Life Cycle Cost Example

Comparison Of Various Water Heating Systems

Contents
Important Notes:
1) The installed costs and other assumptions in this example were developed
by a collaborative of individuals participating in the California Solar Water
Heating Collaborative, an activity of the California Energy Commission's
Research & Development office (Ray Darby was the Collaborative lead).

2) The data were representative of a large scale residential subdivision

development at the time the study was performed during 1994 - 1995. The
installed costs and assumptions used below are not representative of today's
single-family home retrofit market (which is currently more active than the
new construction market), they represent one example analysis. Today's
systems cost considerably more for several reasons -
- It costs more to retrofit an existing home in both labor & materials due to
cost inflation (labor, materials)
- Subdivision costs are lower due to economy of scale
- Inflation (labor, materials and energy)
On the other hand, there are cost-reducing factors today we did not have in
the mid 1990s, such as tax credits and rebates. And while energy costs have
escalated about 6.7% annually over the past 30 years, they will likely escalate
at a higher rate in the future. So if you want to compare water heating
system options for your own situation, always use assumptions specific to
your installation when using the spreadsheets below.

3) Although the focus of this page is water heaters and water heating systems,
most of the concepts presented apply to other energy technologies as well, and
the spreadsheets can be modified accordingly.

Introduction

How To Use This guide

Definitions

Financial Inputs

F1: Installed Cost

F2: Amount Financed
F3: Loan Term
F4: Interest Rate
F5: Nominal Discount Rate
F6: General Inflation Rate
F7: Income Tax Bracket
F8: Maintenance Cost
F9: Replacement Cost and Frequency
F10: Environmental Value

Energy Inputs

E1: Solar Fraction

E2: Base Fuel Usage
E3: Fuel Cost
E4: Fuel Escalation Rate
E5: Base Electrical Usage
E6: Electricity Cost
E7: Electricity Escalation Rate

Other Considerations

Results

References

Introduction:
This guide was developed to help illustrate the process involved in completing a
Life Cycle Cost (LCC) economic analysis of competing energy solutions. It also
introduces the concept of accounting for subsidies and/or externalities in an
economic analysis, an increasingly important issue to many policy and other
decision makers. The intent behind the "real example format" and links to required
resources, is to illustrate the type of practical considerations and resources needed
for a comprehensive yet straightforward comparison of the economic and
environmental costs of alternatives.

For the LCC analysis, a series of simple spreadsheet templates are developed to
represent several different types of water heating systems. The spreadsheets
calculate the total 30 year Life Cycle Cost (LCC) as well as the effective annual
cost to own, operate, and maintain a water heating system. Individual yearly values
for cost associated with maintenance, replacement, externalities, inflation, and
others can be easily entered. Six examples as well general considerations, tables,
and references are also provided to facilitate a thorough yet rapid assessment of
economic and environmental benefits.

RESULTS FOR SOLAR WATER HEATING HEREIN

SHOULD NOT BE CONSIDERED "TYPICAL"

Solar water heating savings vary signifcantly with the type of system, available
sunlight, outside temperatures, hot water use, and time of use. Given the many
different types of systems available, as well as differences in the frequency and
cost of replacing components, only one "active" and one "passive" system example
are covered here. These examples are NOT intended to represent the "best" OR the
"worst" of what is available; they are merely examples.Therefore, it is not
appropriate to draw any general conclusions, regarding the comparative
value of solar water heating to gas or electric water heating, from just two
examples of what the industry currently has to offer.

Solar water heating (SWH) systems can provide compelling economic and
environmental benefits in many cases. Unfortunately, such knowledge has
remained largely unavailable to many decision makers. This has been a key barrier
to the success of SWH. This guide, and associated documents, are intended to help
address that gap.

Because the population will continue to grow, so will consumption of our limited
resources, air pollution problems, and the the potential for global climate change.
Fortunately, a SWH system can cut the energy use and pollution from water
heating by half, or more, in areas with plentiful solar energy (like most of
California). As an added bonus, the SWH industry will create many new jobs as
the world transitions to a more sustainable future!

What This Guide Includes

The guide includes six (one-page) spreadsheet files, each designed to allow rapid
comparison of specific water heating systems. All of the inputs, outputs and cash
flows for an entire 30 year finance scenario can be printed out on a single sheet of
paper. The six "competing" water heating system types evaluated are (clicking on
a link below will download the excel file template):

1 - Electric Water Heater

2 - Electric Water Heater with Active Solar
3 - Electric Water Heater with Passive Solar
4 - Gas Water Heater
5 - Gas Water Heater with Active Solar
6 - Gas Water Heater with Passive Solar
The basis and reasoning behind the values used for the examples, as well as
considerations for other systems, are provided. The guide is layed out as follows:

Actual (installed) systems are used as examples to illustrate the input

Examples
variables used for an economic analysis.
Basis for The basis and reasoning behind the selection of each input variable is
Example Inputs described, along with the corresponding references.
A general discussion of considerations for selecting each input variable.
General
Considerations for other situations are provided, as are tables of suggested
Discussion
input values and references.

