RESEARCH REPORT
FEBRUARY 2009
RICSRESEARCH LIFE CYCLE COSTING OF SUSTAINABLE DESIGN Professor John Kelly Dr Kirsty Hunter
Research
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LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
About the authors
Professor John R Kelly BSc MPhil PhD MRICS TVM FHKIVM
Professor Kelly, currently chairman of the consultancy Axoss Ltd and visiting professor at Nottingham Trent University and Hong Kong Polytechnic University, is a chartered surveyor with industrial and academic experience. His quantity surveying career began with a national contractor, moving to a small architects practice and later to an international surveying practice. His academic career began at University of Reading as a research fellow, moving to Heriot-Watt University as a lecturer and later senior lecturer and finally to Glasgow Caledonian University where he held the Chair of Construction Innovation until November 2007. His research into value management and whole life costing began in 1983 and has been well supported by grants from both public and private sector. He has published 4 books and 8 research monographs and technical manuals.
Kirsty Hunter BEng PhD
Following completion of her PhD degree in value management at Glasgow Caledonian University, Kirsty has pursued a career in the NHS and has experience of working in various management roles including project management and research management at Health Facilities Scotland, the Health Protection Agency and University Hospital Birmingham. During her time as a research associate Kirsty worked on a variety of construction related research projects and through the dissemination of her research achieved two best paper awards at international conferences, a highly commended Emerald journal award, and the 2006 Herbert Walton award for best doctoral dissertation in project management.
© RICS – February 2009 ISBN: 978-1-84219-436-2 Published by: RICS, 12 Great George Street, London SW1P 3AD United Kingdom The views expressed by the author(s) are not necessarily those of RICS nor any body connected with RICS. Neither the author(s), nor RICS accept any liability arising from the use of this publication. This project was funded by the RICS Education Trust and RICS Scotland QS and Construction Faculty Board with the aim of developing a methodology for life cycle costing of sustainable design.
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LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
Executive summary
‘‘
Sustainable development presumes a whole systems approach that considers the environmental, social and economic issues of any design decision. Any model or tool which assists decision makers in reaching the best sustainable option must make explicit the complexity of the problem and the trade-offs and potential synergies which exist within these three facets of sustainability. The optimal sustainable development solution is one which balances the total economic cost and social change together with the inevitable environmental consequence but ensures that scarce resources are not squandered, either deliberately or through ignorance. Sustainable development is variously defined but this research relies on the Brundtland definition "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”
This research considers only the economic dimension of evaluating a sustainable design. The research project began from the premise that whilst much is said about the economics of sustainable projects there is no standard method of measurement of life cycle cost and currently option appraisals are being carried out with no consistent approach to the parameters of the calculation. This research project focuses on deriving a standardised approach to the life cycle costing of the sustainable design of buildings. The specific aim was to design a method with general applicability to building projects focusing on insulation, controlled ventilation, micro and biomass heating and electricity generation. The methodologies of life cycle costing (LCC) are well understood but the rules of their application in option appraisal are not. The cost of carbon and the issues surrounding embodied energy were investigated without reaching a satisfactory conclusion. The current (October 2008) cost of a carbon offset is approximately £20 per tonne but prices vary according to the scheme supported. There is an important and unanswered question as to whether carbon counting is a valid component of life cycle costing. The approach advocated in this research is to focus on the proper evaluation of efficient design and on-site renewable energy generation. The research highlighted the importance of recognising the two primary reasons for undertaking life cycle costing, namely: • to predict a cash flow of an asset over a fixed period of time for budgeting, cost planning, tendering, cost reconciliation and audit purposes and • to facilitate an option appraisal exercise at any of the six identified levels of study (evolved during this research) in a manner that allows comparison. This will also include benchmarking and tender comparisons. Examples were seen during the research of calculations conducted in different ways using different methodologies, different time scales, and making many different assumptions with regard to particularly fuel inflation.
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LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
Executive summary This report outlines studies of sustainable design, on-site micro energy generation, methods of data gathering and data analysis and the methods of measurement with associated rules and definitions. A draft of these rules and definitions was passed to BSI and BCIS to inform the document “Standardised Method of Life Cycle Costing for Construction: UK supplement to ISO 15686 Part 5 life-cycle costing for buildings and constructed assets”. The rules and definitions governing the approach to LCC should be considered the biggest contribution to surveying made by this research. Whilst generated by research into sustainable energy and design, these rules have general applicability. Finally, it was observed throughout this research that rules of thumb concerning sustainable design and micro energy generation are difficult to evolve. Innovative design solutions have been used to substantially reduce a project’s carbon footprint. These design solutions do not need to cost more; it is a gross over simplification to say that a sustainable design will add 10% or 15% to the cost of the building. This logic comes from addition thinking i.e. here is a designed office building, house or school, how much extra will it cost to modify the design to include for example convection powered ventilation? Design has to be based on a clear briefed concept and a value system dictated by the client; addition thinking is entirely the wrong approach. Also it was observed that on-site, micro energy solutions are difficult to justify on economic grounds. If micro energy benefits are to be measured then a currency other than money has to be used.
Contact
Acknowledgements
John Kelly School of Built and Natural Environment Glasgow Caledonian University Glasgow G4 0BA Scotland
This project was funded by the RICS Education Trust and RICS Scotland QS and Construction Faculty Board with the aim of developing a methodology for life cycle costing of sustainable design.
email:
[email protected]
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LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
Contents 01 Background
06
1.1 Sustainable development
06
1.2 Preliminary work
06
1.3 Aims and objectives
07
02 Background to life cycle costing
07
2.1 Costs
07
2.2 Life
09
2.3 Data
10
2.4 Discount rates
11
2.5 Review of ISO/FDIS 15686-5:2006 (E)
11
2.6 A review of existing methods and models
13
2.7 Rules
14
03 Rules
15
3.1 Introduction
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3.2 General rules
15
3.3 Formulae
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3.4 Purpose of calculation
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3.5 Method of measurement of components
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3.6 Method of measurement of systems
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3.7 Method of measurement of single unit items including energy
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04 Checklist for data gathering at component and system levels
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05 A methodology for undertaking life cycle costing of sustainability projects
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5.1 Introduction
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5.2 Step 1 – project identifiers
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5.3 Step 2 – study period
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5.4 Step 3 – Inflation rate and discount rate
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5.5 Step 4 – gather data
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5.6 Step 5 – model construction and analysis
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5.7 Illustration 1 – component cash flow
24
5.8 Illustration 2 – system cash flow
25
5.9 Illustration 3 – option appraisal with a base case
26
06 Conclusion
32
6.1 Conclusion to the research project
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6.2 Final comments
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6.3 Recommendations for further research
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Appendix 1 – Glossary of terms
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Appendix 2 – The sustainable design checklist
37
Appendix 3 – Renewable energy technologies
41
References
51
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01 Background 1 Background At the RICS Scotland Quantity Surveying and Construction Faculty Board (QSCFB) conference on 30th September 2005 three speakers addressed the subject of sustainability at both a macro and micro level. A recurring theme was the lack of a standard methodology for representing costs and benefits. Howard Liddell, an RIAS 4 star accredited sustainable design architect and winner of an RICS sustainability award in 2003 for the Glencoe visitor centre, challenged the surveying profession to be more explicit with regard to the costs associated with sustainability. A subsequent Faculty Board debated the issues raised addressing the topics of the macro – economic implications of the expansion of Scotland’s renewable energy and a life cycle costing approach to project based sustainable design, particularly for ventilation, heating and electricity generation. It is the latter topic which was considered to be of immediate importance. 1.1 Sustainable Development Sustainable development presumes a whole systems approach that considers the environmental, social and economic issues of any design decision. Any model or tool which assists decision makers in reaching the best sustainable option must make explicit the complexity of the problem and the trade-offs and potential synergies which exist within these three facets of sustainability. The optimal sustainable development solution is one which balances the total economic cost and social change together with the inevitable environmental consequence but ensures that scarce resources are not squandered, either deliberately or through ignorance. Sustainable development is variously defined but this research relies on the Brundtland definition "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”
This research considers only the economic dimension of evaluating a sustainable design. The research project began from the premise that whilst much is said about the economics of sustainable projects there is no standard method of measurement of life cycle cost and currently option appraisals were being carried out with no definition of the parameters of the calculation. The life cycle costing texts are rich in mathematical theory, risk and sensitivity analysis, data management and component life assessment. However, no text has produced an explicit method of measurement for option appraisal or benchmarking. This research project focuses on deriving a standardised approach to the life cycle costing of sustainable design in buildings. The specific aim was to design a method with general applicability to building projects focusing on insulation, controlled ventilation, micro and biomass heating and electricity generation. The methodologies of life cycle costing (LCC) are well understood but the rules of their application in option appraisal are not.
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LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
Background 1.2 Preliminary work
1.3 Aims and Objectives
A preliminary literature search confirmed the view of the QSCFB that whilst there are a number of publications which deal with sustainability at a global impact level, few deal with sustainability at a project level and none set a life cycle cost methodology suitable for use by surveyors in option appraisal. A useful publication at project level is the 2002 CIRIA publication “Sustainability accounting in the construction business”. Aimed specifically at clients, construction firms and project managers the report includes as appendices case studies and reporting proforma but does not give an option appraisal or life cycle costing methodology. It concludes “in terms of who is best placed to undertake the work involved to produce a set of [sustainability] accounts is open to debate”.
The aim of this research was to produce a standardised approach to the life cycle costing of sustainable design in buildings. The specific aim was to design a method with general applicability to building projects focusing on insulation, controlled ventilation, micro and biomass heating and electricity generation.
Life cycle cost methodology is well understood if infrequently used. Boussabaine and Kirkham (2004), Bourke et al (2005), Flanagan and Jewell (2005), Kelly and Hunter (2005) being an example of most recently published work. However, although the principles are well described a standard method approach to life cycle costing of sustainable design was not available.
3. The production of information in a standard form conducive for the client to make an informed cost benefit decision.
This paper uses the term life cycle costing following the logic of ISO/FDIS 15686-5:2006(E) Buildings and Constructed Assets – Service Life Planning – Part 5 – Life Cycle Costing, that defines whole life costing as including the finance and other costs which precede the concept and design stages.
The objectives set at the outset were: 1. A standard method to calculate life cycle costs for sustainable design. 2. A checklist to allow surveyors to gather, in a logical fashion, the data necessary to populate the life cycle cost model.
4. To illustrate the method with examples to show the life cycle costs of such installations. 5. To present a commentary on issues such as embodied energy, ventilation, air tightness, insulation, etc. This report describes the output of the work undertaken in meeting these objectives.
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LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
02 Background to life-cycle costing Life cycle costing refers to an exercise in which the capital cost of the project and all relevant future costs are made explicit and used either; • as the basis for a cash flow prediction over a given period of time or • used in an option appraisal exercise to evaluate various solutions to a given design problem. In either situation the time value of money is an important element but in this research the focus is on option appraisal. There are other terms which are in current use, for example, cost in use, life cycle costing, whole life appraisal and through life costs. A new ISO standard, ISO ISO/FDIS (ISO/FDIS 15686-5:2006 (E) Buildings and Constructed Assets – Service Life Planning – Part 5 – Life Cycle Costing) includes an extensive list of definitions of very similar terms. A glossary of terms is given in appendix 1. In the context of a standard approach Ruegg et al (1980) states that from the perspective of the investor or decision-maker all costs arising from the investment decision are potentially important to that decision and that those costs are the total whole-life costs and not exclusively the capital costs. Ruegg et al outlines five basic steps to making decisions about options:
The basic assumptions referred to are related to the period of study, the discount rate, the level of comprehensiveness, data requirements, cash flows and inflation. Flanagan and Jewell (2005) supplement the above by stating that the following questions drive the application of the whole life approach: 1. What is the total cost commitment of the decision to acquire a particular facility or component over the time horizon being considered? 2. What are the short term running costs associated with the acquisition of a particular facility or component? 3. Which of several options has the lowest total life cycle cost? 4. What are the running costs and performance characteristics of an existing facility - asset? (bringing into play post occupancy evaluation) 5. How can the running costs of an existing facility be reduced? (bringing into play benchmarking) 6. For a Build Operate Transfer concession project how can the future cost be estimated at design phase and what is the reliability? 2.1 Costs
1. Identify project objectives, options and constraints. 2. Establish basic assumptions. 3. Compile data. 4. Discount cash flows to a comparable time base. 5. Compute total life cycle costs, compare options and make decisions.
