FM Issue: Energy Savings

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By Mike Gordon

Published in the October 2007 issue of Today’s Facility Manager

 

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(Credit: Image provided by iStock; Design by Jeff Clapp, Creative Director, Group C.)

Five years ago, the cost side of the energy conservation challenge mattered less. Today, prices fluctuate from day to day (and sometimes even hour to hour), so facility managers practically need to be financial wizards to protect their employers from serious exposure. Further, quasi-private and government agencies are changing the rules of the game every day.

Now, energy efficiency improvements and better building controls and information can not only be used to save money, but they can also earn cash back. Smart facility and building portfolio managers can garner big bucks if they can deliver reliable operations that keep building occupants happy.

 

Savings Into Earnings

It doesn’t matter for reliability’s sake whether a new power plant is turned on to meet extra demand or unnecessary consumption is shut down instead. That’s why, in most locations, markets now reward facilities for cutting power for approximately 10 to 20 hours each year. Additionally, large end users are routinely paid for every kW they shed when power plants must work overtime during an emergency or blackout situation.

There are also earnings opportunities for businesses that invest in upgraded systems. For instance, large power sales companies will fund upgrades in commercial properties in order to maintain their license to market electricity. So any building that installs new power saving equipment will be able to measure how much that building actually conserves over the years. The building will then register the verified savings in the form of a certificate.

Most power marketers will eventually have to purchase a certain number of these certificates for each unit of power it sells. For instance, Con Edison in New York City could buy certificates from buildings that installed newer, more efficient chillers. However, the building that installed the chiller will still own the savings certificates, even if another entity has helped to defray some of the initial installation costs.

 

Doing The Math

Imagine that Goldman Sachs were to install new, super efficient servers in Manhattan. This move would save them 2,000 kW on a hot summer afternoon. A third party entity might pay them to defray the cost of that investment.

If those servers operate for half the hours of the year, Goldman Sachs would also be able to sell its reduction certificates to its utility (in this case, Con Edison). In some markets, these certificates would earn the company as much as an additional $280,000 annually for the next 10 years.

Yet, in designing these new energy efficiency markets, the devil is in the details. After the completion of the contract, the utility may modify the agreement to its benefit. For instance, Con Edison could specify that, if an end user were to take the dollars to defray the installation, Con Edison would be entitled to the $280,000 per year the certificates will fetch.

This modification in terms would put Goldman Sachs in a difficult position. The company could either accept some support to defray the cost of installing efficiency upgrades or take the cash from selling the certificates.

Because the framework is now so complex and subject to rapid change, market structures must be designed to work in favor of those who make decisions in a facility. So when new market structures are put in place, the facility manager must have the right tools to take best advantage of them.

 

Real Life Examples

Here are two instances that describe how facility managers are creatively meeting the challenges posed by today’s high energy costs and changing markets.

CB Richard Ellis. Bob Breschard is in charge of several properties for CB Richard Ellis. Breschard surveyed the profitability of his portfolio and determined that energy is an area that can make his company both attractive and successful in even the most competitive commercial real estate markets.

One of Breschard’s facility managers, Vince Fantauzzi, handles more than one million square feet of commercial property in Manhattan. Over the past several years, Fantauzzi aggressively looked for new earnings, occupant enrichments, and operational efficiencies.

In 2002, Fantauzzi’s efforts paid off. Initially, he was able to deliver a $225,000 check just as he sought to renew a contract for the next year. Since then, Fantauzzi has reduced his peak demand charges by nearly 20%, saving close to $2 million over that time.

Another facility manager on Breschard’s team, Lou Trimboli, used direct interval metering data to provide audit quality projections for $700,000 of facility upgrade spending. These upgrades not only enhanced security in the building, but they also paid back on the investment in three years.

As supervisor, Wayne Taub gave Breschard free rein regarding the initiatives headed up by Trimboli and Fantauzzi. Pleased with the results, Taub is now replicating these programs throughout the CBRE New York portfolio and is considering nationwide adoption of them, wherever appropriate.

Cushman & Wakefield. “Good corporate citizenship is a priority for Cushman & Wakefield, a leading global real estate services firm. Giving back to each community has become very important,” says Ray Benemerito, property manager of a Class A building in Manhattan.

“When looking for innovative ways to become smarter about our facility’s overall energy consumption, we saw a way to ‘do well by doing good,’” he says. “We learned that New York City’s energy markets were structured such that our facility could support the energy grid through electricity reductions during peak periods or cuts when the threat of a power outage loomed. This process, also known as demand response, has not only generated significant revenue for our facility, but it has ultimately helped save New York from wider blackouts, despite spotty outages during the summer of 2006.”

Benemerito and his team identified energy reduction strategies to employ during demand response events. As a result, the facility now switches to a steam chiller, raises HVAC set points, turns off escalators and non-essential lighting whenever possible. These techniques reduce enough electricity to sell back excess to the power grid without limiting operations or compromising comfort of occupants.

The facility is so committed to reducing its energy use in an intelligent way, it is in the process of conducting a full property energy audit. This exercise will encompass everything from the assessment of capital improvements to identifying energy tax savings. [For more on this issue, see the accompanying sidebar, “Boosting Energy Efficiency’s Payback” by Steve Kiesner.]

“We are exploring what capital improvements we can make to consume energy efficiently and determine what grant or tax savings opportunities we can leverage to minimize the costs involved in these upgrades,” Benemerito says.

He concludes, “Managing 1.4 million square feet of property comes with a certain amount of responsibility. For me and my facility, it is important to consume energy wisely, reducing that consumption whenever possible.”

Energy usage and cost savings are top of mind these days—especially for anyone in charge of running commercial buildings. Keeping these properties physically comfortable for workers as well as financially solvent for owners are top priorities. Each building community is distinct, and managers should strive to develop energy saving programs that are the best possible fit for the budget and for the people who work inside.

Gordon is president and founder of ConsumerPowerline, a strategic energy asset management firm based in New York, NY.

 

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