How To Use This Guide

Learn By Doing
It's often easiest to "learn by doing," which is greatly facilitated by an example.
Because a solar economic analysis depends on the combination of solar system
type (active/passive) as well as the backup water heater type (electric/gas), an
example of each combination is shown below. Each example represents an actual
LCC analysis, researched and prepared by the California Solar Water Heating
Collaborative (1). Descriptions of the "how and why" behind the selection of
values for each of the examples are provided. More importantly, general
considerations for system configurations unlike these examples are discussed,
providing the user with suggestions for other applications.

Choosing Appropriate Inputs For Your Economic Analysis

The examples included here are illustrative of the range of considerations given
one specific application: a residential subdivision home in Sacramento, California,
circa 1992. Also, just two different solar water heating systems were evaluated. Be
careful to ask yourself "Is this example identical to mine, with the same costs, hot
water useage, etc?" It's likely the answer is "no." Therefore, be careful in selecting
appropriate input variables for your situation - avoid "Garbage In" = "Garbage
Out!"

Selecting appropriate inputs for an economic analysis, or avoiding "Garbage

In" = "Garbage Out," cannot be emphasized enough.

To help illustrate the number of variables that can influence an economic analysis
of SWH, consider the list below:

Performance variables
*Solar energy available
*Outdoor air temperature & cold water temp.erature.
*Collector tilt and orientation (varies with architectural design, aesthetics)
*Collector shading (varies with shade from buildings and/or site objects)
*Hot water used, time of use (varies by family size and habits)
*Hot water delivery temperature (varies from 125 - 140 degrees F)
*Auxiliary water heater size and type (varies considerably)
*Solar energy system size and type (varies considerably)

Economic variables
*Current and future fuel costs
*Current and future inflation rate
*Discount rate, or "cost of capital." This is generally the interest rate the
homeowner earns to lend (or pays to borrow) money; also referred to as "time
value of money" from the investor's standpoint.
*Homeowners income tax rate (varies with income)
*Financing terms (loan period, interest rate, etc.)
*Investment time period (length of time homeowner intends to live in home,
mortage period, etc., depending on individual investment considerations)
*System replacement and maintenance costs over time
*Environmental benefits (value of reduced emissions, etc.) over time

Definitions of economic analysis terminology

Some users may not be familiar with some of the terminology used in this guide.
These terms appear throughout the guide and are applied to certain parameters. The
following are a few select terms used with brief definitions.

Inflation: A persistent increase in the level of consumer prices or a persistent

decline in the purchasing power of money, caused by an increase in available
currency and credit beyond the proportion of available goods and services.

Escalation: To increase, enlarge, or intensify the value of a given commodity.

Nominal: The value in a specific year, including the effects of inflation. This is
normally the value as observed in the marketplace. For example, a "nominal" home
mortgage interest rate of 8% (a common number today) includes the effect of
inflation.

Real: The nominal value in a specific year, after removing the effects of inflation.
For example, if inflation is 3.4%, the "real" home mortgage interest rate is 4.6%
(8% - 3.4%).
Financial Inputs

This section describes the selection of each of the financial inputs used for the
economic analysis examples.

F1: Installed cost

Electric water heater: $480 (3).

This cost is based on a system using an American Appliance KEFR90-50, 50
gallon water heater.

This cost estimate was also obtained from a plumbing contractor. It includes
electrical wiring and circuit breaker materials and installation, connection to H/C
water piping stub-outs (but not the H/C water distribution system piping). Also
included is the cost of a separate electrical service (breaker and 50 feet of dedicated
conduit/wire) to serve only the water heater. The developer markup to the
homeowner is again assumed to be 20%. Hot and cold water distribution system
piping costs were not included, as this is common to all heater types being
compared.

Electric water heater + Active solar: $2,447 = $1,967 for solar system (10) +
$480 for electric backup water heater (3). This cost is based on a system using a
Solaray Model TE40P-80-1 (the "-1" signifies a single tank system). This system
includes 40 sf of collector area and an 80 gallon electric water heater. Only the top
portion of the electric water heater is heated by electricity, allowing the bottom
portion to be heated by the solar collector. The estimated installed cost for this
system was provided by the same two local solar installers referenced in the
example above; the cost is lower due to the elimination of the extra tank required
in a gas auxiliary system.

Electric water heater+ Passive solar: $2,352 = $1872 for solar system (4) + $480
for electric backup water heater (3). This value represents the actual installed cost
for the same solar system listed above, plus the estimated installed cost of the same
electric water heater listed above.

Gas water heater: $679 (2).

This cost is based on a system using an A.O. Smith FGR50-218 (or equal), 50
gallon natural water heater, with an energy factor of 0.60.

These cost values were obtained from plumbing contractors, based upon a number
of assumptions regarding the specific installation. All water heating system
component and installation costs, specific to the gas water heater, were accounted
for in order to allow a meaningful comparison to electric and other heaters. For
example, a gas water heater is assumed to be installed in a garage on a return
plenum/water heater stand shared with the gas furnace. Also, a portion of both the
water heaters flue and gas line are shared by gas furnace.