Marshall and Ruegg (1981) give recommended practice for measuring benefit-to-cost ratios and savings-toinvestment ratios based on a similar five step process and focusing in their appendix on savings-to-investment ratio evaluations of energy conservation investments as a means to determining between retrofit options for housing including; solar domestic water heating, substituting electric resistance heating with gas central heating, attic insulation and double glazing.
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LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
Background to life-cycle costing In 1986 the Quantity Surveyors Division of the RICS produced a guide which listed the costs to be included within a life cycle cost calculation. All expenditure incurred by a building and during its life were described as: 1. Acquisition costs - total cost to the owner of acquiring an item and bringing it to the condition where it is capable of performing its intended function. 2. Disposal costs - total cost to the owner of disposing of an item when it has failed or is no longer required for any reason. 3. Financing costs - cost of raising the capital to finance a project. 4. Maintenance costs - cost of maintaining the building, to keep it in good repair and working condition. 5. Occupation costs - costs to perform the functions for which the building is intended. 6. Operating costs - costs of for example; building tax, cleaning, energy, etc. which are necessary for the building to be used. Costs to be included in a life cycle cost calculation are factual costs able to be estimated with a known degree of certainty. Excluded are externalities and intangible costs consequential to the design decision but unable to be estimated with certainty. 2.2 Life In the RICS guide life is defined as the length of time during which the building satisfies specific requirements described as: 1. Economic life - a period of occupation which is considered to be the least cost option to satisfy a required functional objective. 2. Functional life - the period until a building ceases to function for the same purpose as that for which it was built. 3. Legal life - the life of a building, or an element of a building until the time when it no longer satisfies legal or statutory requirements. 4. Physical life - life of a building or an element of a building to the time when physical collapse is possible.
5. Social life - life of a building until the time when human desire dictates replacement for reasons other than economic considerations. 6. Technological life - life of a building or an element until it is no longer technically superior to alternatives. Of relevance to this research, the guide describes residual values as the value of the building when it has reached the end of its life and does not have an alternative use; or has reached the end of its life for its planned purpose but does have an alternative use. The issues here with regard to life highlights the different elements impacting the study period and reflect a total building life mindset. Flanagan et al (1989) states that two different time scales are involved in life cycle costing: firstly the expected life of the building, the system or the component; and secondly the period of analysis. Flanagan states; "it is important when carrying out any form of life cycle costing to differentiate between these two timescales, since there is no reason to believe that they will be equal: for example the recommended period of analysis for federal buildings in the US is 25 years, considerably less than any reasonable building life. This introduces a seventh element to the above list namely the period of study.
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LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
Background to life-cycle costing Ruegg and Marshall (1990) confirm seven study periods namely: 1. The investor's holding period - the time before selling or demolishing. 2. The physical life of the project - specifically relating to equipment. 3. The multiple lives of options - recognising that options having exactly the same total costs over one period of time will have different total costs if the cash flows are taken over different periods due to replacement and maintenance occurring at differing points in time. 4. Uneven lives of options - recognising that where alternatives have different lives and cash flows then residual values have to fully compensate particularly over short study timeframes. A note is also made of the dangers of using annual equivalent discount models where alternatives have uneven lives. 5. Equal to the Investors Time Horizon - the period of interest the investor has in the building. 6. Equal to the longest life of alternatives. 7. The quoted building life. Kelly and Hunter (2005) recommend that a life cycle cost calculation should not extend beyond 30 years. This reflects the view of the authors that buildings change significantly both functionally and economically within a 30 year period to the extent that the costs and functions known at time zero cannot reflect those costs and functions 30 years hence. Examples are given for retailing which has changed significantly within 30 years and healthcare which is practised entirely differently today from that which was practised in 1978. The exception may be housing. 2.3 Data Kelly and Hunter (2005) and Flanagan and Jewel (2005) cite the same basic data sources as: data from specialist manufacturers, suppliers and contractors, predictive calculations from model building and historic data. All authors highlight the danger associated with data used for life cycle costing; Flanagan and Jewel state:
• Data are often missing. • Data can often be inaccurate. • People often believe they have more data than actually exists. • It can be difficult to download data for subsequent analyses and for data sharing by a third party. • There will be huge variation in the data, sometimes for the same item. • Data are often not up to date. • Data input is unreliable: the input should be undertaken by those with a vested interest in getting it right. Both Kelly and Hunter and Flanagan and Jewel quote the UK Office of Government Commerce (2003) which states that it is important to focus on future trends rather than compare costs of the past. Where historic data is available it may provide misleading information, such as the past mistakes in the industry and focusing on lowest price. Historic data is best used for budget estimates at whole building or elemental levels. At the point of option appraisal of systems and components it is always preferable to estimate the cost from first principles and only to use historical cost information as a check.
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LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
Background to life-cycle costing 2.4 Discount rates Ruegg and Marshall (1990) consider in detail the discount rates to be used in the context of business discount rates for commercial decisions and public discount rates for public decisions. Ruegg and Marshall also introduce the theory of risk adjusted discount rates. Boussabaine and Kirkham (2004) take this further and introduce methods of assessing and blending the risk methodology with life cycle cost calculations. A final point to make is the relevance of value to the life cycle cost equation outlined in Preiser et al. (1988) which states; "the term evaluation contains a form of the word value, which is critical in the context of post occupancy evaluation since any valuation has to state explicitly which and whose values are being used in establishing evaluation criteria”. In the context of a post occupancy evaluation as opposed to life cycle costing it brings into focus that the majority of writers in life cycle costing are focused on cost rather than value. The evidence from the literature in the context of the research gives support to the development of life cycle costing taking account of all relevant costs, over a given time period for all options being considered, using contemporary data, with appropriate discount rates and taking into account risk. 2.5 Review of ISO/FDIS 15686-5:2006(E) Buildings and Constructed Assets – Service Life Planning Part 5 Life Cycle Costing The standard, still in its draft form, has the objective of "to help to improve decision making and evaluation processes, at relevant stages of any project". Other key objectives are "make the life cycle costing assessments and the underlying assumptions more transparent and robust" and "provide the framework for consistent life cycle costing predictions and performance assessment which will facilitate more robust levels of comparative analysis and cost benchmarking". These three objectives, out of 14 listed, are considered the most important in the context of the current project. The standard describes life cycle costing as "a valuable technique which is used for predicting and assessing the cost performance of constructed assets".
The standard describes three levels of application namely; • Strategic level relating to the structure, envelope, services and finishes. • System level (elemental level) relating to floor wall and ceiling finishes, energy, ventilation, water capacity, communications, cladding, roofing, windows and doors, foundations, solid or framed walls and floors. • Detail level (component level) for example ceiling tiles, floor coverings, electrical and mechanical plant, etc.
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Background to life-cycle costing This is a useful categorisation but it ignores the level of asset management which is described elsewhere in the standard as "life-cycle costing is relevant at portfolio/estate management, constructed asset and facility management levels, primarily to inform decisionmaking and comparing alternatives. Life-cycle costing allows consistent comparisons to be performed between alternatives with different cash flows and different time frames. The analysis takes into account relevant factors throughout the service life, with regard to the clients’ specified brief and project specific service life performance requirements”. See Figure 1. The standard reiterates many of the concepts reviewed and is a useful document if for no other reason that it highlights the application of life cycle costing at the four stages of asset/portfolio management, project management, elements and component levels. Although there is a large amount of work to be done at the first three levels in the context of sustainability the focus of attention of this research is at component level.
Figure 1 Application of life cycle costing through the project life-cycle
Asset Management/ Option Appraisal LCC study 1
Element Appraisal LCC study 3
PRE-PROJECT
STRATEGIC BRIEF
Year Zero Component Appraisal LCC study 4
Optional Project Appraisal LCC study 2
PROJECT
BRIEF
Retro-fit Component Appraisal LCC study 4
OUTLINE DESIGN
LCC Audits
POST PROJECT
POST PROJECT EVALULATION
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Background to life-cycle costing 2.6 A Review of Existing Methods and Models BCIS Running Costs Online BCIS Building Maintenance Information (BMI) has recorded the cost of occupying buildings in the UK for over 30 years, and has collected data on the occupancy and maintenance costs of buildings from subscribers and other sources. The database was paper based, subscribers receiving a mailing at regular intervals. This service has been re-launched as BCIS Building Running Costs Online and as the name suggests is a web based service to professionals involved in facilities management, maintenance, and refurbishment. A central database is organised in an elemental format allowing comparative analyses to be undertaken, rebased for time and location based upon indices updated monthly. The service also keeps life expectancy of building components data. BCIS Running Costs Online has a life cycle costing module that combines the information from the BCIS annual reviews of maintenance and occupancy costs with the data from the bi-annual occupancy cost plans allowing users to compare the running costs of different building types. The output is a spend profile over a period of up to 60 years showing the estimated expenditure for each year of the selected period. Society of Construction and Quantity Surveyors (SCQS) – Framework for whole life costing The SCQS framework document and spreadsheet based LCC package was launched in 2005 and has been used mainly within the local authority arena. It updates the original document produced by Smith et al (1984). The spreadsheet package is elementally based with three modules comprising; a Job Box in which the components of each element are built up; an intelligent input tool for the input of base data in response to requests on prompt screens and finally completed spreadsheets comprising a record of the input, a master calculation sheet and a sensitivity analysis sheet. The spreadsheets are completed automatically by the input tool giving confidence in the accuracy of calculations and placement in the correct cell on the spreadsheet. The spreadsheet format is familiar to surveyors and can be manually checked at any time during the operation. The programme does not rely on a database; the
database is effectively constructed in the Job Box. The entire Job Box can however be easily transferred from project to project. The tool was developed to enable option appraisals to be undertaken quickly and accurately using present value techniques over study periods of not exceeding 30 years. University of Dundee Professor Malcolm Horner of Whole Life Consultants Ltd and the Construction Management Research Unit, University of Dundee, has launched a web-based element-orientated life cycle costing system based upon the output of an EPSRC funded research project. The aim is to minimise life cycle costs through the application, to construction components, of the integrated logistic support methodologies used in the aircraft industry. Data is collected in a user prescribed manner and stored in a database accessed on line. The program entitled "Life cycle cost Evaluator" is written in Java facilitating flexibility for bespoke applications and in reporting structures at both preliminary and detailed design stages. The system is compliant with ISO 15686. The default cost breakdown structure is that proposed by BCIS, but any structure can easily be created and amended, simply by "dragging and dropping". The software's flexible input and output systems and novel features reduces the time to estimate life cycle costs by up to 80%, and facilitate the production of a construction industry maintenance management operating system. (Note: Text submitted by Professor Horner).
