, drying ovens, or any type of back-up machine, Some production machines might be able tobe scheduled foroffpeak. Water heating could be done off-peak if a storage system is available, and off-peak thermal storage can be accomplished for onpeak heating or cooling of buildings. Electricalmeasurements of voltages, currents, and wattages maybe helpful. Any information which leads to a piece of equipment being usedoff-peakisvaluable,andcould result in substantial savings on electric bills. The auditor should be especially alert for those infrequent on-peak uses that might help explain anomalies on the energy demand bills. S:

E ~ ~ i ~Finally, ~ ~ an n quipment that consumes a substantialamount of energyshould be taken. Commercial facilities may have extensive computer and copying equipment, refrigeration and coolingequipment,cookingdevices,printing equipment, water heaters, etc. Industrial facilities will have manyhighly specialized process and production operations and machines, Data on types, sizes, capacities, fuel use, electrical characteristics, age, and operating hours should be recorded for all of this equipment.

As the audit is being conducted, the auditor should take notes on potential ECO’s that are evident. Identifying ECO’s requires a good knowledge of the available energy efficiency technologies that can accomplish the same job with less energy and less cost. For example, overlighting indicates a potential lamp removal or lamp change ECO, and inefficient lamps indicates a potential lamp technology change. Motors with high use times are potential ECO’s for high efficiency replacements. Notes on waste heat sources should indicate what other heating sources they might replace, and how far away they are from the end use point. identify in^ any potential ECO’s during the walk-through will make it easier later on to analyze the data andto determine the final ECO recommendations. ’S:

Following the audit visit to the facility, the data collected should be examined, organized and reviewed for completeness. Any missing data items should be obtained from the facility personnel or from a re-visit to the facility. Thepreliminary ECO’s identified during the audit visit should now be reviewed, and theactual analysis of the equipment or operational change should be conducted. This involves determining the costs and the benefits of the potential ECO, and making a judgment on the cost-effectiveness of that potential EGO. Cost-effectiveness involves a judgment decision that is viewed differently by different people and different companies. Often,SimplePayback Period (SPP) is used tomeasurecost-effectiveness, and most facilities want a SPP of two years or less. The SPP for an ECO is found by taking the initial cost and dividing it by the annual savings. This results in finding a period of time for the savings to repay the initial investment, without using the time value of money. Oneother common measure of cost-effectiveness is the discounted benefit-cost ratio. In this method, the annual savings are discounted when they occur infuture years, and are addedtogether t to: find the present value of the annual savings over a specified period of time. The benefit-cost ratio is then calculated by dividing the present value of the savings by the initial cost. A ratio greater than one means that the investment will more than repay itself, even when the discounted future savings are taken into account. Several ECO examples are given here in order to illustrate the relationship between the audit information and operational changes obtained andthetechnology recommended to save on energy bills.

First, an ECO technolo y is selected-such as replacing an existing 400 watt mercury vapor lamp with a 325 watt multi-vapor lamp when it bums out. The cost of the replacement lamp must be determined. Product catalogs can be used tc get typical prices for the new lamp-about $10 more than the 400 watt mercury vapor lamp. The new lamp is a direct screw-in replacement, and no change is needed in the fixture or ballast. Labor cost is assumed to bethe same toinstall either lamp. The benefits-or cost savings-must be calculated next. The power savings is 400-325= 75 watts. If the lamp operates for 4000 hours per year and electric energy costs $0.075/ kwh,thenthesavingsis (.075 k ~ ) ( 4 0 0 0h r / year)($O.O75/k~)= $22.50/year. This gives a SPP = $10/$22.50/yr =.4 years, or about 5 months. This would

AUDITING: ENERGY

A SEARCH SYSTEMATIC

FOR ENERGY-SAVING OPPORTUNITIE~

be considered an extremely cost-effective ECO. (For illustration purposes, ballast wattage has been ignored.)

otor A ventilating fan at a fiberglass boat manufacturing company has a standard efficiency 5 hp motor that runs at full load two shifts a day, or 4160 hours per year. When this motor wears out, the company ECO of using a high efficiency motor. A hi 5 hp motor costs around $80 more to purchase than the standardefficiencymotor.Thestandardmotor is 83% efficient and the high efficiency model is 88.5% efficient. The cost savings is found by calculating (5 hp)(4160 hr/ yr)(.746 kW/hp)[(l/.83) -( 1/.885)~($.075/kWh)= (1162 kWh)*($O.O75) = $87.15/year. The §PP = $80/$87.15/yr =.9 years, or about 11 months. This is also a very attractive ECO when evaluated by this economic measure. The discounted benefit-costratio can be found once a motor life is d~termined,and a discountrate is selected. Companies generally have a corporate standard for the discount rate used in determining their measures used to make in~estmentdecisions.For a 10year assumed life, and a 10% discount rate, the present worth factor is found as 6.144 (see Appendix W). The benefitcost ratio is found as B/C = ($8~.15)(6.1~4)/$80 = 6.7. This is an extremely attractive benefit-cost ratio,

A metalsfabricationplanthas a largeshot-blast cleaner that is used to remove the rust from heavy steel blocksbeforetheyaremachinedand welded.The cleanershootsout a streamofsmallmetalballs-like shotgunpellets-tocleanthe metal blocks. A 150hp motorprovidestheprimarymotiveforce forthis cleaner. If turned on during the first shift, this machine requires a total electrical loadofabout180kWwhich adds directly to the peak load billed by the electric utility. At $7.02/kW/month, this costs (180kW)*($7,02/ kW/month) = $1263.60/month.Discussionswith line operatingpeopleresultedintheinformationthatthe need for the metal blocks was known well in advance, andthatthecleaningcouldeasilybedone onthe evening shift before the blocks were needed. Based on this information, the recommended ECOis to restrict the shot-blastcleaneruse to theevening shift, savingthe company$15,163.20 per year.Sincethere is nocostto im~lementthis ECO, the §PP = 0;that is, the payback is immediate.

29

33.6

riSY rt audit sgy teprocess is to prepare a report which details the final results and recommendations.Thelengthanddetail of this reportwill vary depending on the type of facility audited. A residential audit may result ina computer printout from the utility. An industrial audit is more likely to have a detailed explanation of the ECO’s and benefit-cost analyses. The following discussion covers the more detailed audit reports. Thereportshouldbeginwithanexecutivesummary that provides the owners/managers of the audited facility with a brief synopsis of the total savings available and the highlights of each ECO. The report should then describe the facility that has been audited, and provideinformationontheoperation of the facility that relates to its energy costs. Theenergy bills should be presented, with tables and plots showing the costs and consumption.Followingtheenergycostanalysis,the recommendedECO’sshould be presented,alongwith the calculations for the costs and benefits, and the costeffectiveness criterion. Regardless of the audience for the audit report, it should be written in a clear, concise and easy-to understand format and style. The executive summary should be tailored to non-technical personnel, and technical jargon should be minimized. A client who understands the report is more likely to implementthe recommende~ ECO’s. An outline for a complete energy audit report is shown below,

Executive Summary A brief summary of the recommendations and cost savings Table of Contents Introduction Purpose of the energy audit Need for a continuing energy cost control program Facility Description Product or service, and materials flow Size, construction, facility layout, and hours of operation Equipment list, with specifications Energy Bill Analysis Utility rate structures Tablesandgraphs of energyconsumptionsand costs Discussion of energy costs and energy bills Energy Conservation Opportunities Listing of potential EGO’S

30

Cost and savings analysis Economic evaluation Action Plan ~ecommendedEGO'S andanimplementation schedule ~esignationof an energy monitor and ongoing program Conclusion Additional comments not otherwise covered

The last step in the energy audit process is to recommend an action plan for the facility, Some companies willhave an energy audit conducted by their electric utility or by an independent consulting firm, and will then make changes to reduce their energy bills.They may not spend any further effort in the energy cost control area until several years in the future when another energy audit is conducted. In contrast to this is the company which establishes a permanent energy cost control program, and assigns one person-or a team of peopleto continually monitor and improve the energy effinergy productivity of the company. Similar ality Management program where a corncontinually improve the quality of its products, services and operation, an energy cost control program seeks continual improvement in the amount of product produced for a given expenditure for energy. The energyaction plan liststhe EGO'S which should be ~ p l e m e n t e dfirst, and suggests an overall implementation schedule. Often, one or more of the recommended ECO's provides an immediate or very short payback period, so savings from that EGO-or those ECO's can be used to generate capital to pay for implementing the other ECO's. In addition, the action plan also suggests that a company designate one person as the energy monitor for the facility, This person can look at the monthly energy bills and see whether anyunusual costs are occurring, and can verify that the energy savings from ECO's is really being seen. Finally, this person can continue to look for other ways the company c m save on energy costs, and can be seen as evidence that the company is interested in a future program of energy cost control.

ENERGY ~ A N A ~ E M E NHANDBOOK T

severalways to producesmoke.deally,thesmoke should be neutrally buoyant with the air mass around it so that no motion will be detected unless a force is applied. Cigarette and incense stick smoke, although inexpensive, do not meet this requirement. Smoke generatorsusingtitaniumtetrachloride (Tick) provide an inexpensive and convenient way to produce and apply smoke. The smoke is a combination of hydrochloric acid (HC1) fumes and titanium oxides produced by the reaction ofTIC14 and atmospheric water vapor. This smoke is both corrosive and toxic so the use of a respirator mask utilizin activated carbon is strongly recommended. C o ~ e r c i aunits l typica either glass or plastic cases. Glasshas excellent lo but issubjectto breaka often used in difficult-to tic c o n t a ~ e r swillquick1 hydrochloric acid. Small Teflon" squeeze bottles (Le., 30 ml) with attached caps designed for laboratory reagent use resist degradation and are easy to use. The bottle should be stuffed with 2-3 real cotton balls then filled with about 0.15 fluid ounces of liquid Tick. Synthetic cotton balls typically disintegrate if used with titanium t~trachloride. This bottle should yield over a year of service with regular use. The neck will clog with debris but can becleaned with a paper clip. Some smokegenerators are designed for short time e bottles are inexpensive and useful for a day of eneration,butwill quickly degrade. Smoke bombs are ~cendiarydevices designed to emit a large volume of smoke over a short period of time. The smoke is available in various colors to rovide good visibility. These are useful in determinin airflow capabilities of exhaust air systems and large-s le ventilation systems. A crude smoke bomb can be constructed by placi stick of elemental phosphorus in a metal pan and i ing it. A large volume of white smoke will be released. This is an inexpensive way of testing laboratory exhaust hoods since many labs have phosphorus in stock. More accurate results can be obtained by measuring the chemical composition of the airstream after injecting a h o w n quantity of tracer gas such as sulphur hexafluoride into m area. The efficiency of an exhaust system can be determined by measuring the rate of tracer gas removal. ~ u i l d i n infiltration/exfiltration rates can also be estimated with tracer gas.

Smoke is useful in determining airflow characterisThe blower door is a device containing a fan, contics in buildings, air distribution systems, exhaust hoods and systems, cooling towers, and air intakes. There are troller, several pressure gau es, and a frame which fits

AUDITING: ENERGY

A SEARCH SYSTEMATIC

FOR

ENERGY-SAVING OPPORTUNITIES

in the doorway of a build . Itisusedto study the S of a building and its air pressurization and leakage distribution system under varying pressure conditions. The units currently available are designed for use in residences although they can be used in small commercial buildings as well. The large quantities of ventilation air limit blower door use in large commercial and industrial buildings. An air leakage/pressure curve can be developed for the building by measuring the fan flow rate necessary to achieve a pressure differentialbetween the building interior and the ambient atmospheric pressure over a range of values. The natural air infiltration rate of the building under the prevailing pressure conditions can be estimated from the leaka~e/pressurecurve and local air pressure data. Measurements made before and after sealing identified leaks can indicate the effectiveness of the work. The blower doorcan help to locatethe source of air leaks in the building by depressurizing to 30 Pascals and searching potential leakage areas with a smoke source. The air distribution system typically leaks on both the supply and returnair sides. If the duct system is located outside the conditioned space (e.g.,attic, under floor, etc.), supply leaks will depressurize the building and increase the air infiltration rate; return air leaks will pressurize the building, causing air to exfiltrate. A combination of supply and return air leaksisdifficultto detect without sealing off the duct system at the registers and measuring the leakage rate of the building compared to that of the unsealed duct system. The difference between the two conditions is a measure of the leakage attributable to the air distribution system.

Two types of anemometers are available for measuring airflow:vane and hot-wire. Thevolume of air moving through an orifice can be determined by estimating the free area of the opening (e.g., supply air register, exhaust hood face, etc.) and multiplying by the air speed. This result is approximate due to the difficulty in determining the average air speed and the free vent area. Regular calibrations are necessary to assure the accuracy of the instrument. The anemometer can alsobe used to optimize the face velocity of exhaust hoods by adjusting the door opening until the anemometer indicates the desired airspeed. Airflow hoods also measure airflow. They contain an airspeed integrating manifold which averages the velocity across the opening and reads out the airflow volume. The hoods aretypically made of nylon fabric sup-

31

ported by an aluminum frame.The instrument is lightweight and easy tohold up against an air vent. The lip of the hood must fit snugly around the opening to assure that all the air volume is measured. Both supply andexhaust airflow can be measured.The result must be adjusted if test conditions fall outside the design range.

Industrial audits are some of the most complex and most interesting audits because of the tremendous variety of equipment found in these facilities, Much of the industrial equipment can be found during commercial audits too. Large chillers, boilers,ventilating fans, water heaters, coolers and freezers, and extensive lighting systems are often the same in most industrial operations as those found in large office buildings or shopping centers. Small cogeneration systems are often found in both commercial and industrial facilities. The highly specialized equipment that is used in industrial processes is what differentiates these facilities from large commercial operations. The challenge for the auditor and energy management specialist isto learn how this complex-and often unique-industrial equipment operates, and to come up with improvements to the processes and the equipment that can save energy and money. The sheer scope of the problem is so great that industrial firms often hire specialized consulting engineers toexamine their processes and recommend operational and equipment changes that result in greater energy productivity.

A few electric and gas utilities are large enough, and well-enough staffed, that they can offer industrial audits to their customers. These utilities have a trained staff of engineers and process specialists with extensive experience who can recommend operational changes or new equipment toreduce the energy costs in a particular production environment. Many gas and electric utilities, even if they do not offer audits, do offer financial incentives for facilities to install high efficiency lighting, motors, chillers, and other equipment. These incentives can make many ECO’s very attractive. Small and medium-sized industries that fall into the Manufacturing Sector-SIC 2000 to 3999, and are in the service area of one of the Industrial Assessment Centers funded by the U.S. Department of Energy, can re-

32

ceive free energy audits throughout this program. There are presently 30 IAC’s operating primarily in the eastern and mid-western areas of the US. These IAC’s are administered by the University City Science Center in Philadelphia, PA, and Rutgers University, Piscataway, NJ. Companies that are interested in knowing if an IAC is located near them, and if they qualify for an IAC audit cancall 215 387-2255 and ask for information on the Industrial Assessment Center program.

ENERGY MANAGEMENT HANDBOOK

drying, cooling,etc. GRI also has a large number of projects underway to help promote the use of new costeffective gas technologiesfor heating, drying, cooling, etc. Both of these organizations provide extensive documentation of their processes and technologies; they also have computer data bases to aid customer inquiries.

The US. Department of Energy has an Industrial Division that provides a rich source of information on new technologies and new processes. This division funds research into new processes and technologies, and also funds many demonstration projects to help insure that promising improvements get implemented in appropriate industries. The Industrial Division of USDOE also maintains a wide network of contacts with government-related research laboratories such as OakRidge National Laboratory, Brookhaven National Laboratory, LawrenceBerkeley National Laboratory, Sandia National Laboratory, and Battelle National Laboratory. These laboratories havemany of their own research, developmentanddemonstrationprogramsforimproved industrial and commercial technologies*

Except for the smallest industries, facilities will be billed for energy services through a large commercial or industrial rate category. It is important to get this rate structure formation for all sources of energy-electricity, gas, oil, coal, steam, etc. Gas, oiland coal are usually billed on a straight cost per unit basis--e.g. $0.90 per gallon of #2 fuel oil. Electricity and steam most often have complex rate structures with componentsfor a fixed customer charge, a demand charge, and an energy charge. Gas, steam, and electric energy are often available with a time of day rate, or an interruptible rate that provides much cheaper energy service with the understanding that the customer may have his supply interrupted (stopped) for periods of several hours at a time. State Energy ~ f f i ~ e ~ Advance notice of the interruption is almost always given, and the number of times a customer can be interState energy offices are also good sources of information, as well as good contacts to see what kind of rupted in a given period of time is limited. incentive programs mightbe available in the state. Many states offerprograms of free boiler tune-ups, free air conditioning system checks, seminars on energy efficiency for various facilities, and other services. Most For the industrial audit, it is critical to get in adstate energy offices have well-stocked energy libraries, vance as much information as possible on the specialized process equipment so that study and research can and are also tied into other state energy research organibe performed to understand the particular processes zations, and to national laboratories and the USDOE. being used, and what improvements in operation or technology are available. Data sources are extremely valuable here; auditors should maintain a library of inEquipment suppliers provide additional sources formationonprocessesand technology andshould for data on energy efficiency improvements to processes. know where to find additional information fromreMarketing new,cost-effective processes and technolosearch organizations, governmentfacilities,equipment gies provides sales for the companies as well as helping suppliers and other organizations. industries to be moreproductive and more economically competitive. The energy auditor should compare the /G information from all of the sources described above. The Electric Power Research Institute (EPRI) and the GasResearch Institute (GRI) areboth excellent sources of information on the latest technologies of using electric energy or gas, EPRI has a large number of on-goingprojects to showthe cost-effectiveness of electro-technologies using new processes for heating,

Safety is the primary consideration in any industrial audit. Thepossibility of injury from hot objects,

AUDITING: ENERGY

SEARCH A SYSTEMATIC

FOR ENERGY-SAVING OPPORTUNITIES

hazardous materials, slippery surfaces, drive belts, and electric shocks isfar greater than when conducting residential and commercial audits. Safetyglasses,safety shoes, durable clothing and possibly a safety hat and breathing mask might be needed during some audits. Gloves should be worn while making any electrical measurements, and also while making any measurements around boilers, heaters, furnaces, steam lines, or other very hot pieces of equipment. In allcases, adequate attention to personal safety isa significant feature of any industrial audit. ~ i ~ ~ t i n ~

Lighting is not as great a percent of total industrial use as it is in the commercial sector on the average,but lighting is still a big energy use and cost area for many industrial facilities. A complete inventory of all lighting should be taken during the audit visit. Hours of operation of lights are also necessary, since lights are commonly left on when they are not needed. Timers, Energy Management Systems, and occupancy sensors are all valuable approaches to insuring that lights that are not needed are not turned on. It is also important to look at the facility’s outside lighting for parking and for storage areas. During the lighting inventory, types of tasks being performed should also be noted, since light replacement with more efficient lamps often involves changing the color of the resultant light. For example, high pressure sodium lamps are much more efficient than mercury vapor lamps or even metal halide lamps, but they produce a yellowish light that makes fine color distinction difficult. However, many assembly tasks can still be performedadequatelyunderhighpressuresodium lighting. These typicallyinclude metal fabrication, wood product fabrication, plastic extrusion, and many others.

33

VAC Systems

An inventory of all spaceheaters and air conditioners should be taken.Btu per hour ratings and efficiencies of all units should be recorded,as well as usage patterns. Although many industries do not heat or air condition the production floor area, they almost always have office areas, cafeterias, andotherareasthatarenormally heated and air conditioned. For these conditioned areas, the construction of the facility should benoted-how much insulation, what are the walls and ceilings made of, how high are the ceilings. Adding additional insulation might be a cost effective ECO. Production floors that are not air conditioned often have large numbers of ventilating fans that operate anywhere from one shift per day to 24 hours a day. Plants with high heat loads and plants in the mild climateareas often leave these ventilating fans running all year long. These are good candidates for high efficiency motor replacements. Timers or an Energy Management System might be used toturn off these ventilating fans when the plant is shut down. oilers

All boilers should be checked for efficient operation using a stack gas combustion analyzer. Boiler specifications on Btu per hour ratings, pressures and temperatures should be recorded. The boiler should be varied between low-fire, normal-fire, and high-fire, with combustion gas and temperature readings taken at each level. Boiler tune-up is one of the most common, and most energy-saving operations available to many facilities. The auditor should check to see whether any waste heat from the boiler is being recovered for usein a heat recuperator or for someother use such as water heating. If not, this should be noted as a potential ECO, Specialized E ~ ~ i p m e n t

A common characteristic of many industries is their extensive use of electric motors. A complete inventory of all motors over 1 hp should be taken, as well as recording data on how long each motor operates during a day. For motors with substantial usage times, replacement with high-efficiency models is almost always cost effective. In addition, consideration should be given to replacement of standard drive belts with synchronous belts which transmit the motor energy more efficiently. For motors which are used infrequently, it may be possible to shift the use to off-peak times, and to achieve a kW demand reduction which would reduce energy cost.

Most of the remaining equipment encountered during the industrial audit will bethe highly specialized process productionequipmentandmachines. This equipment should all be examined and operational data taken, as well as noting hours and periods of use. All heatsources shouldbeconsideredcarefully as to whether they could be replaced withsourcesusing waste heat, or whether a particular heat source could serve as a provider of waste heat to another application. Operations where both heating and cooling occur periodically-such as a plastic extrusion machine-are good candidates for reclaiming waste heat, or in sharing heat

34

from a machine needing cooling with another machine needing heat.

.

