Energy Efficiency, Sustainability and Engineering Economics
Core toolkit
Understand the energy chain: where energy enters, where it is converted (chillers, boilers, compressors, fans, pumps, motors, lighting) and where it is lost. Establish a baseline normalised for weather and production, usually by regression; define an energy performance indicator (kWh/m2 per year, kWh per tonne, kW/RT for chiller plants, kWh/m3 for compressed air); and verify savings against the baseline. Singapore context: Energy Conservation Act obligations for large energy users, Building Control environmental sustainability requirements, and the BCA Green Mark scheme covering energy, water, materials, indoor environment, greenery and transport. Green Mark rewards measured outcomes, and chiller plant efficiency dominates most buildings.
Economics: simple payback = capital / annual savings (a screen only); NPV = sum of CFt/(1+r)^t minus capital, where NPV > 0 creates value; IRR is the discount rate giving NPV = 0; life-cycle costing includes energy, maintenance, replacement and disposal. Escalate tariffs realistically and use the organisation's hurdle rate. Carbon: Scope 1 direct, Scope 2 purchased electricity, Scope 3 value chain; heat recovery and electrification cut Scope 1, grid decarbonisation cuts Scope 2.
Traps
- Deciding on simple payback alone - it ignores everything after the payback year.
- Comparing IRR with the bank interest rate instead of the hurdle rate.
- Claiming savings with no baseline and no weather or production adjustment.
- Confusing kW (demand, driven by maximum-demand charges) with kWh (consumption).
Worked example
A $180,000 VSD retrofit saves 150,000 kWh/yr at $0.25/kWh = $37,500/yr. Payback = 180,000/37,500 = 4.8 years. At 6% over 10 years, NPV = 37,500 x 7.36 - 180,000 = about +$96,000, so proceed.