In September 2015, a 3.45 megawatt cooling, heating, and power (CHP) system was

Question

In September 2015, a 3.45 megawatt cooling, heating, and power (CHP) system was placed in into operation for Southeast Regional Hospital with 360 beds. The CHP system was part of a new 20,000 sq. ft. central utility plant that provided the 800,000 sq. ft. health-care facility with cooling, heating and power. By centralizing all of the utilities in one location, the hospital accrued significant energy savings, as well as improved maintenance efficiency. The financial facts related to the project are summarized as

Installed cost: $2.3 million

Annual energy cost savings: S784,000

Annual O&M costs: $218,000

Project service life: 14 years

Salvage value: $190,000

At an interest rate of 12%, what is the net savings per dollar invested?

Explanation / Answer

Net savings per year ($) = Energy cost savings per year - Annual O&M costs = 784,000 - 218,000 = 566,000

Present Value (PV) of annual net savings ($) = 566,000 x PVIFA(12%, 14) + 190,000 x PVIF(12%, 14)

= 566,000 x 6.6282 + 190,000 x 0.2046 = 3,751,561 + 3,874 = 3,790,435

Net savings per dollar invested = PV of annual net savings / Installed cost = $3,790,435 / $2,300,000 = 1.65

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