Operating Cost Calculations

OPERATING COST CALCULATIONS©
by Bill Smith, president of Elite Software

Almost as important as properly sizing hvac equipment, is the estimation of annual heating and cooling costs. Most prospective hvac system buyers don't really care what size of a unit they need, they only care about costs, both initial and annual operating costs. To remain competitive, today's hvac contractor must be able to present a credible analysis showing the probable operating cost of a proposed system.

A quick, ballpark estimate of operating costs can now be obtained for standard air conditioners and heat pumps listed in the directory published by the American Refrigeration Institute (ARI). In an attempt to compare all models on an equal basis, the ARI directory shows an average national operating cost for each unit listed. As expected, units with low estimated cooling costs also have high SEER (Seasonal Energy Efficiency Ratios) values. And heat pumps with low heating costs have high HSPF (Heating Seasonal Performance Factors) values.

The average national operating costs shown in the ARI directory are based on weather conditions with 1,000 cooling load hours and 2,080 heat load hours. In addition, electric costs are assumed to be 8.04 cents per kwh. For the contractor who wants to more precisely estimate cooling and heating costs for his particular area, ARI provides a procedure where the average cost figures can be adjusted for local weather conditions and utility rates.

Unfortunately, the Gas Appliances Manufacturers Association (GAMA) does not print such estimated heating cost figures for the furnaces and boilers listed in their GAMA directory. However, the GAMA directory does outline a manual method for calculating heating costs based on a maximum heating load, heating load hours, and AFUE (Annual Fuel Utilization Efficiency) of the furnace. A chart is even included for the easy determination of heating load hours for various locations in the United States.

It is easy to make general, relative comparisons between hvac equipment. Assuming equivalent quality standards, the best air conditioners have high SEER values, the best heat pumps have both a high SEER and HSPF value, and the best furnaces have high AFUE values.

What's not so easy to do, is to determine how much more money a high efficiency system is worth over a standard efficiency system. In other words, is the future energy cost savings of a high efficiency system worth paying $500 more for, a $1,000 more, or only $50 more?

To further complicate the situation, a decision has to be made as to what constitutes the best combination of equipment for a proposed hvac system. Possible optimal configurations include a standard air conditioner and gas furnace, heat pump with electric backup, heat pump with gas backup, or maybe even a ground water source heat pump. Given energy cost considerations and the myriad of models available in terms of size, efficiency, and cost, the problem becomes even more complex.

By evaluating an owner's situation in terms of needs, local utility rates, and existing equipment, most contractors can rely on their experience in suggesting three or four good hvac system alternatives. However, when it comes to making a final decision concerning exactly which system makes the best long term economic sense, even the most seasoned contractor can be at a loss.

Long term economics requires consideration of much more than initial system costs. System life, electric and gas costs, inflation effects, and general interest rates affect what hvac system will give the owner the lowest life cycle costs. Although these effects can be evaluated manually, most contractors simply cannot justify the calculation time required for such an analysis. The contractors who do offer comprehensive system comparisons almost invariably use software to automate the task.

Like hvac load calculation software, residential/light commercial hvac operating cost analysis software is commonly available. Prices range from $50 to $395. Regardless of cost, there are some essential features that should be looked for in all operating cost programs. Likewise, there are also some non-essential, but highly convenient, features that are worth paying extra for.

At a minimum, an operating cost program should calculate estimated heating and cooling costs for all common types of hvac systems. A contractor should not have to run different programs to compare furnaces against heat pumps or boilers against furnaces. One program should do it all.

A contractor should be prepared to enter data on the maximum heating and cooling loads of the project, total cooling hours and degree days for the project location, summer and winter electric rates, gas and other fuel rates, energy cost escalation rates, system capacities, efficiencies, and other such data. The better programs eliminate the need for some of this data as they contain built-in weather data for hundreds of cities around the United States and elsewhere.

The very best programs further minimize input data by providing a built-in library of manufacturer's equipment data. With such a program, all the user has to do is select the desired model number, and all the information about that model is automatically loaded into the program. This is especially time saving for heat pumps where so much information is necessary for calculating operating costs.

Quite a number of operating cost programs have built-in weather data, but only a few have built-in equipment data. Most of the programs with built-in equipment data are from hvac manufacturers that have included only their models. However, at least one independent program has been available for several years that contains model data for all the manufacturers listed in the ARI and GAMA directories.

Having built-in equipment data is not only useful for minimizing data entry, it is also very beneficial for comparison purposes. A particular model from one manufacturer can be quickly compared to a specific model from another manufacturer. Without having to obtain competitor's catalogs, a contractor can easily show an owner or builder how his proposed system compares to those suggested by competitors.

All operating cost analysis programs calculate, at a minimum, the estimated annual heating and cooling cost for the specified equipment and local conditions. However, most programs can also print a table of projected future costs and savings. This information, along with payback time and return on investment, really helps to show an owner the benefits of buying a new high efficiency hvac system.

