Transcript HECM Phase 6 Cost and Prioritisation Workshop 24th September 2010 Agenda Session 1: Introduction and context – Timeline – Where are we now? – HEFCE Guide –

HECM Phase 6
Cost and Prioritisation Workshop
24th September 2010
Agenda
Session 1: Introduction and context
– Timeline
– Where are we now?
– HEFCE Guide
– The Carbon Management Plan (CMP)
– Estimating Capital Cost of Projects
– Understanding Financial and Carbon Metrics
Session 2: Prioritising and the CMPR
– Prioritising Projects Using Combined Carbon &
Financial Metrics
– Getting to Grips with the CMPR
– Recap Progress Against Target
– Next steps
Timeline
HECM6 – the timeline
November
We are
here
Where are we now?
Key Statistics
Summary of Carbon Emissions and Targets
50,000,000
45,000,000
40,000,000
35,000,000
Carbon (kg)
Baseline 2008/9 - 42.43 tonnes
2005 Baseline – 29.08 tonnes
30,000,000
25,000,000
20,000,000
15,000,000
Target 2008 to 2015 – 35%
Target 2008 to 2020 – 45%
10,000,000
5,000,000
2005
2010
2015
2020
Year
Total Carbon To Identify in CMP (to 2015)–14.85 tonnes
Where are we now?
Emissions in
2009/10
Difference between
2009/10 emissions and
projected 2020 emissions
(Percentage Reduction –
xx %)
Summary of Carbon Emissions and Targets
xxx tonnes
1,400,000
1,200,000
Projected emissions in
2014/15 xx tonnes
Carbon (kg)
1,000,000
600,000
Emissions in
2005/06
400,000
Baseline Year
200,000
xxx tonnes
Difference between
emissions in 2005/06 and
projected 2020 emissions
(Percentage Reduction –
XX%)
800,000
Projected emissions in
2020 Target Year –
2005
2010
2015
Year
Carbon Emission to Date
CMP Planned Reduction
CIF2 Target Reduction
Constuction Lines
2020
xxx tonnes
Current Projects
Number of Projects
Total Carbon Identified
Who is responsible for each project?
How close do these projects bring you to your
target?
Are there any current projects we’ve missed?
Target 35%
Current
Projects xx%
Opps Workshop
Projects YY%
RAP
Projects YY%
Gap
Projects from the
Opportunities Workshop
Number of Projects
Total Carbon Identified So Far
Which projects are you investigating?
Who is responsible for each project?
How close do these projects bring you to your
target?
Target 35%
Current
Projects xx%
Opps Workshop
Projects YY%
RAP
Projects YY%
Gap
RAP Tool Projects
Top 10 RAP Tool Projects
Total Carbon Identified So Far
Who is responsible for each project?
How close do these projects bring you to your
target?
Target 35%
Current
Projects xx%
Opps Workshop
Projects YY%
RAP
Projects YY%
Gap
Closing the Gap
What actions need to be completed to close the
gap?
Target 35%
Current
Projects xx%
Opps Workshop
Projects YY%
RAP
Projects YY%
Gap
HEFCE Guide
Alignment with CIF2
Mobilisation and
Objective Setting
Baseline
Mobilise
Organisation
Target Setting
Baseline,
Forecasts, Targets
Opportunities
Identification
Costing
Prioritisation of
Opportunities
Carbon
Management Plan
Identification and
Quantification
Approve Plan
Implement Plan
HEFCE Good Practice Guide
Costing
– CAPEX, OPEX
– Need for life-cycle costing
– Established investment appraisal protocols
and procedures need to be applied
– Simple payback as a minimum, need for
NPV for larger projects
– Need also to look at cost of inaction
Prioritisation
–
–
–
–
Need internally agreed criteria
Need to consider cost/affordability and impact/savings
Overlap and interaction with other strategies and priorities
MACC
The Carbon Management Plan (CMP)
The Carbon Management Plan (CMP)
Section 4 - Projects
Cost
Ref
Project
Secondary glazing 1 Offices
Lead
Annual Savings (yr 1)
Financial
(Gross)
tCO2
Pay back (yrs)
Net Present
Cost(£)
% of Target
Implementation