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Background to life-cycle costing Life cycle cost Forum - LCCF The LCCF claims to have been set up as the first construction industry initiative to promote the use of whole-life costs. It was launched in November 1999 with the aim of developing an online comparator tool to remove errors and prevent the reliance on spreadsheets. One of the main objectives was to advance the use of life cycle costing along the entire length of the supply chain. The tool allows whole-life costs to be compared on a like-for-like basis and works on the basis that the supplier is the best source for information on life cycle costs of their own products. There is also a system that provides benchmarks contained in a central database to allow for comparisons across similar projects. LCC comparator - BRE LCC comparator is a tool developed by BRE to calculate the life cycle cost of building elements and components. It reduces the amount of time normally spent working on life cycle cost calculations by minimising the effort required. The tool highlights how higher capital costs at the outset can be more effective over the long term with regard to lower maintenance and operating costs. A note on the website (January 2008) indicates that the tool is no longer available. 2.7 Rules A review of the literature and examination of the available systems demonstrated that life cycle costing can be undertaken for diverse reasons in many different ways generating variable outputs. If a life cycle cost of sustainable options were to be undertaken then rules have to be developed to ensure that options are compared on an identical basis. For this reason the following rules were developed as a part of this research and checked through desk studies and third party analysis. The rules and methodology make an important contribution to surveying.
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03 Rules 3.1 Introduction
3.2 General Rules
The following rules were derived from literature and validated through the expert analysis of the RICS Quantity Surveying and Construction Faculty. The rules were considered a necessary prerequisite for the analysis of the life cycle cost of sustainable solutions and particularly for option appraisal.
1. A brief description of the project will be given. 2. The purpose of the study shall be stated. Examples include: a. Prediction of a single cash flow b. Option appraisal based on multiple cash flows
The purpose of life cycle costing is to provide information in a form which assists decision-making on capital and through life costs. The purpose of this standard approach is to guide the preparation of life cycle cost studies in a standard form which facilitates audit and data exchange. This standard approach acknowledges six levels of study:
c. Comparison of tenders that include a cash flow d. Audit of single or multiple cash flow(s). 3. The focus of the study shall be stated as one or more of the following:
• Study at multi asset or portfolio/estate level
a. Study at multi asset or portfolio/estate level
• Study at single asset or whole building level
b. Study at single asset or whole building level
• Study at cluster level (multi-element)
c. Study at cluster level (multi-element)
• Study at element level
d. Study at element level
• Study at system level
e. Study at system level
• Study at component or detail level
f. Study at component or detail level
The general rules and the formulae apply to all levels of study. There are two primary reasons for undertaking a life cycle cost study • a study to predict a cash flow(s) over a fixed period of time for budgeting, cost planning, tendering, cost reconciliation and audit. • a study as part of an option appraisal exercise at any of the six levels of study in a manner that allows comparison. The cash flow of the selected option may be used to generate a cash flow over a fixed period of time and therefore can be metamorphosed into a study of the first type.
4. The study will state whether the data for the LCC exercise is built up from first principles or whether parametric data is used. 5. Time zero shall be stated. Time zero is the point in time from which the study period commences. 6. Capital costs are all relevant costs accrued prior to time zero and deemed to include service and product delivery and installation, finance costs, fees and taxes.
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Rules 7. Maintenance costs are all relevant costs necessary to facilitate the asset’s continuing structure, fabric, services and site performance at the level specified at time zero. 8. The study period shall be stated. The study period is the time from time zero to a given point in time in the future and over which the calculations pertain. 9. The units of time shall be stated. The units of time are the increments to which the calculations refer and may be for example; years, months, weeks, days. All factors in the calculations, for example, interest rates will relate to the stated units of time.
2. Present Value
P=
3. Year’s Purchase or Present Value of £1 per Annum
P=
R ((1+i)n-1) P= i(1+i)n
11. Assumptions with regard to hard FM activities in the final period of study shall be stated.
4. Sinking Fund
R=
13. Assumptions with regard to residual values shall be stated. 14. The method of undertaking sensitivity analysis and/or risk analysis shall be stated. 3.3 Formulae
R (1-(1+i)-n) i
Alternative formula for calculators without –n function
10. Assumptions with regard to interest rates shall be stated.
12. The method of depreciation shall be stated, for example a straight line method of depreciation may be assumed. Where depreciation is not applicable this shall be stated
A (1+i)n
Ai (1+i)n-1
5. Mortgage
n
R = Pi(1+i) R (1+i)n-1
The following formulae shall be used as applicable: P i n A R
= = = = =
principal or present value interest expressed as a decimal number of time periods accumulated amount or future amount repayment or regular payment to a sinking fund
1. Compound Interest
A = P (1+i)n
Interest Rate Adjustments All rates expressed as a decimal a To adjust an interest base rate t by inflation rate f to give a discount rate i
b To adjust an interest rate per annum (i pa) to an interest rate per month (i pm)
i=
(1+t) -1 (1+f)
ipm = ( 12 (1+i pa) ) -1
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Rules 3.4 Purpose of Calculation
3.6 Method of Measurement of Systems
The purpose of the calculation shall be stated as one of the following:
1. The system shall be described in terms of its components.
1. A prediction of cash flow over time for a single asset (no discounting and no option appraisal).
2. The rules of measurement for components will apply to those components comprising a system.
2. A prediction of cash flow over time for multiple assets (no discounting and no option appraisal).
3. Systems will be described under element headings.
3. An option appraisal of cash flows of multiple solutions to a problem where no “base case” is established. 4. An option appraisal of cash flows of multiple solutions to a problem where a “base case” is established. 3.5 Method of Measurement of Components 1. The component shall be described either in terms of its manufactured part reference or in terms of its physical characteristics and function. 2. The number of identical components shall be stated. 3. Maintenance of the component shall address the following: a. Requirements for periodic inspection. b. Periodic and predetermined physical maintenance listing each different type of maintenance separately. 4. The physical life of the component shall be stated as follows: a. The actual life where the component is to be replaced as a planned activity prior to failure. b. The estimated physical life where the component is to be replaced upon failure. 5. The capital cost of the installed component shall be given and stated whether estimated or firm. 6. The estimated maintenance costs shall be stated. 7. The estimated scrap value of the replaced component shall be stated.
3.7 Method of Measurement of Single Unit Items including Energy 1. Single unit items will be described separately from components and systems. 2. Single unit items include energy and those services represented as a single sum per period of time such as management fees, insurances, cleaning, etc.
18
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
04 Checklist for data gathering at component and system levels 4.1 Introduction Following a desk study review of websites including the Energy Savings Trust, Scottish Community and Householders Renewables Initiative (SCHRI) and the Carbon Trust, the following questionnaire was produced to obtain data from manufacturers and suppliers at component and system levels. The questionnaire was piloted through consultation interviews with manufacturers of selected technologies (n=6). 4.2 Questionnaire The questionnaire is illustrated with answers from a fictitious manufacturer of a hot water solar panel with the trade name of SolarPanPlus. The data is used in the illustrative calculations later. 1. Give a brief description of the technology: SolarPanPlus is an evacuated tube solar roof panel that delivers hot water to a twin coil hot water cylinder. The pump, controls and secondary tank thermostat are powered by an integral PV unit negating any mains electrical work. 2. What is the supplied cost of the technology (exc. Works)? £7050 inclusive of VAT and installation for a 4.2 m2 panel installed on a typical two storey three bed detached house. 3. Approximately what is its installation cost and labour hours? SolarPanPlus is normally fitted by two skilled operatives in a single day.
4. What are the primary components that will require servicing and replacement during the life of the technology? Components • All components have an estimated 20 year life except for the pump which may need to be replaced at ten years. • One SolarPanPlus heat collector and PV panel of 4.2 m2 (with cable) for a typical two storey three bed detached house. • • • • • • •
Roof mounting brackets Pipe, fittings, tees Pump Thermometer Control valve Control unit Tank thermostat
19
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
Checklist for data gathering at component and system levels 5. Does this component require regular inspection and if so what is the inspection period and the inspection time in labour hours? Included with service, see below. 6. Does this component require regular maintenance and if so what is the maintenance time in labour hours? If more than one type of maintenance e.g. after 1000 hours/ after 5000 hours/ etc. please list these separately (or attach maintenance schedule with estimation of labour hours) SolarPanPlus requires inspection at 3 year intervals at which point the panel including the integral UV panel will be cleaned and checked and the antifreeze changed. The inspection takes one operative one day and is currently charged at £300 including VAT. 7. What is the estimated service life of the component in years? 20 years. 8. What are its approximate removal and re-installation labour hours? The panel can be easily removed. The cost of re-installation is the same as the supply of a new panel. 9. What is the terminal/scrap value of this component at the end of its life? Over 80% of the panel is easily recyclable but the panel has no terminal value. 10. What factors shorten component life e.g. exposure to UV light, salt laden air, etc. The panel is resistant to UV light 11. Is there a standard warranty period for the component, if so how long? 5 year warranty. A maintenance contract can be purchased for £12 per month which extends the warranty to 20 years and includes regular inspection and all necessary replacements and maintenance. 12. What is the estimated energy generation and/or savings accrued from using this product
In an average year SolarPanPlus will supply a family’s domestic hot water requirements (assuming sensible use – i.e. short low flow showers, spray taps in bathrooms, etc) during the summer months and 30% of the requirement during the remainder of the year. SolarPanPlus will generate approximately the electrical equivalent of 25kWh per day in the summer (say 150 days) and 8kWh during the remainder of the year. If a gas boiler is used for heating water in the summer then boiler life extension should be taken into account as the boiler should not fire up during the summer months.
20
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
05 A method for undertaking life-cycle costing of sustainability projects
5.1 Introduction
5.4 Step 3 – Inflation Rate and Discount Rate (rule 10)
This section outlines a method for undertaking a life cycle cost appraisal of a sustainable project illustrated in part 6 by reference to fictitious products. The method is an application of the rules in part 3 and follows the logic of the flowchart below. The method is described and illustrated through a number of steps.
The inflation rate only is used when predicting a cash flow of over time for the purposes of budgeting, cost planning, tendering, cost reconciliation and audit.
5.2 Step 1 – Project Identifiers (rules 1 to 5) Some description is required to both identify and describe the project including; the basis for the calculation i.e. whether the data is parametric or obtained from manufacturers/suppliers, and the time zero point for all calculations. The type of life cycle cost calculation, prediction of cash flow or option appraisal (with or without a base case), can be included in the general description. This identifies how the data will be used. 5.3 Step 2 – Study Periods (rules 8 and 9) Determine the length of the study period and also the unit of time (rules 6 and 7). The study period will commence at time zero which has been previously defined. The units of time and the interest rate must correlate i.e. if the unit of time is months then the interest rate must be a percentage rate per month. It may be advantageous to set up any model to calculate over a number of time periods so that options can be quickly compared rather than running repetitive sensitivity checks.
Discount rates are used when comparing two or more dissimilar options during an option appraisal exercise or when comparing tenders which have an FM constituent. The discount rate will be legislated, calculated or given by the client. Public sector option appraisal calculations tend to use the discount rate issued by HM Treasury which is (January 2008) 3.5%. A calculated discount rate takes a relevant rate of interest e.g. the bank rate, and adjusts this for inflation. A client nominated discount rate is used when considering options against strict internal rate of return or opportunity cost of capital criteria 5.5 Step 4 – Gather Data Data will be obtained from parametric sources e.g. BCIS Running Costs Online, or from first principles either by calculation e.g. energy calculation, or from manufacturers or suppliers. Data gathered from manufacturers or suppliers should include the detail illustrated in Part 4 above.
21
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
A method for undertaking life-cycle costing of sustainability projects Figure 2 Flowchart of a LCC system
Page 1
START
Project identifiers: Project name Brief description of the project File name Anticipated time zero User identification: User name/password
What type of LCC calculation? 1. Prediction of future cash flows only (for budgeting) 2. Option appraisal of future cash flows 3. Ditto but with a base case established
What discount rate? 1. Legislated (eg. HM Treasury) 2. User specified 3. Calculated
• How many study periods? • What is the length of time of each study period?
