LCA Food 2012 in Saint Malo, France! - Manifestations et colloques ...

PARALLEL SESSION 1B: TOWARDS LIFE CYCLE SUSTAINABILITY ASSESSMENT 8 th Int. Conference on LCA in the
Agri-Food Sector, 1-4 Oct 2012
Figure 1. Cumulative carbon footprint as a function of the cumulated discounted costs at the long term interest
rate, differentiated over the expected lifetime of investment. The corresponding internal rate of return
(IRR) is given below the final cumulated value at end of life.
Over the lifetime of the investment, the ventilation equipment presents a discounted cumulated profit of
$9,000, equal to 40% of the initial investment cost. The IRR of this investment is equal to 13%. It also generates
a significant reduction in GHG of nearly 300 tons CO2e over the lifetime of the equipment.
The lighting equipment reaches the economic break-even point early, at year 3. Over the lifetime of the
equipment, it generates a discounted cumulated profit (NPV) of $ 54,000, equal to 137% of the initial investment
cost. The IRR of this investment is very high at 36%. The effect on the reduction of GHG is over
800 tons of CO2e over 7 years. We can graphically see that the lighting investment is economically more
interesting than for the ventilation equipment. This difference is directly reflected in the IRR. The ventilation
scenario’s IRR is 13%, whereas the lighting IRR is 36%. However, both scenarios generate a profit over
their lifetime, and this can be identified by the fact that their IRR is above the discount rate of 6%. A scenario
with an IRR equal to 6% would generate a cumulated profit equal to zero. A typical minimum expected
rate of return is 10%.
The discount rate value selected has an important influence on the assessment of economic performance; in
most cases, most of the costs occur in the first years, and most of the benefits occur in the following years.
On the graph, the discount rate is taken equal to the long-term interest rate, so that the yearly evolution represents
the effective gain or loss actualised at year 0. This is equal to a net present value of $ 54,000 for the
lighting and $9,000 for the ventilation. A higher discount rate of e.g. 10% can lower the economic benefit of
the use phase and would lead to a lower net present value of $41,000 for the lighting and $3,500 for the ventilation.
The advantage of calculating the internal rate of return is that it is independent of the arbitrary choice
of a discount rate.
4. Discussion and sensitivity study for the energy saving case study
Two main parameters directly influence the profitability of the scenario: the expected lifetime of the
equipment and the price of electricity. We study the sensitivity of the IRR to different values of these parameters,
varying them from low to high lifetimes, and from low to high electricity price. Table 3 compiles
the resulting internal rates of return.
Table 3. IRR of the scenarios with varying equipment lifetime and electricity price.
Lighting Ventilation
Low Base case High Low Base case High
Estimated lifetime 5 years 7 years 10 years 7 years 10 years 12 years
Price of
electricity
$0.07/kWh 13% 22% 27% -3% 6% 9%
$0.10/kWh 29% 36% 40% 6% 13% 16%
$0.12/kWh 39% 45% 48% 12% 18% 20%
For lighting, the IRR of 36% is much higher than the long-term interest rate of 6%, and is thus financially
very interesting; this scenario remains of interest for shorter lifetimes and/or for lower electricity prices.
The IRR is very sensitive to a lower price of electricity: it drops to 22% if the price of electricity is lower by
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