ENERGY

HANDBOOK

Much of the equipment in commercial facilities is the same type and size as that found in manufacturing or industrial facilities. Potential ECO’s would look at more Air Com~ressors efficient equipment, use of waste heat, or operational changes to use less expensive energy. Air compressors should be examined for size, operating pressures, and type (reciprocating or screw), and 3.6.2 Commercial Audit Services whether they use outside cool air for intake. Large air compressors are typically operated at night when much Electric and gas utilities, as well as many engineersmaller units are sufficient.Also,screw-typeaircoming consulting firms, perform audits for commercial fapressors use a large fraction of their rated power when cilities. Some utilities offer free walk-through audits for they are idling, so control valves should be installed to commercial customers, and alsooffer financial incenprevent this loss. Efficiency is improved with intake air tives for customers who change to more energy efficient that iscool, so outside air should be used in most equipment. Schools, hospitals and some other governcases-except in extremely cold temperature areas. ment institutions can qualify for free audits under the The auditor should determine whether there are ICP program described in the first part of this chapter. significantair leaks in air hoses, fittings, and inma- Whoever conducts the commercial audit must initiate chines. Air leaks are a major source of energy loss in the ICP process by collecting information on the rate many facilities, and should be corrected by maintenance energy rate structures, the equipment in use at the facilaction.Finally, air compressors are a good source of ity, and the operational procedures used there. waste heat. Nearly 90% of the energy used by an air compressor shows up as waste heat, so this is a large 3.6.3 Commercial source of low temperature waste heat for heating input air to a heater or boiler, or for heating hot water for Small commercial customers are usually billed for process use. energy on a per energy unit basis, while large commercial customers are billed under complex rate structures 3.6 CO containing components related to energy, rate of energy use (power), time of day or season of year, power factor, 3.6.1 ~ntroduction and numerous other elements. One of the first steps in a commercial audit is to obtain the rate structures for all Commercial auditsspantherange from very sources of energy, and to analyze at least one to two simple audits for small offices to very complexaudits for year’s worth of energy bills. This information should be multi-story office buildings or large shopping centers. put into a table and also plotted. Complex commercial audits are performed in substantially the same manner as industrial audits. The follow- 3.6.4 conduct in^ the Audit ing discussion highlights those areas where commercial A significant difference in industrial and commeraudits are likely to differ from industrial audits. Commercial audits generally involve substantial cial audits arises inthe area of lighting. Lighting in comconsideration of the structural envelope features of the mercialfacilitiesis one of the largest energy costsfacility, as well as significant amounts of large or special- sometimes accounting forhalf or more of the entire elecized equipment at the facility.Office buildings, shop- tricbill. Lighting levels and lighting quality are exping centers and malls all have complex building enve- tremely hportant to many commercial operations. Relopes that should be examined and evaluated. Building tail sales operations, in particular, want light levels that materials, insulation levels, door and window construc- are farinexcess of standard office values. Quality of tion, skylights, and many other envelope features must light interms of color is alsoa big concern in retail sales, so finding acceptable ECO’s for reducing lighting costs be considered in order to identify candidate ECO’s. Commercial facilities alsohavelarge capacity is much more difficult for retail facilities than for office find new lighting techequipment, such as chillers, space heaters, water heaters, buildings. Thechallengeisto refrigerators, heaters, cookers, and office equipment nologies that allow high light levels and warm color such as computers and copy machines. Small cogenera- while reducing the wattage required. New T8 and T10 fluorescent lamps, and metal halide lamp replacements tion systems are also commonly found incommercial facilities and institutions such as schools and hospitals. for mercury vapor lamps offer these features, and usu-

ENERGY AUDITING: SEARCH A SYSTEMATIC

35

FOR O P PEONRETRUGNYI-TS IA~V I N G

ally represent cost-effective ECO’s for retail sales other facilities.

and

3.8.2 Symptoms of Air

Symptoms of poor indoor air quality include, but are not limited to: headaches; irritation of mucous mem3.7 branes such as the nose, mouth, throat, lungs; tearing, redness and irritation of the eyes; numbness of the lips, Audits for large, multi-story apartment buildings mouth, throat; mood swings; fatigue; allergies; coughcan be very similar to commercial audits. (See section ing; nasal and throat discharge; and irritability. Chronic 3.6.) Audits of single-familyresidences, however, are exposure tosome compounds can lead to damage to generally fairly simple. For single-family structures, the internal organs such as the liver, kidney, lungs, and energy audit focuses on the thermal envelope and the brain; cancer; and death. appliances such as the heater, air conditioner, water heater, and ”plug loads,” 3.8.3 Testing The residential auditor should start by obtaining past energy bills and analyzing them to determine any Testing is required to determine if the air quality is patterns or anomalies. During the audit visit, the struc- acceptable.Many dangerous compounds, like carbon ture is examined to determine the levels of insulation, monoxide andmethanewithoutodorantadded,are the conditions of and seals for windows and doors, and odorless and colorless. Some dangerousparticulates the integrity of the ducts. The space heater and/or air such as asbestos fibers do not give any indication of a conditioner is inspected, along with the water heater. problem for up to twenty years after inhalation. Testing Equipment model numbers, age,size, and efficiencies must be conducted in conjunction with pollution-proare recorded. The post-audit analysis then evaluates ducing processes to ensure capture of the contaminants. potential ECO’s such as adding insulation, adding Testing is usually performed by a Certified Industrial double-pane windows, window shading or insulated Hygienist (CIH). doors, and changing to higher efficiency heaters, air conditioners, and waterheaters. The auditor calculates 3.8.4 Types of Pollutants costs, benefits,and Simple Payback Periodsand presents them to the owner or occupant. A simple audit reportAirstreams have three types of contaminants: paroften in the form of a computer printout is given to the ticulates like dust and asbestos; gases like carbon monowner or occupant. oxide, ozone, carbondioxide, volatile organic compounds, anhydrous ammonia, Radon, outgassing from urea-formaldehyde insulation, lowoxygenlevels; and 3. L1 biologicals like mold, mildew, fungus, bacteria, and viruses. 3.8.1 1 ~ t r o ~ u c t i o ~ Implementation of new energy-related standards and practices has contributed to a degradation of indoor air quality. In fact, the quality of indoor air has been found to exceed the Environmental Protection Agency (EPA) standards for outdoor air in many homes, businesses, and factories, Thus, testing for air quality problems is done in some energy audits both to prevent exacerbating any existing problems and torecommend ECO’s that might improve air quality. Air quality standards for the industrial el~vironmenthave been published by the American Councilof Governmental Industrial Hygienists (ACGIH)in their booklet ”Threshold Limit Values.”No such standards currently exist for the residential and commercial environments although the ACGIH standards are typically and perhaps inappropriately used. The EPA has been working to develop residential and commercial standards for quite some time.

3.8.5 Pollutant Control Particulates

Particulates are controlled with adequate filtration near the sourceand in the air handling system, Mechanical filters are frequently used in return air streams, and baghouses are used for particulate capture. The coarse filters used in most residential air conditioners typically have filtration efficiencies below twenty percent. Mechanical filters calledhigh efficiency particulate apparatus (HEPA) are capable of filtering particles as small as 0.3 microns at up to 99% efficiency. Electrostatic precipitators remove particulates by placing a positive charge on the wallsof collection plates and allowing negatively charged particulates to attach tothesurface.Periodic cleaning of the plates is necessary tomaintain high filtra-

36

ENERGY MANAGEMENT

tion efficiency. Loose or friable asbestos fibers should be removedfrom the building or permanently encapsulated to prevent entry into the respirable airstream. While conducting an audit, it is important to determine exactly what type of insulation is in use before disturbing an area to make temperature measurements.

ventilation rates are for effective systems. Many existing systems fail in entraining the air mass efficiently. The density of the contaminants relative to air must be considered in locating the exhaust air intakes and ventilation supply air registers. Liability

P r o b l e ~Gases Problem gases are typically removed byventilating with outside air. Dilution with outside air is effective, but tempering the temperature and relative humidity of the outdoor air mass canbe expensive in extreme conditions. Heat exchangers such as heat wheels, heat pipes, or other devices can accomplish this task with reduced energy use. Many gases can be removed from the airstream by using absorbent/adsorbent media such as activated carbon or zeolite. This strategy works well for spaces with limited ventilation or where contaminants are present in low concentrations. The media must be checked and periodically replaced to maintain effectiveness. Radon gas-Ra 222-cannot be effectively filtered due to its short half life and the tendency for its Polonium daughters to plate out on surfaces. Low oxygen levels are a sign of inadequate outside ventilation air. A high level of carbon dioxide (e.g., 1000-10,000 pp") is not a problem in itself but levels above 1000 ppm indicate concentrated human or combustionactivityor a lack of ventilation air. Carbon dioxide isuseful as an indicator compound because it is easy and inexpensive to measure. icrobiolo~icalC o n t a ~ i n a ~ t $ Microbiological contaminants generally require particular conditions of temperature and relative humidity on a suitable substrate to grow. Mold and mildeware inhibited by relative humidity levels less than 50%. Air distribution systems often harbor colonies of microbial growth. Many people are allergic to microscopic dust mites. Cooling towers without properly adjusted automated chemical feed systems are an excellent breeding ground for all types of microbial growth.

Recommended ventilation quantities are published by the American Society of Heating, Refrigerating, and Air-conditioning Engineers (ASHRAE) in standard 621999, "Ventilation forAcceptableAirQuality.''These

Liability related to indoor air problems appears to be a growing but uncertain issue because few cases have made it through the court system. However, in retrospect,the asbestos andureaformaldehydepollution problems discovered in the last two decades suggest proceeding with caution and a proactive approach. 3.9 ~

~

N

~

~

U

~

I

~

N

Energy audits are an important first step in the overall pro-cess of reducing energy costs for any building, company, or industry. A thorough audit identifies and analyzes the changes in equipment and operations that will result in cost-effective energy cost reduction. The energy auditor plays a keyrole in the successful conduct of an audit, and also in the imple~entationof the audit recommendations,

lnsfrucfio~zs For Energy A~ditors,Volurrzes l and 11, U.S. Department of Energy, DOE/CS-0041/1~&13, September,1978. Available through National Technical Information Service, Springfield, VA. Energy Cunseruflfion Guide fur l n d u s f and ~ Cuffzffzerce,~f7tjunflf ~ ~ r eof f l ~ Stflndflrds andb boo^ 115 and Supplement, 1978. Available through U.S.Government Printing Office, Washington, DC. Guide to Energy M f l n f l g e ~ ~ l~e n~~z/i Edifion, rd Capehart, B.L., Turner, W.C., and Kennedy, W.J., The Fairmont Press, Lilburn, GA, 2000. I l l ~ i i ~ a t iEngineering i~g Society, IES Lighting ~flFzdboo~/ ~ ~ F €z d~ ~ ~ zf ~ o New York, NY, 2000. Totnl Etzerp~MflFzflgeF?~eFzt, A Handbook prepared by the National Electrical Contractors Association and the National Electrical Manufacturers Association, Washington, DC. ~ f l n d b oofo ~Energy Audits, Thumartn, Albert, Fifth Edition, The Fairmont Press, Lilburn, GA. lndz~sfrifl~ Energy ~ f l n f l g e ~ z ennd n t ~ f ~ f i z f l fWitte, ~ u n /Larry C., Schmidt, Philip S., and Brown, David R., Hemisphere Publishing Corporation, Washington, DC, 1988. Threshold Limit Values for Chemical Substancesand Physical Agents and Biological Exposure Indices, 1990-91 American Conference of Governmental Industrial Hygienists. Ve?ztilflfion for Acc~fflble bzdoor Air Qzmfity,ASHRAE 62-1999, American Society of Heating, Refrigerating and Air-Conditioning Engineers, Inc., 1999. Facility Design and Planning Engineering WeatherData, Departments of the Air Force, the Army, and the Navy, 1978. ~ f l n d ~ ofo oEnergy ~ Engi~zeer~Fzg, Foz~rf~z € d ~ f ~ u ~Thumann, z, A., and Mehta, D.P., The Fairmont Press, Lilburn, GA.

CHAPTER

Industrial Engineering and Management Oklahoma State University Stillwater, OK 4.1

~

~

~

E

C

T

~

~

E

Theobjective of this chapter isto present a coherent, consistent approach to economic analysis of capital investments (energy related or other). Adherence to the concepts and methods presented will lead to sound investment decisions with respect to time value of money principles. The chapter opens with material designed to motivate the importance of life cycle cost conceptsin the economic analysis of projects.Thenext three sections provide foundational material necessary to fullydevelop time value of money concepts and techniques. These sections present general characteristics of capital investments, sources of funds for capital investment, and a brief summary of tax considerations which are important for economic analysis. The next two sections introduce time value of money calculations and several approaches for calculating project measuresof worth based on time value of money concepts. Next the measures of worth are applied to the process of makingdecisions when a set of potential projects are to be evaluated. The final concept and technique section of the chapter presents material to address several special problems that may be encountered in economic analysis. This material includes, among other things, discussions of inflation, non-annual compounding of interest, and sensitivity analysis. The chapter closes with a brief summary and a list of references which can provide additional depth in many of the areas covered in the chapter.

Capital investment decisions arise in many circumstances. The circumstances range from evaluating business opportunities to personal retirement planning. Regardless of circumstances,the basic criterion for evaluating any investment decision is that the revenues (savings) generated by the investment must be greater than the costs incurred. The number of years over which the

revenues accumulate and the comparative importance of future dollars (revenues or costs) relative to present dollars are hportant factors in making sound investment decisions. This consideration of costs over the entire life cycle of the investments gives rise to the name lifc cycle cost analysis which is commonly used to referto the economic analysis approach presented in this chapter. An example of the importance of life cycle costs is shown in Figure 4.1 which depicts the estimated costs of owning and operating an oil-fired furnace to heat a 2,000-squarefoot house in the northeast United States. Of particular note is that the initial costs represent only 23% of the total costs incurred over the life of the furnace. The life cycle cost approach provides a significantly better evaluation of long term implications of an investment than methods which focus onfirst cost or near term results. $2,200

Purchase Cost

Figure 4.1 15-Year life cycle costs of a

eati in^ system

Life cycle cost analysis methods can be applied to virtually any public or private business sector investment decision as well as to personal financial planning decisions. Energy related decisions provide excellent examples for the application of this approach. Such decisions include: evaluation of alternative building designs which have different initial costs, operating and maintenance costs, and perhaps different lives; evaluation of investments to improve the thermal performance of an existing building (wall or roof insulation, window glazing); or evaluation of alternative heating, ventilating, or air conditioning systems. For federal buildings, Gongress and the President have mandated, throughlegislation and executive order, energy conservation goals that must be metusing cost-effective measures. The life cycle cost approach is mandated as the means of evaluating cost effectiveness. 37

38

ENERGY

the organizational hierarchy than operating expense decisions. 4.3.2 Capital ~ ~ ~ e §Cost t ~Cate e ~ t

When companies spend money, the outlay of cash In a h o s t every case, the costs which occur over the can be broadly categorized into one of two classifica- life of a capital investment can be classified into one of tions; expenses orcapital investments. Expenses are gen- the following categories: erally those cash expenditures that are routine, on-going, and necessary for the ordinary operation of the business. * Initial Cost, Capital investments, on the other hand, are generally * Annual Expenses and Revenues, more strategic and have long term effects. Decisions * PeriodicReplacement and Maintenance, or made regarding capital investments are usually made at * Salvage Value. higher levels within the organizational hierarchy and carry with them additional tax consequences as comAs a simplifying assumption, the cash flows which pared to expenses. occur during a year are generally summed and regarded Three characteristics of capital investments are of as a single end-of-year cash flow. While this approach concern when performing life cycle cost analysis. First, does introduce some inaccuracy in the evaluation, it is capital investments usually require a relatively large ini- generally not regarded as s i g n i f i c ~relative t to the level tial cost. "Relatively large" may mean several hundred of estimation associated with projecting future cash dollars to a small company or many millions of dollars flows. to a large company. The initial cost may occuras a single Initial costs include all costs associated with preexpenditure such as purchasing a new heating system or paring the investment for service, This includes puroccur over a period of several years such as designing chase cost as well as installation and preparation costs. and constructing a new building. It is not uncommon Initial costs are usually nonrecurring during the life of that the funds available for capital investments projects an investment. Annual expenses and revenues are the are limited. In other words, the sum of the initial costsof recurring costs and benefits generated throughout the all the viable and attractive projectsexceedsthetotal life of the investment. Periodic replacement and mainteavailable funds. This createsa situation known as capital nance costs are similar to annual expenses and revenues rationing which imposes special requirements on the in- except that they do not (or are not expected to) occur annually. The salvage (or residual) value of an investvestment analysis. This topic will be discussed in Section ment is the revenue (or expense) attributed to disposing 4.8.3. The second important characteristic of a capital in- of the investment at the end of its useful life. vestment is that the benefits (revenues or savings) resulting from the initial cost occur in the future, normally 4.3.3 Cash Flow over a period of years, The period between the initial A convenient way to display the revenues (savcost and the last future cash flow is the life cycle or life of the investment. It is the factthat cash flows occur over ings) and costs associated with an investment is a cash g ~ a cash ~ ~flow. diagram, the timing of the investment's life that requires the introduction of flow ~ i ~By using time value of money concepts to properly evaluate in- the cash flows are more apparent and the chances of vestments. If multiple investments are being evaluated properly applying time value of money concepts are inand if the lives of the vestments are not equal, special creased. With practice, different cash flow patterns c m consideration must be given to the issue of selecting an be recognized and they, in turn, may suggest the most appropriate planning horizon for the analysis. Planning direct approach for analysis. It is usually advantageous to determine the time horizon issues are introduced in Section 4.8.5. frame over which the cash flows occur first. This estabThe last important characteristic of capital investlishes thehorizontal scale of the cash flowdiagram. This ments is that they are relatively irreversible. Frequently, after the initial investment has been made, terminating scale is divided into time periods which are frequently; or significantly altering the nature of a capital invest- but not always, years. Receipts and disbursements are in accordance with the ment has substantial(usuallynegative) cost conse- then located on the time scale quences. This is one of the reasons that capital invest- problem specifications,Individual outlays or receiptsare ment decisions are usually evaluated at higher levels of indicated by drawing vertical lines appropriately placed

ECONOMIC

ANALYSIS

along the time scale.The relative magnitudescanbe suggested by the heights, but exact scaling generally does not enhance the m e a n i n g f ~ ~ e of s s the diagram, Upward directed lines indicate cash inflow (revenues or savings) while downward directed lines indicate cash outflow (costs). Figure 4.2 illustrates a cash flow diagram. The cash flows depictedrepresentan economic evaluation of whether to choose a baseboard heating and window air conditioning system or a heat pump for a ranger’s house in a national park [Fuller and Petersen, 19941. Thedifferential costs associated with the decision are: 0

The heat pump costs (cash outflow) $1500 more than the baseboard system, The heat pump saves (cash inflow) $380 annually in electricity costs, The heat pump has a $50 higher annual maintenance costs (cash outflow), The heat pump has a $150 higher salvage value (cash inflow) at the end of 15 years, The heat pump requires $200 more in replacement maintenance (cash outflow) at the end of year 8.

39

the problem fully from it 4.4

SOURCES OF FUN

Capital investing requires a source of funds. For large companies multiple sources may be employed. The process of obtaining funds for capital investment is called financing. There are two broad sources of financial funding; debt financing and equity financing. Debt financinginvolves borrowing and utilizing money which is to be repaid at a later point in time. Interest is paid to the lending party for the privilege of using the money. Debt financing does not create an ownership position for the lender within the borrowing organization. The borrower is simply obligated to repay the borrowed funds plus accrued interest according to a repayment schedule. Car loans and mortgage loans are two examples of thistype of financing. The twoprimary sources of debt capital are loans and bonds. The cost of capital associated with debt financing is relatively easy to calculate sinceinterest rates and repayment schedules are usually clearly documented in the legal instruments controlling the financing arrangements. An added benefit to debt financing under current US.tax law (as of April 2000) is that the interest payments made by corporations on debt capital are tax deductible. Thiseffectively lowers the cost of debt financing since for debt financing with deductible interest payments, the aftertax cost of capital is given by:

Although cash flow diagrams are simply graphical representations of income and outlay, they should exCost ofCaPitdAFTERTAX = hibit as much information as possible. During the analysis phase, it is useful to show the ~ i n i m u mAttractive Cost of CapitalBEFORETAX * (1- TaxRate) where the tax rate is determine by applicable tax law. Rate of Return (an interest rate used to account for the time value of money within the problem) on the cash The second broad source of funding is equity fiflow diagram, although this has been omitted in Figure 4.2. The requirements for a good cash flow diagram are nancing. Under equity financing the lender acquires an completeness, accuracy, and legibility. The measureof a ownership (or equity) position within the borrower’s orsuccessful diagram is that someone else can understand ganization. As a result of this ownership position, the 530

eat pump and baseboard system differe~tiallife cycle costs

40

ENERGY

lender has the right to participate in the financial success Cost of CaPitalRETAINEDEARNINC;S = 10% of the organization as a whole. The two primary sources of equity financing are stocks and retained earnings, The WeightedAverage Cost of Capital = (0.25)*7.92% -Icost of capital associated with shares of stock is much (0.75)*10.00~0 =: 9.48% debated within the financial community.A detailed presentation of the issues and approaches isbeyondthe 4.5 TAX ~ O ~ ~ I ~ E R A T I O ~ ~ scope of this chapter, Additional reference material can be found in Park and Sharp-Bette [1990]. One issue over 4.5.1 After Tax Cash Flows which there is general agreement is that the costof capital for stocks is higher than the cost of capital for debt Taxes are a fact of life in both personal and busifinancing. This isat least partially attributable to the fact ness decision making. Taxes occur in many forms and that interest payments are tax deductible whilestock are primarily designed to generate revenues for governdividend payments are not, mental entitiesranging from local authorities to the FedIf any subject is more widely debated in the finan- eral government. A few of the most common forms of cial community than the cost of capital for stocks, it is taxes are income taxes, ad valorem taxes, sales taxes, and the cost of capital for retained earnings. Retained earn- excisetaxes. Cash flows used for economic analysis ings are the accumulation of annual earnings surpluses should always be adjusted for the combined impact of that a company retains within thecompany’scoffers all relevant taxes. To do otherwise, ignores the signifirather than pays out to the stockholders as dividends. cant impact that taxes have on economic decision makAlthough these earnings are held by the company, they ing. Tax laws and regulations are complex and intricate. truly belong to the stockholders. In essence the companyA detailed treatment of tax considerations as they apply is establishing the positionthat by retaining the earnings to economic analysis is beyondthe scope of this chapter and investing them in capital projects, stockholders will and generally requires the assistance of a professional achieve at least as high a return through future financial with specialized training in thesubject. A high level successes as they would haveearned if the earnings had summary of concepts and techni~uesthat concentrate on been paid out as dividends. Hence,onecommon ap- Federal income taxes arepresented in the material which proach to valuing the cost of capital for retained earnfollows. The focus is on Federal income taxes since they ings is toapply the same cost of capital as for stock. This, impact most decisionsand haverelatively wide andgentherefore, leads to the same generally agreed result. The eral application. The amount of Federal taxes due are determined cost of capital for financing through retained earnings generally exceeds the costof capital for debt financing. based on a tax rate multiplied by a taxable income. The In many cases the financing for a set of capital in- rates (asof April 2000) are determined based on tablesof Act of vestments isobtained by packaginga combination of the rates publishedunder the Omnibus ~econciliatio~ above sources toachieve a desired level of available 1993 as shown in Table 4.1.Depending onincome range, funds. When this approach is taken, the overall cost of the marginal tax rates vary from 15%of taxable income ~j ~ ~c iso calculated ~~ ~ ~ by 2 capital is generally taken to be the weighted average cost to 39% of taxable income. ~ ~ c gross ~ ~ oj?zco~~ze. ~ s Gross of capital across all sources. The costof each individual subtracting ~ ~ ~ o z~u ~~ ~ 2z e, from source’s funds is weighted by the source’s fractionof the income is generated whena company sellsits product or service. Allowable deductionsinclude salaries and total dollar amount available. By summing acrossall sources, a weighted average cost of capital is calculated. wages, materials, interest payments,and depreciation as well as other costs of doing business as detailed in the tax regulations. xample The calculation of taxes owed and after taxcash Determine the weighted average cost of capital for flows (ATCF) requires knowledge of: financing which is composedof 25% loans with a before tax cost of capital of l2”/0/ * BeforeTax Cash Flows (BTCF), the net project cash yr and flows before the consideration of taxes due, loan 75% retained earnings with a cost of capital of payments, and bond payments; 10%/yr. The company’s effective tax rate is 34%. * Totalloanpayments attributable totheproject,including a breakdown of principal and interest com= 12% * (1 -0.34) = 7.92% Cost of CapitalLOANS ponents of the payments;

ECONOMIC ANALYSIS

41

Total bond payments attributable to the project, in- primary conditions: (1)it must be held by the business cluding a breakdown of the redemption and inter- for the purpose of producing income, (2) it must wear est components of the payments; and out or be consumed in the course of its use, and (3) it must have a life longer than a year. Depreciation allowances attributable to the project. Many methods of depreciation have been allowed under U.S. tax law over the years. Among these methods Given the availability of the above information, the pro- are straight line, sum-of-the-years digits, declining balcedure to determine the ATCF on a year-by-year basis ance, and the accelerated cost recoverysystem. Rescripproceeds using the following calculation for each year: tions of these methods can be found in many references including economic analysis textbooks[White, et al., Taxable Income = BTCF - Loan Interest Bond In- 19981. The method currently used for depreciation of asterest -Reprecation sets placed in service after1986 is the Modified Accelerated Cost Recovery System (MACRS). Determination of Taxes = Taxable Income * Tax Rate the allowable MACRS depreciation deduction for an asset is a function of (1)the asset’s property class, (2) the ATCF = BTCF -Total Loan Payments- Total Bond asset’s basis, and (3) the year within the asset’s recovery Payments -Taxes period for which thededuction is calculated. Eight property classes are defined for assets which An important observation is that Depreciation re- are depreciable under MACRS. The property classes and duces TaxableIncome(hence,taxes) but does not di- several examplesof property that fall into each class are rectly enter into the calculation of ATCF since it is not a shown in Table 4.2. Professional tax guidance is recomtrue cash flow. It isnot a true cash flow becauseno cash mended to determine the MACRS property class for a es hands. Repreciation is an accounting concept specific asset. design to stimulate business by reducing taxes over the The basisof an asset is the cost of placing the asset life of an asset. The next section provides additional in- in service. In most cases, the basis includes the purchase formation about depreciation, cost of the asset plus the costs necessary to place the asset in service (e.g.,installation charges). Given an asset’s property class and its depreciable basis the depreciation allowance for each year of the asset’slife can be determined from tabled values of Most assets used in the course of a business de- MACRS percentages. The MACRS percentages specify crease in value over time. U.S. Federal income tax law the percentage of an asset’s basis that are allowable as permits reasonable deductions from taxable income to deductions during each year of an asset’s recovery peallow for this. These deductions are called depreciation riod, The MACRS percentages by recovery year (age of allowances. Tobe depreciable, an asset must meet three the asset) and property class are shown in Table 4.3.