Year
£450,000
£8,010
54.5 tCO2
does not
payback
£300,854
0.72%
2012
Capital
Operational
Voltage optimisation 2 Block A
Cavity wall insulation 3 Research Centre
£90,000
£24,440
133. tCO2
3.7
-£215,756
1.76%
2009
£100,000
£15,000
102.1 tCO2
6.7
-£179,300
1.35%
2010
Upgrade to condensing
boilers - Swimming pool
4 hall
£200,000
£22,291
151.7 tCO2
9.0
-£215,061
2.00%
2013
Video and web
5 conferencing
6 Automatic Meter Reading
Lighting upgrades 7 Residential Hall A
£9,000
£2,049
£6,058
14.6 tCO2
2.2
-£9,625
0.19%
2010
£90,000
£28,545
£123,484
753.8 tCO2
0.9
-£738,249
9.96%
2010
£90,000
489.8 tCO2
1.1
-£695,825
6.47%
2012
£100,000
The Carbon Management Plan (CMP)
Section 5 - Financing
Savings
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
TOTAL
Annual cost
saving
£0
£215,743
£384,936
£434,897
£442,473
£450,047
£843,991
£2,772,087
Annual tCO2
saving
113
2,510
3,435
4,171
4,242
5,975
7,923
28,369
% of baseline
CO2 saving
0.46
10.27
14.05
17.06
17.35
24.44
32.41
Funding
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Annual
costs:
£1,114,032
£65,590 £858,613
£858,962
£178,096
£0
Committed
funding:
£1,114,032
£65,590 £670,034
£783,096
£178,096
£0
£0
£0 £188,579
£75,866
£0
Unallocated
funding
£0
2014/15 2015/16
£0
£0
£0
TOTAL
£0
£3,075,293
£0
£2,810,848
£0
£264,445
CMPR flowchart
Import baseline
Initial analysis
Check cost
estimates
Complete Project
List
Review payback
graphic
Review
Reduction
Plan
Advanced analysis
Review MACC
Review
summary
page and
CMP outputs
Estimating capital costs
Estimating Costs of
Projects
RAP tool
Salix
Rules of Thumb
Carbon Trust Surveys
Organisation’s own experience – use your team
Quotes from suppliers
Understanding financial and carbon
metrics
Metrics for analysing
project effectiveness
Initial Analysis
– Simple payback
– Salix £/tonne CO2 lifetime
Advanced Analysis
– Net present cost
– Cost effectiveness ratio (£/tonne CO2)
– Internal rate of return (IRR)
Use to…….
1. establish financial case
2. prioritise projects
Costs
Capex – capital expenditure/costs
– Single one off costs in year 0, usually includes
design, materials, technologies, installation,
commissioning etc.
Opex – Operational expenditure/costs
– Usually annual costs for running a project, e.g.
maintenance and servicing, lease costs or staff
resource costs. Does not normally include energy
costs for carbon reduction projects as these are
accounted for in the savings data
– There may also be opex savings through some
projects
Basic metrics
CO2 savings in year 1 (tCO2 or kgCO2)
– The amount of carbon savings expected from a
project in the first full year of operation.
Simple Payback (yrs)
– How long a project takes to pay the Capex back
through the financial savings achieved (yrs)
Capex(£)
Annual financial savings (£/yr) – Opex (£/yr)
Simple payback
£100,000
£80,000
Cash flow
£60,000
£40,000
£20,000
£0
0
1
2
3
4
5
6
-£20,000
-£40,000
Year
Best output
Value tends to zero
Worst output
Does not pay back – savings not realised during the
lifetime of project
No financial savings – need to update p/kWh costs in the
Conversion Assistant tab.
Exercise 1
Payback exercise
Project
Secondary glazing Offices
Capex
Opex
£ Savings
(gross)
£450,000
£8,010
£90,000
£24,440
Cavity wall insulation Research Centre
£100,000
£15,000
Upgrade to condensing
boilers - Swimming pool
hall
£200,000
£22,291
Voltage optimisation Block A
Video and web
conferencing
Automatic Meter Reading
Lighting upgrades Residential Hall A
£9,000
£2,049
£6,058
£90,000
£28,545
£123,484
£100,000
£90,000
Payback
(yrs)
Examples
Project
Secondary glazing Offices
Capex
Opex
£ Savings Payback (yrs)
