Case Study: OPNAV N81 Task Force Energy Shore Community Analytic Support April 2010 to Present.

Case Study:OPNAV N81 Task Force Energy Shore Community Analytic SupportApril 2010 to Present

2

CNO Guidance – April 2010

Recommended COA for POM-12 shore energy investments – Shore Portfolio A• 50% consumption reduction by 2020/25%

renewables by 2025• Focus on reliable power for critical assets • Achieves compliance mandates and places Navy

on vector to achieve SECNAV goals • Heavy emphasis on energy investment portfolio

optimization and tangible ROIs

Study aligned with Study aligned with CNO expectationsCNO expectationsStudy aligned with Study aligned with CNO expectationsCNO expectations

3

Framing the N81 Analytic Effort

Numerous and Diverse Stakeholders• The challenge: Integrating perspectives and objectives while

balancing needs, perceptions and concerns of multiple stakeholders and interests of external entities

• Internal Stakeholderso N8X (N80, N81, N82/FMB)o N4 (N46/N43)o NAVFAC (Public Works and Asset Management)o CNIC/Regional/Installationso ASN EI&E

• External Interestso Alternative financing organizationso Developers/implementers of new and emerging technologieso Congress: adhering to legislative requirements and mandateso Executive Branch: adhering to applicable Executive Orders, OSD

guidance, etc.o General Public: Public opinion and perceptions

4

Projected End State and Navy-wide Benefits

Ability to make strategic and capital investment decisions based on rigorous, repeatable, and defendable processes • Development of a standardized decision process and assessment tool

based on input from diverse set of stakeholders

• Utility at all levels from the field to Echelon I

• Provides quantification of both financial and non-financial benefits

• Applicable to achieving multiple strategic objectives

• Grounded in well-accepted decision analysis and financial, economic theory

• Communicates financial and non-financial risks

A multi-user, desk-top tool that meets Navy’s current requirements• Easy-to-use project input templates and portfolio reports

• Scalable and agile to accommodate future enhancements and/or modified planning criteria

Adaptable assessment tool used to standardize energy investment decisions Adaptable assessment tool used to standardize energy investment decisions

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Best-in-class method for valuing and integrating multiple strategic objectives – Multi-Attribute Decision Analysis, or MADA.

1.Translate strategic objectives into a common framework of decision criteria and fundamental objectives.

2.Determine how to measure the impact each project is expected to have on each objective

3.Criteria weighted by strategic decision makers

Casting the Vision for Portfolio Optimization

3. W

eigh

ts

= Project

Submitted ProjectsPrioritized Investment Portfolios

Winning: Achieving capital efficiency through portfolio

optimization

Placing Bets: Which portfolio of funding requests to approve?

Cost

Future State

1. Deloitte Financial Advisory Services LLP conducted an online poll of 595 executives during the web cast “Capital Allocation: Increasing Your Odds for Placing the Right Bets” on March 26, 2007.

= Portfolio

Goal:Identify and implement portfolios on the efficient frontier. Most organizations operate below the curve. For any funding level, choose the optimal portfolio.

Funding Level (Budget)

Por

tfolio

Val

ue

Optimal portfolio for this budget

Suboptimal portfolio

A

B

Goal: Implement portfolio funding choices on the efficient frontier (“biggest bang for the buck”). Benefits:

• Improved return on invested capital

• Integrate financial and strategic (non-financial) criteria

• Clarify which projects to invest in, at what level, and what outcome is being achieved

• Improved transparency, confidence , strategic alignment and decision making

Current State Change Process

Maximize Shareholder

Value

FinancialBenefits

IncreaseRevenues

ReduceCosts

CustomerBenefits

StrategicBenefit X

Reliability

OutageCommunication

SystemReliability

StrategicBenefit Y

StrategicBenefit Z

OutagesCustomercategory

Servicequality

FrequencyDuration No. of

customersaffected

Momentary Sustained FrequencyMagnitude

of disruption

SystemReliability

Ben

efit

1. F

ram

ewor

k

Illus

trativ

e

DCF US$NOMINAL

Unit of measurement Source 2009 2010 2011 2012 2013

Capacity tonnes per month 140,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000Capacity Constraint 1,680,000 0 0 0 1,306,667 1,680,000Pound Conversion 2.2046 2,880,000 2,880,000 2,880,000 4,186,667 4,560,000

