Professional Documents
Culture Documents
FEBRUARY 2009
RICSRESEARCH
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
Professor John Kelly Dr Kirsty Hunter
Research
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Professor Kelly, currently chairman of the consultancy Axoss Ltd and visiting professor at Nottingham Trent University and Hong Kong Polytechnic University, is a chartered surveyor with industrial and academic experience. His quantity surveying career began with a national contractor, moving to a small architects practice and later to an international surveying practice. His academic career began at University of Reading as a research fellow, moving to Heriot-Watt University as a lecturer and later senior lecturer and finally to Glasgow Caledonian University where he held the Chair of Construction Innovation until November 2007. His research into value management and whole life costing began in 1983 and has been well supported by grants from both public and private sector. He has published 4 books and 8 research monographs and technical manuals.
Following completion of her PhD degree in value management at Glasgow Caledonian University, Kirsty has pursued a career in the NHS and has experience of working in various management roles including project management and research management at Health Facilities Scotland, the Health Protection Agency and University Hospital Birmingham. During her time as a research associate Kirsty worked on a variety of construction related research projects and through the dissemination of her research achieved two best paper awards at international conferences, a highly commended Emerald journal award, and the 2006 Herbert Walton award for best doctoral dissertation in project management.
RICS February 2009 ISBN: 978-1-84219-436-2 Published by: RICS, 12 Great George Street, London SW1P 3AD United Kingdom The views expressed by the author(s) are not necessarily those of RICS nor any body connected with RICS. Neither the author(s), nor RICS accept any liability arising from the use of this publication. This project was funded by the RICS Education Trust and RICS Scotland QS and Construction Faculty Board with the aim of developing a methodology for life cycle costing of sustainable design.
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Executive summary
Sustainable development presumes a whole systems approach that considers the environmental, social and economic issues of any design decision. Any model or tool which assists decision makers in reaching the best sustainable option must make explicit the complexity of the problem and the trade-offs and potential synergies which exist within these three facets of sustainability. The optimal sustainable development solution is one which balances the total economic cost and social change together with the inevitable environmental consequence but ensures that scarce resources are not squandered, either deliberately or through ignorance. Sustainable development is variously defined but this research relies on the Brundtland definition "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs
This research considers only the economic dimension of evaluating a sustainable design. The research project began from the premise that whilst much is said about the economics of sustainable projects there is no standard method of measurement of life cycle cost and currently option appraisals are being carried out with no consistent approach to the parameters of the calculation. This research project focuses on deriving a standardised approach to the life cycle costing of the sustainable design of buildings. The specific aim was to design a method with general applicability to building projects focusing on insulation, controlled ventilation, micro and biomass heating and electricity generation. The methodologies of life cycle costing (LCC) are well understood but the rules of their application in option appraisal are not. The cost of carbon and the issues surrounding embodied energy were investigated without reaching a satisfactory conclusion. The current (October 2008) cost of a carbon offset is approximately 20 per tonne but prices vary according to the scheme supported. There is an important and unanswered question as to whether carbon counting is a valid component of life cycle costing. The approach advocated in this research is to focus on the proper evaluation of efficient design and on-site renewable energy generation. The research highlighted the importance of recognising the two primary reasons for undertaking life cycle costing, namely: to predict a cash flow of an asset over a fixed period of time for budgeting, cost planning, tendering, cost reconciliation and audit purposes and to facilitate an option appraisal exercise at any of the six identified levels of study (evolved during this research) in a manner that allows comparison. This will also include benchmarking and tender comparisons. Examples were seen during the research of calculations conducted in different ways using different methodologies, different time scales, and making many different assumptions with regard to particularly fuel inflation.