The cost estimate includes the water heaters share of the flue pipe, gas line
materials and installation, and connection to Hot/Cold pipe stub-outs. Hot and cold
water distribution system piping costs are not included, as this is common to all
heater types. The cost is based on a minimum of 100 units installed in a
Sacramento area residential subdivision, and a 20% markup was added to account
for the developers profit (from the home buyer).

Gas water heater + Active solar: $3,294 = $2,615 for solar system + $679 for gas
backup water heater (6). This cost is based on a system using a Solaray Model
TE40P-80-2 (the "-2" signifies two tanks). The system includes 40 sf of collector
area, a 40 gallon solar storage tank, and a 40 gallon gas auxiliary water heater.
Note that the cost of the active solar system with a gas backup is higher than the
same system with electric backup (see example, below). This is because a seperate
solar storage tank is needed when a gas water heater is used (called a "two-tank"
system); in the example below, the lower portion of the electric backup tank is
utilized for solar storage (called a "one-tank" system).

Gas water heater + Passive solar: $2,551 = $1872 for solar system + $679 for
gas backup water heater (4).
This cost is based on a system using a Thermal Conversion Technology; Model
PT40-CN; 42 Gallon ICS volume; all-copper absorber with black chrome coating;
collector area = 3.6X6.7 = 24.12 Sq.ft. The cost selected in this case represents the
actual installed cost for systems installed in a Sacramento area residential
subdivision several years ago, plus the estimated installed cost of the same gas
water heater listed above; actual cost will vary from contractor to contractor, and
the cost for a single (custom home) installation will be higher. Note that the solar
system costs includes the auxiliary water heater ($679). The installed cost includes
roof mounting hardware and installation but does not include additional costs
associated with additional roof structure reinforcement which was not necessary in
this case. The cost includes a $20 crane service, required for installation on two
story homes ($80/hr, one hour minimum, with four to six units installed per hour).
Installed costs are based on cost to the builder/developer - a 20% mark-up is added
to account for overhead and profit (5). The solar contractor labor is approximately
$20/hr, compared to approximately $45/hr for a plumber. This is a special rate
provided by the solar contractor, reflecting the large number of installations
involved; standard solar contractor rates in the Sacramento area are more
consistent with the rates charged by plumbers.

General considerations
The accurate identification of installed cost cannot be overemphasized. The
"garbage-in/garbage-out" rule should be kept in mind when important economic
decisions hinge on the outcome. For example, the actual installed cost will vary by
contractor, your location, and the number of systems involved. The costs
referenced in the examples would be completely inappropriate for a single (custom
home) installation, as the cost is based on a subdivision, and reflects the savings
associated with a large number of installations.

In the examples, the cost of different backup heaters is added to the solar system
costs to allow comparison of "whole systems". For example, the gas and electric
water heaters have distinctly different installed costs, such as flue vent & gas lines
as opposed to a circuit breaker and electrical wiring. Also, the active system with
gas backup requires an additional tank not required with electric backup, as gas
based systems cannot be single tank

Additional cost associated with additional structural depends on the systems

installed weight and the load bearing capacity of the existing/designed roof
structure; a structural engineer may be consulted to assure structural safety if
weight is an issue. Other costs not included here that may be associated with some
installations include added space for SWH equipment and the cost of building
details designed to integrate the solar collector(s) into the roof system so they are
less visible.

In general, the best estimates invariably come from estimates or bids provided by
installing contractors from the area in which the system will be installed. Suppliers
and manufacturers do not generally quote their distributors prices and are not
generally as reliable a source for installed cost estimates as installing contractors.

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F2 Amount financed
All examples assumed 20% down, 80% financing on the total home loan amount
borrowed.

General considerations
Although the examples all assume a home buyer is purchasing a home in a
residential subdivision, the spreadsheet may also be used for cases where either a
different down payment is required or the investment is not to be financed. To
input a different down payment fraction, change the multiplier in the "amount
financed" (F2) cell calculation from 0.2 to the value desired. If the project is not
mortgage financed, set the value F2 to zero (this will set the down payment equal
to the installed cost).

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F3: Loan term
A loan term of 360 months was used for the examples, as a 30 year mortgage
equals 360 months (30 years * 12 months/year = 360 months)

General Considerations
All the examples assume a thiry year mortgage, as this is common both for new
home purchases as well as re-financing for an addition or remodel. Although
mortgage loan terms vary; 30 years is most common. This spreadsheet is not
intended to perform economic assessments for periods other than 30 years,
although it could be amended to whatever time frame is desired by the user,
assmuing the user has a basic understanding of spreadsheets and the economic
functions used.

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F4 Interest rate
An interest rate of 8% was assumed for this example, as it is the current lending
rate for the time period considered (1996).

General Considerations
Financing rates vary with the prime lending rate; check current average interest
rates in your local newspaper. Note that the cost-effectiveness of SWH is improved
at lower financing rates, longer mortgage period and lower down payment.

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F5 Nominal discount rate

A nominal discount rate 6.2% was assumed for the examples (7). This therefore
assumes a real discount rate of 3%, along with the current inflation rate of 3.2%,
resulting in a nominal discount rate of 6.2%.