2009 2010 2011 2012 2013TOTAL THROUGHPUT 0 0 3,999,136 3,820,235 3,560,569Planned Throughput "Inputs" tab - - 214,550 1,742,833 1,680,000 Grade kg/ tonne "Inputs" tab 0.33 0.37 0.39 0.40 0.39Recovery % "Inputs" tab 0.00 0.00 0.41 0.73 0.74Paydam Grade kg/ tonne "Inputs" tab 0.27 0.27 0.27 0.27 0.27Paydam Inventory 8,912,856 8,912,856 8,912,856 8,912,856 8,912,856SUP penalty 0 0 0 0 0Total Tonnes throughput 0 0 0 1,306,667 1,680,000Total Uranium Recovered lb 0 0 0 845,709 1,079,336tot 0 0 2,880,000 3,757,402 3,560,569SUP 0 0 2,880,000 2,077,402 1,880,569SUKEP 0 0 0 1,680,000 1,680,000SUP BASELINE 0 0 2,880,000 2,880,000 2,769,168Price US$/ lb "Inputs" tab 42 37 34 32 31

Revenue US$ - - - 27,294,881 33,776,598

Revenue adjusted for cash receipt lag - - - 17,423,856 31,200,756 2.

Mea

sure

s

MADA Approach

Business cases are collected, but…

• In a Deloitte survey1, 55% of executives reported lack of confidence in their ability to optimize return on invested capital

• Difficult to compare projects

• Measuring benefits and linking projects with strategic objectives

• Inefficient processes

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Step 1 - Defining Energy ROI (eROI)

Traditional ROI Definition

Ex. – Demolition ROI

Project: Demolish Bldg 200

Capital Investment = $300KAnnual O&M Savings = $50K

ROI $300K/$50K/yr = 6 yr payback period

eROI is much more complex and consists of both quantitative & qualitative factors

eROI Objectives HierarchyeROI Objectives HierarchyeROI Objectives HierarchyeROI Objectives Hierarchy

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Step 3: Build Preliminary Model Framework

Establish means to measure project impacts for each objective• Measure must be defined in a manner that allows for aggregation for

portfolio optimization • Examples:

Maximize Financial Maximize Financial BenefitsBenefits

Provide reliable Provide reliable Energy to Critical Energy to Critical InfrastructureInfrastructure

MaximizeMaximizeFinancial Financial BenefitsBenefits

Savings/Savings/Cost Cost

AvoidancesAvoidances

CapitalCapitalInvestmentsInvestments

(costs)(costs)

SRMSRMSavingsSavings

OverheadOverheadCostsCosts

EnergyEnergySavingsSavings

DemandDemandSavingsSavings

MBTuMBTuSavingsSavings

Phased Phased FundingFunding

ConstructionConstructionCostsCosts

DD1391 dataDD1391 dataECIP lifeECIP life--cyclecycleAnalysis dataAnalysis data

NPVNPVAnalysisAnalysis

MaximizeMaximizeFinancial Financial BenefitsBenefits

Savings/Savings/Cost Cost

AvoidancesAvoidances

CapitalCapitalInvestmentsInvestments

(costs)(costs)

SRMSRMSavingsSavings

OverheadOverheadCostsCosts

EnergyEnergySavingsSavings

DemandDemandSavingsSavings

MBTuMBTuSavingsSavings

Phased Phased FundingFunding

ConstructionConstructionCostsCosts

DD1391 dataDD1391 dataECIP lifeECIP life--cyclecycleAnalysis dataAnalysis data

NPVNPVAnalysisAnalysis

Provide Reliable Provide Reliable Energy to Energy to

Critical Critical InfrastructureInfrastructure

DedicatedDedicatedVs. SharedVs. Shared

Single vs.Single vs.MultipleMultipleFacilitiesFacilities

MDIMDIScoreScore

Criticality ofCriticality ofInfrastructureInfrastructure

Reliance Reliance On EnergyOn Energy

Vulnerability/ Vulnerability/ Susceptibility to Susceptibility to

OutagesOutages

Access & Access & Quality of Quality of BackBack--UpUp

ReliabilityReliabilityof currentof current

sourcesource

RequiresRequirescontinuouscontinuous

energy energy sourcesource

Uses energyUses energyto fulfillto fulfill

critical missioncritical mission

Generation Generation vs.vs.