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Executive summary
This report outlines studies of sustainable design, on-site micro energy generation, methods of data gathering and data analysis and the methods of measurement with associated rules and definitions. A draft of these rules and definitions was passed to BSI and BCIS to inform the document Standardised Method of Life Cycle Costing for Construction: UK supplement to ISO 15686 Part 5 life-cycle costing for buildings and constructed assets The rules and definitions . governing the approach to LCC should be considered the biggest contribution to surveying made by this research. Whilst generated by research into sustainable energy and design, these rules have general applicability. Finally, it was observed throughout this research that rules of thumb concerning sustainable design and micro energy generation are difficult to evolve. Innovative design solutions have been used to substantially reduce a projects carbon footprint. These design solutions do not need to cost more; it is a gross over simplification to say that a sustainable design will add 10% or 15% to the cost of the building. This logic comes from addition thinking i.e. here is a designed office building, house or school, how much extra will it cost to modify the design to include for example convection powered ventilation? Design has to be based on a clear briefed concept and a value system dictated by the client; addition thinking is entirely the wrong approach. Also it was observed that on-site, micro energy solutions are difficult to justify on economic grounds. If micro energy benefits are to be measured then a currency other than money has to be used.
Contact John Kelly School of Built and Natural Environment Glasgow Caledonian University Glasgow G4 0BA Scotland email: john.kelly@axoss.co.uk
Acknowledgements This project was funded by the RICS Education Trust and RICS Scotland QS and Construction Faculty Board with the aim of developing a methodology for life cycle costing of sustainable design.
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Contents
01 Background 1.1 Sustainable development 1.2 Preliminary work 1.3 Aims and objectives 02 Background to life cycle costing 2.1 Costs 2.2 Life 2.3 Data 2.4 Discount rates 2.5 Review of ISO/FDIS 15686-5:2006 (E) 2.6 A review of existing methods and models 2.7 Rules 03 Rules 3.1 Introduction 3.2 General rules 3.3 Formulae 3.4 Purpose of calculation 3.5 Method of measurement of components 3.6 Method of measurement of systems 3.7 Method of measurement of single unit items including energy 04 Checklist for data gathering at component and system levels 05 A methodology for undertaking life cycle costing of sustainability projects 5.1 Introduction 5.2 Step 1 project identifiers 5.3 Step 2 study period 5.4 Step 3 Inflation rate and discount rate 5.5 Step 4 gather data 5.6 Step 5 model construction and analysis 5.7 Illustration 1 component cash flow 5.8 Illustration 2 system cash flow 5.9 Illustration 3 option appraisal with a base case 06 Conclusion 6.1 Conclusion to the research project 6.2 Final comments 6.3 Recommendations for further research Appendix 1 Glossary of terms Appendix 2 The sustainable design checklist Appendix 3 Renewable energy technologies References 06 06 06 07 07 07 09 10 11 11 13 14 15 15 15 16 17 17 17 17 18 20 20 20 20 20 20 24 24 25 26 32 32 33 34 35 37 41 51
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01 Background
1 Background At the RICS Scotland Quantity Surveying and Construction Faculty Board (QSCFB) conference on 30th September 2005 three speakers addressed the subject of sustainability at both a macro and micro level. A recurring theme was the lack of a standard methodology for representing costs and benefits. Howard Liddell, an RIAS 4 star accredited sustainable design architect and winner of an RICS sustainability award in 2003 for the Glencoe visitor centre, challenged the surveying profession to be more explicit with regard to the costs associated with sustainability. A subsequent Faculty Board debated the issues raised addressing the topics of the macro economic implications of the expansion of Scotlands renewable energy and a life cycle costing approach to project based sustainable design, particularly for ventilation, heating and electricity generation. It is the latter topic which was considered to be of immediate importance. 1.1 Sustainable Development Sustainable development presumes a whole systems approach that considers the environmental, social and economic issues of any design decision. Any model or tool which assists decision makers in reaching the best sustainable option must make explicit the complexity of the problem and the trade-offs and potential synergies which exist within these three facets of sustainability. The optimal sustainable development solution is one which balances the total economic cost and social change together with the inevitable environmental consequence but ensures that scarce resources are not squandered, either deliberately or through ignorance. Sustainable development is variously defined but this research relies on the Brundtland definition "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs This research considers only the economic dimension of evaluating a sustainable design. The research project began from the premise that whilst much is said about the economics of sustainable projects there is no standard method of measurement of life cycle cost and currently option appraisals were being carried out with no definition of the parameters of the calculation. The life cycle costing texts are rich in mathematical theory, risk and sensitivity analysis, data management and component life assessment. However, no text has produced an explicit method of measurement for option appraisal or benchmarking. This research project focuses on deriving a standardised approach to the life cycle costing of sustainable design in buildings. The specific aim was to design a method with general applicability to building projects focusing on insulation, controlled ventilation, micro and biomass heating and electricity generation. The methodologies of life cycle costing (LCC) are well understood but the rules of their application in option appraisal are not.
