AS 3595—1990

This is a free 6 page sample. Access the full version at http://infostore.saiglobal.com.

Australian StandardR

Energy management programs—

Guidelines for financial evaluation
of a project
 This Australian Standard was prepared by Committee EN/1, Energy Auditing. It was
approved on behalf of the Council of Standards Australia on 19 December 1989 and
published on 26 January 1990.

The following interests are represented on Committee EN/1:

Association of Consulting Engineers, Australia
Australian Construction Services, Department of Administrative Services
Australian Gas Association
Australian Institute of Energy
Australian Institute of Petroleum
This is a free 6 page sample. Access the full version at http://infostore.saiglobal.com.

Australian Institute of Refrigeration, Air Conditioning and Heating

Australian National University
Building Owners and Managers Association of Australia
Confederation of Australian Industry
Council of the Air Conditioning and Mechanical Contractors Associations of Australia
CSIRO, Division of Building, Construction and Engineering
Department of Defence
Department of Minerals and Energy, New South Wales
Department of Mines and Energy, South Australia
Department of Primary Industries and Energy
Electricity Supply Association of Australia
Ministry of Housing and Construction, Victoria
Public Works Department, New South Wales

Additional interests participating in preparation of Standard:

Department of Industry, Technology and Resources, Victoria
Energy Managers Group, Melbourne

Review of Australian Standards. To keep abreast of progress in industry, Australian Standards are subject to
periodic review and are kept up to date by the issue of amendments or new editions as necessary. It is important
therefore that Standards users ensure that they are in possession of the latest edition, and any amendments thereto.
Full details of all Australian Standards and related publications will be found in the Standards Australia Catalogue
of Publications; this information is supplemented each month by the magazine ‘The Australian Standard’, which
subscribing members receive, and which gives details of new publications, new editions and amendments, and of
withdrawn Standards.
Suggestions for improvements to Australian Standards, addressed to the head office of Standards Australia, are
welcomed. Notification of any inaccuracy or ambiguity found in an Australian Standard should be made without
delay in order that the matter may be investigated and appropriate action taken.

This Standard was issued in draft form for comment as DR 85348.

 AS 3595—1990
This is a free 6 page sample. Access the full version at http://infostore.saiglobal.com.

Australian StandardR

Energy management programs—

Guidelines for financial evaluation
of a project

First published as AS 3595—1990.

Incorporating:
Erratum

PUBLISHED BY STANDARDS AUSTRALIA

(STANDARDS ASSOCIATION OF AUSTRALIA)
1 THE CRESCENT, HOMEBUSH, NSW 2140
ISBN 0 7262 6083 5
 PREFACE
This Standard was prepared by the Standards Australia Committee on Energy Auditing, as
one of a suite of Standards being produced following a request, on behalf of the Australian
Minerals and Energy Council’s Co–ordinating Committee on Energy Management, from the
former Department of Resources and Energy (now the Department of Primary Industries and
Energy) to assist in the National Energy Conservation Program. The first of the suite,
AS 2725, Guidelines for reporting energy use as part of the energy audit, was published in
1984, and others are in course of preparation.
This Standard sets out guidelines for the financial evaluation, using discounted cash flow
methods, of options identified for detailed study in a typical energy management program.

CONTENTS
This is a free 6 page sample. Access the full version at http://infostore.saiglobal.com.

Page
FOREWORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1 SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2 OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3 APPLICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4 REFERENCED DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6 COST DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7 METHODOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
8 COST DATA AND ITS RATE OF CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . 6
9 BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
APPENDIX A. EXAMPLES ILLUSTRATING USE OF THIS STANDARD . . . . . 10

