Transformer Retrofits and Return On Investment Jose Valencia

Welcome Today we will review the following topics: Agenda Transformer efficiency explained. Factors to

What is efficiency for a transformer… © 2014 Eaton. All Rights Reserved. .

Transformer Efficiency Explained Transformer losses (No Load & Full load). To understand efficiency, first

Transformer Efficiency Explained Coil losses will increase with the load. Core losses constant 24

Transformer Efficiency Explained Transformer losses (Full load losses - I 2 R). The resistance

Transformer Efficiency Explained Energy Efficiency. The efficiency of a transformer is based on a

Additional Considerations Energy Efficiency / Load Level The efficiency of a transformer will vary

Transformer Efficiency Explained Transformer Efficiency Regulation in the US • Energy Policy Act of

Transformer Efficiency Explained • Transformers were already highly efficient at the NEMA TP-1 levels,

Purchasing Decision What to Consider when buying an Energy Efficient Transformer Purpose Retrofit New

What is the Return On Investment in a retrofit? ? ? © 2014 Eaton.

Return On Investment – in Retrofit Cost Savings – Replacement Alternatives (Retrofit) The only

Discounted cash flows Cost Savings – Time Value of Money. Similar to the TOC

Discounted cash flows Net Payback Note: Discounted payback accounts for: Inflation = 2. 10%

Making Retrofitting Easy Eaton can help making your retrofit installation easier, by matching the

What is the best option if I am in the market for a new

Return On Investment – New Transformers What to consider when buying an Energy Efficient

Return On Investment – New Transformers Total Ownership Cost – Buying Alternatives. Total Ownership

Higher than DOE efficiency levels You can only save energy that is wasted. .

Economical Benefit…. Everyone wants to save energy… With the cost of energy rising, even

Economical Benefit…. Total Ownership Cost The present value of the higher efficiency unit incurs

Purchasing Decision – DOE vs. Higher Eff. Total Ownership Cost – Buying Alternatives The

Return On Investment Although the operational costs are lower, the initial cost of the

Conclusions: With the recent implementation of the DOE 2016 regulation, the benefits from efficiency

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Welcome Today we will review the following topics: Agenda Transformer efficiency explained. Factors to consider when evaluating energy savings. Savings from energy efficient transformers. How to evaluate an investment in a new transformer. Conclusions © 2016 Eaton. All Rights Reserved. 2

Transformer Efficiency Explained Transformer losses (No Load & Full load). To understand efficiency, first we need to review what kind of losses are present during the operation of a transformer: Core Losses (No Load) Coil Losses (Load) Core losses, or Iron losses, are caused by the magnetic flux flowing through the steel core. These losses are caused by the current flowing through the windings; therefore the magnitude of these losses depends on the load. These losses are constant, regardless of the load level and they are present 24 hrs a day 365 days a year. Even if the transformer is completely unloaded, the transformer will consume power. (No load losses) The load losses have two factors: 1. Current, which depends on the amount of load. 2. Resistance, which is affected by the temperature (this will be important later) © 2016 Eaton. All Rights Reserved. 4

Transformer Efficiency Explained Coil losses will increase with the load. Core losses constant 24 hrs/day. *Electricity cost from Houston County Elec Coop Inc. Commercial (2017) © 2016 Eaton. All Rights Reserved. 5

Transformer Efficiency Explained Transformer losses (Full load losses - I 2 R). The resistance of a wire is directly related to its temperature. For a given conductor, it’s total resistance may be very different depending on it’s temperature at the moment of the measurement. Load losses (I 2 R) are affected by the resistance of the winding, the higher the resistance, the higher the load losses of the transformer. Therefore, the transformer test result will be affected by the ambient temperature where the unit is tested. To account for those variations, test standards require that losses measurements are referenced to a temperature baseline. DOE 2016 requires the temperature baseline to be 75°��. Other industry standards use the temperature rise + 20°��. Same measurement expressed at different temperature baseline. © 2016 Eaton. All Rights Reserved. 6

Transformer Efficiency Explained Energy Efficiency. The efficiency of a transformer is based on a very simple principle: In a transformer with no losses, the input and output are the same; since the losses depend on the load level (output) the efficiency of the transformer is expressed using the output. The transformer efficiency is then defined as: © 2016 Eaton. All Rights Reserved. 7

Additional Considerations Energy Efficiency / Load Level The efficiency of a transformer will vary with the % of load. Transformer Efficiency 100. 00% 99. 50% % of Efficiency 99. 00% 98. 50% 98. 00% 97. 50% Efficiency @ 75 C 97. 00% 96. 50% 96. 00% 95. 50% 95. 00% 0 10 20 30 40 50 60 % of Load 70 80 90 100 © 2016 Eaton. All Rights Reserved. The DOE establishes the minimum efficiency levels at 35% load, however, the TOC and energy efficiency may be calculated at the load that is most typical of how the transformer will be used. 8

