Energy Management Increasingly Seen as a Source of Competitive Advantage

Deloitte’s 2015 Resource Study found that business increasingly views an active energy management program as a way to create and maintain competitive advantage. The study, first conducted in 2011 and update annually thereafter, is based on a survey of over 600 corporate energy management decision-makers. Fully 44% (up 10% from 2014) of respondents identified energy management as integrated into corporate strategy, while 37% said energy management is integrated at the business unit or site level. Reducing electricity costs was identified as a key goal:

  • 79% identified reducing electric costs as important to financial competitiveness
  • 77% identified reducing electric costs as important to image/brand competitiveness

The latter suggests that companies are motivated by more than just cost-cutting; they are also taking into account external stakeholder views.

Businesses are spending capital to achieve their energy management goals. Goals have been set around electricity (88%), natural gas (64%), transportation fuels (59%), carbon (57%), and water (70%), with approximately one-quarter of goals across all five areas being targeted reduction goals.  Ninety-three percent of businesses indicate they invested capital over the last five years to achieve energy goals, totaling around 17% of overall capital spending.

The most popular technologies and strategies for achieving energy management goals in 2015 were:

  • 55% timers/sensors to control when equipment is powered on
  • 53% motion sensors
  • 47% building energy management systems
  • 41% demand response programs
  • 39% onsite generation technology such as solar panels
  • 34% energy recovery systems
  • 26% batteries for load shifting and peak shaving

New technologies will continue to drive increased corporate energy efficiency. A 2015 study by McKinsey & Company finds that operational improvements can improve energy efficiency 10-20%, but investment in new technologies can increase the savings to as high as 50%. Overall, the study finds that adoption of innovative technologies could save industry over $600 billion per year globally. The report outlines new technologies for the following nine sectors.

  • Advanced Industries (e.g. semiconductors, electronics)
  • Cement
  • Chemical
  • Oil Refining
  • Consumer Goods
  • Mining
  • Power
  • Pulp and Paper
  • Steel

The full report can be found here — Greening the future: New technologies that could transform how industry uses energy.

REAP: Rural Renewable Energy & Efficiency

The Rural Energy for America Program (REAP) was created by Congress in the 2008 Farm Bill. Administered by the U.S. Department of Agriculture (USDA) the REAP program provides grants and guaranteed loans to agricultural producers and rural small businesses for renewable energy projects or energy efficiency improvements. In August, the USDA announced $63 million in loans and grants for 264 renewable energy and energy efficiency projects so far in 2015. Several of U.S. Energy’s ethanol clients have made applications to the REAP program to support their energy efficiency improvement efforts.

Applicant Eligibility

Agricultural producers may be in rural or non-rural areas as long as they derive at least 50% of gross income from agricultural operations

Small businesses must be in an area other than a city or town with a population of 50,000 or more. Small businesses can check if they are in an eligible rural area here.

Project Eligibility

Renewable Energy Systems – funds may be used for purchase, installation, and construction of systems. Examples of eligible renewable energy systems include:

  • Biomass
  • Geothermal
  • Hydropower
  • Wind
  • Solar

Energy Efficiency Improvements – funds may be used for purchase, installation, and construction of improvements. Examples of eligible efficiency improvements include:

  • Lighting
  • Insulation, doors & windows
  • High efficiency HVAC
  • High efficiency motors and pumps

Funding Types

Grants and loan guarantees are available through the REAP program and individual projects may apply for one or both. Combined grant and loan guarantee funding cannot be more than 75% of the total project cost.

Grants

  • Grants up to 25% of total project cost
  • Renewable energy system grants range between $2,500 – $500,000
  • Energy efficiency grants range between $1,500 – $250,000

Loan Guarantees

  • Loan guarantees up to 75% of total project cost
  • Minimum loan amount of $5,000
  • Maximum loan amount of $25 million

Energy Audits and Assessments

When applying for energy efficiency improvement (EEI) funding an energy audit or assessment is also required as part of the application package. For EEI projects with a total cost greater than $200,000 an Energy Audit must be conducted. For EEI projects with a total cost of less than $200,000 an Energy Assessment or Energy Audit may be done. In general, the Energy Audit requires more in-depth analysis of the proposed EEI, such as detailed specifications, measurement plan, and calculation of direct and indirect costs.

REAP Resource Links

Treasure Hunt: Engage Employees & Save Energy


In an earlier blog post (The Behavioral Component of Energy Efficiency) I explained that reducing energy use comes from two main areas:

Efficiency           which is a function of technology
Conservation     which is a function of operation and maintenance (i.e. behavior)

The Environmental Protection Agency’s (EPA) Energy Star program recently released a guide to help companies identify energy conservation opportunities.

