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Energy Management

Energy Management

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Published by api-73110676
Energy Conservation & Management
Energy Conservation & Management

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Published by: api-73110676 on May 12, 2011
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11/14/2013

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 The definition of IRR is the annualized effective compounded return rate which canbe earned on the invested capital, i.e. the yield on the investment. The internal rateof return (IRR) is a rate of return used in capital budgeting to measure and comparethe profitability of investments. It is also called the discounted cash flow rate of return (DCFROR) or simply the rate of return (ROR). In the context of savings andloans the IRR is also called the effective interest rate. The term internal refers to thefact that its calculation does not incorporate environmental factors (e.g., the interestrate or inflation).
Definition
Showing the position of the IRR on the graph of NPV(
) (
is labelled 'i' in the graph) The internal rate of return on an investment or project is the "annualized effectivecompounded return rate" or discount rate that makes thenet present value(NPV) of all cash flows (both positive and negative) from a particular investment equal tozero.In more specific terms, the IRR of an investment is theinterest rateat which thenet present valueof costs (negative cash flows) of the investment equals thenetpresent valueof the benefits (positive cash flows) of the investment.Internal rates of return are commonly used to evaluate the desirability of investments or projects. The higher a project's internal rate of return, the moredesirable it is to undertake the project. Assuming all projects require the sameamount of up-front investment, the project with the highest IRR would be consideredthe best and undertaken first.A firm (or individual) should, in theory, undertake all projects or investmentsavailable with IRRs that exceed the cost of capital. Investment may be limited byavailability of funds to the firm and/or by the firm's capacity or ability to managenumerous projects.
Uses
Because the internal rate of return is aratequantity, it is an indicator of theefficiency, quality, oryieldof an investment. This is in contrast with the net presentvalue, which is an indicator of the value ormagnitudeof an investment.An investment is considered acceptable if its internal rate of return is greater thanan establishedminimum acceptable rate of returnorcost of capital. In a scenario where an investment is considered by a firm that hasequity holders, this minimumrate is thecost of capitalof the investment (which may be determined by the risk-adjusted cost of capital of alternative investments). This ensures that theinvestment is supported by equity holders since, in general, an investment whoseIRR exceeds its cost of capital addsvaluefor the company (i.e., it is economicallyprofitable
 
What is 'life-cycle costing'? The purchase price of a good or service is just one of the cost elements in the wholeprocess of procuring, owning and disposing. However, when evaluating
theenvironmental performance
of such a good or service, it is vital to consider all thecosts incurred during its lifetime. This is known as the ‘life-cycle costing’ approach.Life-cycle costing should consider:purchase and all associated costs (delivery, installation, commissioning, etc.)operating costs, including energy, spares, and maintenanceend-of-life costs, such as decommissioning and removal These costs should be factored in at the awarding stage.
Benefits of the life-cycle approach
All costs associated with a good or service become visible, especiallyoperating costs such as maintenance or energy consumption;
It allows an analysis of business function interrelationships. Low purchasingcosts may lead to high service costs in the future;
Expenditures in various stages of the life cycle are highlighted, enabling publicauthorities to draw up budgetary predictions.Life cycle analysis There are different types of life-cycle analyses that can be done. The emergingscience of environmental full life-cycle analyses or cradle-to-grave, frommanufacture (‘cradle’) to use phase and disposal phase (‘grave’), are being done . This type of assessment helps us make more informed decisions through a betterunderstanding of the human health and environmental impacts of products,processes, and activities.What is 'life-cycle costing'? The purchase price of a good or service is just one of the cost elements in the wholeprocess of procuring, owning and disposing. However, when evaluating
theenvironmental performance
of such a good or service, it is vital to consider all thecosts incurred during its lifetime. This is known as the ‘life-cycle costing’ approach.Life-cycle costing should consider:
purchase and all associated costs (delivery, installation, commissioning, etc.)
operating costs, including energy, spares, and maintenance
end-of-life costs, such as decommissioning and removal These costs should be factored in at the awarding stage.
Benefits of the life-cycle approach
All costs associated with a good or service become visible, especiallyoperating costs such as maintenance or energy consumption;
It allows an analysis of business function interrelationships. Low purchasingcosts may lead to high service costs in the future;
 
Expenditures in various stages of the life cycle are highlighted, enabling publicauthorities to draw up budgetary predictions.
LIFE-CYCLE COSTING STUDY.
 The up-front costs of any purchase represent only asmall proportion of the total cost of ownership. The cost of ownership of an item orservice is incurred throughout its whole life and does not all occur at the point of acquisition. A purchasing decision normally commits us to over 95 per cent of thethrough-life costs. There is very little scope to change the cost of ownership afterthe item has been delivered. Furthermore, recurring costs can increase with timefor example through increased maintenance costs as the item ages. we started witha comparison of a life-cycle cost analysis for LED bulbs in low voltage landscapelighting compared to the standard halogen bulbs. We analyzed a system we wereabout to install which comprised quite a few lights, more than our average system,although the conclusions would not change with less lights.
THERE ARE FOUR VARIABLES
that go into calculating the life cycle cost with LEDlights:savings in electricity coststhe cost of maintenance being lowered because the bulbs last much longer anddon’t have to be changed every yearthe savings in bulb costssavings by using a smaller transformer as the electricity draw is less
Least cost planning methodology
(LCPM), also referred to as "least costplanning" (LCP) is a relatively new technique used byeconomistsfor making rationaldecisions about investments intransportationand other urban infrastructureprojects.It is based oncost-benefit analysis. However, it is more comprehensive in that itlooks at not only the total costs and total benefits for an individual project, but italso examines the total costs and benefits for all alternatives or combinationsthereof and treats them on an "equal footing." These alternatives include not onlyconstruction projects but also demand reduction measures, such asroad pricing,developing more walkable neighborhoods and promotingtelecommuting.Equal footing means that there is no discrimination against some alternatives basedon political or ideological factors.LCPM itself is generally more costly than cost-benefit analysis, because of therequirement to study objectively all potential alternatives. However, it can providelarge savings to taxpayers because it will do a better job of selecting those projectswhich maximize benefits while minimizing costs.
3.3. Least-cost supply mix 
 The purpose of selecting a ‘‘least-cost’’ mix of energysupplyoptions is to attain the energy-demand goal at theminimum cost. objective function would be the total cost of the supply of energy and one would have to minimizethis, subject to the constraints that the total energy obtainable

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