Total Cost of Ownership

HAPUA WORKING GROUP 3 / PROJECT 1

Best Practices in Asset Management: Life Cycle Cost Assessment - TCO Calculations 19 Aug 2015

Overview 1.

Project objectives

2.

Distribution transformers - Key component of network

3.

Total Cost of Ownership (TCO) - Basic concept

4.

Significance of TCO

5.

Key components of TCO • No-load losses & Factor A • Load losses & Factor B

6.

TCO calculation methodology and applications

7.

Review of freely available TCO calculation tools

8.

Conclusions and recommendations

Project Objectives 1. To share information and experience of maintenance strategies and asset replacement/refurbishment criteria among the country members

2. To develop and formulate costing methodology based on life cycle activities of the following medium voltage equipment: • Distribution transformers

This presentation captures progress on Objective 2 above.

Distribution Transformers – Key Component of Network 1.

Project objectives

2.

Distribution transformers - Key component of network

3.

Total Cost of Ownership (TCO) - Basic concept

4.

Significance of TCO

5.

Key components of TCO • No-load losses & Factor A • Load losses & Factor B

6.

TCO calculation methodology and applications

7.

Review of freely available TCO calculation tools

8.

Conclusions and recommendations

Distribution Transformers • Close to 1 million transformers are installed across 11 ASEAN utilities according to the survey in Mar-May 2015 • 2nd largest contributor of energy losses in a network (about 30% of overall network losses) • At the time of purchase, the focus is often on the first cost instead of TCO, but TCO can be 2-3 times of the first cost

Inventory of Distribution Transformers

TCO – Basic Concept 1.

Project objectives

2.

Distribution transformers - Key component of network

3.

Total Cost of Ownership (TCO) - Basic concept

4.

Significance of TCO

5.

Key components of TCO • No-load losses & Factor A • Load losses & Factor B

6.

TCO calculation methodology and applications

7.

Review of freely available TCO calculation tools

8.

Conclusions and recommendations

Total Cost of Ownership (TCO) – Basic Concept •

TCO is also known as Life Cycle Cost (LCC)

•

Sum of all the costs incurred during the life of a transformer

Maintenance cost

• Purchase cost • Installation cost

Decommissioning cost

Installation cost

• Maintenance cost • Decommissioning cost • Cost of energy losses Purchase cost

•

In practice, the following three are ignored due to not much variation from transformer to transformer: • Installation cost • Maintenance cost • Decommissioning cost

TCO

Cost of energy losses

Total Cost of Ownership – Equation TCO = Purchase Cost + Cost of Energy Losses

TCO = C1 + CNLL +CLL • • • •

TCO: Total Cost of Ownership CI: Initial purchase cost of a transformer CNLL: Cost of no-load losses CLL: Cost of load losses

Significance of TCO 1.

Project objectives

2.

Distribution transformers - Key component of network

3.

Total Cost of Ownership (TCO) - Basic concept

4.

Significance of TCO

5.

Key components of TCO • No-load losses & Factor A • Load losses & Factor B

6.

TCO calculation methodology and applications

7.

Review of freely available TCO calculation tools

8.

Conclusions and recommendations

TCO: Financial, Functional and Environmental Significance

Financial

Functional

• TCO can be 2-3 times first cost

• Efficient transformers: Savings capacity, OPEX and CAPEX

Environmental • Reduction in greenhouse gas emissions

TCO: Financial, Functional and Environmental Significance •

Financial • TCO can be 2-3 times the initial purchase price • Transformer with the lowest first price is not the transformer with lowest cost over its lifetime

•

Functional • Makes energy efficient transformers more attractive (an energy-efficient transformer can be 55.5% lower in energy losses) • Although energy efficient transformers are initially more expensive, the cost premium over a standard transformer can be paid back several times over a transformer’s lifetime • Energy savings across the distribution network with cascading effect on the network’s overall capacity, OPEX and CAPEX

•

Environmental • Reduction in emission of greenhouse gases • Environmental advantage

Key Components of TCO 1.

