Facility managers and building owners have many options to consider when it comes to heating and cooling. In many U.S. cities, it’s common to compare the costs of installing and maintaining onsite natural gas boilers against connecting to a centralized system, like district energy.
To ensure you’re making the best energy decision to meet your business objectives, make sure to ask these three key questions:
- What are the lifecycle costs?
- What are my opportunity costs?
- Does this energy option align with our institutional objectives?
What are the lifecycle costs? How to calculate a lifecycle cost analysis
The most effective way to compare between onsite natural gas boilers and district energy is to conduct a lifecycle cost analysis.
What is an energy lifecycle cost analysis?
A lifecycle cost analysis provides the most comprehensive picture of the costs and benefits of potential energy options. This analysis considers many factors, including the equipment’s purchase price, financing costs, and operating and maintaining the equipment over time.
Which variables should I assess in a lifecycle cost analysis?
To get the full picture of the costs of onsite boilers versus district steam, it’s essential to evaluate the following variables:
1. Financing costs
Both natural gas plants and district energy connections typically require an up-front investment. The investment size will vary depending on the natural gas equipment and connection costs for district energy.
Typical investment costs for onsite natural gas boilers include:
- Costs of purchasing equipment
- Installation costs
- Any costs associated with modifying the building space to accommodate new equipment
- Loan and interest expenses, if necessary
2. Operations and maintenance (O&M) costs
There are always costs associated with owning, operating, and maintaining energy equipment. But what are operations and maintenance costs?
Operations and maintenance (O&M) costs typically refer to the costs associated with:
- Full-time staff or contractors to operate the system with the right licenses and certifications
- Ongoing maintenance costs, including replacement parts and future upgrades to keep the system running optimally
- Consumable materials
- Decommissioning costs
While upfront capital investment may be lower, natural gas plants tend to incur much higher operating costs, especially over time as systems age and more maintenance and repairs are needed.
Alternatively, district energy requires little to no O&M budgeting, as many district energy companies employ full-time staff that perform operations and maintenance services for customers.
3. Variable energy costs
While fuel costs are a factor for both district energy and an onsite natural gas plant, there are additional energy costs that help paint a full picture of variable energy costs.
- Supply and consumption costs: It’s critical to consider energy supply costs, the price of generating or purchasing electricity. These costs are market-driven and based on demand, so they can change frequently.
- Potential carbon taxes or fines: Installing an onsite boiler plant is often a long-term commitment, opening businesses up to the risk of carbon fines that could apply in the future.
- Rate structures: It’s vital to evaluate the rate structure associated with natural gas and district energy – whether they are firm, or interruptible, which can impact service.
- Flexibility: District energy companies can utilize more sustainable fuel sources, such as renewable resources, as an alternative to fossil fuels. This flexibility means that district energy systems can evolve and adapt to different fuel sources as new technologies emerge.
4. Fixed costs
The fixed costs associated with each option need to be carefully assessed. District energy companies tend typically charge a capacity rate, or a charge to reserve capacity on the system to ensure your load is uninterrupted.
Other fixed costs that should be incorporated are taxes and insurance, which can vary depending upon the option you are evaluating.
What are my opportunity costs?
Even if businesses have the capital on hand to finance new equipment, there are always opportunity costs with every investment decision, such as losing potential gain from other alternatives.
- Budget allocation: Investing in a new mechanical room needed for onsite boilers could mean leaving less budget to invest in your core operations, new technologies, upgrades, or expansions.
- Space: Typically, mechanical rooms, large chillers, boiler plants, and cooling towers take up a considerable amount of precious space within urban buildings that could otherwise be used for parking or amenities that would improve the tenant experience.
- Reliability: Evaluating the cost of a potential outage and downtime is vital in assessing which option to select to best meet your energy needs. Outages can impact your tenants’ safety, comfort, or the well-being of your patients.
Does this energy solution align with institutional objectives?
The last piece worth considering is the alignment of energy decisions with institutional objectives.
Safety objectives
It is also critical to consider how the energy decision will impact the safety of occupants. Opting for onsite natural gas boilers can potentially expose occupants to hazardous chemicals and fumes due to onsite combustion and mechanical equipment. Opting for a district energy service, on the other hand, eliminates the safety risk by generating thermal energy off site.
Sustainability objectives
Many companies and institutions today have sustainability and Science Based Targets initiative (SBTi) goals, and energy decisions can have a direct impact on these programs.
As organizations seek to reduce their carbon footprint, an energy infrastructure decision can be heavily influenced by expected emissions output.
While there are many factors to consider when making an energy decision – from incentive programs, opportunity costs, sustainability objectives and more – a lifecycle cost analysis ensures you are able to make an informed energy decision that meets your institution’s goals and objectives.
