Chiller Plant Retrofit Economics with Escalating Rates
A 180,000 ft² office tower has two 500-ton centrifugal chillers, one of which is 22 years old and uses R-11. The older chiller runs as lead because of a control quirk, consuming 0.72 kW/ton at design versus 0.55 for the newer unit. Annual chilled-water load is 4.2 million ton-hours. The owner is considering replacing the old chiller with a 500-ton magnetic-bearing unit at 0.42 kW/ton, installed cost $1.35 million, or a cheaper air-cooled screw chiller at 0.62 kW/ton for $850,000. Electricity is $0.11/kWh now, escalating 3%/yr. The owner uses a 9% discount rate over 20 years and requires a 10-year simple payback maximum. R-11 phase-out and refrigerant handling costs of $60,000 apply only to the existing unit if retained beyond year three.
1. Calculate annual energy savings for each replacement and evaluate both against the owner's 10-year simple payback screen.
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Baseline: the old chiller carries most of the load. Assume it serves 65% of the 4.2 million ton-hours = 2.73 million ton-hours at 0.72 kW/ton = 1,965,600 kWh. The newer unit serves 1.47 million ton-hours at 0.55 = 808,500 kWh. Total ~2,774,100 kWh.
Magnetic-bearing replacement: old unit at 0.42 kW/ton over 2.73 million ton-hours = 1,146,600 kWh. Savings = 819,000 kWh = $90,100/yr at $0.11. Simple payback = 1,350,000 / 90,100 = 15.0 yr - fails the 10-year screen.
Air-cooled screw: old unit at 0.62 = 1,692,600 kWh. Savings = 273,000 kWh = $30,000/yr. Payback = 850,000 / 30,000 = 28 yr - far worse.
The magnetic unit is clearly the better machine but fails the screen on simple payback. This is where simple payback misleads: it ignores the 20-year life and 3% escalation. A levelized or NPV view would show the magnetic unit's savings rising to roughly $160,000/yr by year 20, and its NPV over 20 years at 9% is strongly positive. Recommend presenting life-cycle cost and proposing a staged or financed approach rather than rejecting the efficient unit.
2. The owner asks whether to retain the R-11 chiller three more years. What factors beyond the $60,000 handling cost should drive the decision?
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The $60,000 is a sunk-future cost only if the unit is kept past year three; retiring it now avoids it. Beyond that: (1) reliability - a 22-year-old R-11 machine has rising failure risk, and a mid-summer failure forces emergency rental or lost rent; (2) refrigerant - R-11 is ozone-depleting and production is banned, so a leak means scarce, expensive reclaimed refrigerant and possible regulatory exposure; (3) efficiency penalty - every year retained forgoes about $90,000 in savings, so deferral costs roughly $270,000 over three years before escalation; (4) the control quirk making the old unit lead should be fixed immediately regardless, since leading with the worse machine wastes energy now; (5) utility rebates may be time-limited.
Retaining three years only makes sense if capital is genuinely unavailable; even then, correct the lead/lag sequence and budget for refrigerant. Otherwise replace now and capture savings plus avoided handling cost.