Whole life cost analysis & commercial boiler payback

Whole life costs of a commercial heating system

We look at the importance of reviewing both the operational and capital costs of a commercial heating project.

The UK Government made a commitment to cut Britain’s greenhouse gas emissions by 80% (from 1990 baseline) by 2050. The UK has made significant progress on carbon emissions which have fallen by 42% from 1990 to 2016. Energy demand has also broken away from growth in GDP (energy demand usually increases with GDP). However, we are currently not set to meet the fourth (2023-27) and fifth (2028-32) carbon budget even with all EU legislation considered.

To help the UK achieve these targets and reduce carbon emissions we need to educate people to make informed decisions.  With commercial sector buildings being responsible for 10% of the UK’s greenhouse gas emissions, we need to see what can be done to improve the efficiency of heating and hot water equipment.

Where are we now?

There is a large installed base of atmospheric boilers in the field that needs replacing. The use of atmospheric boilers is declining and the efficiency criteria set out in the Building Regulations Part L 2013 and the Energy related Products Directive (ErP) will effectively wipe out the use of atmospheric boilers, firstly in new build and then in existing buildings.

There is no getting away from the fact that more efficient products such as condensing boilers are going to cost more than atmospheric boilers – in both the capital and installation costs. This often sways the product choice towards atmospheric boilers. But that view is very short term.

Short term cost vs long term value

No longer can we solely focus on the acquisition cost of a product but instead need to review the economics over the lifetime. This means considering both the capital and operational costs of the system. 

The Government backs this principle with their Government Soft Landings Framework and the introduction of PAS 1192-3, a BIM specification that focuses on the information management requirements during the operational phase of assets. It recognises that operating and maintaining buildings can represent a large percentage of the whole life costs and operational savings can pay back any upfront premium in construction expenses in just a few years.

An EU Directive on Public Procurement came into force in the UK in 2016 that saw public sector organisations choosing the ‘most economically advantageous tender’. This is identified on the basis of the price or cost, using a cost-effectiveness approach, such as life-cycle, and may include the best price-quality ratio.

The long-term energy savings and financial rewards that can be reaped from upgrading to condensing boilers speak for themselves.

  • Energy costs (in particular gas) account for the highest proportion over the life of both products - typically 90-95%.
  • Over the life of the boiler plant you could see a 35% saving in gas consumption – £220,000.
  • Taking into account the initial outlay for condensing boilers, a saving of more than £200,000 can still be gained over the life of the boiler - an annual saving of approximately £8,000.
  • As a result of reducing the gas consumption there will be an associated reduction in carbon emissions – 35%. 
  • Newer condensing boilers can provide up to 80% reduction in NOx emissions over atmospheric boilers, and are more likely to comply with the NOx level stipulated in ErP Sept 2015 (levels to be at less than 56 mg/kWhr).

Further improvements

The example is a direct system comparison and hasn’t factored in any improvements to the system. There may be the opportunity to integrate renewable energy products such as biomass boilers or combined heat and power plant.

Looking beyond the gas boiler to the whole system and building could result in even more efficiency gains and reductions in energy use.

Although incentives for renewables and energy efficient products may seem attractive, we at Hamworthy have always advocated that projects need to be financially viable in their own right. Government grants and incentives should be seen as a bonus – not relied on to justify the business case. The example proves that real, substantial savings can be made without extra incentives.