(gross)
£450,000
£8,010
does not payback
in project lifetime
(25 yrs)
£90,000
£24,440
3.68
Cavity wall insulation Research Centre
£100,000
£15,000
6.67
Upgrade to condensing
boilers - Swimming pool
£200,000
£22,291
8.97
Voltage optimisation Block A
Video and web
conferencing
Automatic Meter Reading
Lighting upgrades Residential Hall A
£9,000
£2,049
£6,058
2.24
£90,000
£28,545
£123,484
0.95
£90,000
1.11
£100,000
Simple Payback Graph in
CMPR
Project
Ref.
Number
6
7
5
Simple
Payback
(years)
0.95
Description of Project
Automatic Meter Reading
Lighting upgrades Residential Hall A
10.00and web conferencing
Video
Payback
1.11
2.24
8.97
9.00
3
4
Voltage optimisation - Block A
8.00
Cavity wall insulation 7.00
Research
Centre
Upgrade
to condensing
6.00
boilers - Swimming pool hall
Payback
2
3.68
6.67
6.67
8.97
5.00
3.68
4.00
3.00
2.24
2.00
0.95
1.11
6
7
1.00
2
5
Project Ref. Num ber
3
4
Further metrics
Pounds per tonne CO2 (£/tCO2)
– Capex per tonne of CO2 saved in year 1
Capex (£)
Tonnes CO2 saved year 1 (tCO2)
Lifetime CO2 savings (tCO2)
– The amount of carbon likely to be saved over the
lifetime of a project
Tonnes CO
lifetime
Adjusted
to account
‘persistence’
of CO2
2
x forProject
(yrs)
savings
0%)
(year
1) in CMPR. (default
Salix metrics
Salix pounds per tonne CO2 lifetime (£/tCO2 LT)
Capex (£)
=
Tonnes CO2
(year 1)
x
Persistence
factor
=
£↓
↑CO2
• Provided by Salix (see References and lookup tab in CMPR)
• Effectively a reduced lifetime of the technology
Best output
Value tends to zero (low £, high CO2)
Worst output
Large positive number (high £, low CO2)
Financial metrics
Net Present Value (NPV)
– The present value of an investment's future net
cash flows minus the initial investment.
Net Present Cost
– The negative value of the NPV
– Works better for energy saving projects as a larger
negative number shows greater savings
= Capital Cost + Operating Cost – Savings
(discounted over project lifetime)
Financial Metrics
Discount rate
– The interest rate used in determining the present value
of future cash flows, or
– Multiplier that converts anticipated returns from an
investment project to their present value.
– For the public sector this is usually 3.5% as set by UK
Treasury Green Book, 2008
Example
you expect £1,000 in one year's time.
To determine the present value of this (what it is
worth to you today) you would need to discount
it by a particular rate of interest.
Assuming a discount rate of 10%, the £1,000 in a
year's time would be the equivalent of £909.09 to
you today
(£1000/[1.00 + 0.10]).
Net Present Cost examples
Option A
Discount rate (r )
Year (n)
factor [=1/(1+r)^n]
Capex
Opex
Savings
Net cash flow
Discounted cash flow
Option B
Discount rate (r )
Year (n)
factor [=1/(1+r)^n]
Capex
Opex
Savings
Net cash flow
Discounted cash flow
factor [=1/(1+r)^n]
3.5%
0
1.00
9,000
9,000
9,000
1
0.97
2
0.93
3
0.90
4
0.87
5
0.84
-3,000
-3,000
-2,899
-3,000
-3,000
-2,801
-3,000
-3,000
-2,706
-3,000
-3,000
-2,614
-3,000
-3,000
-2,526
1
0.97
2
0.93
3
0.90
4
0.87
5
0.84
-1,500
-1,500
-1,449
-1,500
-1,500
-1,400
-1,500
-1,500
-1,353
-1,500
-1,500
-1,307
-1,500
-1,500
-1,263
-4,545
Net Present Cost
3.5%
0
1.00
9,000
9,000
9,000
2,227
Net Present Cost
Other rates in the CMPR
Inflation rate
– 3.1% (Consumer Prices Index, CPI – July 10)
– Use an appropriate rate to reflect rising energy
costs, not just overall inflation
‘Persistence’ rate
– How quickly the opportunities’ energy savings
degrade over time .
– E.g. a draught proofing project saves 1,000 kgCO2
in year 1, but thereafter saves 3% less each year
due to deterioration. So year 2 will save 970
kgCO2
