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To Justify Large HVAC Upgrades, Consider Deferred Capital Renewal


Facility managers should determine if deferred capital renewal (the cost to replace a unit in kind if the unit is beyond its useful life) should be part of the analysis to help justify large capital projects involving HVAC and other systems.

An example of a deferred capital savings is the evaluation of installing a new boiler as compared to maintaining the existing boiler. A 20,000 pound per hour (pph) boiler with mud and steam drums (the heart of the boiler) may be in good condition, but the boiler tubes could be thinning and need to be replaced. The cost to retube and recase this boiler is approximately $350,000. In this example, the recasing and retubing of the boiler will not increase the boiler efficiency of the system. Also, the existing boiler is assumed to have an efficiency of 75 percent.

A newer boiler with stack economizer could have an efficiency of 85 percent and the cost to install this boiler is approximately $1.2 million. In 2012, the average national cost for natural gas was approximately $8.15 per thousand cubic feet or approximately $8.00 per million BTU. Assuming the boiler operates at full load for 2,500 hours, the increase in efficiency would save the facility approximately $62,000 per year in natural gas costs. The simple payback to replace the boiler without the deferred capital is 19.4 years (capital cost of $1.2 million and an annual savings of $62,000 per year). However, if the analysis took into account the $350,000 cost to recase and retube the boiler, this would reduce the capital cost from $1.2 million to $850,000 and the corresponding simple payback would be reduced to 13.7 years. The cost to recase and retube the boiler should be included in the analysis because this work needs to be completed to maintain the operation of the system. Deferred capital need to be calculated very carefully to ensure that it is realistic.

This brief came from Andy Jones, mechanical engineer/project manager at RMF Engineering.

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