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Services & Maintenance: Funding Energy Projects

Written by Services and Maintenance Contributor. Posted in Energy, Featured Post, In-Depth Articles, Magazine, Services & Maintenance, Topics

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Published on March 29, 2013 with No Comments

By improving their energy usage profile, facility managers will reduce the pressure their organizations place on the utility grid. (Photo: Thinkstock/Ryan McVay)

By improving their energy usage profile, facility managers will reduce the pressure their organizations place on the utility grid. (Photo: Thinkstock/Ryan McVay)

By Ash Awad, P.E.
Published in the March 2013 issue of Today’s Facility Manager

One of the outcomes of the Great Recession is a deeper appreciation for the immense potential of energy efficiency in the United States. It’s rare to find a market opportunity that creates equally positive impacts on the environment as it does the economy. This could be thought of as the “new power” behind building efficiency and energy standards.

The challenge of engineering efficient schools, hospitals, offices, data centers, manufacturing plants, and more is a daunting task. It’s estimated there is approximately 80 billion square feet of non industrial facility space consuming 70% of the electricity in the United States. Studies show that nearly 50% of that energy is wasted, which makes inefficient use of electricity a significant issue for facility managers (fms). By implementing only the energy efficiency measures that pay for themselves, 1.1 gigatons of carbon emissions per year could be prevented. This is the equivalent of shutting down more than 200 coal-fired power plants.

Public officials throughout the United States are acutely aware of this challenge. Federal departments and numerous states have allocated funds and enacted new laws to jump-start energy and operational cost saving improvements in public and private facilities.

While the opportunity to reduce utility consumption exists in all building types, recent funding programs and public policy initiatives have primarily centered on government and institutionally owned assets. Such was the case in 2012 in Washington state where the legislature refunded the Jobs Now Act. This Act directed $78 million to a competitive grant program focused on addressing aging and failing infrastructure in schools, government buildings, and public hospitals by funding energy efficiency systems.

A similar effort has been undertaken in California with a voter approved proposition in November 2012. Prop 39 is predicted to generate a little over $1 billion per year in new revenue for the state, and half of that will be directed to an energy efficiency grant program for updating schools. Adding to the momentum, the Wisconsin Legislature recently amended school levy legislation with the intent of making it easier for schools to fund energy efficiency projects that pay for themselves with savings.

All three of these examples have resulted in a notable increase of energy related projects that address health and life safety needs in facilities while also putting construction trades, engineers, and designers back to work.

Programs like those in Washington, California, and Wisconsin represent catalytic opportunities for public fms to fund performance based energy projects that can provide guaranteed operational cost savings while adding jobs. Typically these projects are designed and delivered in collaboration with local energy efficiency providers to leverage additional local funding resources including utility incentives, low interest loans, and other alternative financing packages.

These types of programs are a welcome start in bringing public facilities up to current energy efficiency standards. But there is much more to be done.

Leveraging A Cleaner Future

Historically, the topic of financing has dominated any policy debate on how to scale energy efficiency. While access to financing is rarely an impenetrable barrier to move an energy efficiency project forward in the non-residential market, that’s not to say there aren’t challenges. To realize fully the power of energy efficiency and on-site renewable systems at a neighborhood or community scale, the market needs policy framework that goes beyond finance and accounting to develop a new ecosystem that encourages deep and persistent utility savings for fms, their occupants, industry players, and utilities alike. This ecosystem would encourage transparency and reward measureable outcomes. [To read about strategies for financing solar energy project, read “Shining Light On Solar Energy Choices.”]

There are three critical steps that, if implemented, could open up the market potential of energy efficiency and resource conservation: performance based outcomes, energy labeling, and pay for performance.

Performance Based Outcomes

As exemplified in Washington, California, and Wisconsin, performance based outcomes are conditional to participation in the programs. State and federal funding of energy efficiency initiatives must be connected directly to expected results. If federal and state agencies provide grants and tax incentives for projects, there should be a performance mandate associated with the funding.

Financial efficiency is as important as energy efficiency. Stakeholders should demand the money is used in the most efficient manner and that the infrastructure improvements are performing as anticipated.