General Considerations
The discount rate is highly variable and, being that it is dependent on a specific
application, it is not intended to be represented here as a fixed value suitable to all
installations. The examples do not assume a "risk adjusted discount rate"; ie., it is
assumed there are no differences in the risks associated with the "non-solar" versus
the "solar" case. Discount rate will vary with each particular households economic
situation - for simplicity it is appropriate in many cases to set the discount rate
equal to the "opportunity cost" of borrowing money. This may be the average
investment rate for consumers of 2% for savings, 5% for money-market accounts
(8); alternately, the rate recommended by the National Renewable Energy Lab of
10% real (9) might be used for consumers when the discount rate is not known.
The discount rate must be carefully selected based on the criteria for the given
application. Note that the cost-effectiveness of SWH is improved at lower discount
rates.

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F6 General Inflation rate

A General Inflation rate of 3.2% was selected for the examples, using 1993 as the
reference (or base) year; in 1996, the general inflation rate over the next 30 years is
estimated to be an average of 3.2% (10).

General Considerations
The general inflation rate is an estimate of the future value of the dollar and is
based solely on projections available at a given point in time. The actual future rate
may be quite different from the value presented here. From a historical perspective,
the actual average inflation rate from 1970 to 1993 was 5.5% (10). Note that the
cost-effectiveness of SWH is improved at higher general escalation rates.

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F7 Income Tax Bracket

An Income Tax Bracket of 25% (10) was selected for this example as being
representative of the typical new home buyer in the Sacramento area.

General Considerations
The tax rate is highly variable and, being that it is dependent on a given families
income and other factors, it is not intended to be represented here as a fixed value
suitable to all. The actual marginal rate for the specific application is generally
used here. For example, a value of 28.13% (11), the marginal rate for families
earning more than $50,000/yr (the approximate minimum annual family income of
a new home buyer), was selected for use by Energy Commission staff to compare
end-use technologies for the California Energy Commission's ETSR (Energy
Technology Status Report).

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F8 Maintenance Cost

Gas or electric water heaters:

No operations or maintenance costs for a gas or electric water heater are assumed
for the examples because homeowners generally provide none; nor do they hire a
plumber to provide O&M, but rather replace the water heater when it leaks or no
longer functions. This is unfortunate, as regular water heater maintenance can as
much as double or triple the time period between unit replacements, reducing costs
over time, saving resources, and reducing problems associated with the availability
of landfill space.

Passive solar water heater:

There is very little historical maintenance cost information available for solar water
heating systems. The passive solar (ICS) unit used in the example is estimated to
have a life time of 30 years according to a limited survey of 6 solar
contractors (14). However, the pipe insulation wrap (or insulation itself) must be
replaced approximately every 15 years for an estimated $75 service call (15).

Active solar water heater:

water heater According to Cliff Murley of SMUD, active systems have an
estimated average maintenance cost of $30-$50 per year, which includes valves,
pumps, sensors, and controls (10). A cost of $40 per year was therefore used for
the active system examples.

General considerations
Note: Maintenance costs are frequently referred to as "operation and maintenance"
(or O&M) costs.

Gas or electric water heaters

For maintenance, manufacturers recommend the pilot and main burner be checked
annually for proper flame characteristics (gas heater) as well as the venting system
(for obstructions and/or deterioration in vent piping); lift the temperature/pressure
relief valve lever a few times once a year; drain sediment from the heater
periodically; and replace the anode rod(s) as necessary. In areas where lime and
scale deposits are encountered, the water heater manufacturer recommends the tank
be chemically delimed.

Pressure/temperature relief and tempering valves are required for safety purposes
for all water heating systems. A new pressure/temperature relief valve is assumed
to be provided with the original and replacement water heater, although
replacement between water heater change-outs is sometimes evident following a
check of this valve. No thermostatic mixing valve is included in the estimates
above, although the 1994 edition of the UPC (Uniform Plumbing Code), adopted
by California code jurisdictions in January of 1996, requires them on all hot water
supply lines to showers and tub/shower combinations (refer to UPC section 410.7).
As this device is required for safety on all systems, regardless of water heater type,
the cost was not included in the examples.

Electric heat pump water heaters

Electric heat pump water heaters have been around for 20 years, however there is
little historical maintenance cost information available. The Federal Energy
Management Program (FEMP) "Federal Technology Alert" series, which includes
a volume on Heat Pump Water Heaters is the most detailed of the independent
reports we know of regarding this subject.

Solar water heaters

The cost of maintaining a solar water heater varies considerably with the type of
system and the corresponding "repair and replacement frequency". Many systems
are sensitive to hard (mineralized) water, in which case scaling or build-up of
debris may increase maintenance needs. Systems using a heat transfer fluid
(referred to as "Class II" fluids) generally need the fluid replaced every three to
five years. And as is usually the case, simpler systems built with quality
components will require far less maintenance than more complex systems built
with low quality components. For example, copper is generally considered better
than stainless steel, which is better than plastic for solar collectors. A specially
welded polypropylene solar storage tank will generally far outlast a fiberglass tank.

Because higher quality generally comes at a higher cost, an economic analysis can
be used to quantify this difference in terms of total cost over the mortgage period.