Many times a contractor can show that the expected monthly energy savings more than offset the monthly loan payment for a new system. When an owner realizes that a new heating and cooling system can often pay for itself right from the start, it's hard for him to pass on the new system.

An operating cost program with strong economic capabilities can be used profitably for selling both standard and high efficiency equipment. High efficiency equipment tends to have a high initial cost. Consequently, lower cost, standard efficiency equipment often makes the most economic sense. This is especially true if the house or building using the system will be sold in a few years.

Low priced, standard efficiency systems can also be the best deal for long term situations as well. If a high efficiency system costs too much more than a standard efficiency system, the payback time can become so long that the high efficiency system just isn't worth the extra money. Most owners will not consider expensive alternatives if the payback period exceeds five years. Good operating cost analysis software allows the contractor to expertly work all angles. Depending upon the type of equipment he sells and the situation of the prospective buyer, the contractor can always make an attractive proposal with software. Besides showing favorable bottom line economics, an attractive proposal must also include nicely formatted reports. The reports should be neatly organized showing information that a customer can understand. To give maximum flexibility, some programs provide both technical reports for the contractor and simplified reports for the customer. The ultimate customer oriented reports are graphs. Visual representation of what system costs less is always more impressive than a table full of numbers.

The better operating cost analysis programs provide numerous graphs that show bar chart cost comparisons, weather data curves, heat pump capacity balance points, heating energy consumption, and other such data. Ideally, the graphs can be quickly viewed on the computer screen and printed as desired.

One subtle, but important point to evaluate in an operating cost program is the cost calculation methodology. Most operating cost programs use the cooling hours method for cooling cost calculations, and the heating degree day method for heating cost calculations. The cooling hours method is quite acceptable, and is used by virtually all operating cost programs. However, the heating degree day method has fallen out of favor to the more advanced temperature bin data method.

If a contractor routinely sells heat pumps, it is absolutely essential that the operating cost program use the bin data method for calculating heating costs. The heating capacity of a heat pump varies significantly with the outdoor temperature, and the simple degree day method does not account for this. The bin data method not only works well for heat pumps, it can also be used for furnaces, boilers, and strip heaters.

Occasionally, a contractor will not have all the necessary information to calculate heat pump operating costs using bin data. The heat pump capacity and coefficient of performance (COP) at both 47 and 17 degrees F must be known to use the bin method on heat pumps. If this information is not available, it is nice if the software will optionally allow the use of the heating degree day method. This method requires knowing only the heating seasonal performance factor (HSPF) for heat pumps.

Although the heating degree day method is not as sophisticated as the bin data method, some contractors are very comfortable with the results it produces. Since there are often significant differences between the heating costs calculated using the degree day method and the bin data method, it is ideal if the operating cost software offers both ways to calculate heating costs.

Just as important as reports, graphs, and calculation methodology, is ease of use. Most contractors can only allocate very little time to software. Unless, the program is simple and fast, it won't be used. The easiest to use programs have menus and "fill-in-the-blank" entry screens. In addition, all user friendly programs have built-in help available at every point in the program.

Other important considerations of operating cost software include the user manual, phone support, update policies, and disk copy protection. The results of an operating cost program can sometimes disagree with what a contractor thinks it should be. If the program user manual doesn't completely document how calculations are performed, a contractor has no way of checking the results. Programs are not always perfect. Without the ability to verify program results, a contractor faces the uncomfortable situation of putting blind faith in a program.Even when a satisfactory user manual is given with a program, there are still times when a contractor may want to call the vendor and ask questions. It can be very frustrating if an answering machine comes on or if no technical support people are available to take the call. A prospective buyer of operating cost software should carefully evaluate the support capabilities of the software supplier.

Operating cost calculation procedures are continually being enhanced by the various trade associations and engineering societies. It is important to make sure that a software supplier is committed to keeping the software current with the latest methods.

Copy protection, or the inability to make copies of the master disks supplied by the software vendor, is a highly controversial issue. Once a common occurrence in the industry, virtually all major software suppliers including Lotus, Ashton-Tate, and Microsoft have dropped copy protection. However, the practice still exists to some extent in the hvac software industry. It is interesting to note that this copy protection "feature" is never mentioned in the literature of suppliers using copy protection. A contractor should carefully consider whether copy protection is acceptable to him or not, and then be sure to inquire specifically about it before purchasing software.

Using the guidelines given above, an hvac contractor should be able to find a number of operating cost programs that can greatly aid equipment sales. The biggest difference a contractor can look forward to is the situation where a customer is facing the decision to repair an old, inefficient unit or buy a new, high efficiency model. Software makes the decision so much easier. Compared to the increased equipment sales, the price of a good operating cost program is insignificant.

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