Energy Treasure Hunt Guide - thumbnailEnergy Treasure Hunt Guide: Simple Steps to Finding Energy Savings is focused on engaging employees in the process of identifying low/no cost operation and maintenance (O&M) opportunities to reduce energy consumption.  According to the guide the advantage of a treasure hunt is that it identifies “improvements that can often be made immediately and without significant expenditures.”

The Guide outlines the major steps for running your own energy treasure hunt, including: preparation, pre-training, event, and follow-up.  The treasure hunt is an onsite event conducted by cross-functional teams of employees who are in the best position to understand facility operations, and identify and evaluate opportunities to reduce energy use.   Two examples from the Guide show that companies have successfully used Energy Treasure Hunts to achieve significant results.

Hanes Brands Inc: Energy Treasure Hunts have resulted in a behavioral shift in how the organization thinks about energy usage, and helped Hanesbrands to reduce energy costs by more than $4 million dollars in one year.

Merck & Company: In less than two years, the Merck Energy Treasure Hunts had identified more than $12 million from just five plants, equivalent to 20 percent of the company’s greenhouse gas reduction goal, while building employee awareness and enthusiasm for finding energy waste.

The Guide lists the following benefits that accrue to organizations implementing Energy Treasure Hunts:

  • Develops employees’ energy knowledge
  • Motivates employees to pursue energy innovation
  • Creates focus on low-cost operational improvements
  • Establishes culture of continuous improvement and cross-functional collaboration
  • Reduces overall energy use, energy cost, and greenhouse gas emissions
  • Requires lower initial coordination cost compared to an audit or assessment
  • Sparks employee ownership of energy-saving strategies

Energy Treasure Hunts are one example of Kaizen (continual improvement) philosophy tools, which are the core elements of most lean production methods, and that were popularized by the spread of the Toyota Production System.  The key to achieving continual improvement is the routine and sustained application of the tools over time.   To that end, the Guide encourages Energy Treasure Hunt users to schedule follow-up events and to integrate Treasure Hunts into ongoing energy management or quality management systems.  More information on using lean tools to improve energy and environmental performance is available at EPA’s Lean Manufacturing and the Environment website.

Energy Star for Buildings Portfolio Manager Helps Improve Building Energy Efficiency

Energy-Star-logoThe U.S. Environmental Protection Agency’s (EPA) Energy Star is one of the most recognized brands in the U.S.  Eighty-seven percent of households recognize the Energy Star brand when they see the logo and 74% without seeing the logo.  Beyond recognition, 64% of households associate the brand with efficiency and energy savings.  Energy Star is a voluntary, market-based program to encourage energy efficiency and reduce emissions of greenhouse gases and other pollutants.  The label was first used in 1992 to identify energy efficient computers and monitors.  The Energy Star for Buildings program followed shortly thereafter, with the first pilot in 1993.  In 1999 EPA introduced Portfolio Manager, the centerpiece of the Energy Star for Buildings Program.

Energy Star Portfolio Managers is a free, online energy management and tracking tool.  Portfolio Manager helps companies track and measure whole building energy performance, including water use, greenhouse gas emissions, and cost.  Data is entered at the meter level, and Portfolio Manager has built-in accuracy checks and data wizards to assist with data entry.  There are almost 150 energy, water and greenhouse gas metrics available in Portfolio Manager, and users have the option of creating custom reports as well.  Portfolio Manager also has a planning function that lets users set baselines and targets for buildings.

One of the key features of Portfolio Manger is its benchmarking capabilities.  Not only are you able to compare the performance of buildings in your own portfolio, but to thousands of other buildings across the U.S. in the same sector.  Based on this comparison an Energy Star score from 1-100 will be assigned to a building.  For example, a score of 75 indicates that a building’s energy performance is better than 75% of the buildings in its sector.  Buildings that score 75 or higher, and have their data verified by a qualified third party, are eligible for EPA’s Energy Star for Buildings certification.  Portfolio Manager has 18 broad categories of buildings with 97 primary functions, of these only the 20 shown below are eligible for the Energy Star Certification.  The full list of building categories and primary functions can be found here.

