Nevin Sood, senior cost manager at Turner & Townsend, on why this method is not just the stuff of green dreams
Like an iceberg, the bulk of a project’s whole life costs are hidden beneath the surface. Operating costs for a building over a 30 year cycle are estimated at five times the capital costs, and the cost of occupation could be 200 times greater. And like an iceberg, environmental considerations are an increasingly crucial factor in trying to predict future outcomes.
After years of being dismissed as ‘crystal ball gazing’, Life Cycle Costing is becoming an increasingly important factor in any major capital investment project. Now the growing emphasis on sustainability is making accurate modelling a much more complicated but even more essential science.
At it’s simplest level, in assessing the long term costs of design, construction methods and materials specification, it is already widely accepted that life cycle costing can demonstrate very clearly that cost and value are not the same. Many investors in both the public and private sectors are prepared to consider a higher initial capital commitment today if an accurate Whole Life Appraisal can show that this will create commercial advantages tomorrow.
This growing focus on long term, holistic viability has been particularly important in the application of new procurement strategies such as PPP/PFI. But the rising tide of legislation and regulation enforcing ever more demanding targets in sustainability is making crucial new demands on the sophistication and accuracy of cost modelling.
- The Mayors London Plan stipulates 10% of the energy for new builds should come from renewable sources where feasible. Speaking at the Thames Gateway Forum recently, Ken Livingstone laid out his intention to increase this to 20%.
- Our energy future - creating a low carbon economy, the Energy White Paper published in February 2003, highlighted that if we are to achieve a 60% reduction in carbon emissions by 2050, we are likely to need renewables by then to be contributing at least 30% to 40% of our electricity generation and possibly more.
- Part L of the Building Regulations (2006) requires carbon emissions to be cut by 28 per cent by reducing energy consumption through lower energy building services installations and improved thermal performance of the building.
On a domestic scale home buyers will choose A rated – energy efficient white goods. Due to increasing energy costs and government legislation, we need to treat buildings in the same manner. The trend for lower energy consumption buildings is unlikely to dissipate and will continue to be more favourable to tenants. In order to demonstrate the viability,
Turner & Townsend uses whole life cost techniques to assess significant building components or M&E solutions against a set of criteria based on their feasibility and sustainability benefits. We use the following four independent criteria to evaluate each option’s sustainability potential including Carbon Intensity, Capital Expenditure, Payback Period, and Technology. A payback analysis on these solutions can then be carried out to determine best whole life value.
Recent Energy Increases
Predicting future costs where energy is concerned has never been an easy task at the best of times, but recent energy price rises have underlined how dramatically this cost can escalate over and above the expected trend.
Powergen: 24% gas, 18% electricity
British Gas: 22% gas, 22% electricity
Scottish & Southern: 14% gas, 12% electricity
Npower: 15% gas, 14% electricity
EDF Energy: 15% gas, 5% electricity
Scottish Power: 15% gas, 8% electricity
The speed with which energy costs rise – and other utilities such as water - could play a major part in determining the commercial viability of new energy-saving technologies whose mainstream application was purely academic just a year or two ago.
Over a 30 year life cycle, the price escalation does not have to be very big to have a huge impact on investment decisions. A rise of just 1% in the energy price trend, for example, could cut the potential payback on technology such as Combined Heat and Power, or the use of alternative energy sources such as wind power of photovoltaics, by 10 years or more, which would make these options not only viable but cost positive over the longer term.
As a result, a growing number of progressive companies and organisations are applying whole life cost modelling to sustainable development very seriously indeed.
Turner & Townsend is currently helping a major client to develop sustainable proposals for carbon emission reduction which could include the use of CHP, ground source heating and cooling, ‘Living Machines’ and Pyrolysis waste management.
And in a growing number of cases, whole life cost modelling is showing that these are not just the stuff of green dreams, but realistic possibilities that may be commercially advantageous far sooner than previously expected.
The Cool Option
In a recent commission, Turner & Townsend helped one of the world’s leading hotel groups to evaluate the costs (capital, life cycle, operational) and potential benefits of different types of heating, cooling and ventilation systems for an exclusive 90 villa resort in Mauritius, with energy consumption being the main driver.
Two systems were analysed:
1. A centralised system to the main hotel areas and individual systems to the guest accommodation
2. A system to supply the whole site from a central installation via various distributing pipe-work installations.
The Whole Life Cost appraisal and component studies carried out by Turner & Townsend’s team demonstrated that the best cooling option would entail additional capital expenditure of £170,000, but that this could result in energy cost savings estimated at more than £1.5 million over 30 years.
Conversely, the optimum solution for heating was the least expensive in terms of capital investment by £20,000, with whole life cost savings for this option estimated at nearly £250,000 over 30 years.
Total additional capital cost: £150,000. Total estimated savings over a 30 year life cycle: £1.75 million.