Project objectives

2.

Distribution transformers - Key component of network

3.

Total Cost of Ownership (TCO) - Basic concept

4.

Significance of TCO

5.

Key components of TCO • No-load losses & Factor A • Load losses & Factor B

6.

TCO calculation methodology and applications

7.

Review of freely available TCO calculation tools

8.

Conclusions and recommendations

Two Key Components of TCO

Cost of energy losses

Purchase cost

TCO

Energy Loss: No-Load and Load Losses

No-load energy loss (W)

Load energy loss (W)

PT = PO + PK • • •

PT: Total energy loss in a transformer (W) PO: No-load energy losses (W) PK: Load energy losses (W)

Total energy loss (W)

No-Load Losses

• Losses in transformer core, independent of loading

• Hysteresis and eddy current losses: 99% of no-load losses • High-efficiency transformers have low-loss silicon steel or amorphous steel with copper windings

TCO Calculation: Cost of No-Load Losses

Cost of no-load losses

A

No-load loss per year (W)

CNLL = A ´ PO • • •

CNLL: Cost of no-load losses ($) A: Factor for capitalising no-load loss of a transformer ($/W) PO: No-load loss of a transformer per year (W)

What is Factor A?

• Converts no-load energy loss into a cost using electricity price and total number of hours of operation in a year

• Converts the series of future no-load loss costs to a single present value cost by using a Present Value Factor for an ordinary annuity

Calculating Factor A

1+i) -1 ( A= ´C n i(1+i) n

kWh

• • • •

´ 8760

i: Discount rate applicable (this is specific to utility) n: Life of transformer in years CkWh: Electricity cost ($/kWh, cost which consumers pay) 8760: Number of hours in a year

Load Losses

•

Transformer’s load losses are due to the resistance of the primary and secondary conductors to the flow of current and eddy currents

•

Also known as I 2R losses

•

These losses vary according to the square of transformer loading •

A fully loaded transformer has four times the load loss compared to the one operating at 50% load

Load Losses in TCO Calculation

Cost of load losses

B

Load loss per year (W)

CLL = B ´ PK • CLL: Cost of load losses ($) • B: Factor for capitalising no-load loss of a transformer ($/W) • PK: Load loss of a transformer per year (W)

What is Factor B?

• Converts load energy loss into a cost using electricity price, total number of hours of operation in a year and transformer loading

• Converts the series of future load loss costs to a single present value cost by using a Present Value Factor for an ordinary annuity

Factor B

1+i) -1 ( B= ´C n i(1+i) n

2 ´ 8760 ´ L kWh

• • • • •

i: Discount rate applicable (this is specific to utility) n: Life of transformer in years CkWh: Electricity cost ($/kWh, cost which consumers pay) 8760: Number of hours in a year L: Transformer loading

Key Variables: Factors A & B

1+i) -1 ( A= ´C n i(1+i) n

kWh

1+i) -1 ( B= ´C n i(1+i)

´ 8760

n

2 ´ 8760 ´ L kWh

Key Variables in Factors A & B

Symbol

Name

Remarks

1

i

Discount rate

Typically, 10% (by utility)

2

n

Lifetime of a transformer

20-50 years (by utility)

3

CkWH

Electricity price

Set by utility ($/kWh)

4

L

Transformer loading

Depends on demand/load

5

8760

Hours in a year

Operating hours in a year

Load vs. No-load Losses

Source: ABB Presentation titled “Energy Efficiency – Cost of Losses” by Douglas Getson

TCO Calculation Methodology 1.

Project objectives

2.

Distribution transformers - Key component of network

3.

Total Cost of Ownership (TCO) - Basic concept

4.

Significance of TCO

5.

Key components of TCO • No-load losses & Factor A • Load losses & Factor B

6.

TCO calculation methodology and applications

7.

Review of freely available TCO calculation tools

8.