New_York_Skylines_04

By OscarUrdaneta (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

●  Bank branch
●  Barracks
●  Financial office
●  K-12 school
●  Supermarket/grocery store
●  Wholesale club/supercenter
●  Hospital
●  Medical office
●  Senior care community
●  Hotel
●  Residential hall/dormitory
●  Office
●  Courthouse
●  Wastewater treatment plant
●  Worship facility
●  Retail store
●  Data center
●  Distribution center
●  Non-refrigerated warehouse
●  Refrigerated warehouse

Using Portfolio Manager to actively track and manage energy and water usage can yield significant benefits.  Energy Star Certified buildings average 35% lower energy usage and 35% lower greenhouse gas emissions than other buildings in their sector.  As outlined in a previous post: Building Efficiency Disclosure Expands in 2013, state and local jurisdictions are turning to Portfolio Manager to help drive efficiency improvements in commercial and multi-family residential buildings.  Given the broad recognition of the Energy Star brand, the Energy Star Certification also likely enhances reputational value as well.  EPA’s main Energy Star for Buildings website is here, and training on Portfolio Manager can be found here.

Building Efficiency Disclosure Expands in 2013

Three more cities joined the ranks of jurisdictions requiring buildings to disclose energy performance information.  Minneapolis, Boston, and Chicago all passed building energy performance disclosure ordinances in 2013.  Minneapolis and Boston’s ordinances are focused on non-residential buildings, while Chicago’s ordinance covers commercial, larger residential and government buildings.  This brings the total to 11 jurisdictions in the United States (2 states and 9 cities) requiring building energy performance disclosures.  In all, these disclosure policies cover 5.8 billion square feet of real estate in major markets in the U.S.

 

Seattle_Skyline_tiny

By Joshulove (Own work) [Public domain], via Wikimedia Commons

2013       Boston, MA
2013       Chicago, IL
2013       Minneapolis, MN
2012       Philadelphia, PA
2011       San Francisco, CA
2010       Seattle, WA
2009       New York, NY
2008       Austin, TX
2008       Washington, DC

2009       Washington state
2007       California

 

Why are more cities and states focusing on building energy performance?  According to the Department of Energy in 2010 the building sector accounted for 41% of annual energy use in the U.S.; more than either the industrial sector or the transportation sector.  In the global perspective, U.S. buildings accounted for 7% of worldwide energy use in 2010.  U.S. EPA data shows that when building energy use is consistently collected and benchmarked it leads to an average reduction in energy use of 2.4% per year, and a 7% reduction over three years.

 

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Requiring building owners and managers to collect building energy information, and to benchmark against other buildings, provides the information needed to understand a building’s energy performance.   This also can help to identify opportunities to improve building energy efficiency.  Requiring disclosure creates a market-based incentive to improve building energy efficiency.  In those jurisdictions where disclosure is required the market will now judge buildings on energy performance as well as location, cost and other factors.

The existing building disclosure requirements share many similarities with regard to implementation.

  • All define disclosure requirements based on the square footage of the building, with disclosure requirements phased in for larger buildings first, expanded to smaller buildings over time
  • All of the programs cover commercial buildings
  • All use the U.S. Environmental Protection Agency’s Energy Star for Buildings Portfolio Manager as the system of record for building energy information, and to benchmark building energy performance

Despite these similarities some key differences exist as well:

  • In addition to commercial buildings some programs also cover multifamily residential (i.e. Austin, Boston, Chicago, DC, New York, and Seattle)
  • Required disclosure falls into two main categories with most programs requiring disclosure on a public website, while California, Washington State, Settle and Austin only require disclosure to transactional counter parties (e.g., sale, lease, finance)
  • Some programs require additional steps such as building energy audits (e.g. Austin and Boston)

The push to reap the economics and environmental benefits of more efficient building operation continues.  Both the state of Massachusetts and the city of Portland, Oregon are actively pursuing their own benchmarking and disclosure programs.  City level ordinances can be very impactful and should not be discounted.  Of the 11 existing ordinances New York City alone accounts for over 48% of square footage covered.  The top three jurisdictions are all cities and account for 70% of square footage.  More information on the existing ordinances can be found at the BuildingRating.org website, which includes this helpful Commercial Building Policy matrix.  In a future blog post I’ll cover the main tool used by all the building efficiency disclosure policies, EPA’s Energy Start for Buildings Portfolio Manager.

 

Wasted Energy: 2012 U.S. Energy Flows

Source: Lawrence Livermore National Laboratory

Source: Lawrence Livermore National Laboratory

Lawrence Livermore National Laboratory recently released the 2012 U.S. Energy Flow Chart.  The chart shows how energy flows through major sectors of the U.S. economy, and how efficiently that energy is used.  Most striking is that overall the U.S. is only 39% efficient at converting energy into useful services. Put another way, it takes over 2.5 units of energy to generate 1 unit of useful energy services.   Most of the rejected or wasted energy is in the form of waste heat.  In the electric generation sector transmission and distribution (T&D) losses are also a major source of rejected energy.  The Energy Information Administration (EIA) estimates that T&D losses average about 7% in the U.S.. Though there is room to increase efficiency in every sector, the greatest opportunities lie in the electric generation and transportation sectors.