Especially important, but often overlooked by some manufacturers, is the

serviceability of the solar systems components. For example, if a component needs
to be serviced or replaced it should be easy to access, but like some cars, some
systems are difficult to impossible to service. These types of systems should
generally be avoided, as an entire assembly (or the entire solar unit itself) may
need to be replaced if it cannot be adequately serviced.

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F9 Replacement Cost & Frequency

Gas or electric water heater

Replacement cost is estimated to be $400.00 (with labor, materials & mark-up) and
the frequency of replacement is estimated to be 15 years (10).

Passive solar water heater

The passive (ICS) based system requires replacement of the aluminum foil wrap
covering the pipe insulation (and potentially the pipe insulation as well) in the 15th
year. Because the ICS unit itself has not been installed in the field for 30 years,
however, we have no way of knowing if it can last that long without replacement;
it is constructed with an all-copper absorber, glass cover glazing, and aluminum
frame; a survey of solar service contractors estimates the system may last 30
years (17). The manufacturer states the PT-40-CN solar water heater is virtually
maintenance free, although they do recommend the glass be cleaned as needed and
the unit be drained once a year, as is recommended for auxiliary water heaters;
note that both the solar and gas (or electric) auxiliary water heater could be drained
in a single service call. Also, as with auxiliary water heaters, in areas where lime
and scale deposits are encountered, it is necessary to chemically delime the tank; it
was assumed for this sample analysis that delimining and associated costs would
not be necessary. It is important to understand that some SWH systems may
experience O&M costs associated with certain component failures over a 30 year
period, such as pressure relief valve, check valve(s), ball valve(s), tempering
valve(s), and problems related to the solar storage tank or collectors such as glass
breakage, glazing seal failure, insulation degradation, and internal scaling or
connection failure in the collector absorber.

Active solar water heater

The replacement costs for the active solar water heater are included under
"maintenance costs," and the tank replacement cost is the cost to replace the
electric water heater (which doubles as solar storage).

General considerations

Gas or electric water heaters

Replacement frequency is estimated by some to be as low as 9 years for gas and 10
years for electric heaters (18). Ultimately, the life of a water heater depends not
only on its construction, but also on the type of use (commercial heaters have a
shorter life than residential heaters), the amount of use, degree of regular
maintenance, water quality, and water temperature setpoint.

Solar water heaters

The cost of replacing a solar system or system component varies considerably with
the type of system and the effort required to service failure-prone components
Again, the serviceability of the solar systems components is another major factor.
The cost of replacing an entire assembly (or the entire solar unit itself) must be
included it failure-prone components cannot be serviced. For example, consider the
case of a passive system employing a fiberglass collector/storage tank with foam
insulation fused onto the tank, which is in turn fused to the collector/storage
container, and the glazing is riveted to the container. In this example, a tank failure
requires replacement of the entire unit when only the fiberglass collector/storage
tank had failed.

With active systems, individual components can generally be replaced when they
fail, although the ease of service varies considerably by manufacturer. The service
cost relative to the component cost is therefore an important consideration when
selecting a system. Generally speaking, pumps, differential controllers, collector
sensors, special valves, and solar storage tanks will need to be replaced every ten
to fifteen years. Copper-metal framed-glass type collectors should last twenty to
thirty years, depending on the system type and application. Plastic collectors,
similar to those used in pools, are sometimes used for SWH, however the life
expectancy of these is harder to predict because they have not been in use as long
as the copper-metal framed-glass collectors.

Re-roofing costs were not included in the examples, however it can be an added
cost in some instances. Generally speaking, if the roof is cement or clay tile, a
material commonly used for roofing in the Sacramento region, the roof will not
require replacement for 30 years. For other types of roofs where re-roofing is
required, the cost estimates received to remove & re-install collectors vary from
$250 (8/24/95 - William R. Murray & Sun, Inc., Sacramento, CA) to $330 (8/18/95
- Pelton's Solar Service, Grass Valley, CA) for material and labor, assuming a
flashed steel mounting system (not wood sleepers) is used.

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F10 Environmental (or Externality) Value

An "environmental value," more commonly refered to as an "environmental
impact" class of "externality," was applied to these examples to account for the
pollution reduction provided by the solar water heaters. These values were
estimated using pollution factors and emission reduction values recommended by
the IEP (Independent Electrical Producers) of California.

General Considerations
The quality of the environment, both now and in the future, is an important issue
worldwide. For this reason, externalities are beginning to show up in the decision
making process, but in limited ways. In general, the "social cost" of gas and
electricity generation can apply to environmental impacts, impacts on production,
trade balances, depletion of nonrenewable resources, defense of foriegn fossil fuel
resources, and many other impacts.

For example, Public Utility Commissions (referred to as "P-U-C's") are mandated

to ensure utilities act in the public interest. One way they accomplish the public
interest is to help ensure utilities minimize the social costs associated with utility
generation. The value of "social costs" from a PUC perspective, however, is
limited to environmental impacts. Another example is the U.S. Forest Service,
which also includes environmental impacts in their decision making process for
facilities.

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Energy Inputs
E1 Solar Fraction
The estimated solar fractions for all of the example calculations are based on a
TRNSYS (Transient Systems Simulation) computer program analysis (20). Typical
Sacramento weather conditions and hot water useage patterns were used.