TO PAGE 2
22
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
A method for undertaking life-cycle costing of sustainability projects Figure 2 Flowchart of a LCC system
Page 2 FROM PAGE 1
How many sustainable options to be considered?
For each sustainable option and the base option if relevant input: 1. Brief description of the sytem 2. Brief description of system components 3. For each component enter: a) current capital cost including installation b) estimated service life c) scrap value at end of life d) would the component be replaced in last year of study e) will the component be inspected or maintained in the last year of study f) residual values if NOT straight line method g) inspection period and cost if relevant h) maintainence period and cost 4. Does the sytem save or generate energy? a) indicate form of energy saved/generated b) estimated value of energy saved/generated c) if grants apply give lump sum value d) give estimated value of renewables obligation certificates if applicable e) value of carbon offsets if applicable
option appraisal
option appraisal cash flow prediction
TO PAGE 3
cash flow prediction
23
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
A method for undertaking life-cycle costing of sustainability projects Figure 2 Flowchart of a LCC system
Page 3 FROM PAGE 2
Has a base case been established for option appraisal?
Calculation based on cash flows of a single option over the study period(s) accounting for inflation only.
No
END
Yes
Calculation based on cash flows for each option and the base case over the study period(s) and evaluated on a net present value basis and using the measures of economic performance.
END
Calculation based on cash flows for each option over the study period(s) and compared on a net present value basis.
END
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LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
A method for undertaking life-cycle costing of sustainability projects 5.6 Step 5 – Model Construction and Analysis As discussed in Part 2.6 above there are few commercially available software packages which allow the type of calculation described above. Many Quantity Surveying practices have a life cycle cost package developed and used in-house. These are generally spreadsheet based. The illustration below was constructed using a spreadsheet. 5.7 Illustration 1 – Component cash flow The first illustration is of a cash flow forecast for budgeting purposes of a single component adjusted for inflation only. Figure 3 Illustration of cash flow over time for a single asset LCC cash flow for a gas fired central heating boiler Year
Inflation rate 2.50% Activity
0
Purchase
1
Current cost
Future cost
2350.00
2350.00
Annual inspection
40.00
41.00
2
Annual inspection
40.00
42.03
3
Annual inspection
40.00
43.08
4
Annual inspection
40.00
44.15
5
Replace pilot light
200.00
226.28
6
Annual inspection
40.00
46.39
7
Annual inspection
40.00
47.55
8
Replace burner
500.00
609.20
9
Annual inspection
40.00
49.95
10
Replace pilot light
200.00
256.02
11
Annual inspection
40.00
52.48
12
Annual inspection
40.00
53.80
13
Annual inspection
40.00
55.14
14
Annual inspection
40.00
56.52
15
Replace pilot light
200.00
289.66
16
Replace burner
500.00
742.25
17
Annual inspection
40.00
60.86
18
Annual inspection
40.00
62.39
19
Annual inspection
40.00
63.95
20
Replace boiler
2350.00
3850.75
21
Annual inspection
40.00
67.18
22
Annual inspection
40.00
68.86
23
Annual inspection
40.00
70.58
24
Annual inspection
40.00
72.35
25
Replace pilot light
200.00
370.79
25
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
A method for undertaking life-cycle costing of sustainability projects 5.8 Illustration 2 – System cash flow (Inflation rate 2.50%) The second illustration is of a cash flow forecast for budgeting purposes of a system adjusted for inflation only. Figure 4 LCC cash flow for a gas fired central heating system BOILER
PUMP
CONTROLS
PIPES & RADIATORS
Yr
Activity
Current Cost
Future Cost
Current Cost
Future Cost
Current Cost
Future Cost
Current Cost
400
400.00
1100
1100.00
1600
0
Purchase
2350.00
2350.00
1
Annual inspection
40.00
41.00
41.00
2
Annual inspection
40.00
42.03
42.03
3
A insp & antifreeze
40.00
43.08
4
Annual inspection
40.00
44.15
5
Replace pilot & pump
200.00
226.28
6
A insp & antifreeze
40.00
46.39
7
Annual inspection
40.00
47.55
47.55
8
Replace burner
500.00
609.20
609.20
9
A insp, flush & antifreeze
40.00
49.95
10
Replace pilot & pump
200.00
256.02
11
Annual inspection
40.00
52.48
12
A insp & antifreeze
40.00
53.80
13
Annual inspection
40.00
55.14
55.14
14
Annual inspection
40.00
56.52
56.52
15
Replace pilot & pump
200.00
289.66
16
Replace burner
500.00
742.25
742.25
17
Annual inspection
40.00
60.86
60.86
18
A insp, flush & antifreeze
40.00
62.39
19
Annual inspection
40.00
63.95
20
Replace boiler, pump controls & radiators
2350.00
3850.75
80
Future Cost
Total Cash Flow
1600.00
5450.00
86.15
129.23 44.15
400
452.56
678.84 80
200 400
92.78
249.77
512.03
139.16
299.73 768.05 52.48
80
400
579.32
80
200
107.59
115.86
311.93
161.39
984.84
374.32 63.95
400
655.45
1100
1802.48
800
1310.89
7619.57
21
Annual inspection
40.00
67.18
67.18
22
Annual inspection
40.00
68.86
68.86
23
A insp & antifreeze
40.00
70.58
24
Annual inspection
40.00
72.35
25
Replace pilot & pump
200.00
370.79
80
141.17
211.75 72.35
400
741.58
80
148.32
1260.68
26
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
A method for undertaking life-cycle costing of sustainability projects 5.9 Illustration 3 – Option appraisal with a base case Assume a project to retrofit a detached house (50m2 plan area) by increasing roof insulation thickness from 100mm to 250mm ( from u-value including structure approximately 0.36 to approximately 0.16) and/or installing cavity wall insulation (from u-value 1.00 to 0.55) or fitting a roof mounted solar hot water panel as SolarPanPlus illustrated earlier. In this illustration the base case is the existing situation. Application of the rules This exercise is an option appraisal with a base case. With reference to the rules and the checklist the following data has been obtained.
Rule 1
The project is to retrofit a detached house (50m2 plan area) to significantly reduce gas consumption. One or more of the following options are being considered within a total budget of £7000: • increasing roof insulation thickness from 100mm to 250mm (from u-value including structure approximately 0.36 to approximately 0.16) • installing cavity wall insulation (from u-value 1.00 to 0.55) • fitting a roof mounted SolarPanPlus solar hot water panel
Rule 2
The purpose of the study is an option appraisal based on multiple cash flows
Rule 3
The study will be conducted at system level
Rule 4
The data for the study is built up from first principles
Rule 5
Time zero is taken from the completion of the installation works when the systems are ready for use. The target date for time zero is 1st August 2008
Rule 8
The study period reflects the householder’s intention to remain in the dwelling for the next 15 years. Studies will be conducted over 10, 15 and 20 years to check for time sensitivity in the calculations.
Rule 9
The unit of time is years
Rule 10
The interest rate will be calculated assuming a return on a deposit account of 5% and an inflation rate of 2%.
Rule 11
The maintenance requirements of the options examined apply only to the SolarPanPlus. For the purposes of this example the maintenance contract will not be used.
Rule 12
Depreciation will not apply and residual values will not be included in the calculation.
Rule 13
Maintenance and replacements will not be accounted for if they occur in the final year of the study.
Rule 14
Sensitivity checks will be undertaken by including three study periods and by varying the discount rate by 2% (increase and decrease).
27
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
A method for undertaking life-cycle costing of sustainability projects Basis of the calculation
Available budget
£7000
Interest rate on deposits
5%
Inflation rate
2%
Study periods Roof insulation costs Roof insulation fuel savings
Cavity wall insulation Cavity wall fuel savings
SolarPanPlus costs
SolarPanPlus savings
10, 15 and 20 years Initial cost of 64m2 at £7 per m2 installed = £448 Assuming a designed temperature difference of 21oC a U value improvement of 0.2 will lead to a reduction of approximately 1000 kWh during the heating season (2500 degree days). At £0.03 per kWh for gas this leads to a saving of £30 per annum. Initial cost of 120m2 wall area = £600 Assuming a designed temperature difference of 21oC a U value improvement of 0.45 will lead to a reduction of approximately 4100 kWh during the heating season (2500 degree days). At £0.03 per kWh for gas this leads to a saving of £123 per annum. Initial cost £5875 Maintenance at 3 yearly intervals £300 Replacement pump year ten £80 150 days at 25kWh per day at £0.03 per kWh (gas) = £112.50 215 days at 8kWh per day at £0.03 per kWh (gas) = £51.60 Total saving = £164.10 per annum
28
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
A method for undertaking life-cycle costing of sustainability projects Calculations The calculations are based upon the rules and the basic data as indicated above. It should be noted that residual values have not been included in the calculation, a factor discussed further in the report below. As the option appraisal is referring back to a base case the calculations include measures of economic performance. Report Illustration 3 is a relatively common type of option appraisal but in this case strictly complies with the rules developed during the research. The option appraisal compares an upgrade of roof insulation, the installation of cavity wall insulation and the retro fitting of a solar hot-water panel. The option appraisal is typical of a life cycle costing exercise with a base case. The option appraisal has been carried out over three study periods, 10 years, 15 years and 20 years and has been checked for sensitivity to plus and minus two per cent on a calculated discount rate based on a 5% interest rate and a 2% inflation rate. The least cost option is the upgrade of roof insulation a monetary saving of £30 per annum. This apparently low level of saving is because the roof is already insulated and therefore only a marginal improvement in the U-value can be achieved. The cavity fill option is based on a cavity wall complying with the building regulations of circa 1980. It should be noted that a better U-value improvement can be achieved over a much larger area than the roof. The cost of the solar panel assumes installation on top of the existing roof covering. With reference to Figure 5 (calculated discount rate) the results of the calculations demonstrate that based on discounted payback: 1. The roof insulation will pay back in year 20. The internal rate of return for increased roof insulation is 2.96%, considerably lower than the interest rate of 5% indicating that £448 is better invested on deposit rather than spent on increasing insulation.
2. The cavity fill will pay back in year 6. The cavity filled option offers the highest value for money with a Saving to Investment Ratio increasing from 1.75 in year 10 to 3.07 in year 20. The internal rate of return on cavity fill is almost 20% after 20 years indicating that this is a worthwhile investment. 3. The solar panel will never pay back: indeed the savings on the solar panel are only marginally higher than the cost of maintenance and replacements meaning that after 20 years, the expected “end of life” of the solar panel, the savings are a little over £1,000. In monetary terms this is a poor investment. The sensitivity checks indicate (figures 6 and 7) very little change from the facts reported above. One factor which has not been included is residual values. The logic for not including residual values is that the roof insulation and the solar panel are likely to need replacing in their entirety after a 20 year period. This is an important observation as it demonstrates that taking a residual value, based on a straight line method of depreciation, is only valid when a pay back is made before the end of component life. If the residual value equation were to be strictly interpreted then the Savings to Investment Ratio would be higher in year 10 than it would be any at the end of the components life which is illogical. In this type of option appraisal exercise therefore residual values must be treated with great care. The final point to emphasise here is that the above analysis is solely from an economic perspective. If the calculations included facets of value then the result could be different.