-

ENERGY

42

Table 4.2 MACRS property classes

Property Class 3-Year Property

Example Assets S

ecial handling devices food for

5-Year Property

10-Year Property 15-Year Property

Example 2 Determine depreciation allowances during each recovery year fora MACRS 5-yearproperty with a basis of $10,000.

the $100 today. Why is this the case? Two primary factors lead to this time preference assodiatedwith money; interest and inflation. Interest is the ability to earn a return on money which is loaned rather than consumed. By taking the $100 today and placing it in an interest Year 1 deduction: $10,000 * 20.00% = $2,000 bearing bank account (i.e., loaning it to the bank), one Year 2 deduction: $10,000 * 32.00% = $3,200 year from today an amount greater than $100 would be available for withdrawal. Thus, taking the $100 today Year 3 deduction: $10,000 * 19.20% = $1,920 and loaning it to earn interest, generates a sum greater Year 4 deduction: $10,000 * 11.52% = $1,152 than $100 one year fromtoday and thus is preferred. The Year 5 deduction: $10,000 * 11.52% = $1,152 amount in excess of$100 that would be available deYear 6 deduction: $10,000 * 5.76% = $576 pends upon the interest rate being paid by the bank. The next section develops the mathematics of the relationThe sum of the deductions calculated in Example2 ship between interest rates and the timing of cash flows. The second factor which leads to the time preferis $10,000 which means that the asset is "fully deprecience associated with money is inflation. Inflation is a ated" after six years. Though not shown here,tables similar to Table 4.3 are available for the 27.5-Year and complexsubject but in general can be described as a 31.5-Year property classes. There usage is similar tothat decrease in thepurchasing power of money. The impact outlined above except that depreciation is calculated of inflation is that the "basketof goods" a consumer can monthly rather than annually. buy today with $100 contains more than the "basket" the consumer could buy one year from today. This decrease in purchasing power is theresult of inflation. The subject of inflation is addressed in Section 4.9.4. ONEY C O ~ C E ~ ~ § 4.6.1 I n t r o ~ ~ c t i o n

Most people have an intuitive sense of thetime value of money. Given a choice between $100 today and $100 one yearfrom today, almost everyone would prefer

athematics of Interest

The mathematics of interest must account for the amount and timing of cash flows. The basicformula for studying and understanding interest calculations is:

43

ECONOMIC ANALYSIS

S percentages by recovery year and property class 7"Year 5-Year 3-Year 10-Year

Recovery Year Property

Property

1

2

3 4 5

44.45% 14.81% 7.41%

7 8 9 ~~

"

lo 11

12 13 14 15

l

16 17 18 19 20 21

Property

= a futureamountofmoney the nth year,

P=

Property

1

20-Year Property

14.29% 20.00% IO,OO%33.33%5.00% 3.750% 24.49% 32.00% 18.00% 7.219% 9.50% 17.49% 19.20% 6.677% 8.55% 14.40% I 11.52% 11.52% 12.49% 6.1 77% 7.70% 8.93% 11.52% 9.22% 5.713% 6.93% 5.76% 6 6.23% 7.37% 8.92% 5.285% 8.93% 4.888% 5.90% 6.55% 4.46% 4.522% 5.90% 6.55% 6.56% 4.462% 5.91% 4.461% 5.90% 6.55% 3.28% 4.462% 5.91% 4.461% 5.90% 4.462% 5.91% 4.461% 5.90% 4.462% 5.91% 2.95% 1 4.461% 4.462% 4.461% 4.462% 4.461% 2.231%

Fn = P + 1 , where:F,

Property

15-Year

at the end of

a present amount of money at the begin-

and compound interest. Under simple interest, interest is earned(charged)onlyontheoriginalamountloaned (borrowed). Under compound interest, interest is earned (charged) onthe original amount loaned(borrowed) plus any interest accumulated from previous periods.

ning of the year whichis n years prior to 4.6.3 Simple Interest

For simple interest,interestisearned(charged) only on the original principal amount at the rate of i% peryear(expressed as i%/yr),Table 4.4 illustrates the annualcalculationofsimple interest. InTable 4.4 and theformulaswhichfollow,theinterestrate i isto be n = thenumberofyearsbetween P andF expressed as a decimal amount (e.g., 8% interest is exThe goal of studying the mathematics of interest is pressed as 0.08). At the beginning of year1 (end of year 0), P dollars to develop a formula for F, which is expressed only in terms of the present amount P, the annual interest rate i, (e.g., $100) aredepositedinanaccountearningi%/yr (e.g., 8%/yr or 0.08) simple interest. Under simple comandthenumber of yearsn.Therearetwomajorapproaches for determining the value of In; simple interest pounding,duringyear 1 the P dollars ($100) earnP*i I, =

the amount of accumulated interest over n years, and

ENERGY ~ A N A ~ E M E NHANDBOOK T

44

Table 4.4 The mathematics of simple interest

dollars ($100*0.08 = $8) of interest. At the end of the year 1 the balance in the account is obtained by adding P dollars (the original principal, $100) plus P*i (the interest earned during year 1, $8) obtain to P+P*i (~100+$8=$108).Through algebraic manipulation, the end of year 1 balance can be expressed mathematically as P*(l+i) dollars ($100*1.08=$108). The beginning of year 2 is the sarnepoint in time as the end of year 1 so the balance in the account is P*(l+i) dollars ($108). During year 2 the account again earns P*i dollars ($8) of interest since under simple compounding, interest is paid only on the o r i g i ~ principal ~~ amount P ($100). Thus at the end of year 2, the balance in the account is obtained by adding P dollars (the original principal) plus P*i (the interest from year 1) plusP*i (the 2) obtain to P+P*i+P*i interest from year ($100+$8+$8=$116). After some algebraic manipulation, thiscan be writtenconvenientlymathematically as P*(l+Z*i) dollars ($100*1.16=$116). Table 4.4 extends the above logic to year 3 and then generalizes the approach for year n. If we returnour attention to our original goal of developing a formula for Fn which isexpressed only in terms of the present amount P, the annual interest rate i, and the number of years n, the above development and Table 4.4 results can be summarized as follows: For Simple Interest F, = P (1-tn.i) E x a ~ ~3l e Determine the balance which will accumulateat the end of year 4 inan account which pays 10%/yr simple interest if a deposit of $500 is made today.

Fn = P * (1 + n*i)

+ 4*0.10) F4 = 500 * (1 + 0.40)

F4 = 500 * (1

F4 = 500 * (1.40) F4 = $700 4.6.4 Compound

For compound interest, interest is earned (charged) any on the original principal amount p ~ z ~ s ~cczl~z~late~ i ~ t e r e s ~ ~ ~ o ~years p rate the ~ i orate ~ ~ofs i% per year (i%/ yr). Table 4.5 illustrates the annual calculation of compound interest. In the Table 4.5 and the formulas which follow, i is expressed as a decimal amount (i.e., 8% interest is expressed as 0.08). At the beginning of year 1 (end of year O), P dollars (e.g., $100) are deposited inan account earning i%/yr (e.g., 8%/yr or 0.08) compound interest. Under compound interest, during year 1 the P dollars ($100) earn P*i dollars ($100*0.08 = $8) of interest, Notice that this the same as the amount earnedundersimple cornpounding. Thisresultisexpectedsince the interest earned in previous years is zero for year 1. At the end of the year 1 the balance in the account is obtain by adding P dollars (the original principal, $100) plus P*i (the interestearnedduringyear 1, $8) toobtainP+P*i ($100+$8=$108). Through algebraic manipulation, the end of year 1 balance can be expressed mathematically as P*(l+i) dollars (~100*1.08=~108). During year 2 and subsequent years, we begin to see the power (if you are a lender) or penalty (if you are a borrower) of compound interest over simple interest.

ECONOMIC ANALYSE

45

athematies of ~ o m p o u Interest n~ Year

Amount At Beginning Of Year

(t)

l

O

I

-

Interest Earned During Year

l Pi

P (1 + i) i I

The beginning of year 2 is the same point in time as the end of year 1 so the balance in the account is P*(lt-i) dollars ($108). During year 2 the account earns i% interest on the original principal, P dollars ($loo), & it earns i% interest on the accumulated interest from year 1, P*i dollars ($8). Thus the interest earned in year 2 is [P+P*i]*idollars ([$100+$8]*0.08=~8.64). The balanceat the end of year 2 is obtained by adding P dollars (the original principal) plus P*i (the interest from year 1)plus 2) toobtain [P+P*i]*i(theinterestfromyear P+P*i+[P+P*i]*idollars ($~00+$8+$8.64=$116.64).After some algebraic manipulation, this can be written conveniently mathematically as P*(l+i)n dollars ($100*1.082 "$116.64). Table 4.5extends the above logic to year3 and then generalizes the approach for year n. If we return our attention to our original goal of developing a formula for F, which is expressed only in terms of the present amount P, the m u a l interest rate i, and the number of years n, the above development and Table 4.5results can be summarized as follows: For Compound Interest Fn = P (l+i)n Example 4 Repeat Example 3 using compound interest rather than simple interest.

Fn = P * (1 + i)"

F4 = 500 * (1+ 0.10)4

F4 = 500 * (l.10)4 F4 = 500 * (1.4641)

F4 = $732.05

Notice that the balance available for withdrawal is higher under compound interest ($732.05 > $700.00). This is due to earning interest on principal plus interest rather than earning interest on just original principal. Since compound interest is by farmore common in practice than simple interest, the remainder of this chapter is based on compound interest unless explicitly stated otherwise. 4.6.5 Single Sum Cash Flows

Time value of money problems involving compound interest are common.Because of this frequent need, tables of compound interest time value of money factors can befound in most booksand reference manuals that deal with economic analysis. The factor(l+i)n is known as the single sum,f ~ t ~ rworth e factor or the single payment, compoun~amount factor. This factor is denoted (F I P,i,n) where F denotes a future amount, P denotes a present amount, i is an interest rate (expressed as a per-

ENERGY

46

centage amount), and n denotes a number of years, The factor (F I P,i,n) is read "to find F given P at i% for n years." Tables of values of (F I P,i,n) for selectedvalues of i and n are provided inAppendix 4A. The tables of Values in Appendix 4A are organized such that the annual interest rate (i) determines the appropriate page, the time value of money factor (F I P) determines the appropriate column, and the number of years (n) determines the appropriate row.

RepeatExample4 worth factor.

using the single sum, future

F, = P * (1 + i)" F, = P * (F I P,i,n) F4 = 500 * (F I P,10%,4) F4 = 500 * (1.4641) F4 = 732.05 The above formulas for compound interest allow us to solve for an unknown F given P, i, and n. What if we want to determine P with known values of F, i, and n? We can derive this relationship from the compound interest formula above: Fn = P (l+i)n dividing both sides by (l+i)nyields

To verifyyour solution, try multiplying 680.60 * (F I P,8%,5). What would expect for a result? (Answer: $1000) If your still not convinced, try building a table likeTable4.5tocalculate the year end balances each year for five years. 4.6.6 Series Cash Flows

Having considered the transformation of a single sum to a future worth when given a present amount and vice versa, letus generalize to a series of cash flows. The future worth of a series of cash flows is simply the sum of the future worths of each individual cash flow. Similarly, the present worth of a series of cash flows is the sum of the present worths of the individual cash flows. Example 7 Determine the future worth (accumulated total) at the end of seven years in an account that earns 5%/yr if a $600 deposit ismade today and a $1000 deposit is made at the end of year two?

for the $600 deposit, n=7 (years between today and end of year 7) for the $1000 deposit, n=5 (years between end of year 2 and end of year 7) F7

p=---"F" (1+ i)"

HANDBOOK

600 * (F I P,5%0,7)+ 1000 * (F l P,5%0,5)

F7 = 600 * (1.4071) + 1000 * (1.2763) F7 = 844.26 + 1276.30 = $2120.56

which can be rewritten as P = Fn (1t-i)""

Example 8 Determine the amount that would have to be deThe factor(l+i)-nis known as the sirzgle sum, prese~t posited today (present worth) in an account paying 6%/ ~ ~ o rfactor t ~ z or the sirzgle p a ~ ~ e r zpresent t, ~ o rfactor. t ~ ~ This yr interest if you want to withdraw $500 four years from factor is denoted (P l F,i,n) and is read "to find P given F today and $600 eight years from today (leaving zero in at i% for n years." Tables of (P I F,i,n) are provided in the account after the $600 withdrawal). Appendix 4A. Example 6 To accumulate $1000 five years from today in an account earning 8%/yr compound interest, how much must be deposited today?

P = Fn * (1 + i)'" P = F5 * (P I F,i,n) P = 1000 * (P I F,8%,5) P = 1000 * (0.6806) P = 680.60

for the $500 deposit n=4, for the $600 deposit n=8

P = 500 * (P I F,6%,4)

+ 600 * (P I F,6%0,8)

P = 500 * (0.7921) + 600 * (0.6274) P = 396.05 + 376.44 = $772.49

4.6.7 UnifQrmSeries Gash

A uniform series of cash flows exists when the cash flows in a series occur every year and are all equal in value. Figure 4.3 shows the cash flow diagram of a uni-

form series of withdrawals. The uniform series has length 4 and amount 2000. If we want to determine the amount of money that would have to be deposited today to support this series of withdrawals starting one year from today, we could use the approach illustrated in Example 8 above to determine a present worth component for eachindividual cash flow. Thisapproach would require us to sum the following series of factors (assuming the interest rate is 9%/yr):

P = 2OOO"(P I F,9%,1) 2OOO"(P I F,9%,3)

+ 2OOO"(P I F,90/,,2) + + 2OOO"(P I F,9%,4)

After some algebraic manipulation, this expression can be restated as:

ZOOO*[(PI F,9%,1) + (P I F,9%,2) + (P I F,9%,3) + (P I F,9%,4)] P = ~000"[(0.~174) + (0.8417) + (0.7722) + (0.7084)] P = 2000"[3.2397] = $6479.40

P

0

=I

3

4

niform series cash flow Fortunately,uniformseries occur frequently enough in practice to justify tabulating values to eliminate the need to repeatedly sum a series of (P I F,i,n) factors. To accommodate uniform series factors, we needto add a new symbol to our time value of money terminology in addition to the single sum symbols P and F. The symbol "A" is used to designate a uniform seriesof cash flows. When dealing with uniform series cash flows, the symbol A represents the amount of each annual cash flow and the n represents the number of cash flows in the series. The factor (PI A,i,n) is known as the z ~ n ~ series, resent ~ o r tfactor ~ z and is read "to find P given A at i% for n years." Tables of (P I A,i,n) are provided in Appendix 4A. An algebraic expression can also be derived for the (P l A,i,n) factor which expressesP in terms ofA, i, and n. The derivation of this formula is omitted here, but the resulting expression is shown in the summary table (Table 4.6)at the end of this section. An important observation when using a (P I A,i,n) factor is that the "P" resulting from the calculation occurs one period prior to the first "A'! cash flow. In our example thefirst withdrawal (the first "A") occurred one year after the deposit (the "P"). Restating the example problem above using a (P I A,i,n) factor, it becomes:

P = A * (P I A,i,n) P = 2000 * (P I A,9%,4)

P = 2000 "(3.2397) = $6479.40 This result is identical (as expected) to the result using the (P I F,i,n) factors. In both cases the interpretation of the result is as follows: if we deposit $6479.40 in an account paying 9%/yr interest, we could make withdrawals of $2000 per year for four years starting one year afterthe initial deposit to deplete the account at the end of 4 years. The reciprocal relationship between P and A is symbolized by the factor (Al P,i,n) and is called the zrnior^ series, c a ~ i recovery t ~ ~ factor. Tables of (A I P,i,n) are provided in Appendix 4A and the algebraic expression for (A I P,i,n) is shown in Table 4.6 at the end of this section. This factor enables us to determine the amount of the equal annual withdrawals "A" (starting one year after the deposit) that can be made from an initial deposit of "P." Example 9 Determine the equal annual withdrawals that can be made for 8 years from an initial deposit of $9000 in an account that pays 12%/yr. The first withdrawal is to be made one year after the initial deposit. A = P * (A I P,l2%,8) A = 9000 * (0,2013) A = $1811.70

Factors are also available for the relationships between a future worth (accumulated amount) and a uniform series. The factor(F I A,i,n) is known as the z & ~ ~ o s e r i e s ~ ~ t z ~ r e factor ~ o r tand ~ z is read "to find F given A at i% for n years." The reciprocal factor, (A I F,i,n), is g factor and is oknown r ~ as the ~~~0~ series s i n ~ i ~ zfun^ read "to find A given F at i% for n years.'' An important observation when using an (F I A,i,n) factor or an (A I F,i,n) factor isthat the "F" resulting from the calculation occurs at the same point in time as to the last "A" cash flow. The algebraic expressions for (A l F,i,n) and (FI A,i,n) are shown in Table 6 at the end of this section. Example 10 If you deposit $2000 per year into a n individual retirement account starting on your 24th birthday, how much will have accumulated in the account at the time of your deposit on your 65th birthday? The accountpays 6%/yr.

48

ENERGY MANAGEMENT 2400

n = 42 (birthdays between 24th and 65th, inclusive)

F =: A * (F l A,6%,42)

F = 2000 * (175.9505) = $351,901 2 3 4 Example 11 If you want to be a millionaire on your 65th birth- Figure 4.4. Combined uniform series and ~ r a ~ i e sent day, what equal annual deposits must be made in an ries cash flow account starting on your 24th birthday? The account pays 10%/yr. P A * (P I A,15%,4) + G * (P I G,15%,4) =L:

n = 42 (birthdays between 24th and 65th, inclusive) A = F * (A I F,10%,42) A = l000000 * (0.001860) = $1860

P = 1000 * (2,8550) + 500 * (3.7864)

P = 2855.00

+,

1893.20 = $4748.20

Occasionally it isuseful to convert a gradient series to an equivalent uniform series of the same length. Equivalence in this context means that the present value 4.6.8 Gradient Series (P) calculated from the gradient series is numerically A gradient series of cashflowsoccurswhenthe equal to the present value (P) calculated from the univalue of a given cash flow is greater than the value of the form series. One way to accomplish this task with the previous period’s cash flow by a constant amount. The time value of money factors we have already considered symbol used to represent the constant increment is G. The factor (P l G,i,n) is known as the g r ~ ~ i series, e ~ t is to convert the gradient series to a present value using ~ z Tables of (P I G,i,n) are provided in a (P l G,i,n) factor and then convert ,this present value to ~ r e s e ~ z~t o r tfactor. Appendix 4A. An algebraic expression can also be de- a uniform series using an (A I P,i,n) factor. In other rived for the (P l G,i,n) factor which expresses l? in terms words: of G, i, and n, The derivation of this formula is omitted A = [G * (P I G,i,n)] * (A I P,i,n) here, but the resulting expression is shown in the summary table (Table 4.6) at the endof this section. An alternative approach is to use a factor known as It is not uncommon to encounter a cash flow series the g r ~ ~ i e ~ t - ~ series o - ~ c~o ~~ ~o err~s ifactor, zo ~ z symbolized that is the sum of a uniform series and a gradient series. by (A I G,i,n). Tablesof (A I G,i,n) are provided in AppenFigure 4.4 illustrates such a series. The uniform compo- dix 4A. An algebraic expression can also be derived for nent of this series has a value of 1000 and the gradient the (A I G,i,n) factor which expresses A in terms of G, i, series has a value of 500. By convention the first element and n. The derivation of this formula is omitted here, but of a gradient series has a zero value. Therefore, in Figure the resulting expression is shown in the summary table 4.4, both the uniform series and the gradient series have (Table 4.6) at the end of this section. length four (n=4). Like the uniform series factor, the“P” calculated by a (P I G,i,n) factor is located one period be- 4.6.9 § u m m a r ~of Time Value of fore the first element of the series (which isthe zero element for a gradient series). Table 4.6 summarizes the time value of money factors introduced in this section. Timevalue of money facExample 12 tors are useful in economic analysis because they proAssume you wish to make the series of withdraw- vide a mechanism to accomplish twoprimary functions: als illustrated in Figure 4.4 from an account which pays (1)they allow us to replace a cash flow at one point in 150/n/yr. How much money would you have to deposit time with an equivalent cash flow (in a time value of today such that the account is depleted at the time of the money sense) at a different point in time and (2) they last withdrawal? allow us to convert one cashflow pattern to another (e.g., convert a single sum of money to a n equivalent This problem is best solved by recognizing that the cash flow series or convert a cash flow series to an cash flows are a combination of a uniform series of equivalent single sum). The usefulness of these two value 1000 and length 4 (starting at time=l) plus a functions when performing economic analysis of altergradient series of size 500 and length 4 (starting at natives will become apparent in Sections 4.7 and 4.8 time=l). which follow.

49

ECONOMIC ANALYSIS

Table 4.6 ~ummaryof discrete compound in^ time value of money factors

To Find

Given

P

Factor

Symbol

F

(1+i)-"

(PI F,i,n)

Single Payment,Present Worth Factor

F

P

(1+i)"

(F I P,i,n)

Single Payment, Compound Amount Factor

P

A

(PI A,i,n)

Uniform Series, Present Worth Factor

A

P

(1+ i)*'--I

F

A

i

(A I P,i,n)

Name

1

Uniform Series, Compound Amount Factor

(F I A,i,n)

i

(1+ ir-1

(A I F,i,n)

A

F

P

G

(PI G,i,n)

A

G

(A I G,i,n)

UniformSeries, Capital RecoveryFactor

1

UniformSeries, Sinking FundFactor

Gradient Series, Present Worth Factor

1

Gradient Series,UniformSeriesFactor

46,310 The Concepts of E~uivalenceand Indifference

Answer: Cash Flow 1 and Cash Flow 2 are equivalent

Up to this point the term "equivalence" has been used several times but never fully defined. It is appropriate at this point to formally define equivalence as well as a related term, indifference. Ineconomic analysis, "equivalence" means "the state of being equal in value." The concept is primarily applied to the comparison of two or more cash flow profiles. Specifically, two (or more) cash flow profiles are equivalent if their time value of money worths at a common point in. time are equal.

AnalvsisApproach 2: Compare worths at t=2 (future worth) FW(1) = 1,322.50 FW(2) = l,OOO*(F l P,15,2) = 1,000*1.3225 = 1,322.50 Answer: Cash Flow 1 and Cash Flow 2 are equivalent Generally the comparison (hence the determination of equivalence) for the two cash flow series in this example would be made as present worths (t=O) or future worths (t=2), but the equivalence definition holds regardless of the point in time chosen. For example:

Ouestion: Are the following two cash flowsequivalent at 15%/yr? Cash Flow 1: Receive$1,322.50 two years from today Cash Flow 2: Receive $1,000.00 today

Analvsis Approach 3: Compare worths at t = l Wl(1) = 1,322.50*(PI F,15,1) = 1,322.50*0.869565= 1,150.00 Wl(2) = l,OOO*(FI P,15,1) = 1,000*1.15 = 1,150.00 worths at t=O (present Answer: Cash Flow 1 and Cash Flow 2 are equivalent

Analvsis Approach 1: Compare worth) PW(1) = 1,322.50*(PI F,15,2) = 1322.50*0.756147= 1,000 PW(2) = 1,000

Thus, the selection of the point in time, t, at which to make the comparison is completely arbitrary. Clearly

ENERGY

50

HANDBOOK

however, somechoices are more intuitively appealing Answer: To be indifferent between the two alternatives, than others (t= 0 and t=2 in the above example). they must be equivalent at t=O. To be equivalent, P In economic analysis, "indifference" means "to must have a value of $5,747.49 have no preference" The conceptis primarily applied in the comparison of two or more cash flow profiles, Specifically, a potential investor is indifferent between two (or more) cash flow profilesif they are equivalent. 4.7.1 ~ntro~uction Ouestion: Given the following two cash flowsat 15%/yr which do you prefer? Cash Flow 1: Receive $1,322.50two years from today Cash Flow 2: Receive $1,000.00 today Answer:Based on the equivalence calculations above, given these two choices, an investor is indifferent. The concept of equivalence can be used to break a large, complex problem into a series of smaller more manageable ones. This is done by taking advantage of the fact that, in calculating the economic worth of a cash flow profile,any part of the profile can be replaced an by equivalent representation without altering the worth of the profile at an arbitrary point in time. Ouestion: You are given a choice between (1)receiving P dollars today or (2) receiving the cash flow series illustrated in Figure4.5. What must the value of P be for you to be indifferent between the two choices if i=12%/yr? 2000

0

1

2

3

2 0 ~ 2000

4

S

cash flow series

2000

2000

6

7

In this section measures of worth for investment projects are introduced. The measures are used to evaluate theattractiveness of a single investment o~portunity. The measures to be presented are (1)present worth, (2) annual worth, (3) internal rate of return, (4) savings investment ratio, and (5) payback period. All but one of these measures of worth require an interest rate to calculate theworth of an investment. This interest rate is commonly referred to as the Minimum Attractive Rate of Return (MARR). There are many ways to determine a value of MARR for investment analysis and no one way is proper for all applications.One principle is, however, generally accepted. MARR should always exceed the cost of capital as described in Section4.4,Sources of Funds, presented earlier in this chapter. In all of the measures of worth below, the following conventionsare used for defining cash flows. Atany given point in time (t= 0,1, 2,+..,n), there may exist both revenue (positive) cashflows, Rt, and cost (negative) cash flows, Ct. Thenet cash flow at t, At, is defined as Rt . .ct.