Passive solar water heater

Passive solar fraction = 0.487 (Integral Collec./Stor. or ICS + elec. aux. heater)
Passive solar fraction = 0.433 (Integral Collec./Stor. or ICS + gas aux. heater)

Active solar water heater

Active solar fraction = 0.588 (one-tank; elec. element heats top, solar bottom)
Active solar fraction = 0.446* (two-tanks; solar storage tank + gas aux. heater)
* Uses additional 186 kWh electricity per year (for pump & control)

General Considerations
The Solar Fraction can be determined by simulation (TRYNSYS or WATSUN) or
by correlation methods (such as FChart). Or, contact the Solar Rating and
Certification Corporation (SRCC) and download their publication titled "SRCC
Certified Solar Collector and Water Heating System Ratings" which can be used to
calculate Solar Fraction. See the SRCC's web site for more information about
SRCC, manufacturer/suppliers having certified systems, and how to calculate solar
savings from SRCC's published "Solar Energy Factors" (SEF's).

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E2 Fuel Usage
The estimated fuel usage for all of the example calculations is based on a TRNSYS
(Transient Systems Simulation) computer program analysis provided
by SRCC (they own a special version of this program, developed to better serve the
evaluation of SRCC certified systems). The results were used to calculate the
operating cost as follows:

Gas water heater annual operating cost example:

(22.182 MBtu/yr) x (6.25 $/MBtu) = $139/yr

Electric water heater annual operating cost example:

(4.382 MWh/yr) * (10^3 kWh/MWh) x (0.122 $/kWh) = $535/yr

The calculated energy use is based on typical Sacramento California conditions

which are, as the table below illustrates, close to the national average conditions
upon which the SRCC ratings are based:

Avg. Annual Air Temp Avg. Daily Sun Avg. Annual Water
(F) (Btu/day-s.f.) Temp (F)
Sacramento 60.3 1660 65
U.S. National (City)
58.0 1500 58
Average

The other conditions assumed for the TRNSYS analysis are 135F hot water supply
temperature, 67.5F average ambient temperature (air around the water heater) and
a daily hot water load of 64.3 gallons./day. The energy consumption of all systems
evaluated in the examples are based on the same set of conditions so that direct
comparisons are possible. Normally, the energy factor under those same conditions
is used to provide a relative comparison of the fuel use of a water heater.

The gas water heater is rated with an EF=0.60, and the electric has an
EF=0.89 (21); if you are unfamiliar with the term "EF", or Energy Factor, it is
described below. Although a gas EF of 0.60 for a gas water heater is considerably
higher than the 0.53/0.54 required to comply with Title-24 energy standards, it is
the unit most frequently used in subdivision developments. This is due to the high
energy code compliance credit obtained at small additional cost. Cost savings vary
with the solar system and water heater model selected, hot water use, solar and
ambient temperature conditions, and many other factors.

General Considerations
Energy Factor
The fuel useage, or energy consumption of a particular water heater is a direct
function of the water heater temperature set point, the surrounding (environment)
temperature, and hot water useage pattern. The Energy Factor (EF) is an overall
measure of relative water heater efficiency, or "coefficient of performance" under
DOE (Department of Energy) standard conditions. In equation form:

EF = Energy Output/Energy Input = Qdelivered/Qaux

Where*:
Qdelivered= delivered water heating energy from system
Qaux= auxiliary energy required to heat hot water

*All values are expressed in the same units.

The energy factor of a water heater under standard DOE test conditions is available
from the Gas Appliance Manufacturers Association (GAMA) publication
"Consumer Directory of Certified Efficiency Ratings;" GAMA is in Arlington,
Vermont.

Water Heating System Energy Calculation

The annual energy load for a water heater can be esimated using the energy factor
as follows:

Yearly energy load (kWh/yr) = (365 days/yr) x (12.03 kWh/day) / EF

where the constant of 12.03 kWh/day is the average annual energy use of a
standard electric hot water heater.

Knowing the fuel cost, the annual operating cost can be calculated as:

Yearly energy cost ($/yr) = (Yearly energy load; kWh//yr) x (Fuel cost; $/kWh)

Water Heating (with Solar) Energy Calculation

The annual load met by solar can be determined by simulation (TRYNSYS
or WATSUN) or by correlation methods (such as FChart).

Solar with Electric Backup Case

For all-electric systems under SRCC standard conditions, the SRCC Directory of
OG300 Certified Systems allows simple calculation of annual load with the solar
energy factor as follows:

Yearly energy load met by solar (kWh/yr) = (365 days/yr) x (12.03 kWh/day) /
SEF

The constant of 12.03 kWh/day, above, is the average annual energy use of a
standard electric hot water heater. Knowing the fuel cost, the annual operating cost
can be calculated as:

Yearly energy cost ($/yr) = (Yearly energy load; kWh//yr) x (Fuel cost; $/kWh)

Solar with Gas Backup Case

For systems with a backup gas water heater, the SRCC method cannot be used,
however a method may eventually be developed.