UPSUPS

Portable Portable generator generator vs. builtvs. built--in in generationgeneration

Utility OutageUtility OutageDatabase:Database:(frequency & (frequency & duration data)duration data)

iNFADSiNFADS datadata

Provide Reliable Provide Reliable Energy to Energy to

Critical Critical InfrastructureInfrastructure

DedicatedDedicatedVs. SharedVs. Shared

Single vs.Single vs.MultipleMultipleFacilitiesFacilities

MDIMDIScoreScore

Criticality ofCriticality ofInfrastructureInfrastructure

Reliance Reliance On EnergyOn Energy

Vulnerability/ Vulnerability/ Susceptibility to Susceptibility to

OutagesOutages

Access & Access & Quality of Quality of BackBack--UpUp

ReliabilityReliabilityof currentof current

sourcesource

RequiresRequirescontinuouscontinuous

energy energy sourcesource

Uses energyUses energyto fulfillto fulfill

critical missioncritical mission

Generation Generation vs.vs.

UPSUPS

Portable Portable generator generator vs. builtvs. built--in in generationgeneration

Utility OutageUtility OutageDatabase:Database:(frequency & (frequency & duration data)duration data)

iNFADSiNFADS datadata

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Step 4: Develop Project Template

Maximize Financial Benefits PILOT VERSION

INSTRUCTIONS: Please input the following data from the Economic Life Cycle Cost Analysis into the worksheet below. Please note that the Economic Life Cycle Cost Analysis should be filled out prior to completing this sheet.

Project Name: Photovoltaic System SPAWAR SD

INVESTMENT COSTS:Construction Costs: 4,167,724$ CREDITS:SIOH: 5.70% 237,560$ Salvage Value: -$

Design: 4.80% 200,051$

Total Funds Required: 4,605,335$ ECIP Programmed Amount: 4,405,284$

Construction Start Date: 4/1/2010

1 2 3Enter Timeline for Funds Appropriations (above): Year 1 Year 2 Year 3Appropriation 4,605,335$

Construction Start Year 2010

1

ENERGY SAVINGS (COSTS):Cost

Regional Average Price (EIA): 82.00$ MWh Regional Prices per EIA Short Term Energy Outlook November 10, 2009 ReleaseAdjustment to price [F1]: 65.80$ Rationale for adjustment:Adjusted Electricity Price 148$ (if necessary)

Energy/Fuel Type Cost Cost - UnitsAnnual Utility

ReductionAnnual Utility

Reduction - Units Annual Energy Saved Annual SavingsElectricity 148$ MWh 999 MWh 3409.587 mmbtu 147,652$

Demand 148$ MWh MWh 0 mmbtu 83,808$

Distillate Oil: mmbtu mmbtu 0 mmbtu -$

Residual Oil: mmbtu mmbtu 0 mmbtu -$

Natural Gas: therm therm 0 mmbtu -$

Coal: mmbtu mmbtu 0 mmbtu -$

LPG: mmbtu mmbtu 0 mmbtu -$

Other: [F2] mmbtu mmbtu 0 mmbtu -$

Other: [F2] mmbtu mmbtu 0 mmbtu -$

Water: kgal kgal N/A N/A -$

Sewage kgal kgal N/A N/A -$

Annual Energy Savings 3,410 mmBtu 231,460$

NON-ENERGY SAVINGS (COSTS):

Item# of years from Construction Start Year when item occurs Savings/Costs

Annual Recurring: -$

Non-Recurring Savings( Costs):1) rebate 0 1,542,300$

2)3)4)

How many years from the construction start year does this project begin receiving greater than 50 percent of intended tangible benefit?