29
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
A method for undertaking life-cycle costing of sustainability projects Figure 5 Results of a calculation for a comparative LCC using a calculated discount rate
Discount Rate Calc Interest rate Inflation rate Discount rate
Initial capital cost Saving per annum Maintenance Replacement
0.05 0.02 0.029 Option 1 Roof Insulation
Option 2 Cavity Fill
Option 3 SolarPanPlus
£448.00 £30.00
£600.00 £123.00
£5,875.00 £164.10 £300.00 £80.00
per 3 yrs per 10 yrs
Report Year 10 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return
£448.00 -£191.32 0.57 n/a n/a
£600.00 £452.37 1.75 year 6 15.75%
£5,875.00 -£5,289.08 0.11 n/a n/a
£448.00 -£88.33 0.80 n/a 0.06%
£600.00 £874.63 2.46 year 6 18.99%
£5,875.00 -£5,131.80 0.14 n/a n/a
£448.00 £0.76 1.00 year 20 2.96%
£600.00 £1,239.92 3.07 year 6 19.96%
£5,875.00 -£4,822.49 0.19 n/a n/a
Report Year 15 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return Report Year 20 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return
30
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
A method for undertaking life-cycle costing of sustainability projects Figure 6 Sensitivity check on Figure 5 using a discount rate of 5%
Discount Rate Calc
Discount rate
Initial capital cost Saving per annum Maintenance Replacement
0.050 Option 1 Roof Insulation
Option 2 Cavity Fill
Option 3 SolarPanPlus
£448.00 £30.00
£600.00 £123.00
£5,875.00 £164.10 £300.00 £80.00
per 3 yrs per 10 yrs
Report Year 10 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return
£448.00 -£216.35 0.52 n/a n/a
£600.00 £349.77 1.58 year 6 15.75%
£5,875.00 -£5,333.37 0.10 n/a n/a
£448.00 -£136.61 0.70 n/a 0.06%
£600.00 £676.70 2.13 year 6 18.99%
£5,875.00 -£5,208.57 0.12 n/a n/a
£448.00 -£74.13 0.83 n/a 2.96%
£600.00 £932.85 2.55 year 6 19.96%
£5,875.00 -£4,991.48 0.16 n/a n/a
Report Year 15 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return Report Year 20 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return
31
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
A method for undertaking life-cycle costing of sustainability projects Figure 7 Sensitivity check on Figure 5 using a discount rate of 1%
Discount Rate Calc
Discount rate
Initial capital cost Saving per annum Maintenance Replacement
0.010 Option 1 Roof Insulation
Option 2 Cavity Fill
Option 3 SolarPanPlus
£448.00 £30.00
£600.00 £123.00
£5,875.00 £164.10 £300.00 £80.00
per 3 yrs per 10 yrs
Report Year 10 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return
£448.00 -£163.86 0.63 n/a n/a
£600.00 £564.97 1.94 year 5 15.75%
£5,875.00 -£5,241.27 0.12 n/a n/a
£448.00 -£32.05 0.93 n/a 0.06%
£600.00 £1,105.40 2.84 year 5 18.99%
£5,875.00 -£5,044.90 0.15 n/a n/a
£448.00 £93.37 1.21 year 17 2.96%
£600.00 £1,619.60 3.70 year 5 19.96%
£5,875.00 -£4,609.69 0.22 n/a n/a
Report Year 15 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return Report Year 20 Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return
32
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
06 Conclusion 6.1 Conclusion to the research project This research project set out with a number of objectives: 1. A standard method to calculate life cycle costs of sustainable design. 2. A checklist to allow surveyors to gather, in a logical fashion, the data necessary to populate the life cycle cost model. 3. The production of information in a standard form conducive for the client to make an informed cost benefit decision. 4. To illustrate the method with examples to show the life cycle costs of such installations. 5. To present a commentary on issues as embodied energy, ventilation, air tightness, insulation, etc. At beginning of the research it became apparent that whilst there were a number of papers and texts referring to life cycle costing methodologies and definitions none proposed a set of rules to be strictly applied in cases of option appraisal. This research has generated those rules and related definitions and tested them in expert gatherings. A draft of these rules and definitions has been passed to BSI and BCIS to inform the document “Standardised Method of Life Cycle Costing for Construction: UK supplement to ISO 15686 Part 5 life-cycle costing for buildings and constructed assets”. The rules and definitions governing the approach to LCC should be considered the biggest contribution to surveying made by this research.
The research highlighted the importance of recognising the two primary reasons for undertaking life cycle costing, namely: • to predict a cash flow of an asset over a fixed period of time for budgeting, cost planning, tendering, cost reconciliation and audit purposes and • to facilitate an option appraisal exercise at any of the six identified levels of study in a manner that allows comparison. This will also include benchmarking and tender comparisons. Examples were seen during the research of calculations conducted in different ways using different methodologies, different time scales, and making many different assumptions particularly with regard to fuel inflation. The research findings also demonstrated the need for a standardised approach to data gathering at component level and this is illustrated in part 4 of this report. The questionnaire described in part 4 was tested and refined with a number of suppliers manufacturers. Checklists have been developed for both sustainable design and sustainable energy solutions, and these are included in appendices 2 and 3 and a standardised approach to the prediction of a cash flow and an option appraisal is presented. It is recommended that the standardised approach is adopted by surveyors advising clients based upon life cycle cost calculations.
33
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
Conclusion 6.2 Final Comments The study described has taken the researchers far and wide in the field of sustainability and it would be remiss if this report did not include some personal observations of the researchers: 1. Sustainable Design. The genesis of this study was a challenge laid down by Howard Liddell, (an RIAS 4 star accredited sustainable design architect and winner of an RICS sustainability award in 2003 for the Glencoe visitor centre) to be more explicit with regard to the costs associated with sustainability. This research has made significant progress towards a standardised methodology and some of the work has been incorporated into the BSI/BCIS publication mentioned above. However, rules of thumb are difficult to evolve except to say that on-site, micro energy solutions are difficult to justify on economic grounds. On the other hand many innovative design solutions have been used to substantially reduce a project’s carbon footprint. These design solutions do not need to cost more; it is a gross oversimplification to say that a sustainable design will add 10% or 15% to the cost of the building. This logic comes from ‘addition thinking’ i.e. here is a designed office building, house or school, how much extra will it cost to modify the design to include for example convection powered ventilation? Design has to be based on a clear briefed concept and a value system dictated by the client; ‘addition thinking’ is entirely the wrong approach.
Examples reflecting sustainable value in design were seen at Arup’s Solihull Campus, at Gaia’s Glencoe visitor centre for the National Trust for Scotland, at King Shaw Associates’ Innovate Green office project at Thorpe Park Leeds and at Keppie’s design for Great Glen House, Inverness, the headquarters building for Scottish Natural Heritage. These three examples demonstrate a sustainable design solution to a clear brief backed by an explicit value system. The cost of these solutions has to be viewed from a value for money perspective calculated on LCC principles. Comparisons with design solutions where sustainable design was not a feature of the client’s value system could in theory be made but the calculations and logic are complex.
34
LIFE CYCLE COSTING OF SUSTAINABLE DESIGN
Conclusion 2. Embodied energy This was initially an objective of the original research proposal but has proved too difficult to accurately model. It was unfortunate in some ways to focus on aluminium products as a trial study. Bauxite is mined in a number of countries worldwide and transported to smelters. Whilst aluminium requires huge amounts of energy in the smelting process a significant proportion (83% in the case of Alcan) of this electricity is sourced from local hydro schemes. The carbon footprint of this smelting process is very small. Finally, the carbon cost of transport and fabrication, further transport and the installation of the final product became so product and site specific that generalisations were completely invalid. Added to this was the maturity (in relation to many other materials) of the aluminium recycling industry. These facts resulted in the embodied energy objective being abandoned. However, the lesson learned was the importance of undertaking specific case studies at least to clarify the accuracy of the perception of a number of designers that for example, metal is bad and wood is good. 3. Micro energy A lengthy study of micro-energy was undertaken which is reflected in the findings in appendix 3. There are many sources of information and some of these have been referenced. At the end of the study the researchers concluded that although many micro energy products are sold based upon economic advantages, some of which are reported in appendix 3, that the benefit of micro energy has to be based upon a value judgement. Currently, a properly undertaken option appraisal study using the rules advocated by this research is unlikely to prove any economic benefit from a micro energy solution even with the current levels of government grants and current prices paid by electricity companies for surplus generated electricity.
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Conclusion On-site generated micro energy is difficult to store, hot water less so than electricity. Three approaches are available for dealing with electricity generated in excess of the domestic requirements at the time of generation; dumping waste energy (usually as heat), installing batteries and an inverter for on-site storage or connection to the electricity grid. Batteries are a low demand supplier of electricity suitable for example for low wattage lighting but unsuitable for sustained high demand required for example by an electric oven. Selling surplus electricity back to the energy supplier is an effective way of dealing with excess generation. Electricity companies will buy such electricity at about 3p per unit (Jan 2008). Economic benefits from grid connected exported micro electricity generation accrue to electricity companies from sale of the electricity and sale of Renewable Obligation Certificates (ROCs). ROCs are awarded to accredited generators of eligible renewable electricity produced within the UK – solar energy (including photovoltaics), hydro, wave power, tidal energy, geothermal energy, biofuels (including energy crops) and on and offshore wind. ROC’s are traded amongst electricity generating companies such that those companies which fall below their renewables obligation can buy from those companies who have exceeded their renewables obligation.
ROCs are not to be confused with international green certificate trading. The latter is an offsetting device whereby those who wish for various reasons to present themselves as zero carbon can purchase green certificate offsets. The current price of green certificate offsets is approximately £20 per tonne of CO2. In summary therefore investing in micro energy generation is done for reasons other than any economic advantage. 4. New technology products: It is difficult for manufacturers to predict the longevity of innovative products and their components. Additionally, many of the innovative products are produced by new companies which are more prone to failure, takeover, etc and these companies have difficulty offering credible long term guarantees that parts will be continue to be available over the estimated life of the product. Even in fairly established technologies such as wind generators, installation in a new environment can lead to problems for example, in 2007 it was reported that 12 out of 36 turbines off Herne Bay, on the Kentish Flats suffered major failures after one year in service.
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Conclusion 6.3 Recommendations for further research Demands for cost planning, budgeting, tender evaluation and audit on a life cycle cost basis are increasing. There is a necessity for rules and guidance on best practice which this research has addressed in part. ISO 15686 gives clarity to applications and definitions and the BSI/BCIS publication is expected to influence rules and methodology. This work has majored on rules and methodology using sustainability as the subject. The research has uncovered many different approaches in the evaluation of sustainable options on a life cycle cost basis. This current situation is unacceptable. There are three significant pieces of work which are required under the sustainability banner, 1. Case study research is required to illustrate in some detail a proper approach to embodied energy. Existing theories of embodied energy need to be robustly examined and tested and an explicit method developed for the measurement of embodied energy in construction components. 2. Sustainability needs its own currency. Whilst energy remains relatively inexpensive evaluation solely on economic grounds will tend to favour the status quo. A suggestion for further research is the development of a shadow “taxation” system. The research would answer the question, how high must taxation be on existing carbon based technologies before a tipping point is reached and sustainable design and sustainable energy become the preferred option. A parallel situation exists currently in the innovations in site waste disposal to avoid landfill tax. 3. Finally, a method needs to be established for the explicit statement of value for money in the context of sustainability. It can be anticipated that in the not too distant future tenders will be judged on value for money where a major part of the value equation will be sustainability. How will this value for money be credibly calculated?
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07 Appendix 1 - Glossary of terms The following terms, used in life cycle costing, are arranged under the following subheadings: • Core definitions • Cost and value • Interest rates and discount rates • Levels of study • Time
Discounted cost - the result of discounting a cost to be incurred in the future at a given interest rate
Core definitions
Hard facilities management cost - the cost of necessary replacement, redecoration, repair and corrective, responsive and preventative maintenance necessary for the continued specified functional performance of the asset.