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Background
1.2 Preliminary work A preliminary literature search confirmed the view of the QSCFB that whilst there are a number of publications which deal with sustainability at a global impact level, few deal with sustainability at a project level and none set a life cycle cost methodology suitable for use by surveyors in option appraisal. A useful publication at project level is the 2002 CIRIA publication Sustainability accounting in the construction business. Aimed specifically at clients, construction firms and project managers the report includes as appendices case studies and reporting proforma but does not give an option appraisal or life cycle costing methodology. It concludes in terms of who is best placed to undertake the work involved to produce a set of [sustainability] accounts is open to debate. Life cycle cost methodology is well understood if infrequently used. Boussabaine and Kirkham (2004), Bourke et al (2005), Flanagan and Jewell (2005), Kelly and Hunter (2005) being an example of most recently published work. However, although the principles are well described a standard method approach to life cycle costing of sustainable design was not available. This paper uses the term life cycle costing following the logic of ISO/FDIS 15686-5:2006(E) Buildings and Constructed Assets Service Life Planning Part 5 Life Cycle Costing, that defines whole life costing as including the finance and other costs which precede the concept and design stages. 1.3 Aims and Objectives The aim of this research was to produce a standardised approach to the life cycle costing of sustainable design in buildings. The specific aim was to design a method with general applicability to building projects focusing on insulation, controlled ventilation, micro and biomass heating and electricity generation. The objectives set at the outset were: 1. A standard method to calculate life cycle costs for sustainable design. 2. A checklist to allow surveyors to gather, in a logical fashion, the data necessary to populate the life cycle cost model. 3. The production of information in a standard form conducive for the client to make an informed cost benefit decision. 4. To illustrate the method with examples to show the life cycle costs of such installations. 5. To present a commentary on issues such as embodied energy, ventilation, air tightness, insulation, etc. This report describes the output of the work undertaken in meeting these objectives.
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10
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Asset Management/ Option Appraisal LCC study 1 Optional Project Appraisal LCC study 2
Year Zero
LCC Audits
PRE-PROJECT
PROJECT
POST PROJECT
STRATEGIC BRIEF
BRIEF
OUTLINE DESIGN
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03 Rules
3.1 Introduction The following rules were derived from literature and validated through the expert analysis of the RICS Quantity Surveying and Construction Faculty. The rules were considered a necessary prerequisite for the analysis of the life cycle cost of sustainable solutions and particularly for option appraisal. The purpose of life cycle costing is to provide information in a form which assists decision-making on capital and through life costs. The purpose of this standard approach is to guide the preparation of life cycle cost studies in a standard form which facilitates audit and data exchange. This standard approach acknowledges six levels of study: Study at multi asset or portfolio/estate level Study at single asset or whole building level Study at cluster level (multi-element) Study at element level Study at system level Study at component or detail level The general rules and the formulae apply to all levels of study. There are two primary reasons for undertaking a life cycle cost study a study to predict a cash flow(s) over a fixed period of time for budgeting, cost planning, tendering, cost reconciliation and audit. a study as part of an option appraisal exercise at any of the six levels of study in a manner that allows comparison. The cash flow of the selected option may be used to generate a cash flow over a fixed period of time and therefore can be metamorphosed into a study of the first type. 3.2 General Rules 1. A brief description of the project will be given. 2. The purpose of the study shall be stated. Examples include: a. Prediction of a single cash flow b. Option appraisal based on multiple cash flows c. Comparison of tenders that include a cash flow d. Audit of single or multiple cash flow(s). 3. The focus of the study shall be stated as one or more of the following: a. Study at multi asset or portfolio/estate level b. Study at single asset or whole building level c. Study at cluster level (multi-element) d. Study at element level e. Study at system level f. Study at component or detail level 4. The study will state whether the data for the LCC exercise is built up from first principles or whether parametric data is used. 5. Time zero shall be stated. Time zero is the point in time from which the study period commences. 6. Capital costs are all relevant costs accrued prior to time zero and deemed to include service and product delivery and installation, finance costs, fees and taxes.