Conclusions and recommendations

TCO Calculation: 4 Steps

Step 1 Decide input variables

Step 2 Get energy loss and purchase price from manufacturer

Step 3 Calculate A and B values

Step 4 Calculate TCO

Step 1: Decide key Input Variables

Variable

Example

Discount rate (i)

8.5%

Life of transformer (n)

20 years

CkWh

2.35 Baht/kWh

Transformer loading (L)

0.5

Step 1

Step 2

Step 3

Step 4

Step 2: Get Energy Loss Figures and Purchase Price from Manufacturer

Variable

Example

No-load losses (PO)

250 W

Load losses (PK)

1550 W

Initial purchase price (CI)

156, 700 Baht

Step 1

Step 2

Step 3

Step 4

Step 3: Calculate A and B Values

(1+0.085) -1 20

A=

0.085(1+0.085)

20

(1+0.085) -1 20

´ 2.35 ´ 8760

A =194812Baht / kW

Step 1

B=

0.085(1+0.085)

20

´ 2.35´ 8760 ´ 0.52

B = 48703Baht / kW

Step 2

Step 3

Step 4

Step 4: Calculate TCO

TCO = C1 + A ´ PO + B ´ PK TCO =156700 +194812 ´ 0.25+ 48703´1.550

TCO = 280893Baht Step 1

Step 2

Step 3

Step 4

Practical Application of TCO - Collaboration with Manufacturers for Optimum Design •

Cost of losses in a transformer goes down as the purchase price goes up

•

At some point, combination of the two costs results in lowest TCO

•

Cost of losses depend on Factors A & B—provided by utilities to manufacturers

•

Utilities can carefully choose all the variables affecting factors A and B to help manufacturers arrive at right TCO

Source of diagram: ABB Presentation titled “Energy Efficiency – Cost of Losses” by Douglas Getson

Practical Application - Transformer Selection Based on TCO

Variable

Standard 750 kVA Transformer ($)

High-efficiency 750 kVA Transformer ($)

Initial purchase cost ($)

10194

10845

Total Cost of Ownership ($)

36723

28964

• Lowest first cost doesn’t mean lowest TCO • High-efficiency transformer is higher in first cost by 6%, but lower in TCO by 21% • Transformer selection should be based on TCO only

Review of Freely Available TCO Calculators 1.

Project objectives

2.

Distribution transformers - Key component of network

3.

Total Cost of Ownership (TCO) - Basic concept

4.

Significance of TCO

5.

Key components of TCO • No-load losses & Factor A • Load losses & Factor B

6.

TCO calculation methodology and applications

7.

Review of freely available TCO calculation tools

8.

Conclusions and recommendations

Freely Available TCO Calculators

1. ABB’s TCO calculator 2. Life Cycle Analysis Tool by BEE 3. Life Cycle Costing of Transformer Losses – Leonardo Energy

ABB’s TCO Tool

Link: http://tcocalculator.abb.com/

ABB Tool Inputs Required: SETTINGS & CONDITIONS • Currency • Energy unit (W or kW)

ABB Tool Inputs Required: CONDITIONS

• Initial electricity price and annual increase • Transformer nominal rating, service life, average loading

• Interest rate • Operating hours per year

ABB Tool Inputs Required: TRANSFORMER DATA •

Name or designation of the transformer

•

Initial purchase price

•

No-load losses

•

Load losses

•

Cooling losses at no-load and at rated current

ABB Tool – RESULTS

•

No-load losses

•

Load losses

•

Total Cost of Ownership

•

Energy and cost savings

•

Payback period

ABB TCO Tool: FEATURES AND LIMITATIONS

Features • Simple layout • Easy to use • Includes explanations of key terms

Limitations • Doesn’t include option to include installation, maintenance, decommissioning costs • ASEAN currency options limited • No print button