North of Seattle, WA, the Mukilteo School District is a prime example of performance based outcomes. The district was successful in identifying an energy efficiency project that would receive funding through the Washington state Jobs Now Act. As a result, the district was able to supplement and leverage its capital budget for facility upgrades with a $1.3 million Office of Superintendent of Public Instruction grant. The grant produced a 1.5 to 1 matching opportunity, which resulted in $3.35 million for the entire project.

So what was accomplished? At Mukilteo’s Discovery and Olympic View elementary schools, existing heating water boilers were from the original 1960s construction and very inefficient. These boilers were replaced with high efficiency condensing boilers, and new boiler controls were provided to optimize energy efficiency.

At four other Mukilteo school facilities, the original heating hot water piping systems were in a state of failure, including leaking couplers that caused the boilers to operate continuously, year-round. Couplings were replaced to eliminate the leaks and allow for the boilers to be shut off at night and on weekends and holidays. The result was significant energy, water, and chemical savings and reduced water damage potential.

Last but not least, the district’s building energy management control system was replaced to allow for significantly better control of the HVAC and other facility systems.

As a result, the Mukilteo School District has projected a $5,600 annual utility savings (kWh) and more than $77,500 in annual gas savings (Therms). And in addition to enhancing the general fund through electric and gas bill savings, the project stimulated the local economy by maximizing the use of in state labor and by adding a projected 30 to 60 new direct and indirect jobs to the economy.

Monetizing Backup Generators

By Kevin Kushman

The generators that provide backup power to a facility during an outage on the electrical grid are often considered just a cost of doing business for the facility. But what if those generators could pay for themselves in other ways? For example, if facility managers (fms) conduct the regular load tests on their generators during a period of peak demand, the money received for participating in their electric utility’s demand response (DR) program could be enough to pay for replacement fuel. Even greater revenue potential exists in some ancillary energy markets, where DR aggregators are able to get extraordinarily high “spot” prices on the wholesale market, and pass those along to participating facilities.

All DR programs operate on the simple principle that there are only two ways to accommodate periods of peak demand for electricity: increase supply or reduce demand. Increasing supply is very expensive. The reason is the high cost to operate “peaker” power plants that must have “spinning reserve” capacity available at the ready, making the price for this power on the wholesale market considerably more expensive than the power provided by baseload plants.

Because spot prices on the wholesale electricity market for peaker power is so expensive, utilities are willing to pay a comparable amount to fms who participate in DR programs. While rates vary among regions and change constantly, some independent system operators (ISOs) are offering over $80,000 for every megawatt reduction in demand. The DR aggregators receiving these payments from the ISOs normally pay participating organizations about 80% of the total, which translates into $64 per kilowatt in this example.

Fms can participate by committing to reduce demand during peak events through a number of means, such as temporarily shutting off large loads (e.g., motors, pumps, compressors) or firing up backup generators. The U.S. Environmental Protection Agency (EPA) now permits the dispatch of generators for up to 100 hours per year to support participation in emergency grid instability events.

There is good news and bad news for fms who participate in DR programs. The good news is that recurring payments, based on the committed response, are received whether or not there is a DR event—and in some years there are none. The bad news is that when there is an event, organizations must typically respond in 30 minutes or less. For fms who manage their energy assets manually, this need for a rapid response can make it difficult or impossible to participate.

Alternatively, if an organization has a digital energy network in place, when notice comes that a DR event is imminent the fm can use the network console to take the actions necessary to reduce less critical loads and/or fire up the backup generators, making adjustments as required to satisfy the commitment. One reason organizations include their generators when participating in a DR program is that these must be tested under full load periodically anyway. The use satisfies the test requirement, and the income received often more than covers the cost of replacement fuel.

There are essentially two ways to automate the management of disparate and distributed energy assets: a custom integration project or a packaged solution. Both options create a digital energy network, the objectives of which are to centralize and simplify the monitoring and management of all energy assets, and to automate as many procedures as possible.

Creating a digital energy network requires adding a layer of intelligence to an organization’s energy assets, which endows them with full remote command and control capabilities. It then networks all assets into a system of subsystems for centralized monitoring and management. The resulting network can also interface with other energy management systems, providing centralized control with real-time situational awareness down to the circuit level.