4.7.2 Present ~ o r t h

Consider again the cash flow series illustrated in Figure 4.5. If you were given the opportunity to "buy" that cash flow series for $5,747.49, would you be interAnalysisApproach: To beindifferentbetweenthe choices, P must have a value such that the two alter- ested in purchasing it? If you expected to earn a 12%/yr on the natives are equivalent at 12%/yr. If we select t=O as return on your money (MARR=12~0), based analysis in the previous section, your conclusion would the common point in time upon which to base the analysis (present worth approach), then the analysis be (should be) that you are indifferent between (1) retaining your $5,747.49 and (2) giving up your $5,747.49 proceeds as follows. PW(A1t 1)= P Because P is already at t=O (today), no time value of money factors are involved. PW(A1t 2) Step 1 - Replace the uniform series (t=3 to 7) with an equivalent single sum, V2, at t=2 (one period before the first element of the series), V2 2,000 * (P I A,12%,5) = 2,000 * 3.6048 = 7,209.60 Step 2 - Replace the single sum V2,with an equivalent value V0 at t=O: PW(A1t 2) = V0 =V2 * (P I F,12,2) = Figure 4.6 An i n ~ e s t m e o~ t 7,209.60 * 0.7972 = 5,747.49

ECONOMIC ANALYSIS

51

in favor of the cash flow series. Figure4.6 illustrates the Example 13 net cash flows of this second investment opportunity. Installing thermal windows on a small officebuildWhat value would you expect if we calculated the ing is estimated to cost $10,000. The windows are expresent worth (equivalent value of all cash flows att=O) pected to last six years and have no salvage value atthat of Figure 4.6? We must be careful with the signs (direc- time.The energy savings from the windows are extions) of the cash flows in this analysis since some reprepected to be$2525 each year for the first three yearsand sent cash outflows(downward) andsome represent cash $3840 for each of the remaining three years. IfMARK is inflows (upward). 15%/yr and the present worth measure of worth is to be used, is this an attractive investment? PW = -5747.49 + 2000"(P I A,12%,5)"(P I F,12%,2) PW = -5747.49 + 2000~(3.6048)"(0.7972)

38403840

3840

PW = -5747.49 + 5747.49 = $0.00

The value of zero for presentworth indicates indifference regardingtheinvestmentopportunity. We would just as soon do nothing (i.e., retain our $5747.49) as invest in the opportunity. What if the samereturns(future cashinflows) where offered for a $5000 investment (t=O outflow), 10000 would this be more or less attractive? Hopefully, aftera OUTS investment little reflection, it is apparent that this would be a more attractive investment because you are getting the same returns but paying less than the indifference amount for The cash flow diagram for thethermalwindows them. What happens if calculate the present worth of shown in Figure 4.7. this new opportunity? PW = -10000+2525"(P I F,15%,1)+2525*(PI F,15%,2) PW-5000 + 2000"(P I A,12%,5)"(P I F,12%,2) +2525"(P I F,15%,3)+3840"(PI F,15%,4)+ PW I= -5000 + 2000"(3.6048)~(0.7972) 3840"(P 1 F,15%,5)+ 3840"(P I F,15%,6) PW = -5000.00 + 5747.49 $747.49 "

is

=I:

The positive value of present worth indicates an PW = attractive investment. If we repeat the process with an initial cost greater than $5747.49, it should come as no surprise that the present worth will be negative indicating an unattractive investment. The concept of present worth as a measure of inPW = vestment worth can be generalized as follows: Measure of Worth: Present Worth Description: All cash flows are converted to a single sum equivalent at time zero using i=MARR. l1

Calculation Approach PW = t=O

Decision Rule: IfPW 20, then the investment is attractive.

-10000+2525"(0.8696)+2525"(0~7561)

+2525*(0.6575)+ 3840"(0.5718)+3840"(0.4972)+

3840*(0.4323)

-10000+2195.74+1909~15+1660.19+2195.71 +1909,25+1660.03

PW = $1530.07 Decision: PW20 (~1530.0720.0), therefore the window investment is attractive. An alternative (and simpler) approach to calculating PW is obtained by recognizingthat the savings cash flows are two uniform series; one of value $2525 and length 3 starting at t=l and one of value $3840 and length 3 starting at t=4.

52

ENERGY

PW = -10000+2525"(~ i A,15°/o,3)+3840" (P I A,15%,3)*(P I F,15%,3) PW

=L

-10000+2525*(2.2832)~3840"(2.2832)"

(0.6575) = $1529.70

HANDBGOK

Example 14 Reconsider the thermal window data of Example 13. If the annual worth measure of worth is tobe used, is this an attractive investment?

AW = PW (A I P,15%,6) Decision: PW20 ($1529.70>0.0), therefore the window in- AW = 1529.70 (0.2642)= $404.15/yr vestment is attractive. Decision: AW 20 ($404.15>0.0), therefore the window inThe slight difference in the PW values is caused by vestment is attractive. the accumulation of round off errors as the various factors are rounded to four places to the right of the deci- 4.7.4 Internal Rate of mal point. One of the problems associated withusing the present worth or the annual worth measures of worth is that they depend upon knowing a value for M A R R . As An alternative to present worth is annual worth. mentionedintheintroductiontothissection,the The annual worth measure converts all cash flows to an "proper" value for MARR is a much debated topic and equivalent uniform annual series of cash flows over the tends to vary from company to company and decision investment life using i=MARR. The annual worth mea- maker to decisionmaker. If the value of MARR changes, sure is generallycalculated by firstcalculatingthe the value ofPW or AW must be recalculated to deterpresent worth measure and then multiplying this by the mine whether the attractiveness/unattractiveness of an appropriate (A I P,i,n) factor. A thorough review of the investment has changed. tables in Appendix 4A or the equations in Table 4.6leads The internal rate of return (IRR) approach is deto the conclusion that for all values of i (i>O) and n (n>O), signed to calculate a rate of return that is "internal" to the value of (A l P,i,n) is greater than zero. Hence, the project. That is, if PW>O, then AW>O;

if PWO) then a unique IRR exists. If these conditions are not satisfied a unique IRR is not guaranteed and caution should beexercisedin making decisions based on IRR. The concept of internal rate of return as a measure of investment worth can be generalized as follows:

PW

=I

-10000+2525*(PI A,l8~0,3)+3840* (P I A,18%,3)*(PI F,18%,3)

PW = -10000+2525*(2.1743)+3$40*(2.1743)* (0.6086) = $571.50 Since PW>O, we must increase i to decrease PW toward zero for i=20%:

Measure of Worth: Internal Rate of Return Description: An interest rate, IRR, is determined which yields a present worth of zero. IRR ~ p l i c i t l yassumes the ~einvestmentof recovered funds at IRR.

n

find IRR such that PW =

At (P I F,IRR,t) = 0 t=o

PW

I=

-10000+2525*(2.1065)+3840*(2.1065)*

(0.5787) = -$0.01

Although we could interpolate for a value of i for which PW=O (rather than -O.Ol), for practicalpurposes PW=O at i=20%, therefore IRR=20%. Decision: IRR>MARR (20%>15%), therefore the window investment is attractive,

Im~ortantNote: epending upon thecashflowseries, 4.7.5 Saving Investment multiple IRRs may exist! If the cash flow series consists of an initial in~estment(net negative cash flow) followed Many companies are accustomed to working with by a series of future returns (net non-negative cash benefitcost ratios. An investment measure of worth flows), then a unique I R R exists. which is consistent withthe present worth measure and Recision Rule: IfIRR is unique and IRR>MANX, then has the form of a benefit cost ratio is the savings investment ratio (SIR). The SIR decision rule can be derived the investment is attractive. from the present worth decision rule as follows: Reconsider the thermal window data of Example 13. If the internal rate of return measure of worth is to be used, is this an attractive investment? First we note that the cash flow series has a single negative investment followed by all positive returns, therefore, it has a unique value for IRR. For such a cash flow series it can also beshown that as i increases PW decreases. From example 11, we h o w that for i=15%:

Starting with the PW decision rule PW 20 replacing PW with its calculation expression n

At (P I F,i,t) 2 0 t=O

which, using the relationshiF At can be restated

PW = -10000+2525*(PI A,l5~0,3)+384O*(P I AfI5Yo,3)* (P I F,15%,3) PW = -10000+2525*(2.2$32)+3$40*(2.2$32)* (0.6575) = $1529.70 Because PW>O, we must increase i to decrease PW toward zero for i=l$%:

n

(Rt -Ct)(P I F&)

=T:

Rt - Ct,

>0

t=O

which can be algebraicallyseparated into n

n

t=o

t=O

ENERGY MANA~;EMENT HANDBGQK

54

adding the second term to both sides of the inequality n

n

t=O

t=O

SIR =

2525"(1>I A, 15%,3)+ 3840"(l?I A, 15%,3)"(PI F, 15%,3) 10000

SIR = 11529*70LS 1.15297 10000.00

dividing both sides of the inequality by the right side term

Decision:SIR21.0(1.15297>1.0), investment is attractive.

therefore the window

11

R, (P l F,i,t) t=O

21

C, (P l F,i,t) t=O

which is the decision rule for SIR. The SIR represents the ratio of the present worth of the revenues to the present worth of the costs. If this ratio exceeds one, the investment is attractive. The concept of savings investment ratio as a measure of investment worth can be generalized as follows: Measure of Worth: Savings Investment Ratio Description: The ratio of the present worth of positive cash flows to the present worth of (the absolute value of) negative cash flows is formed using i=MARR.

An important observation regarding the four measures of worth presented to this point (PW,AW,IRR, and SIR) is that they are all consistent and equivalent. In other words, an investment that is attractive under one measure of worth will be attractive under each of the other measures of worth. A review of the decisions determined in Examples 13 through 16 willconfirm the observation. Because of their consistency, it is not necessary to calculate more than one measure of investment worth to determine the attractiveness of a project. The rationale for presenting multiple measures which are essentially identical for decision making is that various individuals and companies may have a preference for one approach over another. 4.7.6 Payback Period

The payback period of an investment is generally taken to mean the number of years required to recover the initial investment through net project returns. The n payback period is a popular measure of investment R, (P I F,i,t) worth and appears in many forms in economic analysis CalculationApproach SIR = literature and company procedure manuals. Unfortunately, all too frequently, payback period is used inapC, (P I F,i,t) propriately and leads to decisions whichfocusexclut=O sively on short term results and ignore time value of Decision Rule: IfSIR21, then the investment is attrac- money concepts. After presenting a commonform of payback period these shortcomings will be discussed. tive. Measure of Worth: Payback Period Exam~le16 Reconsider the thermal window data of Example 13. If the savings investment ratio measure of worth is to Description: The numberof years required to recoverthe initial investment by accumulating net project returns is be used, is this an attractive investment? determined. From example 13, we know that for i=15%: CalculationApproach m

R, (P I F,i,t)

PBP = the smallest m such that t=l

SIR = C, (PI F,i,t) t=O

Decision Rule: If PBP is less than or equalto a predetermined limit (often called a hurdle rate), then the investment is attractive.

55

ECONOMIC ANALYSIS

Important Note: This formof payback period ignores the time value of money and ignores returns beyond the predetermined limit. The fact that this approach ignores time value of money concepts is apparent by the fact that no time value of money factors are included in the determination of m. This implicitly assumes that the applicable interest rate to convert future amounts to present amountsis zero. This implies that people are indifferent between $100 today and $100 one year from today, which is an implication that is highly inconsistent with observable behavior, The short-term focus of the payback period measure of worth can be illustrated using the cash flow diagrams of Figure 4.8. Applying the PBP approach above yields a payback period for investment (a) of PBP=2 (1200>1000 @ t=2) and a payback period for investrnent @ t=4). If the decision (b) of PBP=4 (~000300~1000) hurdle rate is 3 years (a very common rate), then investment (a) is attractive but investment (b) is not. Hopefully, it is obvious that judging (b) unattractive is not good decision making since a $1,000,000 return four years after a $1,000 investrnent is attractive under almost any value ofMARR. In point of fact, the IRR for (b) is 465% so for any value of MARR less than 465%’ investment (b)is attractive.

1,000

1.000.000

l,OOO*

Figure 4.8 Two invest~entsevaluatedusingpayback period

4.8.1 ~ n t r o ~ u c t i o n

The general scenario for economic analysis is that a set of investment alternatives are available and a decision must be made regarding which ones (if any) to accept and which ones (if any) to reject. If the analysis is deterministic,then an assumption is made that cash flow amounts, cash flow timing, and MARR are known with certainty. Frequently, although this assumption does not hold exactly, it is not considered restrictive in terms of potential investment decisions. If however the lack of certainty is a significant issue then the analysis is stochastic and the assumptions of certainty are relaxed using probability distributions and statistical techniques to conduct the analysis. The remainder of this section deals with deterministic economic analysis so the assumption of certainty will be assumed to hold. Stochastictechniques are introduced in Section 4.9.5. 4.8.2 Deterministic Unconstraine~Analysis

Deterministic economic analysis canbe further classified into unconstrained deterministic analysis and constrained deterministic analysis. Under unconstrained analysis, all projectswithin the set available are assumed to be independent. The practical implication of this independence assumption is that an accept/reject decision can be made on each projectwithout regard to the decisionsmadeon other projects.In general this requires that (1)there are sufficient funds available to undertake all proposed projects,(2) there are no mutually exclusive projects, and (3) there are no contingent projects. A funds restriction creates dependency since, before deciding on a project being evaluated, the evaluator would have to know what decisions had been made on other projects to determine whether sufficient funds were available to undertake the current project. Mutual exclusion creates dependency since acceptance of one of the mutually exclusive projects precludes acceptance of the others. Contingency creates dependence since prior to accepting a project, all projects on which it is contingent must be accepted. If none of the above dependency situations are present and the projects are otherwise independent, then the evaluation of the set of projects isdone by evaluating each individual project in turn and accepting the set of projects whichwere individually judged acceptable. This accept or reject judgment can be madeusing either the PW, AW, IRR, or SIR measure of worth. The unconstrained decision rules foreach or these measures of

ENERGY ~ANAG~MEN HANDBOOK T

56

PWD = -500+290*(PI A,12%,4) = -~00+290(3.03~3) =:

worth are restated below for convenience. Unconstrained PW DecisionRule: If PW 20, then the project is attractive. Unconstrained AW Decision Rule: If AW 20, then the project is attractive.

$380.83 =ZJ Accept D Theref ore, Accept Projects A, B, and D and Reject Project C 4.8.3 ete er minis tic ~ o n s t ~ a i n ~ ~

Unconstrained IRR Decision Rule: If IRR is unique and IRR ZMARR, then the project is attractive.

Constrained analysis is required any time a dependency relationship exists between any of theprojects within the set to be analyzed. h general dependency Unconstrained SIR DecisionRule: IfSIR 21, then the exists any time (1)there are insufficient funds available project is attractive. to undertake all proposed projects (this is commonly referred to as capital rationing), (2) there are mutually exExamp~e117 clusive projects, or (3)there are contingent projects. Consider the set of four investment projects whose Several approaches have been proposed for selectcash flow diagramsareillustrated in Figure 4.9. If ing the best setof projects froma set of potential projects MARR is lZ%/yr and the analysis is unconstrained, under constraints. Many of these approaches will select which projects should be accepted? the optimal set of acceptable projectsunder some conditions or will select a set that is near optimal. However, Using present worth as the measure of worth: only a few approaches are guaranteed to select the optimal set of projects under all conditions. One of these PWA = -1000+600*(PI A,12%,4) = -1000+600(3.0373) approaches is presented below by way of a continuation $822.38 =ZJ Accept A of Example 17, The firststeps in the selection processare to specify PWB = -1300+800"(PI A,12%,4) = -1300+800(3.0373) = the cash flow amounts and cash flow timings for each project in the potential project set. Additionally, a value $1129.88 ==$ Accept B ofMARR to be used in the analysis must be specified. These issues have been addressed in previous sections PWc = -400+120"(PI A,12%,4) = -400+120(3.0373)= so further discussion will beomitted here. The next step -$35.52 ==$ Reject C =T

GOOGOO GOO

GOO 4

1000

__

1300

roject

roject

120

120

120

120 4

400

roject

roject Figure 4.9 Four i n ~ e s t m e ~projects ts

ECONOMIC ANALYSIS

57

istoformtheset of all possible decision alternatives Table 4.7 The decision alternati~esfrom four from the projects, A single decision alternative is a collection of zero, one, or more projects which could be Accept A only accepted (all others not specified are to be rejected). As Accept B only an illustration, the possible decision alternatives for the Accept C only set of projects i~lustratedin Figure 4.9 are listed in Table Accept D only 4.7. As a general rule, there will be 2n possible decision alternatives generated from a set of n projects. Thus, for Accept A and B only the projects of Figure 4.9, there are z4 = 16 possible deciAccept A and C only sion alternatives. Sincethissetrepresentsallpossible Accept A and D only decisions that could be made, one, and only one, will be Accept B and C only Accept B and D only selected as the best (optimal) decision. The set of decision alternatives developed in this way has the properAccept C and D only ties of being collectively exhaustive (all possible choices are listed) and mutually exclusive (only one will be seAccept A, B, and C only lected). Accept A, B, and D only The next step in the process is to eliminate deciAccept A, C, and D only sions from the collectively exhaustive, mutually excluAccept B, C, and D only sive set that represent choices which would violate one (or more) of the constraints on the projects. For the Accept A, B, C, and D projects of Figure 4.9, assume thefollowingtwocon(frequently called thedo everything alternative) straints exist: Accept none Project B is contingent on Project C, and (frequently called thedo nothing or null alternative A budget limit of $1500 exists on capital expend.itures at t=o.

able

ecision alternati~eswith constraints imposed

Accept A only Accept B only Accept C only Accept D only

OK infeasible, B contingent on C OK OK

Accept A and B only Accept A and C only Accept A and D only Accept B and C only Accept B and D only Accept C and D only

infeasible, B contingent on C OK OK infeasible, capital rationing infeasible, B contingent on C OK

Accept A, B, and C only Accept A, B, and D only Accept A, C, and D only Accept B, C, and D only

infeasible, capital rationing infeasible, B contingent on C infeasible, capital rationing infeasible, capital rationing

Do Everything

infeasible, capital rationing

null

OK

~~

58

ENERGY MANAGEMENT HANDBOOK

Based on these constraints the following decision alternatives must be removed from the collectively exhaustive, mutually exclusive set: any combination that includes B but not C (B only; A&B; B&D; A&B&D), any combination not already eliminated whose t=O costs exceed $1500 (B&C, A&B&C, .A&C&D, B&C&D, A&B&C&D). Thus, from the original set of 16 possible decision alternatives, 9 have been eliminated and need not be evaluated. These results are illustrated in Table 4.8. It is frequently the case in practice that a significant percentage of the original collectively exhaustive, mutually exclusive set will be eliminated before measures of worth are calculated. The next step is to create the cash flow series for the remaining (feasible) decision alternatives. This is a straight forward process and is accomplished by setting a decision alternative's annual cashflow equal to the sum of the annual cash flows (on a year by yearbasis) of all projects contained in the decision alternative. Table 4.9 illustrates the results of this process for the feasible decision alternatives from Table 4.8. The next step is to calculate a measure of worth for each decision alternative. Any of the four consistent measures of worth presented above (PW, AW, IRR, or SIR but NOT PBP) can be used. The measures are entirely consistent and will lead to the same decision alternative being selected. For illustrative purposes, P W will be calculated for the decision alternatives of Table4.9 assuming MARR=12%.

PWA =

-1000 + 600"(P I A,12%,4) = 1000 + 600 (3.0373) = $822.38

PWC

-400 + 120*(PI A,12%,4) 400 + 120 (3.0373) -$35.52

=L

-500 + 290*(P I A,12%,4) = 500 + 290 (3.0373) = $380.83

PWD =

P W A ~ -1400 ~ + 720"(P I A,12%,4) = 1400 + 720 (3.0373) = $786.86 =I

PWA&D= -1500 + 890"(P I A,12%,4) I= 1500 + 890 (3.0373)= $1203.21 PWC~LD = -900 + 410"(P I A,12%,4) = 900 + 410 (3.0373) = $345.31 PW,,ll

= -0 + O"(P I A,12%,4) = -0 (3.0373) = $0.00

+0

The decision rules for thevariousmeasures worth under constrained analysis are list below.

Constrained PW Decision Rule: Accept the decision alternative with the highest PW. Constrained AW Decision Rule: Accept the decision alternative with the highest AW. Constrained IRR Decision Rule: Accept ternative with the highest IRR.

the decision al-

Constrained SIR Decision Rule: Accept ternative with the highest SIR.

the decision al-

For theexampleproblem,thehighestpresent worth ($1203.21) is associated with accepting projects A and D (rejecting all others). This decision is guaranteed to be optirnal (i.e., no feasible combination of projects has a higher PW, AW, IRR, or SIR).

-

=T

able 4.9 The decision alternatives cash flows

yr \ Alt

410

890

720

A only

C only

290 600

120

of

D only

A&D A&C C&D

null

0

ECONOMIC ANALYSIS

59

Table 4.10 The number of ecision alternatives as a function of the number of projects

4.8.

Number of

Several interesting observations canbemaderegarding the approach, measures of worth, and decisions associated with constrained analysis. Detailed development of these observations is omitted here but may be found in many engineering economic analysis texts [White. et al., 19981. The present worth of a decision alternative is the sum of the present worths of the projects contained withinthealternative. (From above P W A ~ D = PWA $.PWI)).

64

The annual worth of a decision alternative is the sum of the annual worths of the projects contained within the alternative. The internal rate of return of a decision alternative is NOT the sum of internal rates of returns of the projects contained within the alternative. The IRR for the decision alternative must be calculated by the trial and error process of finding the value of i that sets the PWof the decision alternative to zero.

15

32,768

20

1,048,576

25

33,554,432

The savings investment ratio of a decision alternative is NOT the sum of the savings investment ra- 43.5 The Planning tios of the projects contained within the alternative. The SIR for the decision alternative mustbecalcu-Whencomparingprojects,it is important tocomlated from the cash flows ofthedecision alterna- pare the costs and benefits over a common period of The time.tive. intuitive sense of fairness here is based upon the recognition that most consumers expect an investA common, but flawed, procedure for selecting the ment that generates savings over a longer period of time projects to accept from the set of potential projects to cost more than an investment that generates savings involves ranking the projects (not decision alterna- over a shorter period of time, To facilitate a fair, compatives) in preferred order based on a measure of rable evaluation a common period of time over which to worth calculated for the project(e.g., decreasing conduct the evaluation is required. This period of time is project PW) and then accepting projects as far referred to as the planning horizon. The planning horidown the list as funds allow. While this procedure zon issue arises when at least one project has cash flows will select the optimal set under some conditions defined over a life which is greater than or less than the (e.g., it works well if the initial investments of all life of at least one other project. This situation did not projects are small relative to the capital budget occur in Example 17 of the previous sectionsinceall limit), it is not guaranteed to select the optimal set projects had 4 year lives. under all conditions. The procedure outlined above There are four c o m o n approaches to establishing will select the optimal set under all conditions. a planning horizon for evaluating decision alternatives. Table 4.10 illustrates that the number of decision These are (1) shortest life, (2) longest life, (3) least comalternatives in the collectively exhaustive,mutually mon multiple of lives, and (4) standard. The shortest life exclusive set can grow prohibitively large as the planning horizon is established by selecting the project number of potential projects increases. The mitigat- with the shortest life and setting this life as the planning ing factor in this combinatorial growth problem is horizon. A significant issue in this approach is how to that in most practical situations a high percentage value the remaining cash flows for projects whose lives of the possible decision alternatives are infeasible are truncated. The typical approach to this valuation is to estimate the value of the remaining; cash flows as the and do not reauire evaluation. I

v

ENERGY ~ A N A G ~ M E NHANDBWK T

60

salvagevalue(marketvalue)oftheinvestmentatthat point in its life. inetheshortest life planninghorizonfor projects A, B, C with lives 3 , s ’ and 6 years, respectively. The shortest life planning horizon is 3 years based on Project A. A salvage value must be established at t=3 for B’s cash flows in years 4 and5. A salvage value must be established at t=3 for C’s cash flows in years 4, 5, and 6. The longest life planning horizon is established by selecting the project with the longest life and setting this life as the planning horizon. The significant issue in this approach is howtohandleprojectswhosecashflows don’t extend this Ion . Thetypicalresolutionfor this problem is to assume hat shorter projects are repeated consecutively(end-to-end)untilone of therepetitions extends at least as far as the planning horizon. The assumption of projectrepeatabilitydeservescarefulconsiderationsince in somecases it is reasonableandin others it may be quite unreasonable. The reasonableness oftheassumption is largely a functionofthetypeof investment and the rate of ovation occurring within the investment’s field (e.g., assuming repeatability of investments in high technology equipment is frequently ill advised since the field is advancing rapidly). If in repeating a project’s cash flows, the last repetition’s cash flows extend beyond the planning horizon, then the truncated cash flows (those that extend beyond the planning horizon) must be assigned a salvage value as above. Determinethelongest life planninghorizonfor projects A, B, C with lives 3,5, and 6 years, respectively. The longest life planning horizon is 6 years based on Project C, Project A. must be repeated twice, the second repetition ends at year 6, so no termination of cash flows is required. Project B’s second repetition extends to year 10, therefore, a salvage value at t=6must be establishedfor B’s repeatedcash flows in years 7, 8, 9, and 10.

mined mathematically using algebra. Discussion of this approach is beyond the scope of this chapter. For a small number of projects, the value can be determined by trial anderror by examinin multiplesof thelongest life project. Determine the least common multiple p l a ~ ho~ g rizonforprojects A, B, C with lives 3, 5, and6years, respectively. The least common multiple of 3, 5, and 6 is 30. This can be obtained by trial and error startingwiththe longest project life (6) as follows: 1st trial: 6*1=6; 6 is a multiple of 3 but not proceed 2nd trial: 6“2=12; 1 is a multiple of 3 but not 5; reject 12 and proceed 3rd trial: 6*3=18; 18 is a multiple of 3 but not 5; reject 18 and proceed 4th trial: 6*4=24; 24 is a multiple of 3 but not 5; reject 24 and proceed 5th trial: 6*5=30; 30 is a ~ u l t i p l eof 3 and 5; accept 30 and stop Under a 30-yearplannhorizon, repeated10times,6times,and truncation is required.