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Rules
7. Maintenance costs are all relevant costs necessary to facilitate the assets continuing structure, fabric, services and site performance at the level specified at time zero. 8. The study period shall be stated. The study period is the time from time zero to a given point in time in the future and over which the calculations pertain. 9. The units of time shall be stated. The units of time are the increments to which the calculations refer and may be for example; years, months, weeks, days. All factors in the calculations, for example, interest rates will relate to the stated units of time. 10. Assumptions with regard to interest rates shall be stated. 11. Assumptions with regard to hard FM activities in the final period of study shall be stated. 12. The method of depreciation shall be stated, for example a straight line method of depreciation may be assumed. Where depreciation is not applicable this shall be stated 13. Assumptions with regard to residual values shall be stated. 14. The method of undertaking sensitivity analysis and/or risk analysis shall be stated. 3.3 Formulae The following formulae shall be used as applicable: P i n A R = = = = = principal or present value interest expressed as a decimal number of time periods accumulated amount or future amount repayment or regular payment to a sinking fund Interest Rate Adjustments All rates expressed as a decimal a To adjust an interest base rate t by inflation rate f to give a discount rate i
(1+t) -1 (1+f)
2. Present Value
P=
A (1+i)n
P=
R (1-(1+i)-n) i
R ((1+i)n-1) P= i(1+i)n
4. Sinking Fund
R=
5. Mortgage
Ai (1+i)n-1
R Pi(1+i) R= (1+i)n-1
i=
1. Compound Interest
A = P (1+i)n
b To adjust an interest rate per annum (i pa) to an interest rate per month (i pm)
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Rules
3.4 Purpose of Calculation The purpose of the calculation shall be stated as one of the following: 1. A prediction of cash flow over time for a single asset (no discounting and no option appraisal). 2. A prediction of cash flow over time for multiple assets (no discounting and no option appraisal). 3. An option appraisal of cash flows of multiple solutions to a problem where no base case is established. 4. An option appraisal of cash flows of multiple solutions to a problem where a base case is established. 3.5 Method of Measurement of Components 1. The component shall be described either in terms of its manufactured part reference or in terms of its physical characteristics and function. 2. The number of identical components shall be stated. 3. Maintenance of the component shall address the following: a. Requirements for periodic inspection. b. Periodic and predetermined physical maintenance listing each different type of maintenance separately. 4. The physical life of the component shall be stated as follows: a. The actual life where the component is to be replaced as a planned activity prior to failure. b. The estimated physical life where the component is to be replaced upon failure. 5. The capital cost of the installed component shall be given and stated whether estimated or firm. 6. The estimated maintenance costs shall be stated. 7. The estimated scrap value of the replaced component shall be stated. 3.6 Method of Measurement of Systems 1. The system shall be described in terms of its components. 2. The rules of measurement for components will apply to those components comprising a system. 3. Systems will be described under element headings. 3.7 Method of Measurement of Single Unit Items including Energy 1. Single unit items will be described separately from components and systems. 2. Single unit items include energy and those services represented as a single sum per period of time such as management fees, insurances, cleaning, etc.
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5.1 Introduction This section outlines a method for undertaking a life cycle cost appraisal of a sustainable project illustrated in part 6 by reference to fictitious products. The method is an application of the rules in part 3 and follows the logic of the flowchart below. The method is described and illustrated through a number of steps. 5.2 Step 1 Project Identifiers (rules 1 to 5) Some description is required to both identify and describe the project including; the basis for the calculation i.e. whether the data is parametric or obtained from manufacturers/suppliers, and the time zero point for all calculations. The type of life cycle cost calculation, prediction of cash flow or option appraisal (with or without a base case), can be included in the general description. This identifies how the data will be used. 5.3 Step 2 Study Periods (rules 8 and 9) Determine the length of the study period and also the unit of time (rules 6 and 7). The study period will commence at time zero which has been previously defined. The units of time and the interest rate must correlate i.e. if the unit of time is months then the interest rate must be a percentage rate per month. It may be advantageous to set up any model to calculate over a number of time periods so that options can be quickly compared rather than running repetitive sensitivity checks.
