A
Retain existing
Continue operating the current system.
- Initial upgrade cost
- $0
- HVAC electricity reduction
- 0% baseline
- Ten-year NPV
- $0 incremental baseline
Manhattan HVAC
modernization study.
Do lower operating costs justify a $5 million upgrade?
I linked HVAC electricity estimates to an Excel investment model, comparing three ways to serve the same cooling load over ten years.
- Building area
- 500,000 ft²
- Cooling capacity
- 1,200 tons
- Planning horizon
- 2027–2036
Three alternatives, one decision
Base case · USD · modeled resultsB
Full modernization
Replace chillers; upgrade plant and controls.
- Initial upgrade cost
- $5,000,000
- HVAC electricity reduction
- 37.7%
- Ten-year NPV
- −$1,754,620
C
Partial upgrade
FURTHER STUDYRebuild chillers; selectively improve equipment.
- Initial upgrade cost
- $1,669,000
- HVAC electricity reduction
- 15.7%
- Ten-year NPV
- +$68,531
Source: Executive Investment Summary; Summary!D8:F16. A still has operating and future capital costs. Savings are calculated from assumptions, not measured building performance.
01 / ENGINEERING & METHODOLOGY
From cooling load to electricity savings.
The alternatives provide the same assumed cooling service. Equipment performance and control assumptions change the electricity needed to deliver it.
How I built the engineering case
- 01
Establish the baseline
Two assumed 600-ton water-cooled chillers, with a shared load profile and separate auxiliary schedules.
- 02
Model equipment electricity
Four chiller load bins plus fan, pump and cooling-tower power estimates.
- 03
Link the operating costs
Apply an illustrative $0.20/kWh tariff, maintenance reductions and recurring analytics costs.
Engineering insight
Fans, pumps and tower fans deliver 75.5% of C’s modeled electricity savings. Chiller efficiency alone cannot validate the proposal.
Where electricity is used
BASE INPUTSChillersFansPumpsTowerOther electricity
Exact electricity values & source
| Component | A Existing | B Full | C Partial |
|---|
Energy!F13:H22; Assumptions!E14. Other electricity is 6,000,000 kWh/year, unchanged. Gas is unchanged and excluded.
Explore the HVAC system & upgrade scopeConceptual schematic and component explanationsENGINEERING DETAIL
Select a component. B replaces chillers and makes broader upgrades; C retains and rebuilds chillers with selective improvements. Both refurbish cooling-tower equipment.
BAS + sensorsSchedules · staging · resets · drive commands
Heat to outdoor air ↑
↑↓ Condenser water
↑↓ Chilled water
↓ Supply air ↑ Return air
Office spaces Heat + moisture
COMPONENT EXPLORER
Adapted from Engineering Analysis, pp. 1–3. Conceptual, not a construction drawing. Water circuits do not mix; the combined pump allowance is counted once. BAS functions are proposed concepts.
Open the full engineering report →Review the equations & operating assumptionsLoad bins, auxiliary power and the savings bridge
Chiller load-bin calculation
tons × load fraction × hours × kW/ton = kWh
The four bins total 1,950,000 ton-hours over 3,000 operating hours: 1,625 equivalent full-load hours.
| Load | Hours | A kW/ton | B | C |
|---|---|---|---|---|
| 25% | 750 | 0.95 | 0.50 | 0.84 |
| 50% | 1,250 | 0.80 | 0.48 | 0.73 |
| 75% | 750 | 0.75 | 0.52 | 0.70 |
| 100% | 250 | 0.72 | 0.585 | 0.70 |
Assumptions!C33:G36. These project bins are not an AHRI IPLV rating. Chiller staging and curves require site evidence.
Auxiliary electricity
rated kW × power fraction × annual hours = kWh
B’s fans: 350 × 0.48 × 3,600 = 604,800 kWh/year. The fraction represents average electrical power, not motor speed.
Year 1 pretax operating savings
- B · Electricity + maintenance − analytics
- $229,440 + $195,000 − $25,000 = $399,440
- C · Electricity + maintenance − analytics
- $95,400 + $110,000 − $15,000 = $190,400
Engineering Analysis, pp. 4–6; Energy!F24:H29. $0.20/kWh is illustrative. Owner retention is 100%; no separate demand-charge savings are added.
02 / FINANCIAL ANALYSIS
Compare value, not energy savings alone.
I connected the equipment estimates to capital budgets, tax schedules and dated after-tax cash flows. NPV measures the value created relative to retaining the existing system.
Base case8.5% discount rate · ten operating years · USD
Inspect the Excel modelOn small screens, monetary amounts are rounded to millions ($m).
| Investment measure | A Existing | B Full | C Partial |
|---|---|---|---|
| Initial capital | $0 | $5,000,000 | $1,669,000 |
| Annual operating savings Year 1 · pretax | $0 | $399,440 | $190,400 |
| Net present value Primary decision measure | $0 | −$1,754,620 | +$68,531 |
| Internal rate of return Dated XIRR | n/a | −0.38% | 9.44% |
| Simple payback Interpolated · after-tax | n/a | Not within 10 years | 6.51 years |
| Discounted payback Interpolated · at 8.5% | n/a | Not within 10 years | 9.12 years |
B requires $3.331 million more capital than C. Its additional benefits do not earn enough discounted value in the ten-year window. C leads, but its financial cushion is narrow.
