PROACTIVE OR REACTIVE HVAC EQUIPMENT REPLACEMENT POLICIES – WHICH ONE ARE YOU?
We ran across this blog by Martin Flusberg and thought it made some very good points about the importance of creating planned replacement policies for HVAC equipment. Flusberg is the CEO of Powerhouse Dynamics, a company specializing in controlling and analyzing electricity consumption at the equipment level to achieve effective energy management and cost savings. It was originally published by NOESIS, a commercial lending marketplace for efficiency-based projects.
We talk to many facility managers – and in our case these are managers responsible for tens if not hundreds of small facilities – who lament their official corporate policy of “run to fail,” or replacing HVAC equipment only when it breaks. This approach appears to have become the rule rather than the exception in the past few years.
The rationale behind this is quite simple: it is based on the perception – emphasis on this word – that it is more cost-effective to keep HVAC equipment as long as possible than it is to replace it “early.”
The problem with this approach is that, when all the costs of reactive HVAC replacement are taken into account, planned proactive replacement will generally be the better choice.
Proactive vs. Reactive Replacement
From what we have seen, in some organizations no analysis is performed regarding planned replacement; the philosophy is to delay capital expenditures as long as possible. In many others, though, the decision is based on some type of analysis. The company will look at the costs of repairing vs. replacing, and will often conclude that the potential maintenance savings do not justify the cost of replacement.
This calculation overlooks some important factors, however:
- As equipment ages it tends to use more and more energy. Moreover, newer HVAC equipment is generally much more energy efficient than equipment purchased 15 or 20 years ago. Few organizations consider the impact of energy efficiency on capital purchases, and even fewer track energy costs at the equipment level, so this significant potential benefit is generally ignored.
- New equipment will be under warranty for some period of time, providing even greater maintenance cost savings during that period; this is not always explicitly considered in the analysis.
- Reactive replacement usually happens during the peak heating or cooling season. If the equipment has died, it needs to be replaced immediately, whatever the cost. With planned replacement, equipment can be replaced during the shoulder seasons. This allows time to get multiple bids, both for the equipment itself and for the installation – which is often less expensive during non-peak months. Planned replacement may also allow for volume discounts. Finally, proactive replacement allows time to analyze whether the system at each location has the correct capacity.
- In many states, utility rebates are available to offset the cost of more efficient HVAC equipment. In most cases, however, these rebates are available only before you purchase, under the argument that if you can buy it without the rebate you don’t need the rebate. Planned replacement allows you to take advantage of these rebates.
Finally, HVAC failure during peak heating or cooling season can have a direct impact on the customer experience – and can even lead to lost sales if comfort is sufficiently impacted. When all of these factors are taken into consideration, the analysis may change dramatically – and planned replacement can clearly end up being the more cost-effective approach.
Developing a Proactive HVAC Replacement Program
Here are some suggestions for getting started with a proactive HVAC replacement program:
- First and foremost, perform an inventory of the equipment at each of your locations. Based on what we have seen, the majority of multi-site commercial operations do not have a complete handle on what equipment assets they have at each site. An inventory should cover the basics, such as make, model, and age; but should also cover such issues as refrigerant (since units with R22 tend to be more expensive to maintain, and R22 is being phased out in a few years), and condition, including cabinet condition, coil condition, whether there is standing water, and other observations. And, while you are at it, a picture is sometimes worth a thousand words. These factors should play a role in the repair/replace decision. There are asset data capture apps available that make it relatively easy for a technician to capture this information directly into a database.
- Make sure you capture the cost of maintaining individual HVAC units, rather than lumping together HVAC as a single category, or as many companies do, just tracking maintenance in total. The inventory will make it possible to track maintenance costs at the HVAC unit level.
- Track energy costs at the equipment level as well. Wireless sensors have made this quite affordable.
- Research utility rebate programs in your operating territories to see if there are rebates that cover HVAC equipment. A good source of information is the DSIRE database (Database of State Incentives for Renewables and Efficiency) operated by North Carolina State University.
- Develop a methodology for prioritizing equipment replacement. Factors that should be taken into consideration include age, condition, frequency of required maintenance, growth in maintenance costs, energy cost, and changes in energy cost (the remaining lease term at each location must play a role as well, of course). Some energy and asset management software packages have algorithms that integrate these types of data into equipment scoring metrics.
- Develop an internal budgeting and planning process to determine how much can be spent annually on proactive replacement (recognizing that there will still be inevitable reactive replacement), when it should happen, and what the overall process should be in terms of timing, getting vendor bids, etc.
Proactive replacement will reduce maintenance costs, reduce energy costs, and result in fewer interruptions to operations. If all factors are taken into account, a detailed analysis will show proactive replacement to be a compelling alternative to “run to fail.”
Martin Flusberg is CEO of Powerhouse Dynamics, developer of the SiteSage enterprise energy and asset management system; this article was first posted on Energy Manager Today.