July 25, 2002

Reducing energy costs, post crisis

  • High utility rates mean low paybacks on energy conservation projects
    McKinstry Co.


    Just a year ago, we were going into summer with the possibility of brownouts and rolling blackouts. Nearly every major power user had a contingency plan for shutting down equipment to save the grid when the red phone rang from the local utility.

    We pulled together, held meetings, turned lights off, convened forums and discussion sessions, sacrificed comfort, sent people home, and closed companies to avoid the inevitable results of our low conservation efforts over the past 10 years. Ideas were flying fast and furious, nearly as fast as the companies that were starting their own local diesel generators to use and sell power. And although more generating capacity was helpful, the key was conservation of all resources.

    Every organization pushed to save at least 10 percent of their energy usage, and at home many of us did the same. The utilities were running out of money, yet could not pay companies enough to conserve energy. For eight months, utility rates increased dramatically (doubled in some cases), and the summer of 2001 was projected to be the start of a major national ENERGY CRISIS!

    We were told to batten down the generators and turn off those lights. We were in for it. And then, as if someone discovered a mathematical error in the energy supply-and-demand equation, it was over.

    Or so we thought.

    For those of us in our industry, comprised of energy services companies (ESCOs) and myriad vendors focusing on providing cost-effective solutions to reducing energy costs for clients in both public and private building sectors, business was booming.

    Unfortunately, some utilities didn’t learn the lessons of the energy crisis and cancelled their conservation programs before the ink dried on their brochures.

    What more could we ask for — every night for months, the local and national news media reminded us that water reservoirs were at 30-year lows, that California was the culprit, the federal government was unwilling to help, and if we need others to blame, in hind sight, the crisis must have been attributed to Enron and its practices. And most importantly, conservation was, is and would continue to be the key to maintaining rates and avoiding blackouts.

    “Contact your local energy conservation dealer,” was a battle call, not a paid advertisement. But the results were the same.

    With that type of broadcasting and dramatic increases in rates, many organizations developed their own plans and put them into action, some reducing their energy consumption by over 10 percent.

    The challenge was that some of those plans and measures impacted occupant comfort and relied primarily on behavioral changes and therefore many organizations reported that their projected reductions in energy usage slipped back to post “crisis level,” and at the higher utility rates!

    Even though the “crisis” seemed to be over for the time being, nearly all of the increased utility rates never rolled back and are still on the rise in some cases.

    So, what sustainable actions are organizations taking to reduce energy costs? Here is a collection of thoughts regarding energy conservation:

    • The higher utility rates are driving lower paybacks on energy conservation projects. Simple payback in years is a ratio of annual energy savings divided into the first cost of the project, with 3- to 10-year timeframes as normal targets for most projects. Targeting a payback threshold is important, yet it’s important to note that paybacks ranging from six months to under two years could continue to lead to low-impact and non-sustainable conservation efforts.

    • Seattle City Light and BPA have continued to demonstrate their innovation and dedication to sustained long-term conservation by providing technical support and financial incentive to help fund energy savings projects. Other regional utilities, like Puget Sound Energy and Snohomish County PUD are also committed to supporting long-term conservation efforts. Unfortunately, some utilities didn’t learn the lessons of the energy crisis and cancelled their conservation programs before the ink dried on their brochures. Contacting your local utility will help you understand the support and funding that may be available to you.

    • In this recession, capital to fund conservation programs that will relieve operating and utility budgets is not as available as it once was. Many clients, both public and private, are leveraging alternative financing for these projects. The approach is simple. An organization engages an ESCO to identify, engineer and install projects that become viable through that ESCO’s creation of a lease or loan offering that guarantees that the annual payment obligation (to cover project costs) can be generated from the energy savings stream. This leads to implementing sustainable projects with little or no out-of-pocket costs for the organization, with the ESCO guaranteeing the performance and payback.

    • Implementing conservation efforts solely for the purpose of saving energy or energy costs usually leads to minimal non-sustainable action by most organizations. Here’s why. Typical paybacks range in excess of five to seven years on most conservation projects, therefore most decision makers and financial folks do not find conservation to be the best return on investment. The benefit of most conservation projects is typically based on upgrading infrastructure, improving the physical occupant environment, and reducing energy costs — in that order. In other words, in reality, most conservation projects are ultimately driven by other reasons, with conservation as a side benefit. And that is OK ... conservation driven by any means is worth the avoidance of another energy crisis.

    Conserving our resources is critical, and we should all work on being daily environmental stewards. Most local and regional utilities are continuing to focus on long-term support (technical and financial) of conservation. Pre-energy crisis conservation was left to those that had high energy bills because their facilities had failing equipment and major needs for infrastructure upgrades. Post energy crisis, we all have high energy bills and the need to upgrade aging and failing infrastructure.

    With that being said, our challenge will be to implement conservation measures that are sustainable and not only reliant on that one individual and their personal diligence to turn down the thermostat or shut off that light. To implement longer-term sustainable conservation measures we must continue to place pressure and support of utility conservation programs. We must also appreciate that energy-only return on investments do not occur in months they occur in years — typically in excess of five years.

    No capital, no problem — there are alternative ways to secure financing for infrastructure upgrades that lead to reduced energy costs and guaranteed returns on investment.

    And finally, every day that goes by with no plan and no action is wasted money that could be leveraged into tangible physical improvements and real conservation efforts.

    Ash Awad is director of energy services at McKinstry Co.

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