Life Cycle Analysis Tool by BEE

Excel worksheet, download from: http://bee-dsm.in/Tools_5.aspx

BEE: Bureau of Energy Efficiency, India

BEE Tool Inputs: ASSUMPTIONS

• Discount rate • Tariff escalation • Inflation • CO2 conversion factor

• Salvage value

BEE Tool Inputs: Transformer Data

•

No of days in a year and hours of operation per day

•

Electricity price

•

Load factor

•

Rated kVA

•

No-load and load losses

•

Life of a transformer

•

Purchase cost

BEE Tool – RESULTS

•

Life Cycle Cost

•

Annual energy consumption

•

Carbon footprint

BEE Tool: FEATURES AND LIMITATIONS

Features • Takes into account maintenance cost, salvage value, energy price escalation and inflation • Easy to use • Useful for comparing large number of options

Limitations • Doesn’t include explanation of technical terms • Default current option is Indian Rupees

Life Cycle Costing Tool – Leonardo Energy

Excel worksheet, download from: http://www.leonardo-energy.org/tools-and-tutorials/life-cycle-costing-transformer-losses

Leonardo Tool – Inputs Required

Economical data

CO2 emission data

• •

•

•

Discount or interest rate (%) Economic life of transformer (year) Energy price (Euro/MWh)

•

CO2 emissions cost (Euro/tonnes) CO2 emissions per kWh (Kg/kWh)

Transformer data

Loading profile

• • • •

•

No-load loss Load-loss Price Any extra losses

Loading profile of transformer along with harmonic spectrum (default list is available)

Leonardo Tool – RESULTS

• Calculated annual losses – in terms of Euro • Calculated capitalised losses • TCO • Carbon footprint

Leonardo Tool – FEATURES AND LIMITATIONS Features •

Provides information on transformer losses when harmonics are present

•

Includes the profile of typical transformers available in the industry, which makes it easier to input relevant data like losses, prices, etc.

•

Includes a “help” manual

Limitations •

Complicated to use

•

Developed for European users, so some of the data and units may not be compatible with ASEAN figures

Conclusions & Recommendations …

1.

Project objectives

2.

Distribution transformers - Key component of network

3.

Total Cost of Ownership (TCO) - Basic concept

4.

Significance of TCO

5.

Key components of TCO • No-load losses & Factor A • Load losses & Factor B

6.

TCO calculation methodology and applications

7.

Review of freely available TCO calculation tools

8.

Conclusions and recommendations

… Conclusions and Recommendations

1. TCO calculation is a straightforward process, but validity and usefulness of calculation depends on the accurate assumptions: Discount rate, transformer lifespan, electricity cost and transformer loading

Recommendation # 1: ASEAN Utilities should review the variables used for the calculation of loss capitalisation Factors A and B, and ascertain the same are valid according to the utilities own financial and functional realities. The basis of all variables should be formally recorded and reviewed periodically.

2. TCO calculation also depends on two more factors that depend on the transformer manufacturers: Load and no-load losses.

Recommendation # 2: The utilities should work together to create a common database of transformer losses for different transformer ratings and manufacturers. Such a database can facilitate easier, faster and more accurate TCO calculations.

Conclusions and Recommendations-2/2

3. While free online tools are available for TCO calculations, these tools are not customised to ASEAN utilities’ specific requirements. Availability of an easy-touse, valid and customised TCO tool can help towards greater adoption of TCO calculations among ASEAN utilities. Recommendation # 3: An ASEAN-specific Web-based TCO calculator should be developed, which should include a comprehensive database of all the inputs that go into TCO calculations: discount rate, electricity cost, transformer losses, etc.

4. ASEAN utilities should make it mandatory to use TCO as the key criterion for transformer procurement decisions. Recommendation # 4: Case studies should be developed to show how TCO calculations can help the ASEAN utilities to improve financial, functional and environmental performance. The data for these case studies should come from the actual transformers purchased and used by ASEAN utilities.

Recap 1.

Project objectives

2.

Distribution transformers - Key component of network

3.

Total Cost of Ownership (TCO) - Basic concept

4.

Significance of TCO

5.

Key components of TCO • No-load losses & Factor A • Load losses & Factor B

6.

TCO calculation methodology and applications

7.

Review of freely available TCO calculation tools

8.

Conclusions and recommendations

Thank You