Base case – the existing situation against which improvement options can be compared or a specific solution selected as the benchmark against which other options can be compared Mortgage – strictly, the conveyance of an asset by a debtor to a creditor as security for a debt. In the context of life cycle costing the mortgage is the amount to be paid at regular intervals at a given interest-rate to repay a debt.
Disposal cost - the costs associated with the disposal of an asset at the end of its life cycle. External costs - costs associated with an asset not reflected in the transaction costs of the acquisition.
Net present value - the total present day worth of a future cash flow discounted at a given interest-rate. Nominal cost - the estimated future amount to be paid, including the estimated changes in price due to inflation, deflation, technological advances, etc.
Sinking funds - funds accumulated by equal payments made at regular time periods into an account which attracts a given interest-rate to accumulate a required sum of money established prior to undertaking the sinking fund calculations.
Present value - the present day worth of a future cost discounted at a given interest-rate. It can be considered to be the amount to be invested in a bank today at a given interest rate to accrue a required amount at a given point in the future.
Whole Life Appraisal is the systematic consideration of all relevant costs, revenues and performance associated with the acquisition and ownership of an asset.
Real – adjusted for changes in the value of money. (present orientation)
Life cycle costing - the quantification of the total cost of an enterprise for input into a decision making or evaluation process.
Cost and values Acquisition cost - all costs, including capital costs, incurred prior to time zero in acquiring an asset. Annual equivalent - the present value of a series of discounted cash flows expressed as a constant annual amount. Capital cost - initial cost of the asset. Cost – the total paid for labour, materials, plant and equipment, overheads and profit. Depreciation - the distribution of the monetary value of an asset over a period of time commonly related to its productive or useful life.
Real Opportunity Cost of Capital – the interest rate reflecting the earnings possible from an activity other than that being studied. Residual value - the value assigned to an asset at the end of the period of analysis Soft facilities management cost - all costs incurred in running and managing the facility including administration support services, cleaning, security, rent, rates, insurances, energy, local taxes and charges. Single unit items - include energy and those soft facilities management services represented as a single sum per period of time such as management fees, insurances, cleaning, etc. Sunk costs - costs of goods and services already incurred or irrevocably committed.
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Appendix 1 - Glossary of terms Terminal value - the scrap value of a component or asset at the point of its replacement.. Treasury Discount Rate – the rate specified as the discount rate by the Government Treasury to be used as the discount rate in public sector life cycle cost calculations.
Interest rates and discount rates Base rate – the interest rate selected as the basis of the discount rate. This could be the current bank base rate or the client’s opportunity cost of capital. The base rate can be used, adjusted by the inflation rate, to give the discount rate. Discount rate – the interest rate used for bringing future costs to a comparable time base (time zero). Inflation/deflation - a sustained and measurable increase/decrease in the general price level. Internal rate of return - the discount rate that when applied to a cash flow containing positive and negative amounts gives a net present value of zero. Nominal interest rate – the actual interest rate applied not adjusted for inflation. Note Fisher equation (real interest rate = nominal interest rate – inflation). Real interest rate – the rate adjusted for inflation. Treasury Discount Rate – the rate specified as the discount rate by the Government Treasury to be used as the discount rate in public sector life cycle cost calculations.
Levels of Study Cluster – a number of elements combined on the basis of a common function or combined on the basis of a work package for contracting purposes. Component – a single manufactured product installed in a single operation which can be described by its manufactured part number or by its physical characteristics and function. Element – a part of construction which performs the same function irrespective of the components from which it is made.
System – a number of identified discrete components combined to form a mechanism to perform a single function or a number of functions of a similar nature.
Time Period of analysis/period of study – the length of time over which the life cycle cost assessment is analysed. Physical life of a component – the time at which a component fails to meet the performance criteria required of it and has to be removed and replaced. Residual life – when applied to an asset is that remaining at the end of the study period Time zero – the point in time from which the study period commences. All relevant costs accrued prior to time zero are deemed to be capital costs. Unit of time – The time interval used in life cycle cost calculations. It may be any unit of time measurement (day, week, month, year). However, in the calculations the time period and interest rate per time period must be synchronised.
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07 Appendix 2 - The sustainable design checklist Introduction
Building Design, Layout And Orientation
The following checklist is not intended to be a complete guide to sustainable design but rather indicative of those factors which should be considered in meeting the client’s and community's desire for more environmentally sympathetic buildings. The data for this section has been drawn through consultation with established architects working in the sustainability field and through a desk study of sustainable design guides and checklists. Discussions with architects highlighted that undertaking sustainable design at the very earliest project stages was fundamental to the achievement of a successful sustainable building. Design considerations such as building orientation, materials, insulation, ventilation and waste water management all impact the building’s sustainability and should be factored in to the design prior to consideration of “add on” energy efficiency and energy generating technologies.
Buildings should be designed to be in sympathy with their local environment and where possible should be orientated such that passive solar gain, shelter, shading and natural lighting are all considered. Specifically the following should be considered:
The objectives of sustainable design are to minimise pollution, reduce the consumption of natural resources, reduce energy during material production, construction and use; and create a healthy comfortable space to work and or live. Site Location Master planning has the greatest impact on sustainability as this activity affords the opportunity to locate and orientate individual buildings and minimise pedestrian travel to; public transport, cycle paths, local shops and other amenities. Master planning also affords the opportunity to be sympathetic to the local environment, maximises the re-use of brownfield sites and the avoidance of flood plains.
• Minimise overshadowing. • Limit glazing in north facing walls to minimise heat loss. • Include draught lobbies to act as a thermal buffer. • Consider passive rather than mechanical solutions to heating and ventilation (see heating and ventilation below) • Design for internal and external noise control at the outset by identifying noise sensitive areas and locating these away from noise and/or vibration producing areas. Consider the impact on neighbours of noise generating activities. • Consider the use of the building over time and design appropriate flexibility to allow adaptation and extension to meet the future needs of building users. Facilitate future expansion and adaptation by: • Positioning the building on the site so that expansion is not compromised. • Considering the location of service equipment and plant rooms. • Planning circulation to maintain efficiency in an enlarged building. • Considering the design of the structure to facilitate upward expansion with the minimum of structural intervention. • Consider, at the time of the initial construction, installing foundations to facilitate future expansion. • Providing easy access to site services and communications infrastructure heating, cooling, power, water, sewerage, communications to allow for future expansion of services
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Appendix 2 - The sustainable design checklist Insulation, Heating and Ventilation
Lighting
There are two factors to consider in minimising heat loss from buildings; firstly, insulation and secondly air tightness. The general rules are to:
Bring maximum daylight into all rooms at high-level to reduce brightness levels and glare on work bases and consider the following:
1. Insulate walls, roofs, windows and external doors to the highest level possible, above the minimum standards set by the building regulations.
• Light pipe distribution for buildings that have difficulty of access, a high security requirement or internal environment concerns.
2. Build tight with no anticipated loss of internal air.
• Control of glare and heat gained from direct sunlight by allowing daylight but limiting sun using external louvres.
3. The final variable in the equation is correct ventilation (build tight, ventilate right).
• Install energy-efficient lamps and fixtures.
There are many ways to satisfy the three general rules for example:
• Consider a switching regime which maximises the opportunity for lighting to supplement day lighting.
• The use of dynamic insulation to draw air into a building. This relies on a constant air flow through a membrane caused by the pressure difference across it. Dynamic insulation acts as a buffer against rapid changes in moisture that can lead to mould and condensation.
• Consider the use of occupancy sensors.
• Controlled natural ventilation through the design of controlled convection currents and monitoring through the use of CO2 sensors. • Create sun spaces on south facing facades to facilitate ventilation by convection and to heat the structural mass as a heat sink during periods of cold weather • Structural mass can also be used as a heat sink to cool the building during hot weather by cooling through controlled overnight purging. • If air conditioning is necessary analyse the answer to the question “why is it necessary?”
Building Materials The use of prefabricated units and modular pods tend to the minimise waste and facilitate modern methods of construction (MMC). However, consideration should be given, as with all building materials, to the energy consumed in manufacture and transportation and preference should always be given to locally-produced, low embodied energy materials.
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Appendix 2 - The sustainable design checklist The three R’s (Reduce, Re-use, Recycle) is a helpful mnemonic in material selection.
• Disinfected grey water can also be used for non potable activities such as toilet flushing.
Reduce – Material reduction through careful geometric planning is the first approach.
• Water efficient fixtures and appliances are available for example waterless urinals, spray taps, low flow shower heads, etc.
Re-use – The second strategy is to incorporate previously used materials and equipment. In addition to base material sourced from the demolition of masonry and concrete structures there is a small but embryo industry refurbishing materials and equipment sourced from demolition and refurbishment projects. Certified and approved refurbished materials and plant, particularly services equipment such as chillers and pumps, should be considered as an economical alternative to new. Care should be taken not to reject such alternatives out of hand through prescriptive specification. Recycle – A number of issues are addressed under the heading of recycling: • Materials should be selected to have good recycling characteristics such as pure metals, e.g. steel, aluminium, copper, etc. (About half of steel currently available is from recycled material). uPVC can also be processed and recycled. • Packaging should be carefully controlled and returned to the manufacturer wherever possible. • Wherever possible material from sustainably managed sources should be sourced, for example, wood from sustainably managed forests as certified by the Forestry Stewardship Council (FSC) or equivalent. • An appraisal of maximising recycling of materials from demolition should make use of ICE’s demolition protocol before demolition. http://www.aggregain.org.uk/demolition/the_ice_demoli tion_protocol/index.html • Liaise with local authorities in the provision of on-site recycling facilities. Water and Waste Water Management There are an number of on-site water recycling opportunities which should be considered in any design: • Rainwater harvesting to reduce the use of potable water for activities such as toilet flushing, irrigation or vehicle washing.
• Sustainable urban drainage systems (SUDS) use porous paving in outdoor hard surfaced areas such as playgrounds and car parks to allow surface water to drain naturally reducing the load on utilities. • Reed beds can be incorporated into the landscaping for on-site purification. Landscaping and Ecology The geographic and biodiversity of site and vegetation should be assessed for preservation during and after construction. Landscape management should be introduced once the construction is complete with use of native trees, shrubs and plants that do not require irrigation in the summer. Vegetation can be sited to protect the building by disrupting and reducing the speed of the prevailing wind in winter thereby reducing the cooling of the external facade. Water features should incorporate closed systems for recycling. Transport A transport plan, considered at the design stage, should include the use of public transport, electric points for charging electric cars, facilities for cyclists including showers, lockers and secure bicycle storage. The transport plan may also include facilities for working at home including telecommunications strategies. Secure By Design Incorporate passive surveillance of streets, open public spaces, parking and servicing areas. Identify a strong demarcation between public and private space, and ensure that public areas are well lit and that landscaping and vegetation does not obscure views. Ensure that the building design does not include recesses or publicly accessible passageways. Incorporate vandal resistance and deterrence strategies.
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Appendix 2 - The sustainable design checklist References Sustainable Housing Forum (October 2003) Building Sustainably: How to Plan and Construct New Housing for the 21st Century. TCPA/WWF (http://www.wwf.org.uk/filelibrary/pdf/esbuildingsustainably.pdf) Constructing Excellence (July 2003). Demonstrations of Sustainability, The Rethinking Construction Demonstrations and how they have Addressed Sustainability. Constructing Excellence. Keppie Design (2006). Great Glen House. Keppie Design. Stevenson, F and Williams, N (2007). Sustainable Housing Design Guide for Scotland. Communities Scotland. Public Technology Inc., US Green Building Council (1996). Sustainable Building Technical Manual Green Building Design, Construction, and Operations. Public Technology Inc. Dundee City Council - Architectural Services Division (undated). Sustainability Checklists. Dundee City Council. Checklist SouthEast: http://southeast.sustainability-checklist.co.uk/ Mayor of London (2006). Sustainable Design and Construction: London Plan Supplementary Planning Guidance. Greater London Authority.