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E3 Fuel Cost
The rates assumed for the example are the average residential rates for PG&E .
Average rates for several other utilities serving California at the time are:

Propane gas rates (22): Statewide average = 1.14 $/gallon

Natural Gas Rates ($/mmBtu)

For California's Largest Gas Utilities (23)
 Pacific Gas & Electric The Gas Company San Diego Gas & Electric
6.4 6.42 6.55

Electricity Rates ($/mmBtu)

For California's Largest Electric Utilities (24)
Pacific Gas & Southern California San Diego Gas & Sacramento Municipal Utility
Electric Edison Electric District
12.17 12.26 10.93 8.38

Because fuel costs depend on usage, solar savings, and weather conditions as a
function of the time of the year, average residential rates were used for simplicity.
The fuel costs used for the example are forecasted rates for 1995, based on 1993 as
the reference year (the average data for 1995 was not available at the time).

General Considerations
Fuel costs vary both by utility as well as how much is used per month below the
average or "baseline" rate and the "over baseline" or "marginal" rate (which costs
more per unit of energy used). This fact can have a significant impact on the total
savings associated with a particular system. For example, if a home has an electric
water heater and the monthly electricity useage with water heating subtracted out,
has already used up the baseline electricity "allowance," all of the solar water
heating savings for that month would be at the higher "marginal" cost. If this were
the case for every month of the year, this system would be more economical than
one which saved energy only at the lower (under) baseline rate. Ideally, the relative
consumption of gas or electricity throughout the year for the entire home must be
known to determine the actual rate at which the savings accrue. Note that the cost-
effectiveness of SWH is improved at higher fuel costs.

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E4 Fuel Escalation Rate

The rates assumed for the example are the average nominal residential rates for
PG&E (23), (24).

General Considerations
The fuel escalation rates are an estimate of future costs of fuel and are based solely
on currently available sources of data - actual future rates may vary from the values
presented here. Note that the cost-effectiveness of SWH is improved at higher fuel
escalation rate . Nominal rates for several other utilities serving California at the
time are as follows:

Propane gas: Unknown (unable to obtain data)

Natural Gas Escalation Rates (%)

For California's Largest Gas Utilities (23)
Pacific Gas & Electric The Gas Company San Diego Gas & Electric
3.75 3.69 2.84

Electricity Escalation Rates (%)

For California's Largest Electric Utilities (24)
Pacific Gas & Southern California San Diego Gas & Sacramento Municipal Utility
Electric Edison Electric District
2.14 2.28 1.73 2.56

RETURN TO TABLE OF CONTENTS

E5 Electrical Usage
Refer to "E1" and "E2"

E6 Electric Cost
Refer to "E3"

E7 Electricity Escalation Rate

Refer to "E4"

RETURN TO TABLE OF CONTENTS

Other Considerations
Salvage Value The salvage value for the SWH (ICS) unit at year 30 is assumed to
be zero (25). The salvage value of the auxiliary gas water heater at year 30 is also
assumed to be zero. The salvage value for the SWH unit assumes a solar service
contractor removes the system at no charge to the homeowner at the end of 30
years, with the contractor's expenses compensated by the salvage value of the
copper and other materials within the unit. Likewise, the salvage value for the
auxiliary gas water heater is assumed to be zero, as the cost to remove the heater is
approximately equal to the salvage value of the heater. The salvage value for the
auxiliary electric water heater is zero because it will be replaced anyway just after
year 30 (given replacement frequency is 15 years).

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Results
Given all of the inputs discussed previously, the graph below shows the results of
the thirty year (mortgage financed) Life Cycle Cost Analysis, presented in terms of
"annualized cost of ownership":

The "total annualized cost of ownership" is the cost to install, maintain, fix,
replace, and operate the water heating system over a 30 year period. Note: for
those familiar with economics terminology, this is the annualized value of the life
cycle cost. In this case, a natural gas water heater is the least costly option,
followed by a passive solar system with a natural gas backup. Remember that this
is just one example, looking at just two different solar water heating systems (there
are several hundred others available), a specific set of economic criteria, etc.
Professional assistance providers can help you find the most appropriate system
based on your own hot water use, climate, system options, and so on.

Now, what if we were to estimate the cost of subsidies and externalities, account
for these "hidden costs" in an economic analysis, and revise the previous chart
accordingly? Subsidies and/or externalities are of interest to decision makers
ranging from consumers to the U.S. Forest Service. Any time "hidden costs" are
included they should be carefully evaluated to assure the basis behind the selection
is consistent with the interests of those involved. The results are shown below:

In this case, the externalities are limited to environmental impacts alone, and
subsidies are estimated to add 10% to the cost of electricity and $0.05/therm for
gas. Using these assumptions, the cost of a solar water heater with gas backup
amounts to less than a dollar per month. Again, remember that this is just one
example, looking at just two different solar water heating systems, etc.

RETURN TO TABLE OF CONTENTS

References
1) The California Solar Water Heating Collaborative is a group of solar
stakeholders from government and industry, formed in 1994 by the California
Energy Commission (CEC), to assess and resolve commercialization barriers.

2) Fax from Les Nelson of CAL-SEIA, the California Solar Energy Industries
Association to Tony Wong, CEC, on 3/14/95 ; $566 * 1.2 (markup).

3) Fax from Les Nelson of CAL-SEIA to Ray Darby, CEC, on 3/14/95 .

