[PDF] [PDF] Best Practices: Escalation Rates

[PDF] Best Practices: Escalation Rates

3 nov 2015 · Energy Escalation Rate Calculator (EERC) • EERC reflects forecasts (for energy prices and inflation) of government experts • Recommended 

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Best Practices

Escalation Rates

Hosted by:

FEDERAL UTILITY PARTNERSHIP WORKING

GROUP SEMINAR

November 3

4, 2015

Houston, TX

Federal Utility Partnership Working Group November 3-4,

2015 Houston, TX

Federal Utility Partnership Working Group November 3-4,

2015 Houston, TX

Best Practices: Escalation Rate

Value of future energy savings

Provides purchasing power for implementing a robust, comprehensive and customized ECM set Provides an option for paying back financing in the shortest possible time Federal Utility Partnership Working Group November 3-4,

2015 Houston, TX

Best Practices: Escalation Rate

Cautions:

Over-estimating future energy savings

Savings < Costs

Under-estimating the value of future energy savings may result in Cutting potential ECMs = exposure to higher future energy costs

Missing site objectives and goals

Longer payback term = greater interest costs

Federal Utility Partnership Working Group November 3-4,

2015 Houston, TX

These future savings can be used to buy more capital or payback financing faster! 6

Hypothetical Project #1

Year-1

Savings

Escalation

Rate

Payback

Term

FutureValue of Energy Savings

(Total payments potential) $1M0%20 years$ 20M $1M2%20 years$24.8M $1M2.5%20 years$26.2M 7

Hypothetical Project #2

InvestmentInterest

Rate

Escalation

Rate Years to pay off Total

Interest Paid

$10M6%1%15 Years$5.4M $10M6%4%12 years$4.6M

Increased escalation rate supports larger

payments, resulting in a shorter payback and lower interest paid

Best Practices: Escalation Rate

How can we capture the power of future energy costs to maximize the work we can get done today? Federal Utility Partnership Working Group November 3-4,

2015 Houston, TX

DOE's Energy Information Administration

(EIA) develops energy price forecasts

NIST uses EIA's forecasts in FEMP tools

Life-cycle cost

EERC, a calculator that provides average

escalations given project term and area of country 9

Escalation Rates -Source

Energy Escalation Rate Calculator (EERC)

EERC reflects forecasts (for energy prices and inflation) of government experts

Recommended by DOE FEMP

Used by Industry and Agencies

Has been proven accurate and eliminates lots of negotiation

Download EERC 2.0-15

Federal Utility Partnership Working Group November 3-4,

2015 Houston, TX

͞Use the tool͊"

Federal Utility Partnership Working Group November 3-4,

2015 Houston, TX

Low escalation rate

Benefit:

Ensure savings cover payments

Risk:

Leaǀe ͞future saǀings" on the table

Longest payback = highest interest costs

High escalation rate

Benefit:

more ͞future dollar saǀings" to spend on ECMs

Shortest payback term = lowest interest costs

Risk: over-estimated ͞future saǀings" won't coǀer costs of ECMs ͞Escalation Rates in Energy Saǀings Performance Contracts", by Philip Coleman, Energy Engineering, Vol. 112, No. 5 2015

Direct UESC Project Support:

service-contracts 12

For More Information and Assistance

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