5.4 Step 3 Inflation Rate and Discount Rate (rule 10) The inflation rate only is used when predicting a cash flow of over time for the purposes of budgeting, cost planning, tendering, cost reconciliation and audit. Discount rates are used when comparing two or more dissimilar options during an option appraisal exercise or when comparing tenders which have an FM constituent. The discount rate will be legislated, calculated or given by the client. Public sector option appraisal calculations tend to use the discount rate issued by HM Treasury which is (January 2008) 3.5%. A calculated discount rate takes a relevant rate of interest e.g. the bank rate, and adjusts this for inflation. A client nominated discount rate is used when considering options against strict internal rate of return or opportunity cost of capital criteria 5.5 Step 4 Gather Data Data will be obtained from parametric sources e.g. BCIS Running Costs Online, or from first principles either by calculation e.g. energy calculation, or from manufacturers or suppliers. Data gathered from manufacturers or suppliers should include the detail illustrated in Part 4 above.
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Page 1
START
Project identifiers: Project name Brief description of the project File name Anticipated time zero User identification: User name/password
What type of LCC calculation? 1. Prediction of future cash flows only (for budgeting) 2. Option appraisal of future cash flows 3. Ditto but with a base case established
How many study periods? What is the length of time of each study period?
TO PAGE 2
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Page 2
FROM PAGE 1
For each sustainable option and the base option if relevant input:
1. Brief description of the sytem 2. Brief description of system components 3. For each component enter: a) current capital cost including installation b) estimated service life c) scrap value at end of life d) would the component be replaced in last year of study e) will the component be inspected or maintained in the last year of study f) residual values if NOT straight line method g) inspection period and cost if relevant h) maintainence period and cost 4. Does the sytem save or generate energy? a) indicate form of energy saved/generated b) estimated value of energy saved/generated c) if grants apply give lump sum value d) give estimated value of renewables obligation certificates if applicable e) value of carbon offsets if applicable
option appraisal
TO PAGE 3
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Page 3
FROM PAGE 2
No
Calculation based on cash flows of a single option over the study period(s) accounting for inflation only.
END
Yes
Calculation based on cash flows for each option over the study period(s) and compared on a net present value basis.
Calculation based on cash flows for each option and the base case over the study period(s) and evaluated on a net present value basis and using the measures of economic performance.
END
END
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Current cost
2350.00 40.00 40.00 40.00 40.00 200.00 40.00 40.00 500.00 40.00 200.00 40.00 40.00 40.00 40.00 200.00 500.00 40.00 40.00 40.00 2350.00 40.00 40.00 40.00 40.00 200.00
Future cost
2350.00 41.00 42.03 43.08 44.15 226.28 46.39 47.55 609.20 49.95 256.02 52.48 53.80 55.14 56.52 289.66 742.25 60.86 62.39 63.95 3850.75 67.18 68.86 70.58 72.35 370.79
25
400
655.45
1100
1802.48
800
1310.89
21 22 23 24 25
80
141.17
211.75 72.35
400
741.58
80
148.32
1260.68
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Rule 1
The project is to retrofit a detached house (50m2 plan area) to significantly reduce gas consumption. One or more of the following options are being considered within a total budget of 7000: increasing roof insulation thickness from 100mm to 250mm (from u-value including structure approximately 0.36 to approximately 0.16) installing cavity wall insulation (from u-value 1.00 to 0.55) fitting a roof mounted SolarPanPlus solar hot water panel The purpose of the study is an option appraisal based on multiple cash flows The study will be conducted at system level The data for the study is built up from first principles Time zero is taken from the completion of the installation works when the systems are ready for use. The target date for time zero is 1st August 2008 The study period reflects the householders intention to remain in the dwelling for the next 15 years. Studies will be conducted over 10, 15 and 20 years to check for time sensitivity in the calculations. The unit of time is years The interest rate will be calculated assuming a return on a deposit account of 5% and an inflation rate of 2%. The maintenance requirements of the options examined apply only to the SolarPanPlus. For the purposes of this example the maintenance contract will not be used. Depreciation will not apply and residual values will not be included in the calculation. Maintenance and replacements will not be accounted for if they occur in the final year of the study. Sensitivity checks will be undertaken by including three study periods and by varying the discount rate by 2% (increase and decrease).