Amending the rates in the
CMPR
Cost effectiveness ratio
(£/tonne CO2)
Cost effectiveness ratio (£/tonne CO2)
=
Net Present Cost
Lifetime CO2 Savings
Best output
Large negative number
Worst output
Large positive number
=
-£
↑CO2
Cost effectiveness ratio
Project
Secondary glazing Offices
Capex
Opex
£ Savings
(gross)
Cost effectiveness
ratio(£/tonne CO2)
£450,000
£8,010
£248.40
£90,000
£24,440
-£115.92
Cavity wall insulation Research Centre
£100,000
£15,000
-£79.05
Upgrade to condensing
boilers - Swimming pool
hall
£200,000
£22,291
-£63.81
Voltage optimisation Block A
Video and web
conferencing
Automatic Meter Reading
Lighting upgrades Residential Hall A
£9,000
£2,049
£6,058
-£134.64
£90,000
£28,545
£123,484
-£102.42
£90,000
-£148.59
£100,000
Understanding Financial
Metrics
Internal Rate of Return (IRR)
– The discount rate often used in capital budgeting that
makes the net present value of all cash flows from a
particular project equal to zero.
– The higher a project's IRR the more desirable it is to
undertake the project.
– IRR can be used to rank several prospective projects
being considering.
Break
Agenda
Session 1: Introduction and context
– Timeline
– Where are we now?
– HEFCE Guide
– The Carbon Management Plan (CMP)
– Estimating Capital Cost of Projects
– Understanding Financial and Carbon Metrics
Session 2: Prioritising and the CMPR
– Getting to Grips with the CMPR
– Prioritising Projects Using Combined Carbon &
Financial Metrics
– Recap Progress Against Target
– Next steps
Getting to grips with the Carbon
Management projects Register
(CMPR)
CMPR flowchart
Import baseline
Initial analysis
Check cost
estimates
Complete Project
List
Review payback
graphic
Review
Reduction
Plan
Advanced analysis
Review MACC
Review
summary
page and
CMP outputs
Initial analysis
Advanced Analysis
Prioritising Projects Using Combined
Carbon & Financial Metrics
CMPR flowchart
Import baseline
Initial analysis
Check cost
estimates
Complete Project
List
Review payback
graphic
Review
Reduction
Plan
Advanced analysis
Review MACC
Review
summary
page and
CMP outputs
Sort by Payback
Payback
10.00
9.00
Implement
9.11
8.55
8.09
7.58
8.00
6.82
Payback
7.00
6.00
5.10
4.69
5.00
4.00
2.69
3.00
2.00
1.85
1.85
2.05
37
31
41
2.98
3.03
17
14
3.58
3.70
40
33
3.98
4.05
27
29
4.28
1.16
1.00
0.50
0.61
46
26
0.07
16
45
28
Project Ref. Num ber
13
35
39
36
15
44
42
32
Marginal Abatement Cost Curve
(MACC)
Marginal Abatement Cost Curve for top 100 opportunities
2500
2
Implement
2000
16
14
10
8
13
3
18
£-
-£100.00
1500
12
-£200.00
1000
9
-£300.00
-£400.00
Cost effectiveness ratio (£/tonne
CO2)
500
Cumulative CO2 Savings
(tonnes)
-£500.00
0
Project reference
Cumulative C0 2 Savings
5
7
6
15
11
20
1
4
19
17
£100.00
12
Cost effectiveness
Net Specific Cost ratio
£/tC0 2 £/tCO2
£200.00
Exercise 2
Draw a MACC
Project
Secondary glazing Offices
Cost effectiveness
CO2 savings in yr
ratio(£/tonne CO2) 1 (tonnes)
£248.40
54.5
-£115.92
133.0
Cavity wall insulation Research Centre
-£79.05
102.1
Upgrade to condensing
boilers - Swimming pool
hall
-£63.81
151.7
Video and web
conferencing
-£134.64
14.6
Automatic Meter Reading
-£102.42
753.8
Lighting upgrades Residential Hall A
-£148.59
489.8
Voltage optimisation Block A
Something like this…..
1800
£250.00
1600
1
£200.00
£150.00
1400
1200
£100.00
1000
£50.00
800
6
2
7
5
-£100.00
3
-£50.00
4
£-
600
400
Cumulative C0 2 Savings
£300.00
7
Cost Effectiveness Ratio
£/tC02
Marginal Abatement Cost Curve for top 100 opportunities
200
Cost effectiveness ratio (£/tonne
CO2)
0
-£150.00
-£200.00
Project reference
Cumulative CO2 Savings
(tonnes)
Recap progress against target
