Archive for August 2011
There are two sides to a company’s energy profile – consumption of energy by its facility assets (HVAC, lighting, etc.) and it’s purchase of utility services (electricity, gas, etc.) In practice energy engineering teams (including ours) spend most of their time identifying opportunities for energy efficient equipment upgrades or behavior changes. Purchased utility services are usually taken as a given, with utility bills being studied for historical inflation rates, usage patterns and demand charges.
But the Enterprise Smart Grid framework highlights that to operate most efficiently companies need Visibility, Control and Management Integration for both of these elements. And here there’s a useful lesson to be taken from the information technology industry.
In the 1970′s corporations used time-sharing to access mainframe computing, paying on a per-minute, per-job basis – call it computing as a service. A decade later, microprocessor advances made it financially practical to bring PC and server computing in-house. By the late 90′s software as a service, using low cost Ethernet connected servers, made it equally attractive for companies to move their computing back out to the network, this time the Internet.
So over a thirty year period technology advances shifted the best economics for corporate IT from pay-for-service, to owning and back to pay-for-service.
Power stations (electricity as a service) predate corporate IT by almost a century, first being delivered in the late 1880′s. Like the mainframe model, utility providers centrally manage a high capital cost system (a generator) and deliver the service (electrons) over the network (the electrical grid) with customers paying as they go for what they consume. Generally they’ve had few alternatives to buying their electricity in this local utility pay-for-service model. Only a handful of the largest industrials have been able to cost justify installing and operating their own on-site primary generators. Also, in the last decade companies in deregulated markets have been able to hedge a portion of their electricity costs by purchasing third-party power generation.
With the latest solar PV technology advances (and renewable incentives) some have considered bringing a portion of their electricity generation back in-house. But with today’s average US cost of $0.11kWh, the math still points to pay-for-service (i.e. solar PPAs) and that only in four to five states in the country.
Steam as a service (Saas) is less well known, but has also been in existence for almost a century. The industry’s trade association (International District Energy Association) started in 1909. Universities and hospitals have run their own steam systems for a long time; with Harvard’s Blackstone plant having been in service since the late 1800′s. NYC’s ConEd network, operating since 1882, is the largest in the US.
As with electric utilities, the Saas model runs a centrally managed high capital cost system (a boiler or cogen plant) to deliver the service (Btus) over the network (physical steam piping.) Technology has not changed so rapidly in steam generation, with the latest large boilers moving from @ 70 to 80 percent efficient over the last 50 years. While 90% efficient systems are in development, their high cost likely make them impractical for quite some time.
The corporate alternative to Saas involves installing a large on-site steam boiler and retrofitting a building’s mechanical system. Where PV is renewable, solid state and overproduction can be sold back to the grid, financially modeling on-site steam is more complicated, including estimating future gas prices, a total maintainance cost for a lot of moving parts and a less clear excess steam utility sell back model. (For an reference point on the cost of running a 100-mile steam pipe network check out ConEd’s 2010 long-term investment plan)
Recently we performed an energy assessment on a 20-story New York City commercial building still using district steam from ConEd. Our analysis confirmed a three-year 40% increase in our customer’s cost of steam, this coming principally through newly assessed demand charges. So the bring it in-house payback model needed to forecast the future cost of ConEd steam versus the new boiler and retrofit cost, the future cost of gas at a 20% premium to ConEd’s high volume cost, the on-going maintenance costs, with the ConEd incentives which supported this retrofit. (Another reminder of why utility incentives needed to be decoupled)
The simple payback was 5 years. Which means NYC steam as a service has officially priced itself out of the market and we’ll be working with this customer to bring their “mainframe” in-house.
Another alternative for the largest corporate users is a pay-for-service delivered by a non-utility third party. Like solar PPAs for electricity, these vendors specialize in owning, operating and maintaining large traditional boilers, chillers, cogen and electric generator systems for single or multiple tenants, selling chilled/heated water, electricity or heat with long term purchase contracts. But these agreements do have their challenges – and don’t lend themselves towards a customer changing their mind after a few years.
In a world where utility rates and incentives are dynamic, energy costs are likely to be accelerating (after a three-year hiatus) and new energy technology development is being introduced, our engineers should expect to be performing more of this in-house vs. pay-for-service tradeoff analysis.
Top business schools Harvard, Kellogg and University of Chicago have entire departments studying Organizational Behavior (OB). Wharton even has an annual conference called OB. The OB curriculums are cross-disciplinary, combining psychology, anthropology, economics and political science, as they consider how organizations work and how managers can best drive posititve change.
How money can be used as a motivational tool is a long-standing OB research topic. While even healthcare firms consider how to pay people to take better care of themselves, McKinsey’s post crash research highlights that financial reward is less effective than providing employees the opportunity to lead and recognition by management for strong performance.
With ESG Visibility and Control, companies can use real energy use/cost data as the basis for both types of motivational tools, financial and non-financial. The most significant energy efficiency behavior changes will come when companies integrate all of them, empowering managers with authority (lead), recognizing their impact (energy savings) and using the savings as a quantifiable financial incentive (financial reward).
