Energy costs

Low energy charges lead to low whole life costing (WLC), but also have an effect on the investment appraisals of capital cost items. The BRECSU Energy Consumption Guide 054: Energy efficiency in further and higher education - cost-effective low energy buildings emphasises the need to negotiate with gas and electricity boards regarding tariffs.

The effect of inflation on energy sources is also a key variable that needs to be considered for option appraisals. For example, the payback period for ground source heat pumps in lieu of traditional heating is significantly influenced by energy inflation assumptions. The first graph below illustrates how the additional capital cost of a heat pump solution is offset by savings in lifecycle replacement, regular maintenance and in particular energy savings. Payback (the point in time when savings equal extra investment) would not occur until year 15.

This real example is taken from a school estate comprising numerous secondary schools, the costs are show in £millions at net present value (using a 3.5% discount rate) over a 25-year period. Energy inflation is assumed to be the same as general inflation at 2.5%.

The second graph below assumes energy inflation at a higher rate of 4.5% per annum (together with an assumption that a capital cost grant of 35% of the extra over cost will be available to encourage such energy saving). Payback here is in year 8 with the client, if convinced of the assumptions, now much more likely to invest additional capital in this energy saving solution.