To date, most attempts to implement a digital energy network have involved a custom development project. According to Pike Research, a division of Navigant Consulting: “The downside to this industrial automation approach is that every system is a customized solution often dependent upon large amounts of implementation-specific software development. Every time a new DER [distributed energy resource] is added to the network, an engineer must add additional custom software code to the system.”

These custom projects normally encounter a range of sometimes insurmountable problems, including missed deadlines and cost overruns, cyber security vulnerabilities, poorly documented systems, and limited capabilities that require workarounds and manual procedures. Alternatively, a packaged digital energy network solution normalizes and standardizes the management of different vendors and vintages of generators and other disparate energy assets. According to Pike Research, “the resulting plug and play digital energy network provides a more comprehensive and, in most circumstances, cost-effective alternative to custom SCADA-based control systems.”

A packaged digital energy network normally consists of enterprise software at the applications layer that runs on a central server, and “microservers” at the network layer that are connected to all energy assets, including generators, switchgear, fuel systems, cogeneration, chillers, etc. The microservers add the cyber secure intelligent interface needed to network an asset regardless of age or sophistication. Distributing intelligence to the asset is also what makes it possible to normalize common monitoring and management tasks, providing a holistic view.

In the future, when the Open Automated Demand Response (OpenADR) standard is implemented by DR aggregators, the more capable digital energy networks will be able to respond automatically to an fm’s instructions.

In addition to enabling organizations to participate in DR programs, a digital energy network helps reduce operational expenditures and affords other cost saving advantages. The combined effect has potential to turn backup power systems from cost center to profit center.

Kushman

Kushman

Kushman is chairman and CEO of Blue Pillar, a digital energy network company and developer of packaged software solutions based in Indianapolis, IN. Prior to taking this position in 2010, he served as the company’s Chairman since 2009. Kushman has experience in energy technology executive management, investing and integration, project development, and corporate finance. He holds an MBA from Xavier University and a bachelor’s degree in economics from Miami University, Oxford, OH.

Energy Labeling

This approach could become a new norm for the built environment. As this issue develops further, aggressive public disclosure of how a facility performs may become standard. New York City is a leader for such efforts, and other cities and states are not far behind. For instance, the Massachusetts Department of Energy Resources is conducting a pilot of its proposed MPG Rating for Commercial Buildings. As the department likes to point out, the concept “equates building labeling with the familiar car performance rating of miles per gallon (MPG).”

Federal agencies and other state and local governments are also taking action by adopting required policies and volunteer campaigns that leverage EPA’s Energy Star tools to reduce energy use in commercial facilities. Most efforts, however, are still in their infancy. Labeling needs to be a required part of all initiatives.

Pay For Performance

Much of the country’s electrical grid infrastructure is fast approaching the end of its useful life—resulting in the expectation of unprecedented capital investments over the next decade and beyond. Combine this with carbon reduction goals, smart technology, distributed renewable systems, and abundant domestic natural gas supplies and what is left is an antiquated utility business model. The centralized grid is giving way to a decentralized neighborhood scale resource district.

Pay for performance incentive programs are being explored by utilities. This approach treats “a watt conserved” as equal to “a watt generated.” The result is that resources would be measured in real time at the meter versus predicted by the equipment choice. With this approach, performance based incentive programs would transition from an upfront rebate based on deemed savings to an annual payment stream based on actual savings.

The Triple Play

Awad

Awad

So what does this all mean? Fms have a newfound power to create jobs and help to deliver a beneficial triple bottom line. These actions can and will have a huge impact on communities, the environment, and the economy. So, whether it’s working with energy efficiency companies to win facility improvement grants or collaborating with federal, state, and local agencies to create innovative methods for funding the creation of healthier facilities, the window of opportunity is open now. Fms can take the first step by contacting their state’s energy office or local utilities’ conservation department to see what programs and services are available.

Awad is vice president, energy & facility services for McKinstry, a design, build, operate, and maintain firm specializing in consulting, construction, energy, and facility services.

About Services and Maintenance Contributor

Facility managers are often required to take a reactionary approach when it comes to problem solving. This column provides proactive, “how to” solutions to some of the ongoing issues. For additional Services & Maintenance articles, click this link.

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