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Analysis of a Geothermal Heat Pump

# Analysis of a Geothermal Heat Pump

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Published by: Brendan Cassidy on Apr 23, 2012

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09/20/2013

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Brendan Cassidy
October 4, 2011EBF 304W Project 1
The Analysis of the Ford Building and a Geothermal Heat Pump

Executive Summary
The Ford Building at Penn State University looks to install a geothermal heat pump forheating and cooling purposes. However, it needs to be determined just how much thisinvestment will cost, how much electricity and money it will save, and whether or not thisproject represents an economically feasible venture for the future. In determining thesequestions, this report analyzes the data and weighs the costs and benefits of this project.Finding out exactly how much electricity the Ford Building consumes for heating andcooling signifies importance, as determined by finding an average baseline of monthly electricity
costs during the months that don’t require cooling (high consumption during the summer showsthat the Ford Building doesn’t use electric heat).
Subtracting this baseline from the highestconsumption determines what ton capacity system will support cooling in the Ford Building,establishing the total costs of installation and drilling. With savings calculated at 25% and 50%reduction rates, the average annual savings for both reduction scenarios are now established, thusused to determine the net present value, unit technical costs, and internal rates of return.With an interest rate of 4%, technical costs equal \$0.51/kWh and \$0.26/kWh, net presentvalues equal -\$380,453 and -\$343,392, and internal rates of return equal -18% and -14%,respectively at 25% and 50%. Both unit technical costs exceed the original cost of electricity of \$0.067/kWh, and all net present values and internal rates of return represent negative outcomes.Assuming a 20-year life, and based on the values found in this analysis, this projectshould not be undertaken. Unit technical costs exceeding the cost for electricity demonstrate theunwarranted expenses the Ford Building will face. Also, the negative net present values andinternal rates of return denote a nonexistent payback period. In other words, the heat pump willnot pay itself off in 20 years.

Many buildings on college campuses these days strive to find new ways in increasingenergy efficiency, and the Ford Building at Pennsylvania State University is no exception. TheFord Building looks to install a geothermal heat pump as a means for saving money on electricitybills as well as electricity consumed for heating and cooling. Due to the costly nature of installing geothermal heat pumps,
data regarding the Ford Building’s electricity consumption
needs analyzing in order to determine whether or not the Ford Building can financially support a
project such as this one, by denoting this project’s unit technical costs, net present values, and
internal rates of return.The consumption of electricity for the Ford Building has been collected as a starting pointfor this analysis. Graph 1 denotes the cost of electricity consumption for the Ford Building,
determined by multiplying the building’s cost of electricity of \$0.067/kWh by the building’s
monthly electricity consumption in kWh. The graph shows that the highest consumption occursduring the summer and the lowest during the fall, winter, and spring months. Therefore, the FordBuilding does not use any of its energy consumption for heating.
Graph 1
(note: the first month listed begins in March)

0100020003000400050006000700080001 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
C   o   s   t   o    f   E    l   e   c   t   r   i   c   i   t   y
Months
Cost of Electricity Consumption
Cost per month

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