E Copyright — STANDARDS AUSTRALIA

Users of Standards are reminded that copyright subsists in all Standards Australia publications and software. Except where the Copyright Act allows and
except where provided for below no publications or software produced by Standards Australia may be reproduced, stored in a retrieval system in any form
or transmitted by any means without prior permission in writing from Standards Australia. Permission may be conditional on an appropriate royalty
payment. Requests for permission and information on commercial software royalties should be directed to the head office of Standards Australia.
Standards Australia will permit up to 10 percent of the technical content pages of a Standard to be copied for use exclusively in–house by
purchasers of the Standard without payment of a royalty or advice to Standards Australia.
Standards Australia will also permit the inclusion of its copyright material in computer software programs for no royalty payment provided such
programs are used exclusively in–house by the creators of the programs.
Care should be taken to ensure that material used is from the current edition of the Standard and that it is updated whenever the Standard is amended or
revised. The number and date of the Standard should therefore be clearly identified.
The use of material in print form or in computer software programs to be used commercially, with or without payment, or in commercial contracts is subject
to the payment of a royalty. This policy may be varied by Standards Australia at any time.
 3 AS 3595—1980

FOREWORD

This Standard recommends life-cycle costing as the appropriate methodology for

determining the most cost-effective energy solution. Within the life-cycle cost concept
there are various levels of sophistication and accounting for the variables involved,
ranging from a simple payback period to net present cost for a project; and several
formats for expressing the benefits. Expressions to compute these factors require a
number of assumptions including the future values of the discount rate and the energy
price escalation rate. These matters are considered in this Standard.
‘Life-cycle cost’ means the total cost of installing, owning, operating and maintaining
a process, an activity or a building over its useful life. This Standard gives details of
how to compute only the energy component of the life-cycle cost. Cost categories other
than energy are identified and the user would be expected to allow for them using
consistent methodology which, based on ‘life-cycle cost’, enables an investment to be
evaluated in terms of its net present cost.
This Standard proposes comparisons of different investment options on the basis of
their net present cost, because this is the most reliable criterion and is applicable in all
This is a free 6 page sample. Access the full version at http://infostore.saiglobal.com.

circumstances covered by this Standard. The internal rate of return method is not
recommended in this Standard because it is potentially misleading in many instances
and does not necessarily provide a single solution.
For financial evaluation of an energy management project involving comparison of
different proposals in which the lifetimes are unequal, three options in present value
analysis are available —
(a) to make the evaluation over the lowest common multiple of individual lifetimes;
(b) to choose the shortest individual lifetime and assess the residual value of the
longer lifetime proposals after that time; and
(c) to choose the longest lifetime and, for the shorter life options, choose a
replacement procedure based on the cost of the initial choice for that option.
The use of the methodology in this Standard will bring uniformity in the procedures
at present used for evaluation of energy management programs and will ensure that
some factors which are currently overlooked will be recognized and taken into account.
It is acknowledged that non-financial factors can also influence investment within an
energy management program; indeed these can sometimes assume an overriding
importance. Note that taxation has not been recognized in the cost of funds in this
Standard.

