Understanding Whole Life
Costing for Renewables
Brad Bamfield
MD The Solution Organisation
Chairman The Whole Life Forum
[email protected]
07803 133110
The Solution Organisation
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Today
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Introduction
Sustainability
WLC – short master class
The use of WLC to assess any asset
including renewables.
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Benefits of WLC
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What does economic benefit mean?
Is it just £’s or is it more?
Whole life costs / value
Is there a definition of WLC?
– Several – Whole Life Cost Forum WLCF
• A significant contributor to Sustainability
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A holistic analysis
Sustainability
Environment
Economics
Society
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The common perception
Whole life
costs
Whole life
costs
Environment
Whole life
costs
Economics
Society
Whole life
costs
The Solution Organisation
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Sustainability
• Economics
• Environmental
• Social
• Performance
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WLC
Profitability
Protection
Improvement
Stakeholders
Improvements
Utility
Deliver requirement
Exceed requirement
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Sustainability
• Non financial measures
– Utility
– Environmental
– Social
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Sustainability
• Focusing on one or two aspects
– Inefficient
– Ineffective
– Ultimate failure
• It’s all three or failure is inevitable
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The Madness of Sustainability
• Mad
– Politicians – just do it.
• Rational mad
– Environmentalists – sounds true, that will do
• Realists
– Anyone – let’s look at alternatives and do the
best we can with what we have.
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Short WLC Master Class
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WLC is a comparison technique
WLC can incorporate non financial
WLC can indicate the better option
WLC can be manipulated but it’s
obvious
• WLC can be misused but it’s obvious
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Financial relationships
1
:
5
• Capital Cost
• Revenue Cost
• Business Cost
:
200
1
5x
200x
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Type of WLC
• Net Present Value – NPV
– Discounted cashflows
– Used where cash is measure
• Total Whole Life Costs - TWLC
– Cashflows but without discounting
• Annualised Whole Life Costs – AWLC
– Non discounted
– Total cashflows divided by life
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Net Present Value
• NPV is the sum of all the future
cashflows discounted back to today’s
value.
• Only used for economic analysis
• Has a number of drawbacks
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Discount rate
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What does it do?
How is it established?
What does it tell us?
Discount rate tables:
http://www.thesolutionorganisation.com/library.html
• How do we use a Discount Rate for non
financial indicators?
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NPV Example
Year
1
2
3
4
1 000
1 000
1 000
1 000 4 000
2 000
200
200
200
200 2 800
Annual balance
-2 000
800
800
800
800 1 200
Discount rate
100.%
90%
81%
72.9%
65.6%
Discount bal
-2 000
720
648
583
525
Income
Expenditure
Year
1
5
Total
476
2
3
4
1 100
1 100
1 100
1 100 4 400
2 200
200
200
200
200 3 000
Annual balance
-2 200
900
900
900
900 1 400
Discount rate
100.%
90%
81%
72.9%
65.6%
Discount bal
-2 200
810
729
656
590
Income
Expenditure
Option 1
Option 2
NPV
NPV
5
585
476
585
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WLC & non cash uses
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Use non discounted methods
Total Whole Life Costs TWLC
Annualised Whole Life Costs AWLC
Use any measure that works
– Tonnes CO2
– KwH
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TWLC Example
Year
1
CO2 Saved
2
3
4
5
10
10
10
10
40
Embedded CO2
55
3
3
3
3
67
Annual balance
-55
7
7
7
7
-27
1
2
3
4
5
20
20
20
20
80
Year
CO2 Saved
Embedded CO2
65
2
2
2
2
73
Annual balance
-65
18
18
18
18
7
Option 1
Option 2
TWLC
TWLC
-27
7
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WLC in use examples
• Bridgewater Report for SWRDA
http://www.thesolutionorganisation.com/library.html
• Combine Financial and Non Financial
analyses together for robust solution.
– NPV plus graded 1-5 solutions for
conditions important for your project.
• Avoid weighting answers.
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Problems with WLC
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Using on the only option
Lack of data
Ask suppliers – and ask again
Use best estimates
Use common data in all options
Don’t worry about what you don’t know
Don’t overstate
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What can we use to calculate?
• Whole Life Cost Forum online tool
www.wlcf.org.uk
• Spreadsheets
– AWLC and TWLC relatively easy
– NPV little more complex but use Function
• Avoid methods using “weightings”
• Use only key determinants
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The Good
1.
2.
3.
4.
5.
Green roofs
Ground effect heat exchangers
Solar heating of water
Under floor heating/cooling
Solar reflective glazing
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The bad
• Wind turbines
• Photo voltaics
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Conclusion
• WLC is very effective as a selection
process for comparing competing
products, methods or assets.
• WLC results are robust and repeatable
• Include suppliers
• Start with simple examples
• Don’t over complicate
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Summary
• Looked at WLC & types
• WLC can measure financial and non
financial elements
• Bridgewater case study
• Method to select between options.
• Help is available
The Solution Organisation
To build the solution, first define the problem
Brad Bamfield
[email protected]
07803 133110
www.thesolutionorganisation.com
www.wlcf.org.uk
The Solution Organisation
To build the solution, first define the problem