Depending on the type of business we see a few different ways to make this happen:
We’ve already commented on how line managers can use ESG energy data from their production lines as a new metric – energy cost per unit of product produced. These managers already have the authority and incentive to act, but have lacked the management system to enable them to make the best decisions. Once given this new data, behavior change can be driven by the motivation to direclty impact their P&L, a very quantifiable and measureable metric. Obviously managment incentives are regularly tied to P&L, coupling incentive to behavior change.
In Commercial Office buildings:
Office environment facility managers, responsible for a BMS controlling all HVAC and other major systems, typically have the capacity, but not the authority nor financial incentive to reduce energy consumption in their buildings. These managers are trained to avoid any complaints by a building occupant – their implicit management metric is how few complaints they receive.
But they also know that by shutting down systems during low traffic or unoccupied periods they can save energy. Simple activities such as turning off the escalators at night, alternating elevators, or dialing down the A/C when less that a dozen people are in the cafeteria can save real money. These can even be programmed into the BMS schedule. But these facility managers need the authority to act and to be relieved of the misleading complaint metric.
How about providing them instead a direct financial reward for taking these actions and a company green team sign saying ”these escalators are off now, reducing our energy use by X annual kWh”?
In Retail Stores:
Many store managers already have direct incentive to manage floor sales teams using sales results as their measureable management metric. Their activies are often geared around driving sales through effective promotions, the customer in-store experience and having the right products in stock.
By providing energy consumption and cost visibility tools to these store managers, a company can apply a new goal which, like sales, has a compensation impact. During our research we’re learned of one large retailer who conducted energy usage competitions between stores posting results on the store’s backroom bulletin board.
By their very nature distribution centers are rarely occupied by large staffs. While DC managers are in the position to understand their facility’s regular traffic patterns, they’ll now see how much can be saved by shutting down systems. But they too need the management incentive to act.
With the right financial incentive, these managers can “micro-zone” their facilities, shutting down systems in low traffic areas, time-shifting fork lift charging stations, or reducing conditioning costs where dock doors are left open unnecessarily.
But in each of the above examples someone “higher up” needs to lead a new managment approach. Authority and incentives get defined at the top – and that is where real Organizational Behavior change occurs.
CEO’s got pictures taken in front of their newly constructed LEED Platinum corporate offices. Retailers reported higher foot traffic in newly constructed LEED certified stores. The USGBC even extended their brand by introducing LEED-EB so companies could certifiy their current real estate portfolio to the green standard. The LEED brand reinforced the “this company is green” image and, in case anyone forgot, a plaque at the building’s entrance reminded people everytime they entered.
Post the 2008 market collapse we saw customers quickly drop their LEED efforts, focusing instead on Energy Star building certification. The Energy Star brand is an even more visible green brand, they were already using portfolio manager as part of the LEED process, and the certification process would likely yield real energy savings, a financial payback from the certification process. It was a natural shift – plus they still got a plaque.
With ISO’s recent introduction of its 50001 Energy Management standard we’ll can speculate that this brand may now also be gaining a greener image.
Today the ISO brand is most uniquely associated with quality managment. It’s programs are embedded as part of large global manufacturers’ culture, with many corporations proudly displaying their ISO 9001 certificate in the lobby of their headquarters. So its not a surprise that the ISO 50001 pilot program included companies like Alcoa, Bridgestone, Schneider Electric and Volvo. And it doesn’t hurt that the DOE is throwing its support for the standard as well.
As we’ve seen with sustainability reporting like the Carbon Disclosure Project, the next lever for ISO 50001 may come as it gets included within RFPs, supplier certifications and international trade contracts.
And when that happens make room for another plaque at the corporate headquarters.
In last week’s Traditional Energy Audits Are So Yesterday we noted that the recently introduced ISO 50001 energy management standard may help companies establish their own energy management process. Where audits are a snapshot look at usage, ISO 50001 gives them a “Plan-Do-Check-Act” framework for energy usage in their business.
But as with any new standard, a lot of folks are trying to quickly figure out what it is, what it requires and what it means to them.
As a reference, it’s interesting to consider what happened in 2003, when the Carbon Disclosure Project issued its first request for climate reporting. Social impact reporting was a newer concept then, but some early adopters latched on to CDP’s offer, with over 200+ organizations reporting that first year. Within three years 900+ companies were responding, by 2008 2,200+, and today there are over 3,000 in over 60 countries. Along the way CDP itself has been providing guidance and interpretations for these organizations, as have a broad range of environmental consulting companies.
With the economy still challenged and many companies now recognizing that focusing on energy use is sustainability that pays a financial return, maybe we’ll see similar hockey stick adoption for ISO 50001?
Perhaps as a strong leading indicator, several companies have already announced their adoption, with Schneider Electric noting that their world headquarters is the first building to earn ISO 50001 certification.
Also, if you’re trying to figure out the what it is, what it requires and what it means question, here is a useful white paper and even the DOE has a getting started website up now.