Summary!D8:F16; Cash Flow!E89:F94. A’s $0 NPV is an incremental reference, not zero lifetime cost. Payback includes avoided future capital; it is not initial cost divided by first-year savings. C first recovers at Years 7 / 10 with strictly year-end receipts.
Follow the cash-flow recoveryAnnual cash flows and discounted versus undiscounted recovery
Cumulative cash flow
Base case · incremental after-tax cash flow · USD millions
B FullC Partial
Cash Flow!D54:N54, D76:N76; Summary!C51:E61. Year 0 is Dec 31, 2026. Jumps reflect avoided A capital work in Years 3 / 7. C’s Year 5 capital work delays recovery. Terminal value is excluded.
Exact annual cash-flow values
| Year-end | B Full | C Partial |
|---|
Review the capital budgetOriginal itemized planning allowances and contingency
The budgets reconcile, but no contractor quotations establish their accuracy. Contingency is 10% of real-property items and is assumed fully spent.
| Budget item | B Full | C Partial |
|---|
03 / SCENARIOS & INVESTMENT RISKS
Does the result hold when assumptions change?
C leads in the base and optimistic cases. In the downside case, both upgrades have negative NPV. These scenarios test assumptions; they are not probability forecasts.
Ten-year net present value
USD millionsBASE SCENARIO
Scenarios!D8:G10. Each case changes price, savings, initial cost and the discount rate together. A has zero incremental NPV but still incurs operating and future capital costs.
What needs evidence before funding?
Calculation consistency is established by the project’s validation work. Building performance and owner economics remain unverified.
Existing condition & future capital
Avoided repair and replacement spending materially supports the returns. Confirm equipment condition, service records and the baseline capital plan.
Installed cost & scope
A roughly 4.32% increase in C’s initial cost erases its positive base NPV, other inputs fixed. Obtain comparable bids and clear inclusions.
Delivered savings & owner benefit
Measure energy use and substantiate maintenance savings. Verify the avoided tariff, who retains savings, and owner-specific tax treatment.
Test C’s cost and electricity priceInteractive sensitivity analysis · other inputs held at baseEXPLORE THE MARGIN
80% of base160% of base
$0.12/kWh$0.28/kWh
C / HYPOTHETICAL TEN-YEAR NPV
+$68,531- Break-even cost at base tariff
- $1,741,161
- Break-even tariff at base cost
- $0.1724/kWh
Scenarios!D40:G40. Initial tax basis scales with initial cost; future capital schedules stay fixed. This sensitivity changes two inputs, not the entire financial scenario.
Full cost × price sensitivity grid
| Cost × / $/kWh | $0.12 | $0.16 | $0.20 | $0.24 | $0.28 |
|---|
Review the evidence gaps & model boundariesRisk diagnostics, validation history, tax and emissions scope
Evidence priorities
- Baseline capital: removing A’s two future capital events and their depreciation takes C’s base NPV to −$950,575 in the report’s severe diagnostic.
- Owner benefit: retaining only 50% of net operating savings takes C’s NPV to −$426,932.
- Delivered savings: 70% energy realization gives C NPV of −$80,421; separately, 60% maintenance realization gives −$160,465.
Assumptions Validation, pp. 8–9. Each diagnostic holds other inputs fixed. These are not proposed changes to the baseline.
What the model does not establish
- No survey, equipment measurements, contractor bids or owner tax determination validate the inputs.
- The ten-year horizon excludes terminal service value and later tax benefits, especially relevant to B. Financing, incentives and avoided carbon penalties are excluded.
- Tax is illustrative: 28%, immediate deduction use, 39-year real property and five-year computer MACRS; no bonus or Section 179 deduction is assumed.
- The LL97 screen leaves all alternatives above the modeled 2030 limit, omits 2035–2036, and is not a compliance determination. Gas consumption is unchanged.
Validated calculations ≠ verified performance.
The supplied Step 3 report documents 94 independent comparisons. Step 2 records control corrections to the original model. Those are historical project checks; they do not establish site savings or investment readiness.
Read the assumptions validation →04 / INVESTMENT RECOMMENDATION
Advance C for further evaluation.
Verify the case before committing capital.
Partial upgrade offers the strongest base-case NPV and uses less capital. Its small surplus and late discounted recovery leave limited room for error.
Why C merits further study
Better ten-year value. B’s additional $3.331m is not justified by the modeled incremental benefits.
A modest return, not a robust approval case. C’s 9.44% XIRR barely exceeds the 8.5% discount rate; discounted payback is 9.12 years.
This independent hypothetical study supports further investigation. It does not approve either upgrade or establish lifetime performance beyond the ten-year planning window.
05 / SKILLS & PROJECT DOCUMENTS
The analysis, with its working behind it.
Mechanical engineering and financial analysis in one workflow. Explore the core project files first; the research and audit trail remain available below.
HVAC electricity modelingExcel cash-flow analysisNPV & XIRRScenario & sensitivity testingSource evaluation
How I approached the full projectResearch → engineering → finance → recommendation
- Establish engineering assumptionsResearch equipment, reference rules and the hypothetical operating profile.
- Model HVAC electricityUse load bins and auxiliary power allowances with consistent units.
- Estimate capital and operating costsReconcile itemized budgets, contingency and recurring savings.
- Build the Excel financial analysisLink depreciation, tax and dated incremental after-tax cash flows.
- Compare the investment alternativesUse NPV, XIRR and interpolated payback over a shared horizon.
- Challenge assumptionsTest financial scenarios, sensitivities and evidence gaps.
- Recommend the next actionSeparate modeled attractiveness from an investment approval.