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07 Appendix 3 - Renewable energy technologies Introduction Renewable energy technologies provide renewable forms of energy without the reliance on nuclear or fossil fuels. The following technologies have been identified through a desk study review of websites including the Energy Savings Trust, Scottish Community and Householders Renewables Initiative (SCHRI) and the Carbon Trust. The desk study generated the questionnaire included in Part 4. The questionnaire was piloted through consultation interviews with manufacturers of selected technologies (n=6). This appendix provides an outline of each of the technologies identified, their components, costs, maintenance information and the issues associated with the technology. It should be noted that the technologies may be used in combination. Surplus electricity from grid connected electricity generating technologies can be sold to an energy supplier. This also gives rise to a Renewable Obligation Certificate (ROCs) which have a market value. One ROC is equivalent to approximately 1,000 kilowatt hours (kWh) of renewable electricity. Exemption can also be obtained from the Climate Change Levy for businesses that have installed green technologies. While every effort was made to ensure accuracy of the data (costs, capacity, power output, etc) at the time of this stage of the research (Summer 2007), it should be recognised that these technologies are under continual development.
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Appendix 3 - Renewable energy technologies Wind Turbines
Costs
Outline of Technology
• Small scale systems up to 1kW cost around £3000.
Wind is a renewable source which can be captured to generate electricity by converting the power within moving air into rotating shaft power: the wind turbine. Variations in wind speed affect the potential output.
• Larger scale systems in the region of 1.5kW to 6kW cost between £4,000 - £18,000 including installation.
Wind turbines vary in size and power output, ranging from a few hundred watts to 2-3 megawatts. Small turbines may be used to supply energy for battery charging systems such as on boats or in homes (the average size of wind turbine for a three bed house is 1.5-3kW). Large turbines grouped on wind farms supply electricity to the national grid.
Maintenance • The life expectancy for a wind turbine is up to 20 years and includes service checks every few years to ensure efficient operation. On some turbines the blades may need to be replaced. • The typical battery life for storage systems is approximately 6-10 years, depending on the type. Outline of Issues / Considerations
Components • At 2007, use tends to focus on large scale applications. The following components make up a typical wind turbine: • Installation cost is high. • The turbine is the generator turned by the blades. • The mast is the support structure for the turbine. • Systems that are off-grid require battery storage and an inverter to convert to alternating current. The size of the battery dictates the amount of time appliances can be run when there is no wind. The size of the inverter determines the number of appliances that can be run at the same time from the stored electricity. • A controller is required to ensure batteries are not over or under-charged and can divert power to another source. • Backup power supply is required for periods of no wind. • Grid connected systems do not require a battery or inverter but will require a controller and an “export” meter.
• Turbines require sufficient wind resource to generate an adequate amount of power. • The site for a wind turbine(s) requires clear exposure, without turbulence from obstructions such as trees, houses or other buildings. An appropriate wind site will produce an average output of 30% of the capacity rated for the turbine. For example, a 3kW wind turbine generates the equivalent to rated power for 30 per cent of the year. It will generate 3 x 0.3 x 8,760 (24hrs x 365 days) = 7,884 kWh per year. • A site inspection and analysis is required before installation of a wind turbine(s) to determine the power output from installing such a device. • Planning permission from the local authority is usually required and issues such as noise, visual impact, and conservation issues also have to be considered. • The size of the battery bank (in off-grid systems) determines the time appliances can be run if there is no wind. • The pay back period is variable and has been reported as 3-5 years in some cases and in others 20-30 years.
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Appendix 3 - Renewable energy technologies Biomass Heaters
Costs
Outline of Technology
• The capital cost for installing a biomass heater is higher compared to oil and gas systems. However, fuel costs should be lower.
Energy from biomass is produced from organic matter excluding fossil fuels. Energy from biomass results in what is known as a carbon neutral process when the CO2 released during the generation of energy from biomass is equal to the CO2 absorbed during the fuel’s production. The performance of wood boilers is increasing, with emissions being reduced and efficiency equivalent to oil or gas boilers. There are two main methods of using biomass to heat a domestic property. Stoves can be fuelled by logs or pellets and generally have an output of 6-12kW. Or, boilers connected to central heating and hot water systems which usually have an output larger than 15kW. Components and Boiler Selection The following components make up a typical biomass heater: • A stove or boiler. • An integral hot water energy storage tank or accumulator tank that stores water up to 90°C. • Automatic boilers are available in various capacities from 50 to 500kW and include various components depending on type: • Underfeed burner components: Auger feed, primary air intake, secondary air intake, combustion chamber, heat exchanger, flue gas de-dusting, ash discharge. • Boilers with grate feed (more expensive but are also suitable for wood fuels with a high moisture and ash content): Auger feed, moving grate, primary air intake, secondary air intake, combustion chamber, heat exchanger, flue gas de-dusting, ash discharge. • Compact units (larger versions of household pellet boilers which include automatic cleaning, electric ignition and high reliability): burner head, primary air intake, ash pan, sensor, ring for secondary air intake, heat exchanger, automatic heat exchanger cleaner, flue connection, lambda sensor (exhaust gas oxygen sensor).
• Stoves generally cost £1,500 - £3,000 including installation. • The costs for boilers vary depending on the system chosen and the fuel choice; a typical 15kW (average size required for a typical three bed house) pellet boiler could cost from £4,000 - £12,000 installed including the cost of the flue and commissioning. Manual log feed systems tend to be slightly cheaper. • Fuel costs are influenced by the distance from the fuel supplier. Maintenance The maintenance involved in an automatic biomass heater depends on various factors, such as whether the boiler has an automatic cleaner for the heat exchanger and automatic ash discharge; whether remote monitoring of the system is possible, and whether chips or pellets are used. The time required maintaining a biomass heater depends on the size of the system and fuel consumption. For compact, fully automatic boilers for large buildings, the maintenance work for boilers using pellets or high quality chips does not exceed 30 minutes a week. To reduce the amount of maintenance work associated with a biomass heater consideration should be given to heaters that have features which include automatic ash discharge and automatic heat exchanger cleaning. It is critical to agree on a maintenance contract with the boiler manufacturer to ensure the long term operation of the boiler.
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Appendix 3 - Renewable energy technologies Outline of Issues / Considerations • Selecting the fuel type (pellets or chips, or pellets and chips) is a significant consideration as both types have various advantages and disadvantages: - Chips tend to be available locally and therefore are good for the local economy plus they tend to be cheaper than pellets. However, a large storage area is essential for this type of fuel, a high quality of chip is required and maintenance is more demanding. - Pellets are more standardised and therefore have greater reliability. A smaller fuel store is required and there is less maintenance work. The disadvantage is higher fuel costs. • A reliable source of pellets or chips from a local source is required. • More space is required for a wood heating system than for a gas fired system. Space is required to accommodate the boiler and the fuel storage as well as access for regular maintenance, specifically cleaning and ash disposal. • Fuel stores must be moisture free and well ventilated. • The size of the fuel store depends on: anticipated fuel requirements, fuel type, reliability of deliveries, space available, delivery vehicle capacity, etc. • Access and enough space for the delivery vehicle to manoeuvre to be incorporated into the design. • Dust emissions and noise occur during unloading of pellets or chips. • Noise from air and flue gas fans and the fuel feed system must be appreciated in the design.
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Appendix 3 - Renewable energy technologies Ground Source Heat Pumps (GSHP) Outline of Technology In the UK, a constant temperature of about 11-12°C is maintained from depths from approximately two metres below ground throughout the year. The ground has a high thermal mass and therefore it can store heat from the sun during the summer. Ground source heat pumps (GSHPs) transfer heat from the ground into a building to provide space heating and domestic hot water. The use of GSHPs is most common in new build projects particularly for the supply of under-floor heating. A GSHP will operate with a seasonal efficiency of at least 300%, an air source heat pump has a seasonal efficiency of about 250%. This means that a GSHP will deliver more kW in heat than the energy required to run the pump. Components The following components make up a typical ground source heat pump: • Ground heat exchanger – comprises lengths of pipe buried in the ground, either in a borehole or a horizontal trench (there are different types of GSHPs, a slinky coil embedded in a trench of about 10m length will provide about 1kW of heating load). • Heat pump – a heat pump has four main components; evaporator, compressor, condenser and expansion valve. • Heat distribution system – consists of under-floor heating or radiators for space heating or water storage for hot water supply. Costs • Costs of a GSHP are dependent on the energy demands of the building and the ground conditions. • The installed cost of a GSHP ranges from about £600-£1000 per kW of peak heat output for a trench system and £800-1250 for a borehole system. These costs exclude the cost of the distribution system. The price per kW gets lower as the systems get larger. The initial capital costs tend not to be lower than the cost of a conventional boiler.
• Setting up costs (design, equipment mobilisation and commissioning) are a significant part of the total cost therefore the capital cost measured in £/m of borehole/ trench will fall as the collector size increases. • The running costs for a GSHP system are dependent on the associated electricity cost and usual rates apply, although some suppliers offer a special heat pump rate. Maintenance Maintenance for GSHPs is minimal. There is no requirement for an annual safety inspection as there is for combustion equipment. In terms of replacement, the circulation pumps have the shortest lifetime and are unlikely to be guaranteed for more than one year. The location of pumps should be designed for easy access and replacement. The compressor life is up to 15 years and often guaranteed for up to 3 years. The ground loop has a long life (over thirty years for a copper ground coil providing the ground is non acidic and over 50 years for polyethylene pipe) and requires no maintenance.
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Appendix 3 - Renewable energy technologies Outline of Issues / Considerations • Space for installation and site access for equipment should not be underestimated e.g. digger/drilling rig. • The ground material must be suitable for digging a trench or borehole. This includes the depth of soil cover, the type of soil or rock and the ground temperature. The deeper the loop the more stable the ground temperatures and the higher the collection efficiency but the installation costs will go up. • The size of the heat pump and ground loop will depend on the heating requirements. Factors to consider when designing the ground heat exchanger are pipe length, diameter, configuration etc. Oversizing will increase the installed cost for little operational saving particularly during periods when the heat pump is under part load. Undersizing may require the use of top-up heating. • A back up heating / cooling system may be required. • Noise from the heat pump must be appreciated in the design. • GSHPs work more efficiently for low temperature heat distribution systems such as underfloor heating. • The compressor and pump can be powered by installing solar PV or some other form of on-site renewable electricity generating system. It should be recognised that four times the CO2 is produced per kWh using mains electricity generated from fossil fuel, than the CO2 generated to produce the equivalent heat output using mains gas. Therefore unless renewable electricity is used there is no CO2 saving in generating heat from GSHP rather than from a conventional efficient gas boiler. • Retain a detailed plan of the GSHP which shows the location of the ground heat exchanger, details of the circulating fluid, pressure tests, warranties etc.
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Appendix 3 - Renewable energy technologies Hydroelectricity Outline of Technology Hydro power systems convert potential energy stored in water held at height to kinetic energy to turn a turbine to produce electricity. Small-scale hydro power is a proven and mature technology. The basic theory for a small turbine is no different to that of a large turbine. The energy available in a body of water depends on the amount of water flowing per second, and the height (or head) that the water falls. The power available is proportional to the product of head and flow rate. The scheme’s actual output will depend on how efficiently it converts the power of the water into electrical power. Components The following components make up a typical hydro power system: • A weir and intake (or leat) to divert the flow from the water course to carry water to the forebay tank. • A forebay tank for water to pass through a settling tank or ‘forebay’ in which the water is slowed down sufficiently for particles to settle out. The forebay is usually protected by a rack of metal bars (screens) which filters out debris. • A penstock pipe / channel to carry the water from the intake / forebay tank to the turbine (pipe must be of sufficient diameter to minimise ‘head loss’). • A spillway for drainage of excess water. • A powerhouse which contains the turbine, control equipment and generator to convert the power of the water into electricity. • An outflow / tailrace through which the water is released back to the river or stream. • Underground cables, or overhead lines to transmit electricity to its point of use (these must be of a sufficient size to minimise efficiency losses in the cable). Costs • The costs for hydro can be broken down into four areas: machinery, civil works, electrical works and external costs.