COPYRIGHT
 AS 3595—1980
STANDARDS AUSTRALIA
Australian Standard
Energy management programs—Guidelines for financial
evaluation of a project
1 SCOPE. This Standard sets out guidelines for
financial evaluation of a project within an energy
management program and describes the recommended
methodology and procedures to permit an evaluation
of the cost-effectiveness of competing options.
NOTE: Examples ill ustr ating the use of this Standard are given
in Appendix A.
2 OBJECTIVES. In support of the selection of a
plan of action (see AS 2725), the objectives of this
Standard are —
This is a free 6 page sample. Access the full version at http://infostore.saiglobal.com.
(a) to bring a degree of uniformity to the procedures
for financial evaluation of energy management
projects; and
(b) to permit an evaluation of the cost-effectiveness
of competing energy management options.
3 APPLICATION. This Standard applies to the
procedures for financial evaluation of energy
management projects in institutional, governmental,
commercial, and industrial applications.
4 REFERENCED DOCUMENTS The documents
below are referred to in this Standard.
AS
2002 Solar water heaters—Installation
2725 Guidelines for reporting energy use as part of
the energy audit
5 DEFINITIONS. For the purpose of this Standard,
the definitions given in AS 2725 and those below
apply.
5.1 Base period—the period in which an investment
is made at the commencement of an energy
management program. By convention, base period is
referred to as ‘period zero’.
5.2 Capital — fixed items of expenditure, such as
machinery, buildings, land, etc, spent or invested with
the objective of producing an income.
5.3 Capital investment—amount of money proposed
to be spent in the base period, to achieve an objective
involving expenditure on energy.
NOTES:
1. For an energy management project, capit al investment is the
total cost of putt ing a facili ty into service, including,
e.g. costs of engineeri ng design, civil engineering, founda-
ti ons and dedicated buil ding works, purchase, deli very and
installati on of mechanical and electr ical plant, and
commissioning and start- up.
2. Capital investment is represented in an evaluation by the total
expendit ure brought to account in the base period.
Other (non-preferred) terms:
Capital expenditure
Investment cost
Capital cost
COPYRIGHT
4
5.4 Discount — the difference in current dollars,
between the value of a negotiable instrument
(promissory note, sales contract, bill of exchange,
etc), presented for payment at some time, and the
value of the same instrument presented at an earlier
point in time. It represents the time value of money.
5.5 Discounting — the process of applying a
discount.
5.6 Discount rate (r) — the rate of growth or decay
of funds over a period of time, as an expression of
the effect of the time value of money. It is expressed
as a fractional or percentage rate, per unit of time,
averaged over the interval of concern, i.e. the
discount of 1 unit of principal for 1 unit of time.
NOTE: The discount rate is generall y a measure of the cost of
funds to the investor, e.g. the interest paid on borrowed funds,
forgone on own funds expended, or the potenti al income in the
form of interest and/or dividends if the funds were to be invested
in the best possible alternative to the project under
consideration.
The discount rate appears in evaluation calculations as the
discount mult ipli er (1 + r), where r is a fraction.
5.7 Escalation rate (a) — the rate of growth of an
item of cost over a period of time, as an expression
of currency inflation or other commodity market
forces. It is expressed as a fractional or percentage
rate, per unit of time, averaged over the interval of
concern.
NOTES:
1. The rate selected for use in the evaluation in respect of
energy costs, must be compatible wit h the size of purchases
of energy.
2. The escalati on rate appears in evaluation calculations as the
escalati on mult ipli er (1 + a), where a is a fr acti on.
3. When an evaluati on is made in nominal terms, it should be
noted that both the escalation rate and the discount rate will
normally be dif ferent fr om those selected to evaluate the
same data in real terms. The relativit y to each other of the
opti ons considered, appearing as the end result of an
evaluati on in eit her nominal or real terms, (provided it has
been made consistentl y), should be identi cal. Users
unfamili ar with Discounted Cash Flow concepts may benefit
fr om discussions with an accountant or economist
experi enced in the field.
5.8 Escalation ratio (d) — ratio of escalation
mu l t i p l i er t o d i sc o un t mu l t i p l i er , i . e .
d = (1 + a)/(1 + r).
5.9 Evaluation in nominal terms — refers to an
evaluation in which costs are expressed in actual
dollars expended at the time. Sometimes referred to
as ‘current terms’, or ‘out-turn dollars’.
5.10 Evaluation in real terms — refers to an
evaluation in which costs, the discount rate and
escalation rates are referred to a specified time point
datum; i.e. in which the effects of inflation have been
removed by expressing all costs in constant value
dollars. Real terms are sometimes referred to as
‘constant terms’.
 This is a free preview. Purchase the entire publication at the link below:

AS 3595-1990, Energy management programs -

Guidelines for financial evaluation of a project
This is a free 6 page sample. Access the full version at http://infostore.saiglobal.com.

Looking for additional Standards? Visit SAI Global Infostore

Subscribe to our Free Newsletters about Australian Standards® in Legislation; ISO, IEC, BSI and more
Do you need to Manage Standards Collections Online?
Learn about LexConnect, All Jurisdictions, Standards referenced in Australian legislation
Do you want to know when a Standard has changed?
Want to become an SAI Global Standards Sales Affiliate?

Learn about other SAI Global Services:

LOGICOM Military Parts and Supplier Database

Metals Infobase Database of Metal Grades, Standards and Manufacturers
Materials Infobase Database of Materials, Standards and Suppliers
Database of European Law, CELEX and Court Decisions

Need to speak with a Customer Service Representative - Contact Us