State University of New York Polytechnic Institute
OP-16: Life Cycle Cost Analysis

LCCA Policies: Executive Order 88 Guidelines require that life cycle cost analysis is an assessment tools used to evaluate whether a particular energy conservation measure or an energy-related capital project should be implemented. When deciding between multiple project alternatives, the alternative with the overall lowest life cycle cost should be the one selected. The following language is included in the Executive Order 88 Guidelines: EO88 Guidelines Page 12: Although typically not required for ASHRAE Level 2 energy audits, “cost-effective” measures will be determined using Life Cycle Cost Analysis (“LCCA”). A portfolio may include, but shall not be limited to, no-cost and low-cost operational improvements, retro-commissioning, capital energy efficiency retrofits, on-site renewable and high-efficiency combined heat and power, and other measures identified by the CMIT. 1. How are "required capital projects" defined? (EO88 Guidelines Page 14) Any energy efficiency measure, or combination of energy efficiency measures, which result from an energy audit, and are deemed “cost-effective” shall be considered a required capital project. State Entities shall complete, or make substantial progress toward completion, any cost-effective measures identified during an energy audit or similar study within two years of the study’s completion. Cost-effectiveness shall be determined by a Life Cycle Cost Analysis (“LCCA”). Specific parameters for the LCCA account for: • Initial Costs—Purchase, Acquisition, Construction Costs • Fuel Costs • Documented Operation, Maintenance, and Repair Costs • Replacement Costs • Residual Values—Resale or Salvage Values or Disposal Costs • Finance Charges—Loan Interest Payments Appendix D - Determining Project Cost-Effectiveness (EO 88 Guidelines Page 32): Executive Order 88 explicitly requires that buildings with low benchmark scores must undergo an ASHRAE Level 2 energy audit. State Entities must then implement a cost-effective portfolio of measures and complete or make substantial progress toward completion of such measures within two years of the audit.1 For the purposes of EO 88, a project shall be considered cost-effective if the calculated. Savings-to-Investment Ratio (“SIR”) is greater than or equal to 1.20. Additionally, when evaluating multiple, mutually exclusive alternatives, the alternative with the lowest life-cycle cost (“LCC”) is considered the most cost-effective and should be selected for installation. Life Cycle -Cost Analysis Overview (EO 88 Guidelines Page 32): Life-Cycle Cost Analysis (“LCCA”) evaluates the costs and savings that occur from owning, operating, maintaining, replacing, and disposing of an efficiency measure over its lifetime. This method typically discounts costs and savings to reflect the time value of money. Because it accounts for all costs and savings over the full life-cycle of the measure, LCCA provides the most accurate assessment of a project’s long-term cost-effectiveness. Applying LCCA ensures that State Entities maximize savings opportunities and will ultimately help achieve the goals of EO 88. LCCA Practices: Facilities staff and other partners regularly incorporate life cycle cost analysis into day to day practice, especially in energy conservation measures. For example, facilities staff and building design consultants incorporate LCCA when evaluating fluorescent vs. LED bulbs in new construction and major renovation projects. The extent that LCCA is used as a matter of policy and practice throughout the entire institution is unknown.