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Utility Incentives: Understanding Qualifying Projects
OTHER PARTS OF THIS ARTICLEPt. 1: The Role of Utilities in Facility UpgradesPt. 2: This PagePt. 3: Utility Incentives: Calculating Savings
Once managers understand the way an incentive program works, the types of projects that qualify, and steps they can take to successfully participate, they can identify potential projects. Managers likely will have no problem identifying the energy-efficiency upgrades to implement first, since most have a long list of such projects. Upgrading lighting systems, replacing older chillers, installing variable-frequency drives all will save energy. The issue is identifying the projects that have the greatest potential to provide the highest level of savings for the investment. To reach this point, managers need an economic comparison of upgrade options and their potential savings.
A number of options are available to managers in analyzing costs and savings. One method is simple payback. Measured in years, simple payback calculates the length of time it will take for an investment to pay for itself. Simple payback is easy to calculate and understand, and it useful for certain projects that are fairly simple. It has its limitations, in that it does not take into consideration other economic factors, including inflation, maintenance, and material disposal costs.
Life-cycle-cost analysis is one alternative to simple payback. It looks at a wider range of economic factors to determine the return on the investment over the entire service life of that item. Although life-cycle-cost analysis is more complex and difficult to perform, it gives managers a truer indication of an upgrade’s cost.
Validate and verify
Funding for incentive programs has increased in recent years as have regulatory requirements. Utilities, investors, regulators and others involved in the process want to know that they are getting their money’s worth from these investments. Verification demonstrates the value of the project and provides confirmation to the organization, the utility and regulators.
In some cases, direct measurements of energy use before starting the upgrade and after completing it will quantify savings, but this method is seldom used because upgrades involve too many other variables, such as weather, changes in occupancy patterns, and additional energy-efficiency projects.
For example, consider the energy-savings impact of upgrading a building’s lighting system. Managers can use data on installed lamps and upgraded lamps to quantify the difference in energy use of the lights but not secondary impacts. Higher-efficiency light sources generate less heat. Lower levels of heat from the lights reduces the cooling energy requirements for the building, but they might increase the heating energy requirements.
It gets even more complicated when managers implement more than one energy upgrade project within the same year. How much of the measured savings is attributable to which project?
Most project verification numbers are the result of energy savings estimated using energy modeling, field measurements, analysis of energy bills, and assumptions made for pieces of equipment. All of these can produce acceptable results when properly applied, and all involve judgment calls. The most effective method depends on the particular project and the utility’s requirements.
The facility and the utility company need to establish and agree upon verification requirements and plans early in the incentive program. By working work closely with the utility company from the beginning, managers can make certain both parties agree to the verification method selected.
James Piper, P.E., is a national consultant based in Bowie, Md. He has more than 30 years of experience with facilities maintenance and engineering management issues.