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Energy Champion Training - PowerPoint Presentation

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Energy Champion Training - PPT Presentation

Energy Champion Training Module 102 Using the Cummins USIRR Financial Model with Energy amp Environment 2009 Cummins Inc All Rights Reserved USIRR with Energy and Environment Section The most current USIRR model is posted in the ID: 774024

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Energy Champion TrainingModule 10.2 Using the Cummins USIRR Financial Model with Energy & Environment © 2009 Cummins Inc. All Rights Reserved.

USIRR with Energy and Environment SectionThe most current USIRR model is posted in the Environmental Team RoomStandard form for all capital projects

Key Financial TermsSimple PaybackTotal investment / annual energy savings Rough estimate of investment riskDoes not measure long term value of the investmentIgnores the time value of money Net Present Value (NPV) Sum of the present values of all the adjusted cash flows, including initial outlay (expressed as a negative number) Factors in the time value of money Investment is financially worthwhile if NPV is greater than zero Internal Rate of Return (IRR)Percentage that describes the return on investment over a multiyear periodFactors in the time value of moneyInvestment is financially worthwhile if IRR is greater than 11%http://www.energystar.gov/index.cfm?c=business.EPA_BUM_CH3_InvestAnalysis#S_3_1 4/28/2014 Cummins Confidential 3

Example – Simple Payback4/28/2014 Cummins Confidential4

Example – NPV4/28/2014 Cummins Confidential 5

Example – IRR4/28/2014 Cummins Confidential 6

Energy investment financial criteriaAt Cummins, we use the following hurdles: NPV must be positive; andIRR 11% or greater (priority projects >20%); and Capital investment per annual metric ton CO 2 e reduction <$1000/mtCO 2 e (priority projects <$500 mtCO2e)

Example Project – Upgrade plant lightingReplace Metal Halide lighting with High Efficiency Fluorescent system, add motion sensors and ambient light controls on 25% of fixtures Benefits: Reduces energy usage, reduces waste heat load on building HVAC, and increases average lighting Project Specifics Capital Investment: $ 562,000Direct energy savings 2,170 MWh/yearMaintenance savings $35,079/yearReduction in waste heat 848,000 BTU/hourOne time disposal cost $25,000 Good or bad? Let’s do the analysis…

1. Enter Capital Investment InformationPlug in project name, capital investment and start date For lighting installations, we assume a 7 year life for tax depreciation, zero salvage valueEnter whole dollarsAny field in gray is open for user input

2. Enter Expense Information Enter incremental expense or difference in expense from baseSavings are entered as “negative expenses” The annual reduction in maintenance by the proposed projectEnergy & Environment automatically calculated from next section

3. Enter the Energy & Environment ImpactEnter the energy impact- In other words, what will change by the proposed project - In this case, reduced electrical usage of 2,170 MW/yr- Reduced waste heat of 848,000 BTUs/yr, which reduces the load on chillers assuming facility is air-conditioned. Facilities engineer or equipment supplier should provide value.

3. Enter the Energy & Environment Impact (cont.)Adjust energy cost assumptions, if neededShould be relatively uniform across the U.S. As with energy usage, be mindful of units!

4. Energy & GHG Impact Calculated Model calculates energy cost savings, GHG emissions increase / (reduction), and total environmental savings

Emissions are Automatically Calculated GHG footprint sensitive to the source of electrical power, all other energy sources based on combustion physics The approved 2012-2013 GHG factors by Cummins site are included on a second worksheet in the USIRR “Electricity Emission Factors” Project for FSP in Columbus IN, served by Duke Energy. Electricity produced by mix of coal and other fuels; the CO2 factor is 0.693

The “carbon intensity” of the local electrical generation makes a difference in the net GHG emissions. This number is site specific and is plugged into cell O48. These are included in the USIRR for easy reference in worksheet “Electricity Emission Factors”. Values should change only over longer periods corresponding to changes in the grid. Corporate Environment is responsible for updates.Approved GHG Emission Factor by Site - USIRR

5. NPV & IRR Calculated