Energy savings and resource efficiency

Business

Case Study: chillers

Find out how Joyco determined that they would be better off by about $610,000 over 25 years if they invested in an energy-efficient system using an Energy Services Agreement to finance a chiller upgrade system.

Situation

Company Joyco needs to replace the existing chiller in their office building with a new one, due to the age of the system and increasing maintenance costs to keep it operational. They are considering two options: continue the required maintenance works to keep their current chiller operational for another 10 years, or install a brand new chiller in the building.

How does the energy-efficient (EE) system compare to the standard system?

Equipment type Standard EE
Cost to install ($) $250,000 $350,000
Operation and maintenance costs ($ p.a.) $30,000 $20,000
Electricity use (kWh p.a.) 825,000 495,000
Equipment life (years) 10 25
Electricity cost reduction in first year from the system ($)   $66,000
Simple payback period for the system (years)   7.6
Simple payback period for the system, with marginal capital1 (years)   2.2

Item  NPV 
Standard system -$1,865,990
EE system -$1,256,440
Difference $609,550

Finance option selected: Energy services agreement

As Joyco would like to outsource all technical risks associated with installing a new chiller and outsource the ownership and operation of this equipment, they decide to seek an energy services agreement. The finance that will form part of this agreement will be determined with the energy services agreement provided, although Joyco’s analysis shows that the most favourable NPV is likely to result from using an Environmental Upgrade Agreement or energy efficiency loan.

 

1This is the payback period for the energy-efficient (EE) option using the difference in capital outlay between the standard and EE equipment, rather than the full capital outlay for the EE equipment.

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Page last updated: 10 December 2015