For example, if the project is to begin construction in 2012, and the project will begin receiving more than 50 percent of the benefits in 2015, then the answer to the above question is 3.

Rate higher due to Navy Working Capital Fund fully burdened ratesElectricity:

Please denote energy savings as a posive number and purchases as a negative number in the annual utility reduction column

Project template exampleProject template exampleProject template exampleProject template example

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Step 5: Finalize Model

Determine model relative weights for eROI factors Weighting workshop conducted with representation from TFE, N46, CNIC,

NAVFAC, and N81 Weights

– Maximize financial benefits 39%– Minimize shore consumption 9%– Provide reliable power for critical infrastructure 26%– Achieve regulatory compliance & stakeholder expectations 13%– Develop enabling infrastructure 13%

Results promulgated via CNIC PR-13 WARNING ORDER

POM-12 FRAGORD pending

CNIC PR-13 CNIC PR-13 WARNORD ExcerptWARNORD Excerpt

a.a. Energy ROI is calculated by using the tool developed N81, factoring Energy ROI is calculated by using the tool developed N81, factoring in not only simple ROI/payback, but also other non-financial benefits in not only simple ROI/payback, but also other non-financial benefits such as: legal mandate compliance; Navy energy goals compliance; such as: legal mandate compliance; Navy energy goals compliance; enabling infrastructure; political/public affairs contribution; quality of enabling infrastructure; political/public affairs contribution; quality of life; and providing reliable energy to critical infrastructure.life; and providing reliable energy to critical infrastructure.

b. The final score form the ranking generator is calculated by weighting b. The final score form the ranking generator is calculated by weighting the financial benefits, shore consumption reduction, reliable energy the financial benefits, shore consumption reduction, reliable energy for critical infrastructure, regulatory compliance/stakeholder for critical infrastructure, regulatory compliance/stakeholder expectations, and development of enabling infrastructure. The expectations, and development of enabling infrastructure. The current proposed weights (subject to change) are 39%, 9%, 26%, current proposed weights (subject to change) are 39%, 9%, 26%, 13%, and 13%, respectively. The overall result is a project ranking 13%, and 13%, respectively. The overall result is a project ranking measure with the larger scores being associated with projects that measure with the larger scores being associated with projects that

are more attractive from an overall energy ROI consideration. are more attractive from an overall energy ROI consideration.

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Step 6: Test Model

Nr Project Title Strategic Solutions Employed Cost

1 San Diego Admin Bldg with Smart Meter

Variable Frequency Drive (VFD) EER/SEER

Lighting upgrades Roof coating

Efficiency fans Smart meter

$500K

2 San Diego Admin Bldg without Smart Meter

Variable Frequency Drive (VFD) EER/SEER

Lighting upgrades Roof coating

Efficiency fans

$470K

3 Norfolk Utility Project Steam line replacement

Replace old line with new high insulation line

$1,100K

4 Norfolk Operations Center VFD EER/SEER Lighting upgrades

Efficiency fans Diesel generator set

$2,200K

5 Jacksonville BEQ HVAC Upgrade and Ground Source Heat Pump

VFD Lighting upgrades

Roof coating Ground Source Heat Pump

$1,010K

6 SPAWAR PV Array with Battery Back-Up

PV Array with battery back-up

Array feeds 2 critical facilities

$4,700K

7 SPAWAR PV Array without Battery Back-Up

PV Array without battery back-up $4,600K

8 Jacksonville PV Array Roof mounted PV array (no energy efficiency upgrades) $2,600K

9 Fallon Geothermal RDT&E project

Drill 3 well sites

$1,600K

Project Sample:Project Sample:Project Sample:Project Sample:

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Step 7: Assess Outputs

ProjectsProjectsFundedFundedProjectsProjectsFundedFunded

UnfundedUnfundedProjectsProjectsUnfundedUnfundedProjectsProjects

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Step 7: Assess Outputs

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