Reach Codes Corner: A Focus on Cost-Effectiveness
This column is a monthly feature focusing on specific topics of interest to newcomers to the reach code development community.
As we discussed a couple months ago, energy reach codes are amendments to the California Energy Code and as such, must satisfy specific requirements. One of these is the requirement that the local jurisdiction establish an official determination that the proposed measures will be cost-effective and will result in less energy consumption than the state requirements. In other words, the jurisdiction must demonstrate that the value of benefits to be realized with the adoption of a reach code will exceed the costs of any investments required by such a measure.
The Energy Commission does not specify a method for determining cost effectiveness, nor do they review a public agency’s findings for accuracy. They do require that the evidence used by the local jurisdiction to make its cost effectiveness findings be submitted to the Energy Commission as part of the application package for reach code approval.
In any case, the analysis must incorporate costs and benefits for the types of buildings a proposed measure is focusing on. To estimate these, a model building is used that reasonably represents typical buildings. The measure installation costs are typically estimated by surveying building contractors. And the savings estimates can be derived using energy modeling software, such as California Building Energy Code Compliance (CBECC) which is the open source software maintained by the Energy Commission.
Often, two different savings metrics are used in the analysis: On-Bill, which looks at costs from the customer’s perspective, considering actual energy costs from utilities’ published tariff rates. The other metric takes a broader, societal perspective, considering overall societal benefits, including factors like the value of emissions reductions and energy grid impacts. This is called Time Dependent Valuation (TDV), and in fact, is the metric used by the Energy Commission in evaluating cost effectiveness for efficiency measures in Title 24, Part 6. The analysis also takes into account other factors, such as weather and building vintage. A finding of cost-effectiveness can be made on any of the following bases:
Simple payback: How many years will it take to recoup incremental capital costs?
Benefit-to-cost ratios: Do the benefits exceed the costs? Net present value (NPV) of benefits divided by costs (must be >1.0)
Net present value: Do the benefits exceed the costs? NPV of benefits minus costs (must be positive value)
While there are different approaches a local jurisdiction may take to arrive at a cost-effectiveness determination, such as contracting with an expert to conduct a study or conducting the cost-effectiveness analysis in-house, many jurisdictions have utilized the work done by the statewide reach codes team in developing a wide range of cost-effectiveness studies. These include findings for all 16 Climate Zones across the state so they will be applicable to any jurisdiction and are available at no cost to any jurisdiction.
The materials on Session 3 of the Reach Codes Newcomers Series, focusing on cost effectiveness, are also available here.