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Energy Assessment: Cost benefit analysis

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  1.  
    • CommentAuthortony
    • CommentTimeOct 11th 2019 edited
     
    An organisation I am helping has anoften used area with 13kW of aged lighting, they have been offered free replacement luminaries on the basis of them signing over the savings to the installers.

    I said steer well clear, replace the lights at your expense and you fully benefit from the savings.

    Replacement scheme is priced at 45k

    Lights on average 5 hours a day six days a week

    Cost benefit analysis is my job and I want to include additional cost for replacing the “saved energy” with an allowance to generate the saved electricity with gas heating during the heating season.


    They pay 10.5 p per kWh for electric and 6.2 for gas

    Saved electricity £15k Gas heat in winter = £3.5k >> savings = 11.5k

    Four year payback, why hasn’t it been done already?


    Please pick holes
  2.  
    Posted By: tonyFour year payback, why hasn’t it been done already?

    Possibly because nobody realised the short time span of the ROI or they don't have the 45K up front to invest to make the savings.

    With regard to the offer from the installers

    Is the 45k replacement scheme at retail prices and presumably the installers are getting trade so + profit for the installers

    For how long will the organisation have to pay for the 'saved energy' and who is responsible for maintenance during that period?

    It sounds like the organisation could be leasing (?) the system. It obviously would need a proper contract but if the organisation don't have to upfront 45K and the contract can be negotiated with a reasonable fixed term then the scheme could have benefits.

    Lots of questions arise on the contract - who defines the savings? do the calculated savings vary with the energy price? who chooses the supplier? etc.

    IMO the scheme could work if the organisation don't have the upfront 45K and a decent contract could be sorted. It seems to tick the green environmental boxes.

    Oh and any grants available for the organisation to do their own energy saving investment?
    • CommentAuthorowlman
    • CommentTimeOct 11th 2019 edited
     
    Does the 45K contract include a health check on the wiring. if the luminaires are aged then the cable runs may be even older.
  4.  
    The organisation will have an opportunity cost of capital (borrowing costs, but also "what else could we have achieved with £45k") which will often be well over 10%.

    £45k @ say 10% = £4.5k/year


    Electric saved = 13kW X 5h X 6d X 52w X £0.105 = £2.1k
    Extra gas = 13kW X 5h X 6d X 30w X £0.062 = £0.7k
    Net saving = £2.1k-£0.7k = £1.4k per year
    This is overoptimistic as new lights still use some electric

    Doesn't pay back the capital :(

    Presumably they pay VAT and corporation tax? The £45k could be useful as a tax loss up front, but their accountant would need to advise on this.

    They will* also be paying to change blown lightbulbs, access is quite expensive if they are high up in the roof, modern lamps last longer and save labour costs.
    (*If they lease the building, are they responsible for maintaining the lighting?)

    45k sounds like a lot to change the lights, how many fittings are there?
    • CommentAuthorGarethC
    • CommentTimeOct 11th 2019
     
    Why would you use 10% cost of capital in this day and age Will? 5% would still seem conservative.
  6.  
    interest plus repayments on (presumably) a commercial loan

    But it's the opportunity cost that matters
    •  
      CommentAuthordjh
    • CommentTimeOct 11th 2019
     
    Posted By: GarethCWhy would you use 10% cost of capital in this day and age Will? 5% would still seem conservative.

    But even then the sums don't make sense.
    • CommentAuthortony
    • CommentTimeOct 11th 2019
     
    I may have an error of x10 in my back of the envelope calc, sorry

    How do they make it work?

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