• The cost of machinery for high head schemes is generally lower than for low head schemes of the same power as high head schemes are smaller as they pass less water, they run faster and can usually be connected directly to the generator without add-ons such as a gearbox or belts. • The cost of the civil works relate to the nature of the site. The biggest cost on high head sites is the pipeline and on low head heights most of the expense is on the water intake, screens and channel. • The cost of the electrical works includes the control system, wiring, a transformer and the connection cost to the electricity network which relates to the power output of the system. • External costs includes consultant fees for design of the system, managing the system once in operation and the costs for planning permission etc. • For low head systems (excluding the civil works), costs may be in the region of £4,000 per kW installed up to about 10kW. The price would decrease per kW for larger schemes. • For medium heads (excluding the civil works), there is generally a fixed cost of approximately £10,000, and this increases approximately £2,500 per kW up to around 10kW (a typical 5kW domestic scheme might cost £20,000 - £25,000). Unit costs decrease for larger schemes. • The total capital costs (including machinery, civil works, electrical works and external costs) for a 100kW small hydro installation are £115,000 - £280,000 for a low head system and £85,000 – £200,000 for a high head system. • Operating costs include leasing the land, metering, business rates, maintenance and servicing, and insurance. • Metering for larger schemes presently has to be monitored by an independent meter-reading company. There is an annual charge for this service, currently in the range £350 - £1000 per year.
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Appendix 3 - Renewable energy technologies • There are business rates on hydro schemes operating as a business.
• Seasonal variations in water flow can affect the amount of electricity generated.
• Annual maintenance and servicing costs are approximately 1-2% of the capital cost of the scheme. After 10 years or so extra costs may include the replacement of seals and bearings, a new generator, refurbished sluice gates, etc.
• The construction and civil works involved is more intense than other technologies. The typical lead in time for a turbine, from placing an order to delivery on site, is between 5 and 9 months.
• Insurance costs cover repairing damage to the works caused by fire, flooding, explosions, storms, impact and vandalism. • Electricity generated through hydropower may be sold to the grid at £0.02 to £0.03/kWh. Maintenance Hydropower is a mature technology and small scale systems tend to have a life span of 50 years with low maintenance costs. Regular maintenance of modern automated schemes includes clearing screens and oiling the generating equipment. Outline of Issues / Considerations • The site must have a suitable waterfall or weir with a consistent flow of water at a usable head and space for a turbine site. • Viability is determined by the potential energy resource. • There must be suitable site access for construction equipment to complete the civil works and install the equipment. • There should be a local demand for electricity close to the water source, or the possibility of connecting to the national grid. • The social and environmental impact on the local area should be considered. • The appearance of the scheme should be considered particularly the location of the powerhouse. • The potential noise impacts on nearby residents can be designed to be minimal. • The construction phase may cause a disturbance to local residents and traffic. • This technology is more site specific than other energy efficient technologies.
• It is important to maintain the river’s ecology by restricting the proportion of the total flow diverted through the turbine. • Hydro-installations on rivers populated by migrating species of fish, such as salmon or trout, are subject to special requirements as defined in the Salmon and Freshwater Fisheries Act. • Most operating problems occur with the screens and their careful design is vital. • The selection of the type of turbine (impulse or reaction) depends upon the site characteristics, principally the head and flow available, plus the desired running speed of the generator and whether the turbine will be expected to operate in reduced flow conditions.
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Appendix 3 - Renewable energy technologies Solar Photovoltaics
Costs
Outline of Technology
• The lifetime of a PV system is generally 25-30 years.
Solar Photovoltaic (PV) panels are comprised of cells which converts light (solar radiation) directly into electricity. PV requires only daylight (not direct sunlight) to generate electricity. The PV cell consists of one or two layers of a semi-conducting material. An electric field is created when light shines on the cells which cause electricity to flow. The flow of electricity is greater when light intensity is greatest.
• Prices for PV systems vary and depend on the size of the system to be installed to meet the demand, the type of PV cell used and the nature of the building on which the PV is mounted. As a guide, PV rainscreen cladding is approximately £600/m², PV integrated curtain walling is approximately £780/m² and PV roof systems is in the range of £350-£400/m².
Typical systems that cover 10-15m² of roof space have the potential to generate around 1.5-2kWp (kWp is the peak output equivalent of kWh). Solar PV can be fairly simply integrated into any new or existing building design as a roofing or cladding material. Components The following components make up a typical solar PV system: • Photovoltaic panels / modules are comprised of cells made of a semi-conducting material such as silicon. • Solar PV comes in an increasingly wide range of roofing and building materials. The three main types of solar cells are: - Monocrystalline: made from thin slices cut from a single crystal of silicon (typical efficiency of 15%). - Polycrystalline: made from thin slices cut from a block of silicon crystals (typical efficiency of around 12%). - Thin Film: made from a thin layer of semiconductor atoms which are made up on a glass or metal base (typical efficiency of 7%). • A battery if not connected to the national grid. • An inverter to convert to alternating current. • An export meter and an import meter (component required in a grid connected PV system)
• For the average domestic system, costs can range from £4,000-£9,000 per kWp installed with most domestic systems usually between 1.5 and 2 kWp. • Solar tiles cost more than conventional panels and panels that are integrated into a roof are more expensive than those that sit on top. • If major roof repairs are to be carried out it may be worth exploring PV tiles as they can offset the cost of roof tiles. Maintenance Cleaning the panels and ensuring they remain out of the shade from trees etc. is the biggest maintenance factor. Solar PV systems connected to the national grid require little maintenance; however, panels not connected to the grid may require maintenance of components such as batteries. Occasional checking of wiring and various components of the system should also be conducted. Outline of Issues / Considerations • Output of solar PV systems is decreased if buildings or trees overshadow the panels. • The ability of the roof structure to support the weight of the panels must be considered particularly if the panels are to be mounted on the existing tiles.
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Appendix 3 - Renewable energy technologies Solar Water Heating
Costs
Outline of Technology
• Costs depend on a range of factors which include the size of the collector required, the nature of the roof type, the existing hot water system, and location.
Solar water heating systems have been available in the UK since the 1970s and the technology is now well developed with a large choice of equipment to suit various applications. Solar water heating systems function by collecting energy radiated by the sun and converting the energy into heat in the form of hot water. Solar water heating systems work alongside conventional water heaters to provide hot water. Components The following components make up a typical solar water heater: • Solar panels / collectors retain heat from the sun’s rays and transfer this heat to a fluid. There are two types of solar collectors: - Flat plates with tubes carrying the water to be heated are the cheapest but least efficient. - Evacuated tubes using a heat pipe to carry the heat to a heat exchanger are more expensive but most efficient. • A hot water cylinder stores the hot water that is heated during the day and supplies it for use later. • A plumbing system consisting of simple piping and occasionally a pump to transport fluid around the system.
• A flat plate collector installation costs in the range of £2,000 - £3,000 and an evacuated tube systems costs in the range of £3,500 - £5,000. Maintenance Little maintenance is required for solar water heating systems and often come with a 5 year warranty. A detailed inspection every 3-5 years should be all that is required to ensure the efficient operation of the system. Outline of Issues / Considerations • An integrated solar heating system should be considered in the planning stages of the building project to achieve savings on installation costs. • Solar systems may be installed as a substitute for the roof resulting in a better visual appearance than a solar system that is mounted on top of the roof tiles and is also more economical. • Orientation of the solar collectors should face south (2-5m² of roof space that is southeast to southwest and receives minimal shading during the day is required for typical domestic consumption). For maximum efficiency, the angle of the collectors should be 30-45 degrees. • Not suitable for use with combination boilers without additional equipment and an additional water cylinder. • Solar water heaters should be sized to supply 100% of domestic hot water during the summer and therefore approximately 50% during the rest of the year. • Frost protection of the collectors must be considered during the winter months this may include using anti-freeze fluid or using a system with rubber tubing which is frost tolerant.
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08 References Boussabaine A and Kirkham R (2004) Whole Life-cycle Costing: risk and risk responses, Blackwell, Oxford. British Hydropower Association, http://www.british-hydro.org, accessed August 2007. British Hydropower Association, A Guide to UK Mini-Hydro Developments, January 2005, Version 1.2. British Wind Energy Association website, http://www.bwea.com, accessed August 2007. Casella Stanger, Forum for the Future, Carillion plc (2002) Sustainability Accounting in the Construction Industry. CIRIA. DTI renewables site, http://www.dti.gov.uk/energy/sources/renewables/index.html, accessed August 2007. Energy Efficiency Best Practice in Housing, Domestic Ground Source Heat Pumps: Design and Installation of ClosedLoop Systems, March 2004, Energy Savings Trust. Energy Savings Trust, http://www.energysavingtrust.org.uk, published December 2005 (Wind Energy Factsheet), accessed May 2006. Energy Savings Trust, http://www.energysavingtrust.org.uk, published December 2005 (Biomass Factsheet), accessed May 2006. Energy Savings Trust, http://www.energysavingtrust.org.uk, published December 2005 (Ground Source Heat Pump Factsheet), accessed May 2006. Energy Savings Trust, http://www.energysavingtrust.org.uk, published December 2005 (Solar Photovoltaic Factsheet), accessed May 2006. Energy Savings Trust, http://www.energysavingtrust.org.uk, published December 2005 (Solar Water Heating Factsheet), accessed May 2006. Energy Savings Trust, Solar PV and Your Business, January 2006. Flanagan R and Jewel C (2005) Whole Life Appraisal for Construction, Blackwell, Oxford. Flanagan R, Norman G, Meadows J and Robinson G, Life cycle costing - theory and practice, BSP Professional Books, 1989. Green fuels http://greenfuels.co.uk/, accessed August 2007. The Heat Pump Association, http://www.feta.co.uk, accessed August 2007. Heating Large Buildings with Wood Fuels, Basic Information for Project Planners, SWS Group, 2003. The IEA Heat Pump Centre, www.heatpumpcentre.org, accessed August 2007. Kelly J and Hunter K (2005) A Framework for Life cycle costing, SCQS. The Log Pile Website (information on wood fuel, system suppliers and local fuel suppliers), http://www.nef.org.uk/logpile, accessed August 2007. Marshall HE and Ruegg RT (1981) Recommended Practice for Measuring Benefit/Cost and Savings-to-Investment Ratios for Buildings and Building Systems, US Dept of Commerce, National Bureau of Standards. OGC (2003), Whole-life Costing and Cost Management, Procurement Guide Number 7, Achieving Excellence in Construction. Preiser WFE, Rabinowitz HZ, and White ET, (1988) Post Occupancy Evaluation, Van Nostrand Reinhold. PV-UK (the trade association of the UK PV industry), http://www.greenenergy.org.uk/pvuk2, accessed August 2007. Royal Institution of Chartered Surveyors, (1986) A guide to life cycle costing for construction, Surveyors Publications. Smith, G., Hoar, D., Jervis, B., Neville, R. and Tegerdine, M. (1984), Life Cycle Cost Planning, Society of Chief Quantity Surveyors in Local Government, London. Solar Trade Association (STA), http://www.greenenergy.org.uk/sta, accessed August 2007.
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