Life-Cycle Costing + BLCC5 = Cost-Effective Projects

November 11, 2003

When you fund an energy efficiency improvement project at your agency from appropriations, you probably routinely consider a life-cycle cost effectiveness evaluation in your design and construction planning. But you may think that there is no need for it if your project is financed through an energy savings performance contract or a utility energy services contract. After all, you are not spending any money; it is all paid for by the cost savings the project is expected to generate. So why should you care?

You should care because:

  1. Executive Order 13123 requires projects to be life-cycle-cost (LCC) effective. It says so 26 times in its 11 pages. LCC effectiveness means that not only do you want to save at least as much as you invest, you want to select those measures that give you the greatest possible net savings.

  2. You want to understand how, for example, bundling less cost-effective or non-cost-effective ECMs with ECMs that generate maximum savings affects the length of your contract term and thus your interest rate and your financing costs. You want to understand how your first-year energy cost savings might change over the contract period, and whether at the end of the study period there will be any useful life left in the equipment you are installing. You can do an LCC analysis yourself or you can make sure that you understand the results of the LCC analysis that is performed by your energy services company or utility contractor.

  3. The more information you have available about the expected LCC of your project, the better will you be able to negotiate the most advantageous deal for your agency.

  4. FEMP has the tool to help you perform an LCC analysis. The Building Life-Cycle Cost Program, BLCC5, version 5.1–03, contains a module dedicated to evaluating financed energy and water conservation and renewable energy projects in accordance with 10 CFR 436A, as required by Executive Order 13123. The program is updated every year on April 1 with the latest energy price escalation rates of the DOE Energy Information Administration and the most recent FEMP discount rates. You may download it free of charge from the FEMP web site at www.eree.energy.gov/femp/techassist/softwaretools/softwaretools.html.

    NIST (National Institute of Standards and Technology) Handbook 135, Life-Cycle Costing Manual for the Federal Energy Management Program, and its Annual Supplement, Energy Price Indices and Discount Factors for Life-Cycle Cost Analysis, explain the principles of LCC analysis and their application to energy and water conservation projects. You may request copies from the DOE Help Desk (1–800–DOE–EREC). FEMP also conducts workshops to teach the LCC methodology and the use of BLCC5. For details, please consult the FEMP web site under "Resources" and click on "Training".

    For further information on the LCC method and BLCC programs, please contact Sieglinde Fuller of NIST at sieglinde.fuller@nist.gov.