Rule 8
Rule 9 Rule 10
Rule 11
Rule 12 Rule 13
Rule 14
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Available budget Interest rate on deposits Inflation rate Study periods Roof insulation costs Roof insulation fuel savings
7000 5% 2% 10, 15 and 20 years Initial cost of 64m2 at 7 per m2 installed = 448 Assuming a designed temperature difference of 21oC a U value improvement of 0.2 will lead to a reduction of approximately 1000 kWh during the heating season (2500 degree days). At 0.03 per kWh for gas this leads to a saving of 30 per annum. Initial cost of 120m2 wall area = 600 Assuming a designed temperature difference of 21oC a U value improvement of 0.45 will lead to a reduction of approximately 4100 kWh during the heating season (2500 degree days). At 0.03 per kWh for gas this leads to a saving of 123 per annum. Initial cost 5875 Maintenance at 3 yearly intervals 300 Replacement pump year ten 80 150 days at 25kWh per day at 0.03 per kWh (gas) = 112.50 215 days at 8kWh per day at 0.03 per kWh (gas) = 51.60 Total saving = 164.10 per annum
SolarPanPlus costs
SolarPanPlus savings
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0.05 0.02 0.029 Option 1 Roof Insulation Option 2 Cavity Fill 600.00 123.00 per 3 yrs per 10 yrs Option 3 SolarPanPlus 5,875.00 164.10 300.00 80.00
Initial capital cost Saving per annum Maintenance Replacement Report Year 10 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return Report Year 15 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return Report Year 20 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return
448.00 30.00
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Discount rate
0.050 Option 1 Roof Insulation Option 2 Cavity Fill 600.00 123.00 per 3 yrs per 10 yrs Option 3 SolarPanPlus 5,875.00 164.10 300.00 80.00
Initial capital cost Saving per annum Maintenance Replacement Report Year 10 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return Report Year 15 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return Report Year 20 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return
448.00 30.00
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Discount rate
0.010 Option 1 Roof Insulation Option 2 Cavity Fill 600.00 123.00 per 3 yrs per 10 yrs Option 3 SolarPanPlus 5,875.00 164.10 300.00 80.00
Initial capital cost Saving per annum Maintenance Replacement Report Year 10 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return Report Year 15 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return Report Year 20 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return
448.00 30.00
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06 Conclusion
6.1 Conclusion to the research project This research project set out with a number of objectives: 1. A standard method to calculate life cycle costs of sustainable design. 2. A checklist to allow surveyors to gather, in a logical fashion, the data necessary to populate the life cycle cost model. 3. The production of information in a standard form conducive for the client to make an informed cost benefit decision. 4. To illustrate the method with examples to show the life cycle costs of such installations. 5. To present a commentary on issues as embodied energy, ventilation, air tightness, insulation, etc. At beginning of the research it became apparent that whilst there were a number of papers and texts referring to life cycle costing methodologies and definitions none proposed a set of rules to be strictly applied in cases of option appraisal. This research has generated those rules and related definitions and tested them in expert gatherings. A draft of these rules and definitions has been passed to BSI and BCIS to inform the document Standardised Method of Life Cycle Costing for Construction: UK supplement to ISO 15686 Part 5 life-cycle costing for buildings and constructed assets. The rules and definitions governing the approach to LCC should be considered the biggest contribution to surveying made by this research. The research highlighted the importance of recognising the two primary reasons for undertaking life cycle costing, namely: to predict a cash flow of an asset over a fixed period of time for budgeting, cost planning, tendering, cost reconciliation and audit purposes and to facilitate an option appraisal exercise at any of the six identified levels of study in a manner that allows comparison. This will also include benchmarking and tender comparisons. Examples were seen during the research of calculations conducted in different ways using different methodologies, different time scales, and making many different assumptions particularly with regard to fuel inflation. The research findings also demonstrated the need for a standardised approach to data gathering at component level and this is illustrated in part 4 of this report. The questionnaire described in part 4 was tested and refined with a number of suppliers manufacturers. Checklists have been developed for both sustainable design and sustainable energy solutions, and these are included in appendices 2 and 3 and a standardised approach to the prediction of a cash flow and an option appraisal is presented. It is recommended that the standardised approach is adopted by surveyors advising clients based upon life cycle cost calculations.