A’s cashflowsare C’s 5 times. No

Thestandardplanninghorizonapproach uses a planning horizon which is i n d e ~ e n ~ e n oftthe projects being evaluated. Typically, this type of p l a ~ i n horizon g is based on company policies or practices. The standard horizonmayrequirerepetition and/or truncation depending upon the set of projects being evaluated. Exa

inethe h p a c t of a yearstandardplanning horizon on projects A, B, C with lives 3, 5, and 6 years, respectively. With a 5-year plannin

An approach that eliminates the truncation salvage valueissuefromtheplanninghorizonquestion is the Project A must be repeated one timewiththesecond repetition truncated by one year. least common multiple approach.The least common multipleplanninghorizonisset by determiningthe Project B is a 5 year project and does not require repetismallestnumberofyears at whichrepetitionsof all tion or truncation. projects would terminate simultaneously. The least common multide for a set of numbers (lives) can be deter- Proiect C must be truncated by one year. i \

I

ECONOMIC ANALYSIS

There is no single accepted approach to resolving the planning horizon issue. Companies and individuals generally use one of the approaches outlined above. The decision of which to use in a particular analysis is generally a function of company practice and consideration of the reasonableness of the project repeatability assumption and the availability of salvage value estimates at truncation points.

61

made that the values of the time value of money factor vary linearly between the known values. Ratios are then used to estimate the unknown value. The example below illustrates the process.

E x a ~ ~ 23 le Determine an interpolated value for (F I P,13%,7). The narrowest range of interest rates which bracket 13% and forwhich time value of money factor tables are provided in Appendix 4A is 12% to 15%. The values necessary for this inter~olationare

The preceding S ons of this chapter outline an approachfor conduct deterministic economicanalysis of investment opportunities. Adherence to the concepts and methods presented will lead to sound investment decisions with respect to time value of money principles. This section addresses several topics that are of special interest in some analysis situations.

All of the examples previously presented in this chapter conveniently usedinterest rates whose time value of money factors were tabulated in Appendix 4A. How does one proceed if non-tabulated time value of money factors are needed? There are two viable approaches; calculation of the exact values and interpolation. The best and ~eoreticallycorrect approach is to calculate the exact values of needed factors based on the formulas in Table 4.6.

E x ~ ~ ~ l e

The interpolation proceeds by setting up ratios and solving for the unknown value, (F I P,13%,7), as follows: 2 & 1of left column__change between rows change between rows 3 & 1of left column

change between rows 2 & l of right column change between rows 3 &:1of right column

Determine the exact value for (F I P,13%,7). From Table 4.6,

(F I P,i,n) = (lt-i)" = (1+.13)7= 2.3526

0.13 -0.12 -(FI P,13%,7)-2,2107 0.15 -0.12 - 2.6600-2,2107 0.01 0.03

_ .

(FI P,I.3°/o,T7) -2.2107

"

Interpolation is often used instead of calculation of exact values because, with practice, interpolated values canbe calculated quickly. Interpolated values are not "exact" but for most practical problems they are "close enough,'' particularly if the range of interpolation is kept as narrow as possible. Interpolation of some factors, for instance (PI A,i,n), also tends to be less error prone than the exact calculation due simpler mathematical operations. Interpolation involves determining an unknown time value of money factor using twoknown values which bracket the value of interest. An assumption is

0.4493

0.1498 = (FI P,13%,7) -2.2107

(F I P,l3O/o,7) = 2.3605 The interpolated value for (F I P,13%,7), 2.3605, differs from the exact value, 2.3526,by0.0079.This would imply a $7.90 difference in present worth for every thousand dollars of return at t=7. The relative importance of this interpolation error can be judged only in the context of a specific problem.

ENERGY

62

Many practical economic analysis problems involve interest that is not compounded annually. It is commonpracticetoexpress a non-annually compounded interest rate as follows:

E x a m ~ l e25 What are the monthly payments on a 5-year car loan of $12,500 at 6% per year compounded monthly?

Nominal Annual Interest Rate = 65%/yr/mo Period Interest Rate =

12% per year compounded monthly or l2%/yr/mo, Whenexpressedinthisform,12%/yr/mois known as the ~ z o ~ annual i ~ z interest ~ ~ rate Thetechniques covered in this chapter up to this point can not be used directly to solve an economic analysis problem of this type because the interest period (per year) and compounding period (monthly) are not the same. Two approaches can be used tosolve problems of this type. One approach involves determining a period interest rate, the other involves determining an efective interest rate. To solve this type of problem using a period interest rate approach, we must define the period interest rate:

6%/yr/mo =0,5'/*/rno/mo 12 mo/yr

Number of Interest Periods = 5 years x 12 mo/yr = 60 interest periods A = P (A I P,i,n) = $12,500 (A I P,0.5,60) = $12,500 (0.0193) = $241.25

To solve this type of problem using an effective interest rate approach, we must define the effective interest rate. The effective annual interest rate is the m u alized interest rate that would yield results equivalent to the period interest rate as previously calculated, Note however that the effective annual interest rate approach should not be used if the cash flows are more frequent than annual (e.g., monthly). In general, the interest rate Nominal AnnualMerest liate Period Interest Rate= for time value of money factors should match the freNumber o f Interest Periodsper Year quency of the cash flows (e.g., if the cash flows are monthly, use the period interest rate approach with In our example, monthly periods). As an example of the calculation of an effective 12%/yr/mo Period Interest Rate= = l%/mo/mo interest rate, assume that the nominal interest rate is 12 mo/yr 12%/yr/qtr, therefore the period interest rate is 3%/qtr/ Because the interest period and the compounding qtr. One dollar invested for 1 year at 3%/qtr/qtr would period are now the same, the time value of money fac- have a future worth of: tors in Appendix 4A can be applied directly. Note howF = P (FI P,i,n) = $1 (FI P,3,4) = $1 (1.03)4 ever, that the number of interest periods (n) must be = $1 (1.1255) = $1.1255 adjusted to match the new frequency.

To get this same value in 1year with an annualrate the annual rate would have to be of 12.55%/yr/yr. This $2,000is invested in an account which pays 12% value is called the effective annual interest rate. The efper year compounded monthly. What is the balance in fective annual interest rate is given by (1.03)4- 1 = 0.1255 the account after 3 years? or 12.55%. Nominal Annual Interest Rate = 12%/yr/mo Period Interest Rate =

12%/yr/mo = l%/mo/mo 12 mo/yr

Number of Interest Periods = 3 years x 12 mo/yr = 36 interest periods (months)

F = P (I? I P,i,n) = $2,000 (FI P,1,36) = $2,000 (1.4308) = $2,861.60

The general equation for the Effective Annual Interest Rate is: Effective Annual Interest Rate = (1+ (r/m))m--l where: r = nominal annual interest rate m = number of interest periods per year E x a m ~ l e26

What is the effective annual interest rate if the nominal rate is 12%/yr compounded monthly?

nominal annual interest rate = 12%/yr/mo period interest rate = l%/mo/mo effective m u a l interest rate = (1+0.12/12)12 -1 =

Year 1: $1000.00

0.1268 or 12.68%

Year 4: ~1000.00

Year 2: $1000.00 Year 3: $1000.00

The key to proper economic analysis under inflation is to base the value ofMARR on the types of cash flows. If the cash flows contain inflation, then the value of MARR should also be adjusted for inflation. Alternatively, if the cash flowsdo not contain inflation, then the value ofMARR should be inflation free. When MARR does not contain an a d j u s ~ e n tfor inflation, itisreIf it contains an ferredto as a real value for M inflation adjustment, it is referr o as a combined value forMARR. The relationship between inflation rate, the real value ofMARR, and the combined value of MARR is given by:

Inflation is characterized by a decrease in the purchasing power of money caused by an increase in general price levelsof goods and services without an accomincrease the value of the goods and services. ary pressure is created when more dollars are put into an economy without an accompanying increase in goods and services.In other words, printing more money without an increase in economic output generates inflation. A complete treatment of inflation is beyond the scope of this chapter. A good summary can be found in Sullivan and Bontadelli [1980]. When co~siderationof inflation is introduced into 1 + MARRCOMBINED' economic analysis, future cash flows can be stated in (1+ inflation rate) * (1+ MARRREAL) terms of either constant-worth dollars or then-current dollars. Then-current cash flows are expressed in terms Example 28 of the face amount of dollars (actual number of dollars) If the inflation rate is 3%/yr and the real value of that will change hands when the cash flow occurs. Alter-MARR is15%/yr,what is thecombinedvalue of natively, constant-worth cash flows are expressed in MARR? terms of the purchasing power of dollars relative to a 1+ ~ A R ~ O M B I N E D fixed point in time known as the base period, = (1 + inflation rate) X. (1+ ~ARRREAL) 1 + MARl$-~MBINED= (1+ 0.03) * (1 + 0.15)

For the next 4 years, a family anticipates buying $1000 worth of groceries each year. If inflation is expected to be3%/yr what are the then-current cash flows required to purchase the groceries. To buy the groceries, the family will need to take

1 + MARRCoMBINED= (1.03) * (1.15)

1 + MARRCoM~INED=1,1845

MARl$-OMBINED= 1.1845- 1 = 0.1845 = 18.45%

the following face m o u n t of dollars to the store, If the cash flows of a project are stated in terms of We will somewhat artificially assume that the famthen-current dollars, the appropriate value ofMARR is ily only shops once per year, buys the same set of the combinedvalue of MARR. Analysis done in this way items each year, and that the first trip to the store s . cash flows of is referred to as t k e ~ c ~ r~r~e ~~ lt y Ifs ithe will be one year from today. a project are stated in terms of constant-worth dollars, Year 1: dollars required $1000~00*(1.03)=$1030.00 the appropriate value ofMARR is the real value of Year 2: dollars required $1030.00*(1~03)=$1060~90 MARR. Analysis done in this way is referred to as then c o ~ s t ~ ~ t ~ ~ o~ rl yt ks i s . Year 3: dollars required $1060.90*(1.03)=$1092~73 Year 4: dollars required $109 .73*(1.03)=$1125.51 xample 29 What are the constant-worth cash flows, if today's dollars are used as the base year. The constant worth dollars are inflation free dollars, therefore the $1000 of groceriescosts $1000 each year.

Using the cash flows of Examples 27 and interest rates of Example 28, determine the present worth of the grocery purchases using a constant worth analysis. Constant worth analysis requires constant worth cash flows and the real value of MARR.

64

ENERGY MANAGEMENT HANDBOOK

P w = 1000 * (P I A,15%,4) = 1000 * (2.8550) = $2855.00

Using the cash flows of Examples 27 and interest rates of Example 28, determine the present worth of the grocery purchases using a then current analysis. Then current analysis requires then current cash flows and the combined value of MARR. PW = 1030.00 * (P I F,18.45%,1) + 1060.90 * (P I F,18.45%,2) + 1092.73 * (P I F,18.45%,3) t-1225.51 * (P I F,18,45%,4) PW = 1030.00 * (0.8442) + 1060.90 * (0.7127) + 1092.73 * (0.6017) t-1125.51 * (0.5080) PW = 869.53 + 756.10 + 657.50 + 571.76 = 2854.89

Example 31 Conduct a sensitivity analysis of the optimal decision resulting from the constrained analysis of the data in Example 17. The sensitivity analysis should explore the sensitivity of present worth to changes in annual revenue over the range -10% to +lo%.

ThePWof the optimal decision (AcceptA & D only) was determined in Section 4.8.3 to be: P W A ~=D -1500 + 890*(PI A,12%,4) = -1500 (3.0373) = $1203.21

+ 890

If annual revenue decreases lo%, it becomes 890 0.10*890 = 801 and PW becomes I‘WA&D= -1500 + 801*(PI A,I2%,4) = -1500 (3.0373) = $932.88

-

+ 801

The notable result of Examples 29 and 30 is that the If annual revenue increases lo%, it becomes 890 + present worths determined by the constant-worth ap0.10*890 = 979 and PW becomes proach ($2855.00) andthethen-currentapproach ($2854.89) areequal(the $0.11 difference is dueto PWA&D -1500 + 979*(PI A,12”/,,4) = -1500 + 979 (3.0373) = $1473.52 rounding). This result is often unexpected but it is mathematically sound. The important conclusion is that if The sensitivity of PW to changes in annualrevenue care is taken to appropriately match the cash flows and over the range -10% to+lo% is +$540.64 from value of MARR, the level of general price inflation isnot $932.88 to $1473.52. a determining factor in the acceptability of projects. To make this important result hold, inflation must either (1) be included in both the cash flows and MARR (the then- Example 32 current approach) or (2) be included in neither the cash Repeat Example 31 exploring of the sensitivity of flows nor MARR (the constant-worth approach). present worth to changes in initial cost over the range 10% to +lo%. sitivity ~ ~ a l ya sn i ~ =I

Often times the certaintyassumptions associate with deterministic analysis are questionable. These certainty assumptions include certain knowledge regarding amounts and timing of cash flows as well as certain knowledge ofMARR. Relaxing these assumptions requires the use of sensitivity analysis and risk analysis techniques. Initial sensitivity analyses are usually conducted on the optimal decision alternative (or top two or three) on a single factor basis. Single factor sensitivity analysis involves holding all cost factors except one constant while varying the remaining cost factor through a range of percentage changes. The effect of cost factor changes of worth is observed to determine onthemeasure whether the alternative remains attractive under the evaluated changes and to determine which cost factor effects the measure of worth the most.

The P W of the optimal decision (AcceptA & D only) was determined in Section 4.8.3 to be: PWAgLD = -1500 + 890*(PI A,12%,4) = -1500 (3.03’73) = $1203.21

+ 890

If initial cost decreases 10% it becomes1500 0.10*1500 = 1350 and PW becomes PWA&D

=I

-1350 + 890*(PI A,12%,4) = -1350 (3.0373) = $1353.20

+ 890

If initial cost increases 10% it becomes1500 0.10*1500 = 1650 and P W becomes PWAgLD = -1650 + 890*(PI A,12%,4) = -1500 (3.0373) = $105320

-

+

+ 890

65

ECONOMICANALYSIS

The sensitivity data from Examples 31, 32, and 33 The sensitivity of PW to changes in initial cost over the range -10% to +lo% is -$300.00 from $1353.20 to are summarized in Table 4.11. A review of the table reveals that the decision alternative A&D remains attrac$1053.20. tive (PW 20) within the range of 10% changes in annual revenues, initial cost, and MARR. An appealing way to Example 33 Repeat Example 31 exploring the sensitivity of the summarize single factor sensitivity data is using a "spiPW values deterpresent worth to changes in MARR over the range -10% der" graph. A spider graph plots the minedintheexamplesandconnectsthemwith lines, to +lo%. one line for each factor evaluated. Figure 4.10 illustrates dataofTable 4.11. On this The PW oftheoptimaldecision(AcceptA & D the spider graphforthe graph, lines with large positive or negative slopes (angle only) was determined in Section 43.3 to be: relative to horizontal regardless of whether it is increasing or decreasing) indicate factors to which the present PWA&D= -1500 + 890"(P I A,12%,4) -1500 + 890 value measure of worth is sensitive. Figure 4.10 shows (3.0373) = $1203.21 that P W is least sensitivetochanges in MARR(the If MARR decreases 10% it becomes 12% -0.10"12% MARR line is the most nearly horizontal) and most sensitivity tochangesinannualrevenue (the annualrev= 10.8% and PW becomes enue line has the steepest slope). Additional sensitivities PWA&D =I: -1500 + 890"(P I A,IO.8%,4) = -1500 + 890 could be explored in a similar manner. (3.1157) = $1272.97 Table 4.11 ~ e n s i t i ~ i analysis ty data table If MARR increases 10% it becomes 12% + 0.10"12% Factor \ = 13.2% and P W becomes Percent Change - 10% PWA&;D= -1500 + 890*(P I A,I3.fL0/o,4) = -1500 + 890 (2.9622) = $1136.36 1st cost 1053.20 1203.21 1353.20 =I

The sensitivity of PW to changes in MARR over the range-10%to +lo% is "$136.61from$1272.97to $1136.36.

' ~~~1

~

Revenue

~

932.88

1203.21

1272.97 1203.21 1136.36

ivi

-10

~

0

F i g ~ r e4.10. ~ e n s i t i ~ ianalysis ty "spider" graph

10

~

1473.52

~

"~

ENERGY ~ A N A G E M E N THANDBOOK

66

When single factor sensitivity analysis is inadThe heat pump saves $380 annually in electricity equate to assess the questions which surround the cercosts, taintyassumptions of a deterministicanalysis, risk The heat pump has a $50 higher annual mainteanalysis techniques can be employed. One approach to nance costs, risk analysis is the application of probabilistic and statistical concepts to economic analysis. These techniques reThe heat pump has a $150 hi her salvage value at quire information regarding the possible values that unthe end of 15 years, certain quantities may take on as well as estimates of the probability that the various values will occur, A detailed The heat pump requires $200 more in replacement treatment of this topic is beyond the scope of this chapmaintenance at the end of year 8, ter. A good discussion of this subject can be found in Park and Sharp-~ette[1990]. If NIARR is l8%, is the additional investment in the A second' approach to risk analysis in economic heat pump attractive? 1 analysis is through the use of simulation techniques and simulation software. Sim~~lation involves using a comUsing present worth as the measure of worth: puter sirnulation program to sample possible values for + 3$0*(P I A,18%,15) . Pvv = -1500 the uncertain quantities in an economic analysis and cal50*(P I A,18%,15) + 150*(P I F,l8%,15) culating the measure of worth. This process is repeated 200*(PI F,l8%,8) many times using different samples each time, After many samples have been taken, pro~abilitystatements Pvv = -1500 + 3$0*(5.0916) - 50*(5.0916) + regarding the measure of worth may be made, A good 150*(0.0835). .200*(0.2~60) discussion of this subject can be found in Park and harp-~ette [1990]. Pvv = -1500.00 + 1934.81- 54.58 + 12.53-53.20 = $139.56

In this chapter a coherent, consistent approach to e c o n o ~ i analysis c of capital investments (energy related or other) has been presented. To conclude the chapter, this section provides several additional examples to illustrate the use of time value of money concepts for energy related problems. Additional example applications as well as a more in depth presentation of conceptual details can be found in the references listed at the end of the chapter. These references are by no means exclusive; many other excellent presentations of the subject matter are also available. Adherence to the concepts and methods presented here and in thereferenceswillleadto sound investment decisions with respect to timevalue of money principles.

Decision:PW20 ( 139.56>0.0), therefore the additional investment for the heat pump is attractive. A homeowner needs to decide whether to install R11 or R-l9 insulation in the attic of her home, The R-l9 insulation costs $150 more to install and will save approximately 400 kwh per year. If the planning horizon is 20 years and electricity costs$0.08/~Whis the additional investment attractive at ~ A R R of lo%?

0 . 0 8 / k ~ the , annual savings are: 400 kwh * $O.O8/kWh = $32.00 Using present worth as the ~ e a s u r eof worth: PW = -150 + 32*(P I A,lO~0,20)

Section 4.3.3 an example involving the evaluation of a baseboard heating and window air conditioner versus a heat pump wasroducedto illustrate cash flow diagrammin~(Figure ).A summary of the differential costs is repeat here for convenience. The heat pump costs l500 more than thebaseboard system,

PVV = -150 + 32~(8.51~6) = -150 + 27

Decision: PW>O ($12 4>0.0), therefore the 12-19 insulation is attractive.

The homeowner from Example 35 can install R-30 insulation in the attic of her home for$ 00 more than the

ICONOMIC

ANALYSIS

67

3-19 insulation. The R-30 will save approximately cWh per yearovertheR-l9insulation.Istheadditional nvestment attractive? value

250 If theeconomizerfromExample37 of $5000 at the end investment theof years is 10 attractive?

has a salvage

Assuming the same MARR, electricitycost, and planning horizon, the additional annual savingsUsingpresent worth as the measure of worth: are: 250 kWh * $O.O8/kWh = $20.00 PW -20000 + 3500*(PI A,lO~o,lO) Using present worth as the measure of worth: 500*(PI A,lO%,lO) + 5000*(PI F,10%,10) =T

PW = -200 + 20*(8.5136) -200 -t 170.27 -$29.73 =I

therefore the Decision: PW0.0), therefore the economizer is now attractive.

An economizer costs$20,000 and will last 10 years. [t will generate savings of $3,500 per year with mainteBrown, R.J. and R.R. Yanuck, 1980, Life Cycle Costing: A PrffcticfflGuide nance costs of$500 per year, If MlARR is 10% is the for Enerp~ Ma~zage~s, The Fairmont Press, Inc., Atlanta, GA. economizer an attractive investment. ~ ~ e - C yCostiq c~e Fuller, S.K. and S.R.Petersen,1994,NISTIR5165: Using present worth as the measure of worth: PW

=I

-20000 -t3500*(PI A,10%,10) - 500*(PI A,10%,10)

- 500*(6.1446) I’W = -20000 + 3500~(6.1446) P W -20000.00 + 21506.10 -3072.30 = -$1566.20 =I

Decision: ~ W < O(-~1566.~0

2.22 l .74

6.5 01 .393 6.6 02 .396 6.608.395 6.700.393

0.3 16 0.266 0.2 0.2

0.402 0.396 0,386 0.376 0.366 0.355

5.07 x IO-3

1.

6.68

I. I. 1.

6.11

0.937 0.89I 0.87l 0.874

5.13

i.019

0.910

x 10''

2.60 2.28

2.15 2.09 2.07 2.05 2.04 2 1.0 32 6 2.01 2.00

6.59 I

x 10-3

I.

C ~ ~~ioxid$ o n ~~~z~

-58

-40 _.

-4 2.2014

-58 -40 -2 _.

1

32

I

l

32 S

6 86 104

I22

72.19 0.44 69.78 0.0584 0.4s 67,22 0.47 0.49 .45 00 .6 53 25 f61.39 .989 0.

0.128 x IO-' 0.127 0, I26 0.124 0.122

~2.39 82.~ 8 l .79 8I S O 81.20

0.623 39.13 x IO-' 0.6295 26.88 0,6356 18.49 1 I .88 0.4548 7.49

80.91 80.62 80.32 80.03 79.73 79.44

0.654 0. 0.666 0,672 0,678 0.685

79.~ 79.29 78.91 78.5 78.16 77.72

0.540 0.0895 0.554 0.0323 0.570 0.0 127 0.584 0.~S4 0. 0.~24 0.617 0.0016

4.73 3.61 2.93 2.07 l .78

0.~94

1.558 x to-' 1.864

0.0645 2.22 2.043 0,0665 2.1IO

0.2324.52 0,240 0.248 0,257 0.265 0.273 0,280 0,288 0.295 0.302 0.309

x IO-'

4-65 4.78 4.91 5 -04

5.16 5.28 5.40

5.50 5.60 5.69

2.96

2.46

2.12

312 208 I 39 87.l 53.6 33.0 24.6 19.6 16.0 13.3 I1.3

84.7 x io3 0.165 0.165 0.165 0,166

3.67 3.60

3.54 3.46

31.O

12,s 5.38 2.4s 1.63

0.28 x Io->

ENERGY

728

t

p

G

(Btu/

k

(Btu/

V

(ft2/sec)

hr ft * "F)

70.59 0.548 69.7 l 0.S69 68.76 0.148 0.591 67.90 0.612 67.27 0,633 ~ . 0 8 0.655 0,152

61.92 x IO"c 20.64 9.35 5.1 l 3.61 3.21 3.57 2.18

0.140 3.62 0.144

0.0461 0.0097 0.0026

0.085 0.084 0.083

176

56.13 55.45 54.~9 53.94 53.19

212 248 284 320

52.44 0.530 51.75 0.078 0.55 I 51.00 0.572 50.3 l 0.593

("F) (iblft:!) 32 68 104 3.64 I40 I76 212 3.52

32 68

104 I 40

tb*"F)

0.429 0.449 0.469 0.489 0.509

0.0335 32 850.78 0.0333 68 0.033 I I22 0.0328 212 246.2 6.64 0.0326 302 392 482

820.61 813.16 802

0.0375 0.0324 0.032

3.38 3.23

3.64

x IO-'

0,150 0. 151

2.98 0,080 0,2t9 2.86 0.133 0.086

a

0.079

0.0863 0.0823 0.0724

0.36 x

0.39 x I O w 3

3.10

2.