Transformer Efficiency Explained Transformer Efficiency Regulation in the US • Energy Policy Act of 2005 (EPAct 2005) mandated low-voltage, DTDTs manufactured after January 1, 2007 to have efficiencies as defined by federal code 10 CFR Part 431 (commonly known as “NEMA TP-1”) when loaded at 35% of nameplate k. VA and at 75°C. • April 10, 2013 the D. O. E. issued new efficiency levels which are roughly based on the NEMA Premium Efficiency program and CSL 3 efficiencies. These new efficiency levels came in effect starting on January 1, 2016 © 2016 Eaton. All Rights Reserved. 9

Transformer Efficiency Explained • Transformers were already highly efficient at the NEMA TP-1 levels, however: • Transformers are not normally shut off and there are losses even when there is no load • Improved efficiency will pay dividends 24/7 for decades • Improving 150 k. VA efficiency from 98. 3% to 98. 83% is a 31% improvement • In a K-12 building, total annual losses are reduced from 4. 09 Megawatts (MW) to 2. 67 MW, a 35% reduction** ** Comparison is TP-1 vs. DOE 2016 efficient designs. © 2016 Eaton. All Rights Reserved. 10

Purchasing Decision What to Consider when buying an Energy Efficient Transformer Purpose Retrofit New Installation • Driven by the payback on energy savings. • The savings are the difference between the operating costs of the existing vs. the new transformer. • Represent the sum of purchase price plus operating costs. • • Cost savings must compensate for the transformer cost + installation + any additional risk. If done proactively it can yield additional savings. • Choose among alternatives in a purchasing decision. • Consider not just the initial cost, but also the long-term operating costs. © 2016 Eaton. All Rights Reserved. 12

Return On Investment – in Retrofit Cost Savings – Replacement Alternatives (Retrofit) The only energy that can be saved is the energy that is wasted. . . The efficiency level of a transformer translates into economical benefits for the end customer through the lower cost of operation of the transformer which is the electricity cost in dollars per k. Wh of having the transformer energized. The cost savings are then the difference between the operation cost of the alternatives available. Cost Savings 1 2 3 4 . . . 20 Transformer lifespan (years) Operating Costs existing unit Operating Costs replacement unit Initial Price © 2016 Eaton. All Rights Reserved. 14

Savings will depend on the loading profile DOE 2016 vs. TP 1 Efficiency Loading Profiles 28. 41 % Equivalent load 23. 47 % Equivalent load 24. 55 % Equivalent load • Heavy load 8: 00 -17: 00 Hrs Monday to Friday. • Lightly loaded during the morning. • Heavy load during the morning. • Half day Saturday • • • Minimum load on Sunday Heavily loaded noon to closing. Light load in the after noon. • Monday to Sunday. • Minimum load on weekends. $160/year savings in operating costs. $146/year savings in operating costs. © 2016 Eaton. All Rights Reserved. $148/year savings in operating costs. *Based on 75 k. VA, AL, 150 C rise 16

Savings will depend on the loading profile… DOE 2016 vs. TP 1 Efficiency – Commercial Profile Savings in a Commercial Loading Profile. 28. 41 % Equivalent load $160/year savings in operating costs. Net cost savings $640 $320 … $1600 $3, 200 Net Cost Savings over the lifespan of the transformer $480 $160 1 2 3 4 … 10 20 Transformer lifespan (years) Payback on year 10 Initial Price ($1, 600) © 2016 Eaton. All Rights Reserved. *Based on 75 k. VA, AL, 150 C rise 17

Discounted cash flows Cost Savings – Time Value of Money. Similar to the TOC the time value of money has to be considered in the expected cash flows. In order to evaluate the investment on a transformer replacement, the NPV (Net Present Value) is the right tool to account for the initial cost and the time value of money. Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. Where: a = Inflation Index. I = Interest rate (cost of capital). n = number of years. A positive net present value indicates that the savings generated by the new transformer (in present dollars) exceeds the anticipated cost. (+) NPV will be profitable (-) NPV will result in a net loss. © 2016 Eaton. All Rights Reserved. 18

Discounted cash flows Net Payback Note: Discounted payback accounts for: Inflation = 2. 10% Interest Rate = 8. 00% Discounted Payback • Time value of money • Investment premium rate. • Inflation. © 2016 Eaton. All Rights Reserved. *Based on 75 k. VA, AL, 150 C rise 19

Investment Decision DOE 2016 Vs TP 1 Efficiency – Commercial Profile Net Present Value Decision. A dollar earned in the future won’t be worth as much as one earned in the present. The discount rate element of the NPV formula is a way to account for this. A positive net present value indicates that the savings generated by the new transformer (in present dollars) exceeds the anticipated cost. (+) NPV will be profitable (-) NPV will result in a net loss. © 2016 Eaton. All Rights Reserved. *Based on 75 k. VA, AL, 150 C rise 20

DOE 2016 vs. TP 1 and Pre-TP 1 Efficiency – Commercial Profile Around 50% more cost savings by substituting Pre_TP-1 units (before 2007). $248 % of Load 25% 28. 41% 35% 50% 75% 85% 100% TP-1 annual savings $ 151 $ 160 $ 185 $ 259 $ 440 $ 532 $ 693 Pre_TP-1 annual savings $ 236 $ 248 $ 279 $ 370 $ 594 $ 709 $ 907 © 2016 Eaton. All Rights Reserved. 22

