(a) The life-cycle cost methodology under §455.63(b) of this part is a systematic comparison of the relevant significant cost savings and costs associated with an energy conservation measure over its expected useful life, or other appropriate study period with future cost savings and costs discounted to present value. The format for displaying life-cycle costs shall be a savings-to-investment ratio.

(b) An energy conservation measure must be cost effective, and its savings-to-investment ratio must be greater than or equal to one no earlier than the end of the second year of the study period.

(c) A savings-to-investment ratio is the ratio of the present value of net cost savings attributable to an energy conservation measure to the present value of the net increase in investment, maintenance and operating, and replacement costs less salvage value or disposal cost attributable to that measure over a study period.

(d) Except for energy conservation measures to shift demand or to use renewable energy resources, the numerator of the savings-to-investment ratio shall include net cost savings, appropriately discounted and adjusted for energy cost escalation consistent with paragraph (g) of this section, subject to the limitation that the cost of the energy to be saved shall constitute at least 50 percent of the net cost savings unless the State specifies a higher percent in its State plan pursuant to §455.20(u)(3).

(e) With respect to energy conservation measures to shift demand or to use renewable energy resources, the numerator of the savings-to-investment ratio shall be net cost savings appropriately discounted and adjusted for energy cost escalation consistent with paragraph (g) of this section.

(f) The study period for a life-cycle cost analysis, which may not exceed 15 years, shall be the useful life of the energy conservation measure or of the energy conservation measure with the longest life (for purposes of ranking buildings with multiple energy conservation measures).

(g) The discount rate must equal or exceed the discount rate annually provided by DOE under 10 CFR part 436. The energy cost escalation rates must not exceed those annually provided by DOE under 10 CFR part 436.

(h) Investment costs may be assumed to be a lump sum occurring at the beginning of the base year, or to the extent that there are future investment costs, discounted to present value.

(i) The cost of energy and maintenance and operating costs may be assumed to begin to accrue at the beginning of the base year or when they are actually projected to occur.

(j) It may be assumed that costs occur in a lump sum at any time within the year in which they are incurred.