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Conclusion
6.2 Final Comments The study described has taken the researchers far and wide in the field of sustainability and it would be remiss if this report did not include some personal observations of the researchers: 1. Sustainable Design. The genesis of this study was a challenge laid down by Howard Liddell, (an RIAS 4 star accredited sustainable design architect and winner of an RICS sustainability award in 2003 for the Glencoe visitor centre) to be more explicit with regard to the costs associated with sustainability. This research has made significant progress towards a standardised methodology and some of the work has been incorporated into the BSI/BCIS publication mentioned above. However, rules of thumb are difficult to evolve except to say that on-site, micro energy solutions are difficult to justify on economic grounds. On the other hand many innovative design solutions have been used to substantially reduce a projects carbon footprint. These design solutions do not need to cost more; it is a gross oversimplification to say that a sustainable design will add 10% or 15% to the cost of the building. This logic comes from addition thinking i.e. here is a designed office building, house or school, how much extra will it cost to modify the design to include for example convection powered ventilation? Design has to be based on a clear briefed concept and a value system dictated by the client; addition thinking is entirely the wrong approach. Examples reflecting sustainable value in design were seen at Arups Solihull Campus, at Gaias Glencoe visitor centre for the National Trust for Scotland, at King Shaw Associates Innovate Green office project at Thorpe Park Leeds and at Keppies design for Great Glen House, Inverness, the headquarters building for Scottish Natural Heritage. These three examples demonstrate a sustainable design solution to a clear brief backed by an explicit value system. The cost of these solutions has to be viewed from a value for money perspective calculated on LCC principles. Comparisons with design solutions where sustainable design was not a feature of the clients value system could in theory be made but the calculations and logic are complex.
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Conclusion
2. Embodied energy This was initially an objective of the original research proposal but has proved too difficult to accurately model. It was unfortunate in some ways to focus on aluminium products as a trial study. Bauxite is mined in a number of countries worldwide and transported to smelters. Whilst aluminium requires huge amounts of energy in the smelting process a significant proportion (83% in the case of Alcan) of this electricity is sourced from local hydro schemes. The carbon footprint of this smelting process is very small. Finally, the carbon cost of transport and fabrication, further transport and the installation of the final product became so product and site specific that generalisations were completely invalid. Added to this was the maturity (in relation to many other materials) of the aluminium recycling industry. These facts resulted in the embodied energy objective being abandoned. However, the lesson learned was the importance of undertaking specific case studies at least to clarify the accuracy of the perception of a number of designers that for example, metal is bad and wood is good. 3. Micro energy A lengthy study of micro-energy was undertaken which is reflected in the findings in appendix 3. There are many sources of information and some of these have been referenced. At the end of the study the researchers concluded that although many micro energy products are sold based upon economic advantages, some of which are reported in appendix 3, that the benefit of micro energy has to be based upon a value judgement. Currently, a properly undertaken option appraisal study using the rules advocated by this research is unlikely to prove any economic benefit from a micro energy solution even with the current levels of government grants and current prices paid by electricity companies for surplus generated electricity.
