How energy efficiency investments can enhance a business’s bottom line by reducing operating costs Featured

8:10pm EDT November 30, 2012
How energy efficiency investments can enhance a business’s bottom line by reducing operating costs

In a typical office building, utility costs make up about one-fifth of total operational costs. Energy costs in commercial buildings and industrial facilities are consistently rising due to increasing global energy demand, while federal, state and local agencies are mandating increased energy efficiency in new and existing buildings.

Smart Business spoke with Moh Heidari, director of the Energy Solutions Group with Alfa Tech, about how organizations can benefit from investing in energy efficiency in their facilities.

Why don’t companies invest more aggressively in energy efficiency?

It depends on multiple factors like project management methodologies, budget structures and decision-making practices. For example, value engineering is first cost-oriented versus life-cycle cost analysis. There is little incentive for an energy-efficiency feature to be embraced by a value engineering process if it results in a higher first cost. That is why we need to go beyond value engineering.

Another reason is that budgets for construction and operations often come from two different groups. Therefore, there is a tendency for construction to take a ‘not my problem’ perspective on an energy-savings measure if it would increase the construction cost. This also happens for existing facilities where the maintenance budget is separate from operating cost. So, when the maintenance team reduces utility costs by implementing energy-savings measures, they may not directly get credit for it since the savings will be captured under the operating budget.

Another reason might be that energy costs are lower than costs like employees’ salaries. However, cutting energy costs directly contributes to increasing net profit.

What are the indicators of a good investment in energy systems?

While a retro-commissioning action and energy audit identifies energy-saving measures with a simple payback period (SPP) of less than two years, SPP is not sufficient to decide whether a project should be implemented or not. An additional decision-making factor is return on investment (ROI). For example, a three-year simple payback period has about 33 percent ROI and a five-year payback has about 20 percent ROI, which are attractive ROIs. In addition, considering the investment security of energy-efficiency projects makes them even more attractive investments. Energy-efficiency engineers use cost-benefit analysis and life-cycle cost analysis to identify the profitability and to show other advantages like reduction of business vulnerability to energy price fluctuations and increasing productivity.

Who is an energy-efficiency engineer and why might an organization want one?

Energy is complex. Everyone thinks they have solutions, but how do you know if a solution is the right one? Companies may benefit from an independent consultant who does not have a conflict of interest and who has the specialized training required to fully assess system interaction and integration issues and the overall energy benefit associated with a proposed energy-efficiency project. For example, a condensing boiler must operate at condensing temperatures to deliver the highest efficiency. If a condensing boiler is installed in a system that cannot operate at condensing temperatures or installed in a system that could but that does not have the right control sequence to achieve condensing temperatures, then the intended savings will not be realized.

Because of these complexities, energy solutions for different types of facilities need multiple specialties. Energy engineering is an interdisciplinary field with selected expertise in mechanical, electrical, control, chemical and environmental engineering, as well as economics and energy market.

What is retro-commissioning?

Existing building commissioning (EBCx), also known as retro-commissioning (RCx), is a detailed tune up using a systematic assessment process to evaluate buildings’ systems functionality, energy performance and energy cost-savings opportunities to match the building operations to the owners’ and occupants’ current needs, reducing energy waste and obtaining cost savings. Energy audits, RCx and monitoring based continual commissioning (MBCCx) are the best tools to capture actions that can result in up to 30 percent and even sometimes higher energy cost reduction through retrofits. In energy savings, persistence is key. Without it, a system becomes out of tune and you just keep saving the same energy every couple of years instead of steadily raising the bar. Monitoring-based continual commissioning ensures that energy savings persist and grow over time. In this method, we continuously monitor the critical points of systems, measure their efficiency and address the problems that cause decreases in efficiency.

How do building owners and facility personnel benefit from investing in energy-efficiency retrofits and upgrades?

First, they should realize the difference between saving energy and saving money. If you implement an energy savings measure but energy costs escalate, you save energy but may not save as much money. Uninformed owners or tenants may be disappointed in the results of a project unless they realize where the energy costs would be if they had not implemented the project. It also means that energy-savings projects that were not viable may become viable when energy becomes expensive enough.

In addition, as the relative value of energy shifts, the viability of some strategies may need to be re-evaluated. For instance, a strategy that recovered energy via heat pump may not look as good as it once did if electric prices go up while gas prices fall.

Finally, persistent energy savings can pave the way for making renewable energy projects viable. The viability of a solar photovoltaic project may hinge on making the load served as efficient as possible. Increasing efficiency of HVAC systems reduce the first cost of an expensive renewable energy technology.

Moh Heidari is director of the Energy Solutions Group with Alfa Tech. Reach him at (415) 403-3091 or moh.heidari@atce.com.

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