276 175 116 84

0.0288 0.0249 0.0207 0.0162 0.01 34

4.74 5.43 6.07

267.7 7.13 287.0 7.55 8.10

615 204 93 51 32.4 22.4

3.53 x IOw34 I

0.060

0,133 X IO" 0. I23 0.1 12 194.6 0.0999221.5 0.0918

P

(11~)

Pr

(ft*/hr)

316

1.01

X

0.01 16 0.0103 0.~83

Carboa ~ i o x { ~C e ~2~ 32 50 68 86

57.87 53.69 48.23 37.32

0.59 0.75 I.2 8.7

0.0604 0.0561 0.05 0.04

0.1 17 0.109 0.098 0.086

I,774 1.398

0.860 0.108

2.38 2.U0 4. l0 28.7

7.78 x 10-3

S u ~ u~r i o ~ ~ S ~ Qe ~ ~

-S8

-4 14

97.44 9s '94 94.43 92.93 91.37

0 3247 0.3250 0.3252 0.3254 0,3255

0.521 x 10 0.4Sb 0.399 0.349 0.3 10

32 50 68 86 IW 122

89.80 88. I8 86.55 84. 86 82.98 81.10

0.3257 0.3259 0.3261 0.3263 0.3266 0.3268

0.277 0.250 0.226

-40 -22

0.204

0.186 0.174

S

0.1140 0.136 0.133 0.130 0,126

4.19 0.122 0. I18 0.l 15 0.11 I 0. 3.95 IO7

0.102

4.42 x 10 - 3 4.38 4.33 4.29 4.25

4.24 3.74 3.3 1 2.93 2.62

4.13 4.07 4.01

2.38 2.18 2.00 1.83 I.70 1.61

3.87

ethyl C~l~ri~e {C~~~l)

-58

-40 --22 1

32 50 68 86 I04 I22

.7 I .5I 63.46 62.39 6 1.27

0.3525 0,3541 0.3561 0.3593 0.3629

0.344 x, l0 0.342 0.338 0.333 0.329

60.08 58.83 57.64 56.38

0.3673 0.3726 0.3788 0.3860 0,3!142 0.4034

0.325 0.320 0.3 1s 0.3 IO 0.303 0.295

ss. l?

53.76

S

0.124 0.121 0.117 0.113 0.108

4.70 0.103

0.099

4.31 0.094 0.089 3.86 0.083 3.57 0.077

5.38 X 5.30 5.18 5.04 4.87 4.52 4. IO

2.3 1 2.32 2.35 2.38 2.43 2.49 2.55 2.63 2.72 2.83 2.97

Sorrrw: From E. R. G. Eckert and K. N . Drake, Heut clnd Muss Trmsfer; copyri~htI959 with the permis~ionof ~ c ~ ~ aBook w -Compitny. ~ j ~ ~

1.08 x IO"

HANDBOOK

TABLES CONVERSION FACTORS AND PROPERTY

("F)

(Ib/ft3)

729

(ft2/sec)

lb*"F)

-

hr ft "F)

tft21hr)

Pr

Air

-280 -1

-1

-10 170 260 350 0

530 620 710 800 8 980 I070 1160

1250 1340 I520 1700 1880

2 2240 ,2420 2 2780

2~ 3140 3320 3500 3680 3860 4160

-456

-400

-200 -100 0

200

400 600 I I

0.2452 0.2412 0.2403 0.2~1 0.2402 0.2410 0.2422 0.0551 0.2438 0.0489 0 . ~0.2459 0.2482 0.0401 0,0367 0.2520 0.2540 0.0339 0.03 14 0.2568 0.2593 0.0294 0.2622 0.0275 0.2650 0.0259 0.2678 0.0245 0,0232 0.2704 0.2727 0.0220 0.2772 0.0200 0.0~84 0.2815 0.2860 0.0 169 0.2 0.0 157 0.2939 0.0147 0.2982 0.0I38 0.3028 0.0 130 0.3075 0.0 I23 0.3 I28 0.0 l 16 0.3196 0.01 10 0.3278 0.0 105 0.3390 0.0100 0.3541 0.3759 0.~87 0.4031

0.2248 0.1478 0. I 1 0 4 0.~82 0,0735

1.242 1.242 0.0915 0.213 l 9.95 I ,242 69.30 f ,242 0.0 l52 0.01 19 l .242 186.9 t ,242 0.00829 , 9 l .242 0,00637 0.005 17 1.242 0 . ~ 3 9 l .242 682.5 1.242 0.00376 0.00330 I .242

0.4653 x IO-' 0.6910 0.8930 I .074 1.241 I .394 1S36 1.669 I .795 1.914 2.028 2.135 2.239 2.339 2.436 2.530 2.620 2.703 2.790 2.955 3.109 3.258 3.398 3.533 3,668 3.792 3.915 4.029 4,168 4.301 4.398 4.513 4.61 I 4.7s0 5.66 X 3.6833.7 84.3 105.2 122.1 154.9 184.8 209.2 233.5 256.5 28747.9

2.070 x IO-' 4.675 8.062 10.22 16.88 22.38 27.88 31 -06 40.80 47.73 55.26 62.98 71.31 79.56 88.58 97.~ 106.9 116.5 126.8 147.8 169.0 192.8 216.4 240.3 265.8 291.7 318.3 347.1 378.8 409.9 439.8 470.1 506.9 546.0

x IOm5

102.8 .5

.9 I .o

0.005342 0.~7936 0.01045

0,01287 0.01516 0.01735 0.019 0.02 142 0.02333 0.025 19 0.02692 0,02862 0.03022 0.03 183 0.03339 0.03483 0.03628 0.03770 0.03901 0.04178 0.044 10 0.04641

0.048~0 0.05098 0.05348 0,05550 0.05750 0.0591 0.06 I2 0.0632 0.0646 0.~3 0.068I

0.07~ 0.WI

0.0204 0.0784 0,0977 0.1 l4 0.130 0,145 0. IS9 0.172

0.2226 0.3939 0.5100

0.8587 1.156 1.457 1,636 2.IS6

2.531 2.911 3.324 3.748 4.175 4.63I 5.075 5.530 6,010 6,502 7.536 8.5 14 9,602 L0.72 11.80

12.88 14.00 15.09 16-40 17.41 18.36 19.05

19.61 19.92 20.2I

0.770 0.753 0.739 0.722 0.708 0.697 0.689 0.683 0.680 0.680

0.680 0.682 0.684 0.686 0.689 0.692 0.696 0.699 0,702 0.706 0.714 0.722 0.726 0.734 0.741 0.749 0.759 0,767 0.783 0.803 0.83I 0.863 0.916 0.972

0.1792 2.044 3,599 5.299 9,490 14.40 20.2I 25.81 34-00 41.98

0.74 0.70 0.694 0.70 0.7I 0.72 0.72 0.72 0.72 0.72

0.0966

0.759 0.72I 0.7t 2 0.718 0.719 0.713 0.706 0.697 0.690 0,682 0.675

~roge~

-406

-370

2.589 2.508 2,682 -2 3.010 "I 3.234 -100 3.358 l0 3.419 0.005I I 80 I70 0 . ~ 3 8 3.448 0.~383 3.461 260 0 . ~ 3 4 ~3.463 350 0.~307 3.465 440 0,00279 3.471 530 0.00255 3.472 620 0.002t 8 3.481 800 0.0019i 3.S05 980 0.00I70 3,540 I160 0.00153 3.575 1340 3.622 0 . 0l39 I520 3.670 0.00128 1700 3. 720 0.733 0.001 18 1880 0.736 69.8I09400.300 10.tW)I 429 1156.42 3.73s

-

0.05289 0.03181 0.0 I534 0.01022

1.079 x io-" 1.691 2.830 3.760 4.578 5.321 6.023 6.689 7.300 7.915 8.491 9.055 9.599 10.68 1 I .69 12.62 13.55 14.42 15.29 67.40 16.18 0.296

0,0132 2.040 x 10- ' 0.0209 5.253 0.0384 18.45 0.0567 36.79 0,0741 59.77 0,0902 86.80 0. I os 117.9 0'1 19 152.7 0.132 190.6 0.145 232.t 0.157 276.6 0.169 324.6 0.182 376.4 0.203 489.9 0.222 612 0.238 743 0,254 885 0.268 I039 0,282 I l92 1370

0.262 0.933 I .84 2.99 4.38 6.02 7.87 9.95 12.26 14.79 17.50 20.56 26.75 33.18 39.59 46.49 53.19 60.00

0.668 0.664

0.659 0.664

0.676 0.686 0,703 0,715

ENERGY MANAGEMENT

730

Table 11.54 Continu

T

P

("F)

(lb/ft3)

c ,

(Btu/ lb*"F)

k

(I b/sec ft 1

-

(Btu/

01

hr ft "F)

(ft2/hr)

0.~522 O.oo7~ 0.01054 0.01305 O.O! 546 0.01774 0.02~ 0.022l2 0.024l I 0.02610 0.02792

0,09252 0.2204 0.3958 0.6 120 0,8662 l. 150 l .460 1.786 2.132

0.815 0.773 0.745 0.725 0,709 0.702 0.695 0.694 0.697

2.867

0.704

v

P

(ft2/sec)

Pr

~xygen

-280 -1 9 0 -l o o

-IO

80 I70 260 350 440

530

620

-280

-l o o

80 260

440

620 800

980

It60

1340 I520 l 701)

0.2492 0. I635

0.122l 0.0975 0.0812 0.0695 0,0609

0.0542 0.0487

0.0443

0.0406

0.2264 0.2 l92 0.2181 0.2187 0.2198 0.2219 0.2250 0.2285 0.2322 0.2360

0.2399

5.220 x IO-' 7.72I 9.979 12.01 13.86 15.56 17.16 18.66 20.IO

2.095 x IO"' 4,722 8.173 12.32 17.07 22.39 28.18 34.43 , 41.27

2I .48

48.49

56.13

22.79 ~

0.2561 0.249I 0.1068 0.2486 0.07l 3 0.2498 0.0533 0.252I 0.0426 0.2569 0.0355 0.2620 0.0308 0.2681 0. :267 0,2738 0.0237 0.2789 0.02I3 0.0 1940.2832 0.2875 0.0178

0.2173

4.611 x 10"' 8.700

t 1.99

14.77 f7.27 19.56 21 S9 23.41 25.19 26.88. 28.4l 29.94

-

I70 260 350

440

530 620

0.0608

-64 10 80

0

-

I70 260 350 440 530 620

-58

32 122 212 302 392

1.019

0.1544 0.1352 0. I 122 0.0959 0,0838 0.0744 0.0670

224 260 350 440 530 620 710 8(x) 890 980 1047.038

0.0558

0. I87 0. I92

0.208 0.215 0.225 0.234 0.242 0.250 0.257

0.~2491 ~ . 12.14 0.2490 0,0525 0.2489 0.071 0 9 22.200.2492 0.06082 7.98 0.2504 0.053229 34.32 0.2520 0.04735 0.04259 0,2540 48.400.2569 0.03872 0,03549 0.2598 0.52s 0.520 0.520 0.0405 48 0.0349 2.0.534 0.0308 3.02.0553 0.572 0.0275

0.0239 0.0495

0.492 0.0366 2.61 0.48I 0.0346 0.473 0.0306 0,474 0.0275 0.477 0.0250 13-89 0.484 0.0228 0.491 0.02 l I 0.498 0.0lcHi 0.01 83 0.506 ..._14 .. 0.0 I I7 0.5 12.40 0.0. 10 63 168 0.522

o

2.122 x 8.146 16.82 27.7I

g

~

lo-'

40.S4

55.IO 70.IO 87.68 98.02 126.2 146.4 168.0

C~60~ n -64 IO 80

~

i

o

x

~

12.98 14.34 15.63 16.85 18.03

11.990

0.06243 0.~7444 0.009575 0.0 I I83 0,01422 0.0 I674 0.01937 0.02208 0.02491

0.2294 0.2868 0.4 l03 0.5738 0,7542 0.9615 1.195 l .453 1.737

0.818 0,793 0.770 0.755 0.738 0.721 0.702

0.01 101 0.0 l239 0.01459 0.0 I666 0.0I 864 0.0252 0,02232 0.02405 0.02569

0.4557 0,5837 0.8246

0.758 0.750 0.737 0.728 0.722 0.718 0.718 0.72I 0.724

0.

0.796 0.S07 0,744 1.015 1.330 1.713

0.93

8.54 X 9.03 10.25 41.I1,645 12.66

l. l .MO

15,10

16.30

17.50 18.72 19.95

lo-'

41.11

4.875 x 10-6 6.285 7.415 8.659 9,859

2.04 X

10-4

io-"

0.0127 0.0 t 56 0.0189 0.0226 0.0270

l .27

1.83

4.03 Steam (Hz0 ~ a

~

r

I .W

l .397 1.720 2,063 2.418 2.786

0,686 0.69i 0.700 0.71I 0.724 0.736 0.748

0.0142

0.789

3.35

0.0173

1.19

0.0 15.1

0.0196

S.06

0.

iSO

0.02 l9 1-84 0,0244 2.22 0.02 2.58 2.99 0.0292 0.03 17 3.42 3.88 0.0342

6.09

7.15 8.31 9.56 10.98 ~

0.685 0.

0.90

0.88 0.87 0.87 0.84

~

2.33 X

Sntrrce: From E. R. G.Eckert and R. M.Drake, Heut und Muss ~ ~ i Company. ll with permission of ~ ~ G ~ w -Book

0.6134

~

16.87

13.50 14.91 16.25 17.5I 18.74 19.89

I I .08

9.583 x

~

0,786 0.747 0.713 0.69i

4.833 x 10"' 6.257 8.957 12.0s 15.49 19.27 23.33 27.71 32.3t Carbon on oxide

9.295 x 10."" 10.35

0.700

0.005~ 0.098I I 0.01054 0.3~2 0.01514 0.8542 0.01927 l .447 2.143 0.02302 0.02646 2.901 0.02960 3.668 0.03241 4.528 0,03507 5.404 0.0374I 6.297 7.204 0,03958 8.tI l O.04t5I

7.462 x IO"' 8.460

10.05 1 I 1.561

2.496

1.010

0.996

0.99 1 0.986

0.995 I .m I .ws I .010

uc o ~p ~ ~ g 1 h~9t59 by e ~~c G;~ w - ~ iused ll;

CONVERSION FACTORS AND PROPERTY TABLES

Air Argon Carbon dioxide Carbon monoxide Helium ydrogen ethane Nitrogen Oxygen Steam

731

-

28.97 39.94 44.01 28.01 4.003 2,016 t6.04 28.016 32. 18.016

Ar C02

CO e 2

CH4

Nr

0 2

H20

53.34 38.66 35.10 55.16 386.0 766.4 96.35 55.15 48.28 85.76

0.240 0.1253 0.203 0.249 1.25 3.43 0.532 0.248 0.219 0.445

0.171 0.0756 0.158 Q. 178 0,753 2. 0.403 0.177 0.157 0.335 - ..

CPocC,.() and , k are at 80°F.

Gas or Vapor

Or

Equation: t P o in Btullb mol."R, cpo= 11.515

-

-3.29 Tx

lo3

+

1.16 x lo6

T2 +

1.07 x 10'

T2

c,,o= 5.76 +

0.8

= 5.76 +

16.2

-6.53 1"X

f.

I. 1 .395 I .329

0.3

540-

1.7

540-

1.1

540-4

1.4

4

540-54~

tpo =

I.

1.1

cpo= 9.47 -3.47 TX lo' 9.46

1.667

1.285 1. I.

T in "R

5

CPo

l .400

lo3

+

1.41 X 10'

T2

1938, except CjHn and C 4 H 1 ~which , are from W . M , Spencer, ~ Society, Vol. 67 (19451, p. 1859.

0.8

1.8

540-63

o ofrhe ~ A ~ #~ ~ ~ c~~Q he n ~Q ical~

732

ENERGY ~ A N A G E M E N THANDBCOK

ON VERSION FACTORS AND PROPERTY TABLES

733

2

~ . ~ - O . ~

40 100-550

0.07 0.20-0.33

40-250

0.09

100-500

0.2$-0.3 1 0.34

1

250 40

40-250 40-250

1

100-500

0.03 0.07 0.22 0.46-0.56

40-550

0.08-0.27

250-550

0,13-0,23

100 40 40

200 100 100 100 100 100

40 40 40

0.02

0.04

0.12 0.05 0.15

0.76

100-

0.02-0.03s

230-

0.55-0.78 0.32-0.55 0.20

230-

150-300

150-500

40-250 loo0 40 40 250 40 40 200 40-250 40

20

100

100

500 100

1

40

230-930 40-250 200 40

40-250

450- 1650 100-5 100

400 100

100-5

0.14-0.32 0.07-0.10 0.55 0. 0. 0.79 0'2I 0.57-0.66 0.61 0.85 0.35 0.94 0.07-0.17 0.50-0.70

0.05-0.0$

0.28 0.63 0.63

0.07-0. i 3

100

200

0.05

40- I00

100-200

0.10-0.12

ENERGY

734

Polished After repeated heating and cooling Oxidized at l 1W0F Polished Nickel ~olished Oxidized W ire ~~atinum Pure, polished plate Oxidized at 1IOO"F ~lectrol~tic Strip Filament Wire Silver Polished or deposited Oxidized German silver." polished

40-250 550- l 100 550-2800

100-500

0.~-0.08 0.1 1-0.18 0.08-0.29

230-930 200-600 40

450- 1650 400- t 100 100

0.45-0.70

40-250 40-250 250- l 100

100-500 100-5 500-2

200-~ 250-550 250-550 550- I 1 0 0 40- 1100 200- 1370

400- 1 100 0.05-0.10 500IO000.07-0.1 I 0.06-0. IO

40-550

40-550

250-550

Ti

Tun~sten ~ilamen( Filament Filament. aged Polished Zinc Pure polished Oxidized at 950°F Galvanized, gray Galvanizedi fairly bright

0.17

0.05-0.07

0.35-0.49 0.10-0.19

0.12-0.14

0.04-0.19 400-2500

0.07-0.18

100- 1 100- I 500-1OOo

0.02-0.04 0.09-0.09

0.Oi-0.03

40 40 100

100 100 200

0.04-0.06 0.06 0.05

550- l 100

I000-2OOo 5000

0.1I-O.I6 0.39

2800

i00-

0.03-0.35

40-250

100-500

40 40 40-250

loo i00-500

0.02-0.03 0.11 0.28 0.23 0.2 I

40-3300 40-550

100-

0.04-0.08

750 io0

400

Dull

0.4 1-0.46

No~mef~ls Asbestos Board Cement Paper Slate rick Red. rough Silica Fireclay Ordinary refractory ~ a g n e s i refractory ~e White refractory Gray. glazed Carbon Filament

La~psoot

Clay Fired

100 100 100 100

40 40

40 40

100 1800

1800

2000 1800 2 2

0.96

0.96

0.93-0.95

0.97 0.93

0.80-0.8s

0.75

0.S9

0.38

0.29

0.75

100

0.53 0.95

100

200

0.9 I

40

100

0.94

105040

I420

HANDBOOK

CONVERSION FACTORS AND PROPERTY TABLES

735

Su~ace Class Smooth

"F

e

100

200

0.86

40 250-550 250-550 40

Cyp§um

Ice

-

~imestone

Pa~nts Aluminum,various

"C

es and composition^

0 0

32 32

18 40-250

0 100-500

40 40 40

100

1

40 40 40 40 40 100 40 40 40 40

Plaster Lime, rough

0.94 100 0.96-0.66 500- 1 5 0 0 - 1 ~ 0.94-0.75 0.80-0.90 100

l

100

40 40 40-250 (-12) (-6)

Soft, grayrough Sandstone Snow Water 0.1 mm or morethick Wood Spruce, sanded

~

. "

__

-

. " .

.

"

0.93 0.95 0.75

100 100 100 200

0.27-0.62 0.90 0.80-0.93 0.89-0.97 0.80-0.95 0.92-0. 0.93

100 100 100 100

0.95 0.98 0.92-0.94 0.91

200 100

l00

0.92

40-250 40 40-550

0.97 0.99 0.99 0.95-0.83

100 100-1

100

l00

-

100-500

40

100

40 40 40 40 40 40 40

100 100 100 100

10-20

la, la,

100

0.93 0.89-~.58

0.94 0.86 0.$3-0.90 0.82

0. 0.90 0.83 0.82 0.94 0.78 O.$O-O.~ 0.75

.D. Cess, ~ a d i a t Heat i ~ ~ ~runsfer,rev. ed.; ~opyright 42 any, Inc.; rep~ntedby p e ~ i s s i o nof the publisher, ~ r o o k s /

This Page Intentionally Left Blank

PPENDIX

VIE

School of Technology Oklahoma State University Stillwater, Oklahoma

This brief review of electrical science is intended for those readers who may use electrical principles only on occasion and is intended to besupportive of the material found in those chapters of the handbook based on electrical science, The review consists of selected topics in basic ac circuit theory presented at a nominal analytical level. Much of the material deals with power in ac circuits and principles of power-factor ~ p r o v e m e n t .

-j, 270"

ALGE

Vector algebra is the mathematics most appropriate for ac circuit problems. Most often electric quantities, voltage and current, are not in phase in ac circuits, so that phase relationships as well as magnitude have to be considered. This brief review will coverthe basic idea of a vector quantity and then refresh the processof adding, subtracting, multiplying, and dividing vectors.

A vector is a quantity having both direction and magnitude. Familiar vector quantities are velocity and force. Other familiar quantities, such as speed, volume, area, and mass, have magnitude only. A vector quantity is expressedas having both magnitude and direction, such as

90'

270"

where A is the magnitude and e k i e expresses the direction in the complex plane (Figure 111.1). The important feature of thisvectornotationistoCommonpractice has created a shorthand forexnote that the angle of displacement is in fact an expo- pressing vectors. This method is quicker to write and for nent. "his feature issignificant,since it willallowthemany,moreclearlyexpresses idea of a vector: use of the law of exponents when multiplying, dividing, a power. A or 737

ENERGY MANAGEMENT HANDBOOK

738

This shorthand is read as a vector magnitude A operating or pointing in the direction 8. It is termed the polar representation of a vector as shown in Figure 111.2. Now the function e i e may be expressed or resolved into its horizontal and vertical components in the complex plane:

20/30' = 20 COS 30'

+ j20 sin 30'

= 17.3 + jl0

25/45' = 25 cos 45' -j25 sin 45'

= 17.7 -j17.7 A calculator is a handy tool for resolving vectors. Many calculators have automaticprograms for converting vecThe vectorhas been resolved and expressed in rectangu- tors from one form to another. lar form. Using the shorthand notation Now adding we obtain 17.3 + jl0 A /B = A cos 8 + jA sin 8 (+) 17.7 -i17.7' 35.0 -j7.7 where A cos 8 is the vector projection on the real axis and jA sin 0 is the vector projection on the imaginary axis, as shown in Figure 111.3. Both rectangular and polar expressions of a vector quantity are useful when performing mathematical operations.