4) Invoice from Sierra Sun Industries, Inc., for actual installed cost of five
passive SWH systems in a residential subdivision in Sacramento in June of
1992.

5) "1993 National Construction Cost Estimator." Source of this reference for

builder markup to homeowner is fax from Les Nelson of CAL-SEIA to Ray
Darby, CEC, on 3/14/95.

6) Telephone conversations with Richard Reed of SunEarth, Ed Murray of

W.R.Murray & Sun Inc., and Mike Loer of Sierra Pacific Solar in May 1996.

7) California Energy Commission, Efficiency Technology Division - value

recommended by Jon Leber and Tony Wong for residential case, during
meeting with Pramod Kulkarni and Ray Darby, 10/5/95 - based on a real
discount rate of 3% + 3.2% inflation = 6.2% nominal discount rate.

8) Byard Wood, Technical Director, SRCC; recommendation for SWH

analysis sent in fax to Cliff Murley, SMUD, 7/27/95.

9) "A Manual for the Economic Evaluation of Energy Efficiency and

Renewable Energy Technologies", Doc # NREL/TP-462-5173, National
Renewable Energy Lab, March 1995

10) "Analysis Of Various Water Heater Systems," May 1996, California

Energy Commission; this guide is based on the paper and spreadsheets
originally developed by Tony Wong, Energy Efficiency Division.

11) John Butler, California Energy Commission, Research & Development

Office; maximum effective marginal income tax rate for 95% of California
Population. This value was used to assess end-use technologies for the purpose
of the California Energy Commission's 1996 Energy Technology Status
Report.

12) Construction Industry Research Board, February 1994; 50.3% homes 3-

bedroom @ $147.6k avg cost; 40.3% homes 4-bedroom @ $189.1k avg cost.

13) Rich Gernes, Mortgage Broker, (916) -273-2875; in phone conversation

with Ray Darby, CEC; Rich said the general formula for calculating required
income when qualifying for a mortgage is complex, however as a general rule
of thumb (assuming 20% down), for principal, interest, taxes, and insurance
they allow 33% of gross income for housing cost - therefore, assuming $150k
home @ 8% for 30 years, P&I = $880.52, taxes = $156.25 (1.25%), and fire
insurance = $34 (0.34%/12) = $1,070/month; therefore $1070/0.33 =
$3242/month gross (38,909/yr). Therefore, average annual taxable income
required to purchase typical new home is = $40k/yr.

14) John Anderson, Sandia Labs; 7/17/95 letter sent to Cliff Murley, SMUD
Solar Program, re. Sandia survey of solar contractors.
15) Average cost of $75; First estimate = $83.53 = $12.60 material + $0.98 tax
+ $69.95 labor from Ed Murray, William R. Murray & Sun, Inc., 8/24/95 fax
to Ray Darby; Second estimate = $66.55 = $13.55 material & tax + $53 labor
from Bob Pelton, Pelton's Solar Service, 8/18/95 fax to Les Nelson.

16) "Analysis Of Various Water Heater Systems," May 1996, Tony Wong,
California Energy Commission (916-654-4015).

17) Survey by John Anderson, Sandia Labs; 7/17/95 letter sent to Cliff
Murley, SMUD Solar Program.

18) "Annual Industry Survey"; Appliance Magazine, Dana Chase

Publications, Oak Brook, IL; September 1996 issue.

19) Emmision reduction offsets transaction costs - summary Report for 1994,
May 1995; pg 11, tbl 4 - Sac area , $8750/ton (transaction of 4.44 tons), $13500
(84.73 tons); $37000/ton (39.28 tons). Average cost = $20,522/ton or $10.261/lb.
Nat gas reduction rate for ICS unit = (1/0.6-1/1) x 4,1045 x 365 = 9.99
mmBtu/yr. NOx emission reduction = NOx emission factor x Nat gas
reduction rate = 0.0895 /lbs/mmBtu x 9.99 mmBtu/yr = 0.894 lb.

20) Fax from Steven Long, Florida Solar Energy Center (FSEC) to Cliff
Murley of SMUD, 7/31/95. The SEF calculation was done using the TRNSYS
computer program, with data for Sacramento, CA.

21) California Energy Commission Directory Of Certified Water Heaters,

January 29, 1993; EF & Btu.day (assumption for Btu/day derived from
Annual Energy Consumption - AEC); pgs. 177 (electric) and 133 (gas). EF &
AEC are based on the same hot water load and temperature conditions as
were used for derivation of the SEF.

22) Report to The California Legislature on Propane Service, Rates, and

Safety, California Public Utilities Commission, March 1993; data for 1990.

23) 1995 Fuels Report preliminary data, California Energy Commission;

"Unofficial Estimates" as they are derived from data proposed for the report
which has not yet been completed or approved by the Commission

24) 1996 Electricity Report preliminary data, California Energy Commission;

"Unofficial Estimates" as they are derived from data proposed for the report
which has not yet been completed or approved by the Commission.

25) Conversation between Ed Murray of W.R. Murray & Sun, Inc. (916-929-
3916) and Tony Wong, CEC in November 1994.
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02/12/2010

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