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Case Discussion Questions LEGRAND 7 What are the appropriate incentives for Legrand to undertake an energy efficiency project? Future regulations Short payback periods Long term

Case Discussion Questions

LEGRAND 7

What are the appropriate incentives for Legrand to undertake an energy efficiency project?

Future regulations

Short payback periods

Long term savings

Pro Forma Model based on Lighting Projection
1. Taxes are applied to avoided costs
2. Annual energy increase is assumed to be 3 percent (see cell M12)
3. Federal marginal tax rates of 35% are assumed (cell B21)
Assumptions
Lighting Investment (Gross) $211,473
Duke Rebate per Fixture $50.00
x # of Fixtures 938
=Duke Rebate $46,900
Area of warehouse in sqft 330,000
x Per sqft deduction $0.60
= Allowable Deduction $198,000
Min of Allowable and Investment $198,000
x Federal Tax Rate 35%
= 2005 Energy Policy Act Deduction $69,300
Lighting Investment (Gross) $211,473
+ Duke Rebate $(46,900)
+ 2005 Energy Policy Act Deduction $(69,300)
= Lighting Investment (Net Incentives) $95,273 (A)
Standard Energy Use Old System New System
Hours per Day (6 am - 12 am) 18 9
x Days Per Week (Mon-Sat) 6 6
x Weeks per Year 52 52
Hours of Operation per Year 5,616 2,808
Watts per unit 456 147
/Watts per kW 1,000 1,000
x Units 938 938
= Kilowatts per hour 428 138
Hours of Operation 5,616 2,808
kW per hour 428 138
= kW consumed 2,402,120 387,184

Energy Avoided, yr. 1 (kWh/year)

Year 1 avoided energy cost/kWh $0.06 (B)
Annual energy cost increase 3.0%
Carbon per kWh from grid (pounds) 1.8
/ pounds per ton 2,000
x Energy Avoided per Year (kWh/year) 2,014,937 (C)
x Years of Operation 20
= Tons of Carbon Avoided/ 20 years 36,269 1813.442904
Lighting Investment (Gross) $211,473
/ Tons of Carbon Avoided 36,269
=$ per ton of Carbon Pre Incentive $5.83
Lighting Investment (Net Incentives) $95,273
/ Tons of Carbon Avoided 36,269

=$ per ton of Carbon Post Incentive

Pro Forma Analysis Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20
Investment
Upgrade Cost Net of Incentives (A) $95,273 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
running costs 150000 31361.89 32302.75 33271.83 34269.99 35298.09 36357.03 37447.74 38571.17 39728.31 40920.16 42147.76 43412.20 44714.56 46056.00 47437.68 48860.81 50326.63 51836.43 53391.53 54993.27
Avoided Costs
Avoided energy costs (B * C) $0 $120,896 $124,523 $128,259 $132,107 $136,070 $140,152 $144,356 $148,687 $153,148 $157,742 $162,474 $167,349 $172,369 $177,540 $182,866 $188,352 $194,003 $199,823 $205,818 $211,992
Avoided cost of carbon credits $0 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574 $10,574
Tax on avoided cost $0 ($46,014) ($47,284) ($48,591) ($49,938) ($51,325) ($52,754) ($54,226) ($55,741) ($57,302) ($58,911) ($60,567) ($62,273) ($64,030) ($65,840) ($67,704) ($69,624) ($71,602) ($73,639) ($75,737) ($77,898)
Total Avoided Costs $0 $85,455 $87,813 $90,241 $92,742 $95,318 $97,972 $100,705 $103,519 $106,419 $109,405 $112,481 $115,649 $118,913 $122,274 $125,736 $129,302 $132,975 $136,758 $140,654 $144,668
Cash Flow ($245,273) $54,094 $55,510 $56,969 $58,472 $60,020 $61,615 $63,257 $64,948 $66,691 $68,485 $70,333 $72,237 $74,198 $76,218 $78,298 $80,441 $82,648 $84,921 $87,263 $89,675
Cumulative cash flow ($245,273) ($191,179) ($135,669) ($78,700) ($20,228) $39,792 $101,407 $164,663 $229,612 $296,302 $364,787 $435,121 $507,358 $581,556 $657,774 $736,073 $816,514 $899,162 $984,083 $1,071,346 $1,161,020
CASH FLOW (NO TRADING) ($245,273) 47,221 48,637 50,096 51,599 53,147 54,742 56,384 58,075 59,818 61,612 63,461 65,364 67,325 69,345 71,425 73,568 75,775 78,049 80,390 82,802
CUMUlative cash flow (No trading) (198,052.4) (149,415.1) (99,318.8) (47,719.5) 5,427.7 60,169.4 116,553.3 174,628.7 234,446.4 296,058.6 359,519.2 424,883.6 492,208.9 561,554.0 632,979.4 706,547.7 782,322.9 860,371.4 940,761.4 1,023,563.0
Annual Discount Rate 10%
NPV $278,834 NPV (No carbon trading) 225,640.82
Net Price per Ton ($7.69)
IRR (no residual value) with trading no trading
5 year 5% 1%
7 year 20% 10%
10 year 23% 17%
20 year 24% 22%

$2.63

2,014,937

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