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Conclusion
On-site generated micro energy is difficult to store, hot water less so than electricity. Three approaches are available for dealing with electricity generated in excess of the domestic requirements at the time of generation; dumping waste energy (usually as heat), installing batteries and an inverter for on-site storage or connection to the electricity grid. Batteries are a low demand supplier of electricity suitable for example for low wattage lighting but unsuitable for sustained high demand required for example by an electric oven. Selling surplus electricity back to the energy supplier is an effective way of dealing with excess generation. Electricity companies will buy such electricity at about 3p per unit (Jan 2008). Economic benefits from grid connected exported micro electricity generation accrue to electricity companies from sale of the electricity and sale of Renewable Obligation Certificates (ROCs). ROCs are awarded to accredited generators of eligible renewable electricity produced within the UK solar energy (including photovoltaics), hydro, wave power, tidal energy, geothermal energy, biofuels (including energy crops) and on and offshore wind. ROCs are traded amongst electricity generating companies such that those companies which fall below their renewables obligation can buy from those companies who have exceeded their renewables obligation. ROCs are not to be confused with international green certificate trading. The latter is an offsetting device whereby those who wish for various reasons to present themselves as zero carbon can purchase green certificate offsets. The current price of green certificate offsets is approximately 20 per tonne of CO2. In summary therefore investing in micro energy generation is done for reasons other than any economic advantage. 4. New technology products: It is difficult for manufacturers to predict the longevity of innovative products and their components. Additionally, many of the innovative products are produced by new companies which are more prone to failure, takeover, etc and these companies have difficulty offering credible long term guarantees that parts will be continue to be available over the estimated life of the product. Even in fairly established technologies such as wind generators, installation in a new environment can lead to problems for example, in 2007 it was reported that 12 out of 36 turbines off Herne Bay, on the Kentish Flats suffered major failures after one year in service.
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Conclusion
6.3 Recommendations for further research Demands for cost planning, budgeting, tender evaluation and audit on a life cycle cost basis are increasing. There is a necessity for rules and guidance on best practice which this research has addressed in part. ISO 15686 gives clarity to applications and definitions and the BSI/BCIS publication is expected to influence rules and methodology. This work has majored on rules and methodology using sustainability as the subject. The research has uncovered many different approaches in the evaluation of sustainable options on a life cycle cost basis. This current situation is unacceptable. There are three significant pieces of work which are required under the sustainability banner, 1. Case study research is required to illustrate in some detail a proper approach to embodied energy. Existing theories of embodied energy need to be robustly examined and tested and an explicit method developed for the measurement of embodied energy in construction components. 2. Sustainability needs its own currency. Whilst energy remains relatively inexpensive evaluation solely on economic grounds will tend to favour the status quo. A suggestion for further research is the development of a shadow taxation system. The research would answer the question, how high must taxation be on existing carbon based technologies before a tipping point is reached and sustainable design and sustainable energy become the preferred option. A parallel situation exists currently in the innovations in site waste disposal to avoid landfill tax. 3. Finally, a method needs to be established for the explicit statement of value for money in the context of sustainability. It can be anticipated that in the not too distant future tenders will be judged on value for money where a major part of the value equation will be sustainability. How will this value for money be credibly calculated?
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Core definitions
Base case the existing situation against which improvement options can be compared or a specific solution selected as the benchmark against which other options can be compared Mortgage strictly, the conveyance of an asset by a debtor to a creditor as security for a debt. In the context of life cycle costing the mortgage is the amount to be paid at regular intervals at a given interest-rate to repay a debt. Sinking funds - funds accumulated by equal payments made at regular time periods into an account which attracts a given interest-rate to accumulate a required sum of money established prior to undertaking the sinking fund calculations. Whole Life Appraisal is the systematic consideration of all relevant costs, revenues and performance associated with the acquisition and ownership of an asset. Life cycle costing - the quantification of the total cost of an enterprise for input into a decision making or evaluation process.
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Time
Period of analysis/period of study the length of time over which the life cycle cost assessment is analysed. Physical life of a component the time at which a component fails to meet the performance criteria required of it and has to be removed and replaced. Residual life when applied to an asset is that remaining at the end of the study period Time zero the point in time from which the study period commences. All relevant costs accrued prior to time zero are deemed to be capital costs. Unit of time The time interval used in life cycle cost calculations. It may be any unit of time measurement (day, week, month, year). However, in the calculations the time period and interest rate per time period must be synchronised.
Levels of Study
Cluster a number of elements combined on the basis of a common function or combined on the basis of a work package for contracting purposes. Component a single manufactured product installed in a single operation which can be described by its manufactured part number or by its physical characteristics and function. Element a part of construction which performs the same function irrespective of the components from which it is made.
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08 References
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