By inspection, this vector is seen to be slightly greater in magnitude than 35.0 and at a small angle below the positive real axis. Again using a calculator to express the vectorin polar form: 35.8/-12.4', a n answer in agreement with what was anticipated. Figure 111.4 shows roughly the same result using a graphical technique. Subtraction is accomplished in much the same way. Suppose that the vector25/45' is to be subtracted from the vector 20j30'. 20/30°= 17.3

" " "

+ jl0

25 1-45" = 17.7 -j17.7 +Real

To subtract

17.3 + jl0 17.7 -i17.7

first change sign of the subtrahend and then add: -I

IC) s h Q ~tQ~ether n with its rect-

17.3 + jl0

-17.7 + i17.7

-0.4 + j27.7

"he effect of changing the sign of the subtrahend is to push the vector back through the origin. as shown in ition an traction of Vectors Figure 111.5. When adding or subtracting vectors, it is most conThe resulting vector appears to be about 28 units venient to use the rectangular form. This is best demon- long and barely in the second quadrant. The calculator strated through an example. Suppose that we have two gives 27.7/90.8'. vectors, 20/30° and 25/45', and these vectors are to be added, The quickest way to accomplish this is to resolve each vector into its rectangular components, add the real Vectors are expressed in polar form for multiplicacomponents, then add the imaginary components, and, tion and division. The magnitu~esare multiplied or diif needed, express the results in polar form: vided and the angles follow the rules governing expo-

REVIEW OF ELECTRICAL SCIENCE

739

is multiplied by the power. Consider

9oo

(20130°)3 = ~ 0 0 0 ~ 9 0 " or consider

= 4.47115" (20~'30"))'/~

2700

rallelo~rammethod for or sum is the dia~onal f the coordin~tetern.

Vector manipulation is straightforward and easy to do, This presentation is intended to refresh those techniques most commonlyused by those working at a practical level with ac electrical circuits. It has been the author's intent to exclude material on dot and cross products in favor of techniques that tend to allow the user more of a feeling for what is going on. .3

90"

7n

l

0"

25

The three types of electric circuit elements having distinct characteristicsare resistance, inductance, and capacitance. This brief review will focus on the characteristics of these circuit elements in ac circuits to support later discussions on circuit impedance andpower-factorimprovement principles.

Resistance R in an ac circuit is the name given to circuit elements that consume realpower in the form of heat, light. mechanical work, and so on. Resistance is a I physical property of the wire used in a distribution sys270 ' tem that results in power loss commonly calledI 2R loss. ical solution to su~tractionof ~ectors. Resistance can be thought of as a name given that portion of a circuit load that performs real work, that is, the portion of the power fed to a motor that results in meanents, added when multiplying, subtracted when divid- surable mechanical work being accomplished. If resistance is the only circuit element in an ac ciring. Consider cuit, the physical properties of that circuit are easily summarized, as shown in Figure 111.6. The important 20/30° X 25,"45" = 500/-15" property is that the voltage and current are in phase. Since the current and voltage are in phase and the The magnitudes are multiplied and the angles are ac source is a sine wave, the power used by the resistor added. Consider is easily computed from root-mean-square (rms) (effective) voltage and current readings taken with a typical multimeter. The power is computed bytaking the product of the measured voltage in volts or kilovolts and the measured current in amperes: The magnitudes are divided and the angle of the divisor is subtracted from the angle of dividend, P(watts) = V(vo1ts) X I (amperes) Raising to powers is a special case of multiplicawhere V is the voltage measured in volts and I is the tion. The magnitude is raised to the Dower and the angle v " I

ENERGY ~ N

740

current measured

A ~ E M E N HANDBOOK T

0th quantities are measured

S the voltage may be ~ e a s u r e din kilovolts an ent in amperes, The er is computed as the product of current and voltd expressed as kilowatts:

P (kilowatts) = V ( lovolts) x I (amps) If it is u ~ a n d to y measure both voltage and current, one can compute power using only voltage or current if the resistance X is known: or

P (watts) = I 2(amps) x X (ohms) P (watts) =

V2 (volts) R (ohms)

Inductance L in a n ac circuit is usually formed as coils of wire, such as those found in motor windings/ solenoids, or inductors. In a real circuit it is impossible to have only pure inductance, but for purposes of estabround we will take the theoretical case of a pure ~ d u c t a n c eso that its circuit properties can be isolated and presented. An ducto or is a power; it simply stores this stored energy, a l t e ~ a t e l ystorg it up every half-cycle. The result energy when an inductor is ce is to put the measured ,.) 90" out of phase with the drivneti%ing current lags behind the .If pure inductance were the load of a sine-wave generator/we could summari%e its char-

acteristics as in Figure III.7, hducto or limit^ the current flowing throu change across it. This propance XL.The inductive reacnce is known in henrys (H)

where f is the frequency in hertz and L is the coil's inductance in henrys. likeinductance/onlystores and ever,thevoltageandcurrent site that of a inductor in an ac contain in^ only capacitance leads the volt Figure 111.8 s u m a rizes the characteristics of an ac circuit with a pure capacity load. A capacitoralsoreactstochanges.This property is called capacitive reactance X,. The capacity

~.

REVIEW OF ELECTRICAL SCIENCE

741

,

vc = e

= E sin wt

i; =E = rc,

because the wire that is used to form the mostcarefully made coil still has resistance. This section considers circuits containing resistance and inductivereactance and circuits containing resistance and capacity reactance. Attention will be given to notation the used to describe such circuits since vector algebra must be used exclusively.

sin (wt ++I

Figure 111.9 shows a circuit that has both resistive and inductive elements. Sucha circuit might represent a real inductor with the resistance representing the wire resistance, or such a circuit might be a simple model of a motor, 'with the inductance reflecting the inductive characteristics of the motor's windings and the resistance representing both the wire resistance and the real power consumed and converted to mechanical work performed by the motor. In Figure 111.9 the current is common to both circuit elements. Recall that the voltage across the resistor isin phase with this current while the voltage across the inductor leads the current. This idea is shown by plotting these quantities in the complex plane. Since i is the refure capacitance. (b)Plot of erence, it is plotted on the positive real axis as shown in Figure 111.10. VR

e = E sin ut

reactance may be computed by using the expression 1 xc = -

2KfC

where f is the frequency in hertz and C is the capacity in farrads.

Fig. 111.9 Circuit with both resistance and i n ~ ~ c t a n c e . The circuit current i is corn on to both elements.

Circuit elements are resistance that consumes real power and two reactive elements that only store and give up energy. These two reactive elements, capacitors and inductors, have opposite effects on the phase displacement between the current and voltage in ac circuits. These opposite effects are the key toadding capacitors in an otherwise inductive circuit for purposes of reducing the current-volta~ephase dis~lacement.Reducing the phase displacement improves the power factor of the circuit. (Power factor is defined and discussed later.) Fig. 111.10 Circuit voltages complex plane, Bot In thepreceding section it was mentioned that pure since they are in ph inductance does not occur in a real-world circuit. This is it leads the current by 90'.

cur~entplotted in the positive real axis sitive j axis since

ENERGY ~ A N A G E M E N THANDBOOK

742

The voltage across the resistor isin phase with the current, so it is also on the positive real axis, whereas the voltage across the inductor is on the positivej axis since it leads the current by 90". However, the sum of the voltages must be the source voltage e. Figure 111.10 shows that the two voltages must be added as vectors: e = v,.

+ jv,

e = i,

+ jiX,

If we call the ratio of voltage to current the circuit impedance, then e

-Real

t=R-jXc z=zl!z@

-i

Z = - = R + ~ X L i

Z, the circuit impedance,is a complex quantity and may be expressed in either polar or rectangular form: Z =X

+ jX,

Fig. 111.12 ~ u m m of a ~the relationship among Rf Xc, and 2 shown in the complex plane. 111.4.3 ~ummary

In circuits containingboth resistive and reactive elements, the resistanceis plotted on the positive real axis while the reactances are plotted on the imaginary axis. z = lzl& The fact that inductive and capacitive reactance causes In circuits with resistance and inductance the complex opposite phase displacements (has opposite effects in ac impedance will have a positive phase angle and if X and circuits) is further emphasized by plotting their reacX, are plotted in the complex plane, X, is plotted on the tance effects in opposite directions on the imaginary axis positive j axis, as shown in Figure 111.11. of the complex plane. The case is building for why capacitors might be used in an ac circuit with inductive 111.42 Circuits with esistance and Capacity Reactance loading to improve the circuit's power factor. Circuits containing resistance and capacitance are approached about the same way. Going through a simi, lar analysis and looking at the relationship among X, X and .Zwould show that X, is plotted on the negative j axis, as shown in Figure 111.12. This section considers three aspects of power in ac circuits. First, the case of a circuit containing resistance and inductance is discussed, followed by the introduc+i tion of the power triangle for circuits containing resistance and inductance. Finally, power-factor improvement by the use of capacitors is presented. or

111.5.1 Power in a Circuit C o ~ t a i n i n ~

Figure 111.13 reviews thissituation through a circuit drawing and the voltages and currents shown in the complex plane. Metersare in place that read the effective or rms voltage V across the complex load and the effective or rms line current I. Power is usually thought of as the product of voltage and the current in a circuit. The question is: The -i c ~ z will yield the correct or current I times ~ k ~ voltage Fig. ~ ~ ~Plot . 1in1the ~omplex plane showing the complex true power? This is an hportant question, since Figure 111.13b shows three voltages in the complex plane. of Rf XL, and 2.

743

REVIEW OF ELECTRICAL SCIENCE

This is the powerthat is alte~atelystored and given up by the inductor to m a i n t a ~its magnetic field. None of this reactive power is actually used. If the voltages in the foregoing examples were measured in kilovolts, thethree values com~utedwould be the more fam~iar: P(apparent) = kVA P(rea1) = kW " " " "

P(imaginary) = kVAR

VL

This discussion, togetherwith F i ~ u r eIII.l3b, leads to the power triangle.

nsists of three values, kVA, kW, and kVAR, arranged in a right triangle. The angle between the linecurrent and voltage, H, becomes an important factor in this trian ure 111.14 shows the power triangle. To emph'asize the relationship between these three quantities, an example may be helpful. Suppose that we Each of the three products may be taken, and each have a circuit with inductive characteristics and using a r following values has a name and a meaning. Taking the ammeterreading voltmeter, ammeter, and w a t ~ e t e the are measured: I times the voltmeter reading yields the ~ p p u r epower. ~t The apparent power is the load current-load voltage watts = 1.5 kW product without regard to the phase relationship of the current and voltage. This figure byitself is meaningless: line current = 10 A P(apparent) = IV line voltage = 240 V If the voltmeter could be connected across the resistor only, to measure wR, then the line current-voltage prod- From this information we should be able to determine uct would yield the true power, since the current and the kVA, H, and the kVAR. The kVA can be computed directly from the voltvoltage are in phase. meter and a m e t e r readings: P(true) = Iw, Usually, this connection cannot be made, so the true power of a load is measured with a special meter called a wattmeter that automatically performs the following calculation. P(true) = IV cos 8 Note that in Figure III,13b, the circuit voltage V and the resistance voltage V, are related through the cosine of 8. The third product that could be taken is called power or VAR, the voltarnpere reactive product. ~~~~~~~~

kVA = (10 A)(0.24) kV = 2.4 kVA

ENERGY

744

HANDBOOK

n

Looking at the triangle in Figure 111.14 and recalling some basic trigonometry, we have __ 0.625 cos8 = kW 2.4 kVA and 8 is the angle whose cosine equals 0.625. This can be looked up in a table or calculated using a hand calculator that computes trig functions: _ .

8 = COS" 0.625 = 51.3"

Again referring to the power triangle and a little trig, we see that kVAR = kVA sin 8

1.87 kVAR (inductive)

= 2.4 kVA sin 51.3"

1.68kVAR (c~pacitive)

(9096 of kVAR inductive)

= 1.87 kVAR Figure 111.15 puts all these measured andcalculated data together in a power triangle. Of particular interest is the ratio kW/kVA, This ratio is called the ~ u ~ e (PF) ~ of~ the~circuit. c ~ Sou the~ power factor is the ratio of true power to apparent power in a circuit. This is also the cosine of the angle 0, the angle of displacement between the line voltage and the line current. To improve the power factor, the angle 8 must be reduced. This could be accomplished by reducing the kVAR side of the triangle.

11.16 (a)~ n ~ ~ cc itr ci ~vi twith ~ ca

tive,

to improve the power factor by better than 90%. Figure 111.16 shows the circuit arrangement with the kW and kVAR vectors drawn to show their relationship. Following the example through, consider Figure 111.17, where 90% of the kVAR inductive load has been neutralized by adding the capacitor, Working with the modified triangle in Figure 111.17, we can compute the new 8, call it 8., 89 = tanL

1.5 kW

1

0.19 1.5

= 7.2" Again, a calculator comes in handy. Since the new power factor is the cosine of compute

e, we Recall that inductive reactance and capacity reactance are plotted in opposite directions on the imaginary PF new = cosine 7.2 = 0.99 axis, j . Thus it should be no surprise to consider that kVAR produced by a capacity load behave in an opposite way to kVAR produced by inductive loads. This is certainly an ~ p r o v e m e n t . Recall that the power factor can be expressed as a the case and is the reason capacitors are commonly added to circuits having inductive loads to improve ratio ofkW to kVA. From this idea we can compute a new kVA value: power factor (reduce the angle 8). Suppose in the example being considered that 1.5 kW enough capacity is added across the load to offset the PE = 0.99 = kVA new effects of 90% of the inductive load. That is, we will try