DOE 2016 vs. TP 1 and Pre-TP 1 Efficiency – Commercial Profile Replacing a TP-1 Transformer Replacing a Pre_TP-1 Transformer • Payback = 6 years • Payback = 10 years • Discounted payback = 9 years • Discounted payback = 16 years • NPV = $ 1, 296 USD • NPV = $ 269 USD • Total Net Savings = $ 4, 960 USD • Total Net Savings = $ 3, 200 USD © 2016 Eaton. All Rights Reserved. 23

Making Retrofitting Easy Eaton can help making your retrofit installation easier, by matching the footprint. dimensions and terminal placement of the unit you are trying to replace, saving you time and avoiding costly modifications to your electrical room. Before After © 2016 Eaton. All Rights Reserved. 24

Return On Investment – New Transformers What to consider when buying an Energy Efficient Transformer Total Ownership Cost Purpose New Installation Cost of Load Losses Cost No-Load Losses • Represents the sum of purchase price plus operating costs. Initial Cost • Choose among alternatives in a purchasing decision. (Price) • Consider not just the initial cost, but also the long-term operating costs. © 2016 Eaton. All Rights Reserved. 26

Return On Investment – New Transformers Total Ownership Cost – Buying Alternatives. Total Ownership Cost (TOC) is defined as the purchase price of an asset plus the costs of operation. When choosing among alternatives in a purchasing decision, buyers should look not just at an item's short-term cost, which is it’s purchase price, but also at it’s longterm cost, which is its total cost of ownership. Cost No-Load Losses Initial Cost (Price) © 2016 Eaton. All Rights Reserved. Total Ownership Cost (Option B) The option with the lower total cost of ownership is the better value in the long run. Total Ownership Cost (Option A) Cost of Load Losses Cost No-Load Losses Initial Cost (Price) 27

Higher than DOE efficiency levels You can only save energy that is wasted. . . 10 CFR 431 (DOE 2016) has established that the load level, or Per Unit Load (PUL), for a low voltage dry-type distribution transformer should be 0. 35 (35% load) and the losses should be corrected at 35% loading at 75 C. i. e. a 75 k. VA transformer: Rated k. VA Total Loss = 373 Watts Total Loss = 313 Watts 75 k. VA PUL 0. 35 Pos (75*0. 35) = 26. 25 k. VA Efficiency levels DOE 2016 Competitor’s claimed “higher” Efficiency 98. 60 % 98. 82 % The difference between the DOE 2016 and the “Exceeded” efficiency is only 60 Watts. © 2016 Eaton. All Rights Reserved. 28

Economical Benefit…. Everyone wants to save energy… With the cost of energy rising, even a small amount of savings can become a significant amount of money. The problem is that the “low hanging fruit” has already been picked. i. e. our 75 k. VA unit…. Average Retail Price of Electricity (Cents per kilowatthour)* The difference is 60 Watts. Only 0. 06 k. W. In a year 525. 6 k. Wh. Residential Commercial Industrial 12. 55 10. 37 6. 75 Annual cost savings when exceeding the DOE efficiency levels 65. 96 USD 54. 50 USD 34. 47 USD This may look like a good deal over the 20 years lifespan of the Xfmr but it is not !!!! © 2016 Eaton. All Rights Reserved. *Prices retrieved from U. S Energy Information Administration. 29

Economical Benefit…. Total Ownership Cost The present value of the higher efficiency unit incurs in a premium that the customer must be willing to pay… Actual Cost Avoidance of Exceeding DOE Efficiency Sector Total Ownership Cost (TOC) Present Value of the Higher Efficiency Cost of Load Losses Cost No. Load Losses Initial Cost Residential Commercial Industrial $ 637. 8 $ 527. 4 $ 343. 20 Because these cash flows are expected in the future and they are not risk free, they have to be referenced into today’s value of money. (Price) © 2016 Eaton. All Rights Reserved. The real present value of the savings projected 20 years in the future, is really not the annual savings x 20 years 30

Return On Investment Although the operational costs are lower, the initial cost of the higher than DOE 2016 efficient unit results in a higher total ownership cost (TOC) vs. a standard DOE 2016 efficient unit. © 2016 Eaton. All Rights Reserved. 32

Conclusions: With the recent implementation of the DOE 2016 regulation, the benefits from efficiency improvements over the previous TP-1 levels were significant and in many cases does not justify the investment in higher than DOE 2016 efficiencies. As a result, most of the benefits from energy efficient transformers come from the replacement of legacy units from the TP-1 (2007) and pre TP-1 eras. To calculate the business opportunity of replacing a transformer, a thoughtful analysis must be made to avoid misperceptions of the actual benefits from the project. EATON can Help!!. . . Contact: Mike Ubanoski Application Engineer Eaton Corporation (936) 276 -8269 Mike. TUbanoski@Eaton. com © 2014 Eaton. All Rights Reserved. .