CMPR flowchart
Import baseline
Initial analysis
Check cost
estimates
Complete Project
List
Review payback
graphic
Review
Reduction
Plan
Advanced analysis
Review MACC
Review
summary
page and
CMP outputs
The Quantification Process Map
Check Progress
Is there a
short fall?
No
Consider Increasing
Target
Yes
Do you have
opportunities
to quantify?
Yes
Quantify Highest
Priority Opportunity
No
Generate More Ideas
Project Maturity
What stage are your projects at now?
– RAP Tool Estimates?
– Quantified energy?
– Etc…
80% or more
Reduction plan
Carbon progress against target
35,000
30,000
25,000
20,000
15,000
10,000
5,000
Financial progress
2008
2009
2010
2011
2012
2013
2014
£8,000,000
£6,000,000
Predicted Business as Usual Emissions
£4,000,000
Year
Target Emissions
£2,000,000
Emissions in chosen plan
£-£2,000,000
2008
2009
2010
2011
2012
2013
2014
-£4,000,000
Capex for year
Total net cost savings for this year (Incl OpEx)
Cumulative net present cost
Next steps
Linking to the CMP
‘CMP outputs’ tab
Cost
Ref
Project
Secondary glazing 1 Offices
Lead
Annual Savings (yr 1)
Financial
(Gross)
tCO2
Pay back (yrs)
Net Present
Cost(£)
% of Target
Implementation
Year
£450,000
£8,010
54.5 tCO2
does not
payback
£300,854
0.72%
2012
Capital
Operational
Voltage optimisation 2 Block A
Cavity wall insulation 3 Research Centre
£90,000
£24,440
133. tCO2
3.7
-£215,756
1.76%
2009
£100,000
£15,000
102.1 tCO2
6.7
-£179,300
1.35%
2010
Upgrade to condensing
boilers - Swimming pool
4 hall
£200,000
£22,291
151.7 tCO2
9.0
-£215,061
2.00%
2013
Video and web
5 conferencing
6 Automatic Meter Reading
Lighting upgrades 7 Residential Hall A
£9,000
£2,049
£6,058
14.6 tCO2
2.2
-£9,625
0.19%
2010
£90,000
£28,545
£123,484
753.8 tCO2
0.9
-£738,249
9.96%
2010
£90,000
489.8 tCO2
1.1
-£695,825
6.47%
2012
£100,000
Project Definition Template
‘Appendix B’
Project:
Reference:
A short name for the project
It would help the Carbon Trust if you also use the following reference:
LA7-[first three letters of your authority]–[sequence number, e.g. 001]
but you may choose to use a unique reference of your own.
Owner (person)
Name of the person responsible for delivering the project
Department
Which part of the organisation the project sits within
Description
A short description of the project, no more than a paragraph

Financial savings: £ [x]

Payback period: [x] years

CO2 Emissions reduction: [x] tonnes of CO2

% of target – the percentage of your CO2 saving target will this project
annually contribute

Give an idea of how confident these estimates are, eg 1st pass using
rules of thumb, costed by suppliers etc.

Project cost, e.g. the initial cost of implementing the project

Operational costs, e.g. annual maintenance or running costs

Source of funding: internal, external, investment criteria to be met etc.

Say how /when decision on funding will be made

Additional resource (e.g. people) requirements to enable delivery and
where these will come from

If this project will be delivered within current resources, say so

Key success factors, or things that will need to happen for this project to
succeed

Principal risks: technical, financial (eg what happens if the project is
insufficiently resourced), etc.
Measuring
Success

Metrics for displaying performance or achievement

When success will be measured / evaluated
Timing

Benefits
Funding
Resources
Ensuring
Success
Notes
Milestones / key dates e.g.
o start date: dd/mm/yyyy
o completion date (when it will deliver savings): dd/mm/yyyy
o interim deliverable / decision points
[you could also lay these out as a milestone chart for ease and clarity]
Thank you