~

~~~~

REVIEW OF ELECTRICAL SCIENCE

745

Total

6.3

0.19 kVAR

\

f

Or

line current,

as a new 9,

or kVAnew =

1.5 kW 0.99

~

= 1.52 kVA The line voltagedid not change, so the linecurrent must be this 1.52 kVA new = 0.24 kV x I new Inew =

=I

Induction

Induction motor loads

motor loads

(U)

(b)

le in

section. ( ~ )

~ e t w e e nthe capaci

6.3A

0.24

Comparing the original circuit to the circuit afteradding capacity, we have:

free generating capacity, reduce line loss, improve power factor, and in general be cost effective in controlling energy bills.

Inductive Circuit Improved Circuit Line voltage Line current PF kVA kW kVAR

240 V 10 A 62.5% 2.4 kVA 1.5 kW 1.87 kVAR

240 V 6.3 A 99% 1.52 kVA 1.5 kW 0.19 kVAR

The big improvement noted is the reduction of line current by 37% with no decrease in real power,kW, used by the load, Also note the big change in kVA; less generating capacity is used to meet the same real power demand.

.6

Three-phase power is the formof power most often distributed to industrial users. This formof transmission has three advantages over single-phase systems: (1)less copper is required to supply a given power at given voltage; (2) if the load of each phase of the three-phase source is identical, theinstantaneous output of the alternator is constant; and (3) a three-phase system produces a magnetic field of constant density that rotates at the line frequency-this greatly reduces the complexity of motor construction. The author realizes that both delta systems and wye systems exist. but will concentrateon four-wire wye systems as being representative of internal distribution systems. This type of internal distribution system allows the customer both single-phase and three-phase service. Our focus will beon measuring power and d e t e ~ i n i n g power factor in four-wire three-phase wye-connected systems.

Through an example it has been demonstrated how the addition of a capacitor across an inductive load can improve power factor, reduce line current, and reduce the amount of generating capacity required to supply the load. The way this comes about is by having the capacitor supply the inductive magnetizing current locally. Since inductive and capacitive elements store and reFigure 111.19 shows a generalized four-wire wyelease power at different times in each cycle, this reactive current simply flows backand forth between the capaci- connected system. The coils represent the secondary windings of the transformers at the sitesubstation while tor and inductor of the load. This idea is reinforced by Figure 111.18. Adding capacitors to inductive loads can the generalized loads represent phase loads that are the

ENERGY ~ A N A G E M E N THANDBOOK

746

*

1:

I I

IndUttiOl

Motor

no^.

Tables I and V are also appljcable to standard wound.

power Iottng

VI

(vat

lvor

a

I

S

l

10

2 4

4

5 7,s

4

?S 30 40

5

6

7.6 7.5 10 IS

4 4 6

40

7s l00 If5 I50

200 ?SO

300 350

400

450 500

15 20

2s 35 40

6

6

4 4 4

5 1 s 7.5 $3 10 %

7.5 10

5 7.3

40

50

4 5 5 73

Y

7 5 S

; ;7: i

100 l?$ 150 200

15 IS

l5

S 5 S 5 5

15 30

40 50 M)

75

too

aw

40

300 350 400

50 50

' S S

200

60

5

300 350

450

500

45

m

5

Ai4

125 150

250

I4 ?r( 20 20 IS

7.5 7.5

li

1s IS

10 10

17 IS

10 10

IR

12

1s

20 25

12

12

15 20 15 3s

4s

I7

$0

io 1s

10

10

IO

?4

14 I%

15

20

I1

20

8 7 7

25 30

2s

11 I1

40

I2

40

It

It

ss

40

11 It

60 100

13 13

80

l0

...

80

IO

12s

13

25 30

15

10

30 40

30

110

. .

...

.,.

m

7 7 7

SO

7 Y

7

ZJ 30

35 bo

50

10

9

20

V

20

9

30 30 45

l8

45

l2

-

.'.

I1 I1

4s 45

tY

t7

17 I7 IS

...

160

3s 40

60

*..

?.S

l5

Y .5

0

l5

e

7.5

60

..

I

20 20 20

. " S . "

10

.

10 IO

70

10 20

(VOt

... .

m

SO 40 40 70

~l

I

-

(vat AI

IO 10

v

25 30

7:

I

I ?

10

50

the motor,

34

I _

7H

maximum sy~temcapacity and is most e ~ ~ t i ivn ereducin~ system fosses. Also, fora motor that runs continuou3ly, ually most ~ o n o m i c a lto Iocate the

I

'l--

~

... 1..

17 15 13 t3 13

...

I?

?O 30

12

40

11 12

I2 12 10

P

...

...

50

'..

... I

1% I8

le

..

...

,..

...

..

~.

REVIEW OF ELECTRICAL SCIENCE

747 ENCLOSED, FANIQN "C"), HIGH

- 7- ---

L

3 5 7%

KM?

AI

.*.. 2

1 2

l0

IS 20

4

5

9

15

7.3

9

10

9

7.5

30

40

*

SO

IO

9

1s

7

20 25

7

15

40 75

100

l15 .l50

5

15

20 10

2

27

....

17 I4

4

5

21

.,.. ... ....

l

16

16

IO 10

l0

V

l5 l0

15 IS

10 10

l2

20

I

35 35 45

7

Kvar

8

2s

l

Uvor

7s

5

6

AI

17

7.5 l0 to

7

35 A0

200

2 4

10

7

Kror

AI

2

IO

'

7

WO

9b

1200

25

.._. .... .... .

.

..I,

I

.... .

.

I

I

10 10

10

10 15

l5

15

40

30

11

40

Induction

ijI

Nominot Molor Speed in

Rpm and Number Of

?ukS

710

25

100

125 I50

200 230 300 350

75 75

l5

30

12

11

35

....

,

TABLE Vll-2300. AN0 4 MOTORS, ENCLOSURP 0PEN"IN. W?# PROOF, ~ E N E R ~SLECTRIC L CLUOINO DRl??ROOP AN KO (NEMA OLSlQN "C"), HIQX STARTIN@ TORQUE AND NORMAL STARTINO CURRENT

U)

45 50 50

SO

- - -

7 7

It

30 50

I I

10

60 70

70

V.

IQ

p

(I

1-

ond Number of ?dos

i-

Kvor

100 125 l SO

50 50 M

100

250 300 350 400 450

500 400 700

)09

6

5 5 5

50 75

73

I00

l00 l15

10

I 7 6

25

V

2.5

7 I

25

50

4 5 0

4

75

5

5

75 75 75

S

loo

5

8 1

: 5

& 4

-

125

5

5

3

10

5 6

7%

15

20 25 30 A0

50 60

7s

roo

l0 IO

10 10 10

15 30

3

4

4 6 10 IO 10 IO IO

l5 IS

....

14% 20 n 12% 14

Ion

14%

14%

7% 9%

EH

....

4

6 IO 10

10 10

l5

13

21 16 19 13 16 15 i3 10

10

.... ....

11 4

(Vff

100

I25

l50 200 250 300

350 400

..... 25 15 25 25

50 SO 75

5

6

5 4

5 5 5

v V

35 25

10

I1

50 75

IO 11 12

25

1

Zd

25 50 30 50 75 I25 100 125

I

50 30 75 75

IO

100 WO 125

9 8 8

25

I

9

1 7

e

v

1 I

15

75

10 IO

P

50

100

100 100 100

125

V

IO

I1

10 IO 10

so

25

so

Reducing mwar costs

7.5 75

loo

125 115

-

ucing system losses

INRUSTRIAL AND POWER CAP

sum loads on each phase. These loads may be composites of single-phase services and three-phase motors being fed by the distribution system, N is the neutral or return. To determine the power and power factor of any phase A, B, or C, consider that phase as if it were a single-phase system. Measure the real power, kW, delivered by the phase by use of a wattmeter and measure and compute the volt-ampere product, apparent power, kVA, using a voltmeter and ammeter. The power factor of the phase can then be determined and corrected as needed. Each phase can be

treated independently in turn. The only caution to note is to make the measurements during nominal load periods, this will allow power-factor correction forthe most common loading. If heavy motors are subject to termi it tent duty, additional power and power-factor information can be gathered while they are operating. Capacitors used to correct power factor for these i n t e ~ i t t e n loads t should be connected to relaysso that they are across the motors and on phase only when the motor is on; otherwise, overcorrection can occur.

ENERGY ~ N A G E M E N THANDBOOK

748

motors only.

No. 2: For TRI-CUD

Reference

(SW QEO-8063-01 Reference No. 1 for motor designs predating TRl-CLirO 700 and CUSTOM 8000 Line)

Now it's easy to choose the right capacitors€or your induction motors. Just refer to the following tables to find the kvar required by your particular motors. Locate motors by horsepower, rpm, and number of poles. All ratings are based on General Electric motor designs. Tables I and V are also applicable to standard. woundrotor, open-type, three-phase. 60-cycle motors, provided the kvar values in the table are multiplied by afactor of 1.1, and the reduction in linecurrent is increased by multipIying the values in the table by 1.05. When se~ectingand installing capacitors, keep in mind the following: A capacitor located at the motor releases the maximum system capacity and is most effective in reducing system losscs. AIso, fora motor thatrunscontinuously, or. nearly so, it is usually most economicaltolocatethe capacitor right at themotorterminals and switch it with the motor.

TABLE II-IM-, 41Co., S7S-VOLT MOTOR, TOTALLY COOLED OENERAL LILECTRIC T Y I I K STAR TI^ TORQUE, NORMAL STAR

r l 'I7E ; ----- - ! za

Induetias Motor

:vor

2

l

15

5

2

15

7 'h

LT; 1 3

7 'h

l5

20 25

30

40 M 60 7s 100

l15

l so 200

1M

300

:E 450

500

I _

I

x

l

IO

It

4

5

IO

40

5

10 10

IO

5 7.4

IO IO

30

M

l2

60 75

7.J I5

k

AR

Kwr

l

1

I7 l7

7.3

21

20

16

13 12

l

4

4

IO

19 19

10

l1

IS

21

l0

l3 l1 11 22

to

31 31

1s

19

25

19

30

30

25

IS I3

30

19

35

13

I7 17

M

I3

21

l5

9

100 l50

2s

9 9

60

9

8

I5 60 60

300

65

7

M

R

60

I3

7

60

R

30

l3

-

70

--

30

so ss

7

70 70

350 400 450

l0 30 35 40 40

W

100

95

I _

If I1

7

50 49 49 49 41 34

3

4 7J 7.3 7.3

IO 10

20 20

1SO

,.,

41 32 29 19

l25

100

A@

I

20

12 12

-

_ I

Kvor

_ I

4

3

IS

k

AR

24 14

20 1s

TABLE +230*, W , AND $75-VOLT MOTORS. ENQOJURll OIEN "tNCLUD1HO ~ R I I ? R O O OENERAL ~ ELECTRIC M?E K (NEMA DESlON

notre

Kvor

I I

500

Induction Motor

, RI

_ .

Hors..

1s 30

80

45

_ I

l3

I3

l3

40 4s 5s

$0 Il5 I40 I60 160

l60 210

I9

IO IO I5

34

35

30

30

40

ta so la so $1 IM)

70

311 30

I 8 l25 I S IS0

30 30

I7 175 I7 ...

30

I8

M

ao

l7 175

F l 1 2 2

l4 141 14 2 14 4 4 14

76 7.5

IO

; 1: 7.5 1 l

4

10 10 IS

IS

30 30 35 15

35 40

100 I 0 0 I 0 0

IO

15 30

IO IO 10

so

IO 10 IO 9

55 65

M

M 90

I 115

15 I9 I 20 19 2s

13 23

~

1:'I : : 19

20

35 35

26 26

IO

19

1s

IO IO

41 41 31

5

11 21

7.5 76

20

IO

16

;.S

to

IO

2 4 4 4

28

1I

14 12

It II 9 9 9

30

so 35

5s

70 75 I5

I IM) I 140 I IS0

I

I9

30

16

30

I1 I1 12

I1 l2 11

35

$0

50

70 I5 95

1 1 125 I1 140

12 IS0 12 l50

16

.

37.5 8:40 e

.

7.5 36

7.5 IO 10 l5 20 20

31 29

23

30

14 24 24 l4 12

17 16 16

35

11

23

14

4'SO: 1:l3:

I4 70 14 90 I4 1 0 0 I4 120 I4 150 I 3 I50 12 175

" -

-

::f

3 5 0 10 IO 10 If

20 25

49 41 34

34

14

30

32 12

45

32

35

31

: :; 40

19

60

17 17 I7 I7 17

13 W 13 100 13 110

13 I50 13 150 13 175 I 3 175

17

17 17

I

AR

I

3 S

7.5

... 2

it'

S 5

17

4 4

IO

I5

20

30 40

I7

l7

'..

10

13

If0

35 50

10 IO 9 9 9

I50

20 15

15

35

I1

65

.

M

.*.

I4

$5

300

40 39 39

I7

100

200 250

40

...

20

75

.**

17 l7 17

SO 60

1-25

...

It

7.5 7.5 IO

25

... ...

.

' 17

I7 17 l7

l7

l7

"

In the special case of a four-wire wye-connected P, = P, + P, system with balanced loading. two watbneters may be used to monitor the power consumed on the service and Further, the angle of displacement between each line also allow computation of the power factor from the two current and voltage can be computed from Pl and P,: wattmeter readings. ~ ~ ~ .~ a6l a. n~c e.d€ ~o ~ ~ -~ ~ y ei- e~o ne ~ e c t eSdy s ~ e ~ Figure 111.20 shows a balanced system containing

8 = tan-l

two wattmeters. The sum of these two wattmeter read-

ings are the total real power being used bytheservice:

and the power factor

y3- p2 -p1 p2 +

~

= 'Os *

'

REVIEW OF ELECTRICAL SCIENCE

3s

10

S¶S

749

AR

1 '3'

isus

..*

74

60

50 60 75

31

...

2% 21 21 28 21 2% 31

2s

30 SS 40 40

100

121 IS0

2DD

i

l

I

l

l

... . . . . . . .,. ...

72 , I S IS 3s

30

.--

I

...l . . .' . . . ..... ... . . . ..'

. .

.

20

40

30 35

40

...... 40 40 40

ao

38 37

37

37 37

.

6Eb-6081.02A 12-12 t l O N b 6200

This quick method for monitoring power and power factor is useful in determinin~both fixed capacitors to be tied across each phase for the nominal load, and the capacitors that are switched in only when intermittent loads come on-line. The two-wattmeter method is useful for determining real power consumed in either wye- or delta-connected systems with or without balanced loads:

phase power factor as well is restricted to the case of balanced loads.

This brief coverage of power and power-factor determination in three-phase systems covers only the very basic ideas in this important area, It is the aim of this brief coverage to recall or refresh ideas once learned but seldom used. Tables 111.1 and 111.2 were supplied by General P" = P, + P, Electric. who gave permission for the reproduction of However, the use of these readings for determining their materials in this handbook.

750

ENERGY

ur-wire ~ e - c Q n n e c t e §y§tem d with wattmeter cQnnectiQn§ d circle voltagesonnestiQn§to wattmeter; open circle, curre cQnnectiQn§ to wattmeter.

HANDBOOK

1995 Model Energy Code (MEC) 545 2000 ~ t e ~ a t i o nEnergy al Conservation Code (IECC) 545

absorber plate 467 absorptance 468 abuse 437 acceptable indoor air quality 492 accidents 617 active power 275 adaptive control 314 adjustable speed drive 287 administrative sequence logic 330 AEE (Association of Energy Engineers) 493 after-tax cost of capital 39 AGA 171 AHU 335 air change method 233 air collectors 469 air compressors 398 maintenance for 399 air conditioning optimization 341 air preheaters 94 alarms 342 monitoring and reporting 317 allocation of costs 500 alternative energy source 463 ambient temperature 294, 441 American Boiler Manufacturers Association (ABMA) 107, 407 American Physical Society 6 American Society of Heating, Refrigeration, and Air-Conditioning 544 American Society of Mechanical Engineers (ASME) 86 American Society of Testing Materials 429 amperage 280 amps 271, 293 anaerobic digestion processes 484 analog input 338, 345 analog output (AO) 338, 345

analog to digital A/D converter 345 annual cost 460 annual energy review 187 annual expenses 38 annual worth 52 application requirements 435 as built drawings 344 ash 116 ASHRAE 492, 544 ASHME 90.1-1999 544 ASHRAE 90.2-1993 544 ASHRAE Equipment Handbook 399 ASHRAE Guidelines 3-1990 Reducing Emission of Fully Halogenated Chlorofluorocarbon (CFC) 548 ASHRAE Handbook of Fundamentals 216,232,241,452,465 ASHRAE Standard 494 ASHRAE Standard 62-1999, 547 ASHRAE Standard 90-80 544 ASHRAE Standard 90.1 220, 223 ASHRAE ventilation standard, 621989 546 ASHRAE ”Zone Method” 221 ASME 118 Association of Energy Engineers 1 ASTM 442 automatic analyzing equipment 109 available forms 432 avoided costs l76

bar joists 227 bare-surface heat loss 453 barometric condensers 114 base 216 bath-tub curve 617 bearings 399 before tax cash flows (BTCF) 40 Betz coefficient 477 billing demand 509 bin analysis 93 bin method 241

block pricing 501 boilers 85, 334, 394 blowdown 101, 106 economizer 211 efficiency 406 energy consumption 85 loading schedule 105 maintenance 405 optimization 316 bonds 649 bottoming cycle 157 Bourdon gauge 420 British thermal unit (Btu) 509 brokers 634 building balance temperature 239 building envelope 215, 394 building load coefficient (BLC) 234, 236 Building Officials and Code Adm~istratorsInternational 545 building related illness 491 causes 491 by-pass 287

calcium silicate 433 calculation of a monthly bill 502 California Title 24 544 capacitor 276 capital investment 37, 38 cost categories 38 capital lease 654 capital rationing 38 cash flow diagrams 38 CELCAP 172 cell structure 432 cellular glass 433 ceramic recuperator 207 certified energy manager 1 cfl 384 cfm - cubic feet per minute 286 chilled water reset 316 chilled water storage 527 chillers 335, 535 consumption profile 526 demand limiting 317

752

optimization 317 system capacity chlorofluorocarbons (CFCs) 547 circulators 334 Clean Air Act Amendment 5 Climatic Change Action P1 closed heat exchan coal 117 conversion 120 hopper valves 1 code 294 coefficient of heat transmission 431 coefficient of perform

C O ~ E ~ M A S T E17 R collection tank 11 collectively exhaustive collector 470 efficiency 467 combined cycle 157 combustion analysis 86 efficiency 86 combustors 114

ENERGY

controllable demand 509 controls 495 convection 429 convective recuperator 206 converter 295 conveyor systems 41 cooling tower 335 correlation coefficient, R 238 corrosion 484 corrosion control 204 cost com~onents500 cost effectiveness 37 cost factors 438, 499 cost of capital 40, 646 costs 37 utility 500 Council of American ~ u i l d ~ g Officials (GABO) 545 countermeasures 625, 62 crawl space 227 criteria for selection cross-contam~ation current transformers 339 curtailable demand 509 c u r t a ~wall 233 customer charge 500, cut set 624

comprehensive, explicit, and

HANDBGOK

demand ratchets 507 demand side management (DSM) 1 ~epreciation41

derivative control 345 design 293 desi n life 439 n of the w~ste-heat-recovery nstrained analysis deterministic economic analysis 61 determinist~cunconstrained analysis 55 dew-point d e t e ~ i n a t i o n446 dew-point temperature 441 d i a p ~ r gauge a~ differential pressu differential temperature controller 47 digital comm~icationbus 345 digital inputs 338

daily scheduling 315 daisy chain 345

constant- wort^ dollars 63 constrained deterministic analysis 55 contaminant amplification

control drawings 343 control loop 345 control relays 339 control system 396 control systems 473 control valves 333, 33

DDGEMCs313,315,320 dead band 341, 345 deal time 345 debt f ~ ~ c i 39, n g646 declining balance 41 deductive analysis 618 deductive method 623 deferred capital costs 638 deferred ma~tenance629 degree days 234, 235 demand excess 510 firm 510 ~terruptible510 off-peak 510 on-peak 510 reactive 510 demand charge 500, 509 demand l ~ i t i or n ~load shedding 316, 341

d i s c o ~ t e dcash flow (DCF) 458 discounted payback 457

distillates 115 dis~ributedcontrol 345 istri~utedgeneration 167 istribution dampers 120 distribution substation 631 domestic hot water 335 double failure matrix (DFM) 619, 621, 623 downrating 120 d o w n s i z ~ g629 drive system efficiency 269 drum solids level 109 dual-fuel ca~ability509

753

INDEX

duty logs 317 d y n ~ system c 529

e c o n o ~ c c a l ~ a t i o4n s e c o n o ~ ~94 rs

index 294 elastomeric cellular plastic 4

543 energy m~ntenance395 energy m~agement311,628 control system 311 f u n c t i o ~341 in materials handling 422 program 6 systems 311 Energy Policy Act of 1992 1,231, 508, 543, 547, 549, 545, 631 Energy Producti~ityCenter of the C ~ e ~ e - M e l l 4o n energy savings calculations 455 energy security 615 energy system outsourcing 638 energy systems maintenance 393 e ~ a n c i n gefficiency 117 envelope analysis 217,236 Enviro~entalProtection Agency 408 EPACT 543,632 equipment failure 617 equipment list 322

failure mode effect and criticality fault hazard ~ ~ (FHA)1 618 ~ fault tree 623, 624 analysis 623 FCU 345 Federal Energy A d m i ~ s ~ a t i o460 n

Federal Energy Management Program FE^) 1 , 3

fenestration 229

FERC Order No. 6 ~ 551 A

lectric rates 509 electrical system 396 chromic 231

1 eutectic salts 529, 535 eutectic storage 535 application 318 evaporative-condensing cycle 211 installation 336 event tree analysis 620 retrofit 320 excess air 86, 89 s o f t ~ ~ e s ~ c i f i 329 c a t i o ~ excess air level 93 excess CO 407 excess 0 , 4 0 5 Executive Order l2902 3 end-of- ye^ cash flow 38 Executive Orders 546 energy analysis and diagnostic exempt wholesale generators centers 3 (EWGs) 549 energy blocks exhaust fans 335 exhaust stack t e m p e r a ~ 94 e energy c o ~ r v a t i o n629 expanded perlite 433 m e a s ~ e 87 s expenses 38, 499 extraction 493

fire hazard classification 432 firepr~fing436 first cost 37 fixed capital costs 499

f-factor 228 facility appraisal 322 energy e f ~ ~ provisions e n ~ 543 facility specific instructions 328 failure mode and effect analysis Energy I ~ o ~ a t i Admi~stration on ( F ~ A 618 )

freeze protection 342,452 f r e ~ u 272 ~ n ~ fuel cells l69 fuel co~iderations114 fuel cost redu~ion85

flashing l06 flat-plate collector 465, 469 float and thermostatic traps 412 floors 227 below grade 229

follo~-up404 frame 2 ~ 9293 ,

s

ENERGY MANAGEMENT

754

fuel oil 114 additives 116 emulsions 117 full storage system 525, 530, 532 full-load speed 270 functions 315 future cash flows constant-worth dollars then-current dollars 63 G gas general service rates 505

gas or liquid-to-liquid regenerators 211 gas rates 508-509 Gas Research Institute (GRI) 509 gas turbines 168 general test form 278 generator 631 glass fiber 433 glazed flat-plate collectors 468 glazing 229 global data exchange 338 gradient series 48 greenhouse effect 467 guidevanes 295

harmonics 277 health effect consequences 491 heat balance 86 heat exchangers concentric-tube 212 shell-and-tube 212 heat flow 441, 442 heat flux 441 heat gain 215 heat loss 215 from a floor to a crawl space 227 heat pipe 211 heat pipe array 209 heat plant 439 heat pumps 192 heat recovery 111 heat transfer 430 heat wheel 202, 208 heat-balance diagram 197 heat-recovery equipment 94 heat/power ratio 157 heating value 115 heating, ventilating, and air condi-

tioning (HVAC) 311 systems 394 high inertia load 272 high-temperature controller 473 higher heating value 197 holiday programming 315 hot deck/cold deck temperature reset 317 hot lime unit 114 hot water reset 316 hot-water distribution 397 how to choose a supplier 640 HP 293, 346 human dimension 313, 327 hurdle rate 54, 646 HVAC system 440, 490 HZ 293 I

IAQ 491 manager 493 solutions and prevention of problems 492 ice storage 529, 535 ideal heat pump 192 IES (Illuminating Engineering Society) 397’ IEQ (Indoor Environmental Quality) 493 Illuminating Engineering Society 420 improper drainage 411 income 39 incomplete combustion 86 independent system operators 632 indifference 50 indirect heat exchangers 114 indoor air quality (IAQ) 489, 494, 546 induction lighting 368 induction motors 270, 275, 281, 282 inductive methods 618 industrial assessment centers 3 industrial light meter 420 infiltration 232 commercial buildings 232 residential buildings 232 inflation 3’7,42,63 infrared equipment 421 initial costs 37, 38 innovative rate types 501, 502 input/output point 322

input/output units 338 inputs 338 installation 336 insulation 465 class 272, 294 cost considerations 454 covers, removable-reusable 433 economics 453 equivalent thickness 441 flexible 433 formed-in-place 433 materials 431 nonrigid 437 penetrations 218 properties 431 rigid 433, 437 selection 434 thickness determination 440 integral control 346 integrated solid waste management 482 intelligent building 346 interest 42 interest rate effective 62 nominal 62 period 62 interface temperature 442 internal rate of return 52 International Code Council (ICC) 545 International Conference of Building Officials (ICBO) 545 inverted bucket traps 412 inverter 295, 296 investment 37 investment analysis 38 IS0 632 isotherms 219

Justification of EMCs 317

kilovolt reactive demand (kVAR) 501 Kyoto protocol 548 L lag 346 laminar wheel 208 latent heat of fusion 529, 534

INDEX

lateral heat transfer 218 leakage problems 93 leases 652 least cost 489 LED 384 life cycle cost analysis 37, 38, 497 lift trucks, non-electric 414 light generated current 475 light measurements 420 light pipes 366 light shelves 366 limitations of metal recuperators 207 linear regression 236 litigation/risk of 492 load 86, 278 analysis 506 balancing 102 diversity factor 299 factor 425, 506, 507 profile 298, 507 reduction 85 study 505, 507 types 273 loans 648 local distribution companies (LDCs) 550 location 436 long-term contracts 640 loose-fill insulation 432 low-temperature controller 473 magnetic induction systems 368 maintainability 205 maintenance 38, 416, 495 actions 408 for air compressors 399 manual 343 of the lighting 397 procedures 405 program 93, 393 schedule 403 management control systems 6 management decisions 415 manifold 470 manometer 420 manual adjustment 108 manual override 317, 342 market factors 499 marketers 634 Markey Bill 289

755

mass balance 86 mass flow rate 196, 441 mass resistances 430 materials and construction 204 materials handling energy savings 424 materials handling m a i n t e n ~ c e414 maximum theoretical COP 192 MCS (multiple chemical sensitivity) 489, 491 mean temperature 432, mean time between failure 625 measuring instruments 419 metal building roofs 226 metal building walls 222 metal elements envelope 219 metal stud 219 metallic radiation recuperator 206 microturbines 169 mineral fiber/rock wool 433 minimum annual cost analysis 457 minimum attractive rate of return (MARR) 39, 50, 646 minimum charge 510 minimum on-minimum off times 316 model energy code 544, 545 modified accelerated cost recovery system (MACRS) 41 moneti~ation638 monitoring 342, 425 Montreal Protocol 547 motor code letters 271 motor efficiency 281, 289 motor manager 289 motor operating loads 277, 278 motor performance m ~ a g e m e n t process 289 motor record form 290-291 motor rpm 286 motor speed control 317 motor-generator sets 295 motors 399 multimeters 419 mutual exclusion 55 mutually exclusive 57 set 58 Mylar films 231 National Electrical Code 276 National Electrical Manufacturers

Association NE^) 269, 281 National Fenestration Rating Council 231 natural disasters 617 natural gas 114 Natural Gas Policy Act (NGPA) 1, 549 Natural Gas Policy Act of 1978 508, 550 Natural Gas ell-Head Decontrol Act 508 near term results 37 NEBS 318 negative impact 117 negative-se~uencevoltage 270 NERTs 318 net present value (NPV) 646 new construction EMGS 322 night setback 316 non-annual interest compound~g 37, 62 non-energy benefit 318 non-energy related tasks (NERTs) 312. North American Insulation Manufacturers Association 459 occupancy sensors 362, 384 Occupational Safety and Health Ad~inistration(OSHA) 547 Omnibus Reconciliation Act of 1993 40 opaque envelope components 217 open bucket traps 411 open waste-heat exchangers 193 open-circuit voltage 475 operating and maintenance costs 37 operating conditions 452 operating costs 638 operating practices 418 operating temperature 435 operation and m a ~ t e n ~ 499 ce operator’s -terminal 346 optimum burner performance 93 optimum start 333 optimum start/stop 316, 341 organic binders 436 orifice plates 422 orsat apparatus 421 outlay 39 outputs 338

ENERGY MANAGEMENT HANDBOOK

756

ovens maintenance 399 over-the-purlin 224

p-n junction diodes 475 package boilers 408, 410 parabolic 470 partial load storage 530 partial load system 534 partial storage system 525, 533 passive air preheaters 209 payback period 54, 460 peer-to-peer network 314 performance contracting 638, 655 performance contractors 1 periodic replacement 38 personnel protection 442 phase 273, 294 phase change materials 472, 529 photographic light meter 420 photovoltaics 169 PI control 346 PID control 346 Pitot tubes 422 planning horizon 38, 59 plasma lamps 368 plastic foams 434 plate-type 209 pocket thermometers 421 poles 273 poll/response system 314 polyimide foams 434 potential 187 potential transformers 339 pour point 115 power coefficient 478 power factor 273, 275, 277, 397 controller 287 power meter 278 power survey 277, 278 power-factor meter 420 present dollars 37 present worth factor 46 present-value cost analysis 458 pressure measurements 420 pressure sensors 339 pressure switches 339 proactive monitoring 493 process control 448 process wastes 481 process work 440

programmable logic controllers 311 project measures of worth 50 annual worth 50 internal rate of return 50 payback period 50 present worth 50 savings investment ratio 50 properties of thermal storage materials 191 proportional control 346 prop~rtional-integral(PI) control 312 protective coatings and jackets 434 protective countermeasures 625 public awareness 491 Public Utilities Holding Company Act (PUHCA) 543, 549, 550 Public Utility Regulatory Policies Act (PURPA) 176, 508, 549 pulse accumulators 338 pulse width modulation 296, 346 pulse-start metal halide 367 purchase 643 purge section 209 purlin 223, 225 PURPA 176, 508, 549 pyrolysis 484

infiltration air flow 232 qualifying facilities (QFs) 549 quantifying 188

radiation 430 rapid recovery 626 ratchet 510 ratchet period 501 rate structures 500 raw-water treatment 110 reactive power 275 reciprocating engines 168 recirculation 317 recording ammeter 420 recuperators 206 reducing heat loss 222, 226 redundant systems 626 reed relays 339 refractories 434 refuse combustion 484 refuse preparation 483 refuse-derived fuel (RDF) 481, 483

regenerators 202 relative humidity 441 remote source lighting and fiber optics 368 renting 644 resistance 437 Resource Conservation and Recovery Act of 1976 (RCRA) 549 retained earnings 40, 646, 648 revenues 37-38 revolutions per minute 286, 293 riders 501 risk analysis 64, 618 risk management 640 rock-bed storage system 472 roll-runner 226 routine maintenance 400 RPM, revolutions per minute 286, 293 run-around systems 194 S

sabotage 618 salvage value 38 saving investment ratio 53 savings 537 seasonal pricing 501 Securities and Exchange Commission (SEC) 549 selectivity 468 selling stock 644, 651 sensitivity analysis 37, 64 serial use 194 series cash flows 46 service factor 273, 293 setpoint 346 shared savings providers 1 shop-assembled boilers 120 short-circuit current 475 sick building syndrome 490, 491, 546 silicon controlled rectifier 296 simple interest 43 simulation 66 single factor sensitivity analysis 64 single point failures 619 single sum 46 single sum cash flows 45 sizing 473 slab-on-grade 228 slip 274, 280 sludge 116

757

INDEX

smart windows 231 smoke detectors 421 smoke spot number (SSN) 89 software 314 routines 315 specifications 323 solar arrays 476 solar cells 474, 475 solar collecting systems 464-465 solar constant 464, solar energy 463, 464 solar thermal energy 463 solid fuel pellets 484 solid state relays (SSRs) 339 source control 493,495, 547 Southern Building Codes Congress International (SBBCCI) 545 spacers 230 specific heat 441 specified heat loss 449 speed ratio correction factor 286 spot market 1 ,550 stack effect 232 stack-gas analysis 421 stack-gas stream 201 stack-gas temperature 407 stagnation 467 state codes 544 static system 529 steady-state heat exchangers 202 steam and condensate systems 85 steam demand 102 steam trap 114,394,410,413 failure 410 stethoscope 422 stochastic techniques 55 stock sales 644 storage 190 mediums 527 storage systems 525 capacity 533 stored heat 190 strategic issues 660 strategic issues financing decision tree 660 stroboscope 422 subcontract 645 sulfur content 116 sulfur lamp 366, 368 super insulations 435 surcharge 510 surface air film coefficient 441-442

surface resistance 430,441,442,443 surface temperature 441 surge protection 339 synchronous speed 274 synthetic lease 654 system capacity 530 system controllers 314 system manual 342 system Performance method 544 system programming 343 systems checkout 344 systems configuration 323 systems integration 322, 325 T5 367 T5HO 367

tax benefits 658 tax considerations 40 tax effects 458 temperature 274 bin method 239 control 341 difference 430 drop 450 inputs 338 measurement 96, 421 rise 294 use range 432 terminal unit 346 TES systems 537 The Fan Law 286 The National Energy Conservation Policy Act of 1978 545 then-current dollars 63 therm 510 thermal break 223, 230 thermal bridging 226 thermal conductivity 191,429,432, 441

thermal energy storage systems 628 thermal equilibrium 441 thermal girts 222 thermal insulation 429 Thermal Insulation Manufacturers Association 225 thermal mass 215 thermal performance 37 of roof 224 thermal pollution 187 thermal resistance 217,430, 441 thermal spacers 226

thermal storage systems 471, 530 thermal stratification 527 thermal weight 234 thermally ”heavy” building 234, 239

thermally homogeneous 220 thermally ”light” building 234,239 thermocouples 421 thermostatic traps 413 thermowells 339 throttling 287 tight building syndrome 489, 490 time clocks 400 time rating 274 time standards 400 time value of money 38,42,457 calculations 37 factors 48 principles 61 time-of-use rates 504 tires 485 topping cycles 157 torque 274-275 total quality m ~ a g e m e n t(TQM) 3 training 342 transducer 346 transmission system 631 transmittance 468 transportation rates 510 truck operation and maintenance 415

true lease 653 trusses 224-225 tube-and-shell heat exchanger 205 twisted pair 346 two position 346 type 294 typical applications 439 U-factor 217 unbalanced voltages 270 unconstrained deterministic analysis 55 uniform series cash flows 46 unit heaters 335 United Nations Environment Program 547 utility billings 236 utility costs 499 utility network 616 utility outages 627

ENERGY

758

utility rate structures utility rates 499 utilitv systems 616 J

J

voltage isc counts 510 volts 293 volumetric flow rate 196

variable air volume ( ~347, 490 ~ ~ ) variable walk-through audit 423 variable waste heat 187 299 variable exchangers 202 variable quality 189 variable recovery 85 variable source 188 velocity and flow-rate measurement source and load diagrams 421 survey 195 ent ti la ti on 490, 546 steam generation 99 ventilation rate procedure water storage 535 vertical-axis wind t u r ~ i n e( ~ ~ ~ T tank)471 waterwall steam generator 484 watt- our meters 339 meas~rement watt-hour transducers 339 viscosity 115 wattmeter 420 volatile organic c o m p o ~ d s WECS 481

HANDBOOK

WHAT IF motor comparison form 292 wind c~aracteristics478 wind devices 478 wind energy 476 aero~y~~m efficiency ic 477 av~ilability476 S ) conversion system ( ~ E ~480 loadings and acoustics 481 power coefficient cp 477 p o ~ e density r 476 systems 463 wind speed 480, 481 wind systems 478 window 229

yearly s c h e d u l ~

z-girts 221 zone method 221