Where there is significant waste, there is also significant opportunity.  Cogeneration or combined heat and power (CHP) has great potential to increase overall efficiency.  Where buying electricity from the grid and generating hot water or steam from a boiler is about 50% efficient, CHP systems are up to 80% efficient at providing both services.  This explains why CHP is increasingly popular, particularly in industrial and institutional settings where full advantage can be taken of both the electrical and heat outputs.

total_chp_efficiency

Source: U.S. Environmental Protection Agency

Other highlights from 2012 include:

  • Overall energy use was down 2.2 Quads in 2012
  • Natural gas use rose in 2012 while coal and oil use both decreased
  • Wind power made the greatest overall gains in 2012, adding .19 Quads of generation
  • Solar had the greatest percentage increase rising 49%
  • Shutdown of 4 nuclear power plants accounted for the first measurable decrease in nuclear power in a decade

The Behavioral Component of Energy Efficiency

Electric_kettle_-_Электрический_чайник

By Schekinov Alexey Victorovich (Own work) CC-BY-SA-3.0-2.5-2.0-1.0 via Wikimedia Commons

 

File this under: little things add up.  A recent study by the Energy Savings Trust of the United Kingdom found that people of Britain waste over $100 million (£68 million) a year by overfilling their kettles when making tea.  The report: At Home with Water points out the residential water energy nexus — that savings from water conservation accrue not just from reduced supply costs, but from reduced energy costs as well.  The other major point that is worth focusing on is that energy efficiency is not just a technology problem; it includes a behavioral component as well.

Stated another way, reduced energy consumption comes from two main areas:

Efficiency which is a function of technology New, more efficient kettle
Conservation which is a function of Operation & Maintenance practices (i.e., behavior) Only heating as much water as needed

Savings from conservation are not trivial.  The Energy Star for Buildings website states that implementation of O&M best practices can lead to energy savings of 5-20% per year.  Savings can accrue from things such as set point adjustments for cooling or heating systems (an operational savings).   For example, if you only need to heat something to 100 degrees, your set point should not be 140 degrees.  Savings also accrue from proper maintenance activities such as ensuring that scaling does not reduce the efficiency of cooling towers.  An energy assessment is an excellent way to identify energy reduction activities that fall into both the efficiency and conservation categories.  Improved O&M practices typically get identified as low or no cost options as part of an energy assessment.

The challenge with these types of savings is that though they are typically inexpensive to implement, they require an ongoing commitment to maintain.  Ensuring O&M practices are part of existing management systems such as Six Sigma or Lean can help to ensure that the savings will last.  An alternative would be to adopt a formal energy management system, such as ISO 50001.

Efficiency Yields Higher Returns than Other Corporate Investments

Building Efficiency
Source: Unlocking American Efficiency, p. 11

A study put out last month by United Technologies and the Rhodium Group finds that investing in building energy efficiency yields an internal rate of return (IRR) greater than 28%.  This is four times better than the average equity performance.  The study finds that a 30% improvement in building efficiency is possible with current technology, and if applied across all U.S. buildings would yield annual energy savings of $65 billion.  The report highlights the role that energy costs play in U.S. economic growth; overall U.S. Energy costs rose to 9.2% of GDP in 2011, up 3% in a decade.

Given the potential returns of investing in energy efficiency why aren’t we seeing greater investment?  The primary barrier to improving building energy efficiency is lack of information.   Commercial real-estate markets typically do not provide information on the efficiency of a building as part of a real estate transaction.  The report suggests better disclosure, and building labels to help address this problem.  A California regulation recently went into effect that requires the disclosure of a buildings Energy Star score as part of any lease, sale or finance transaction ( AB 1103: Nonresidential Building Energy Use Disclosure Program).  The other major driver cited is incentives and efficiency finance programs.  The growth of Energy Service Corporations (ESCOs) has helped drive energy efficiency, but mostly in the municipal, university, school, and hospital (MUSH) sectors.  Utilities are offering more efficiency finance programs, but the report finds there is still a large unmet opportunity for improving efficiency.  More detail can be found in the full report: Unlocking American Efficiency.

A good first stop for finding available incentives for energy efficiency and renewable energy is the Database of State Incentives for Renewables & Efficiency (DSIRE).  The website catalogs Federal, state and utility incentives for efficiency and renewable energy.  It also provides background on Federal and state policy that impacts efficiency and energy.