Knowing the Fitness of Your Building
And Making the Financially-Driven Business Case for
Improving Energy Efficiency
Presented to International Conference on Sustainable Urbanization
Larry Wash, President Global Services
Hussmann, Thermo King and Trane
Ingersoll Rand
December 15, 2010
Agenda
•
My Background
•
Understanding Today’s Operating Realities and What This Means for Furthering
Energy Efficiency
•
Linking Building Health to the Business Plan
– Develop an Energy Program
– Define Program Objectives
– Document the Facility’s Energy Profile
•
Making a Business Case for High Performance Buildings
•
Proving the Model – Case Studies
•
Discussion
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Confidential and Proprietary
My Background
•
Responsible for the profit and loss of the service, contracting and
parts business.
•
Fully responsible for the management and performance of the
services businesses which include aftermarket service and parts,
turnkey and controls contracting, and performance-based energy
services for commercial buildings and transportation.
•
Executive responsibility for the organization’s strategic direction, operating
performance and marketplace differentiation.
•
Extensive service industry expertise.
– Previously served as vice president of service and contracting for Trane
within North and South America, and in various services leadership roles
with Xerox and Eastman Kodak Company.
•
Speaker and author on the subjects of growing a profitable global services
business and making the business case for energy and operational efficiencies.
Presented at many high-level events and published in numerous industry and
business journals.
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Understanding Today’s Operating Realities
• New construction outlook remains weak
• Considered to be operating in a global recessionary market
• Businesses pinched more than ever
– Operating costs continue to rise with intense pressure to reduce
– Access to cash and credit more limited
– Limited appetite for capital investments without clear payback
• Energy use in buildings projected to grow
– Up to 40% of total operating expenses of some buildings
– Contributes to Climate Change
• Tremendous amount of energy-related policy to
– Improve environment and reduce oil reliance
– Stimulate the economy and create jobs
– Reduce risk and increase business confidence
An unprecedented energy and operating environment
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Furthering Energy Efficiency
Opportunity is with existing buildings
• New construction outlook remains weak
• Large cost saving potential for energy improvements
– Buildings account for 45% of total energy consumption in Hong Kong
– Buildings account for 40% of total energy consumption in the European Union
– Buildings account for 72% of total U.S. energy consumption
– Retrofits enable 20-50% cost savings
• Potential for job creation
• Ability to reduce environmental impact
• Proven technology, low risk retrofit approaches and financing are available to public
entities and private corporations
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Building an Energy Efficient Building Plan
• Many of the world’s best companies do not have
effective business processes to align their
facilities’ infrastructure needs with their business
plans
• As a result, facilities engineers, who are
responsible for the comfort, health effects,
operating specifications and utilities management,
often get trapped in a “deferred maintenance /
catch-up loop”
Linking building performance to business objectives benefits building owners,
facility engineers and occupants
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Develop an Energy Program
•
•
Assemble a team
– Building owner
– Facility manager
– Energy solutions provider
– Department representatives
Appoint a team leader
Build an energy management team with “buy in” from key internal
stakeholders, including owners, managers and department heads
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Confidential and Proprietary
Define Program Objectives
•
What are the desired outcomes?
– decreased operating costs
– higher operations performance
– better occupant comfort and productivity
– tax benefits
– environmental certification
– others
Identify energy management goals that reinforce the organization’s
overall business objectives
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Confidential and Proprietary
Document the Facility’s Energy Profile
•
The energy profile:
– Includes energy costs and consumption data
– Benchmarks the facility’s energy consumption
Your energy management program will only be as
good as the data you collect – accurate tracking is
vital!
•
Successful strategic energy plans combine the latest climate control
technology with consistent monitoring and personal decisions
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Confidential and Proprietary
Making the Case for Energy Efficient Buildings
Critical question: Is your building overhead or an asset?
Owners who view their building as assets link the physical environment to
business outcomes – customer and employee satisfaction, productivity,
operating expense reduction, among others
These buildings can be “high performance” and tie to the mission, values and
results of a business
•
•
Value to people the building serves (environment, comfort, safety)
Value to customers and community (competence, environmental
responsibility)
Value to the bottom line (cost savings, avoidance, ROIC)
•
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Making the Case for Energy Efficient Buildings
Critical question: What are your driving factors for change?
• Every building, project and customer
is different – making each project
unique
• Modeling begins with understanding:
– Why project was initiated
– Goals and objectives
– Appetite for risk
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Confidential and Proprietary
Public
Private
Improve Infrastructure
Stay Competitive (Attract
Tenants, Customers,
Talent)
Reduce Maintenance Costs
Reduce Maintenance
Costs
Reduce Operating Costs
Reduce Operating Costs
Optimize Capital Budget
Optimize Capital Budget
Improve Indoor
Environment (Comfort &
Occupant Performance)
Improve Indoor
Environment (Comfort &
Occupant Performance)
Be Socially Responsible
Add Asset Value
Making the Case for Energy Efficient Buildings
Critical question: How will you fund your project?
Goal to Remain Budget Neutral
Capital Contribution
future planned monies allocated
today to broaden project impact
Capital
Budget
money for
projects
planned to be
completed in
the future
Operating
Operating Savings
Budget
non-energy savings from
conservation measures and
maintenance practices
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Confidential and Proprietary
Three budget categories
• Energy budget
• Operating expense budget
• Capital improvement budget
Energy Budget
Energy
Savings from
Conservation
Measures
Potential for more robust projects
• Evaluate impact beyond simple
payback to energy budget
• Energy projects reduce operating
and capital improvement budgets
Making the Case for Energy Efficient Buildings
Critical question: How will you fund your project?
•
Goal: Allocate potential savings and
capital to fund project and stay in budget
– Set capital budget and revise
annually – project out several years
– Don’t spend capital in large amounts
for major energy projects when they
happen
– Allocate capital amounts in an
annualized approach
• Plan for $100K per year for 10
years
• Rather than $500K in year 3,
$250K in year 5 and $250K in
year 7
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Making the Case for Energy Efficient Buildings
Critical question: How will your project be delivered?
•
Though capital remains the same,
performance can be guaranteed by
providers
• Providers compensated based upon
success in achieving goals
• Contracts typically stipulate how
incentives will be paid out for elevated
performance or penalties assessed for
missed targets.
Performance criteria examples
• Reliability (uptime, # of unplanned incidents),
• Efficiency (COP)
• Operating status (state of readiness, availability)
• Field conditions (clean towers, condensers, air intake)
• Output (Joules, kW, Ls, Lpm)
• Capacity (peak output matched to load)
• Quality (power quality, load factors, IAQ)
• Rate of economic return (sustained energy efficiency)
The Aberdeen Group, February 2007
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Confidential and Proprietary
Making the Case for Energy Efficient Buildings
Critical question: What changes can be made based upon
financial objectives?
Quick Return (0-3 yr payback)
Intermediate (3-8 yr payback)
Long-term
Retrofit lighting
Install new building automation
system
Replace high efficiency equipment
(major systems chiller/boilers)
Update existing building automation
systems
Improve HVAC systems (CV to VAV)
Building envelope improvements
Conduct retro/re-commissioning
Implement water conservation
Apply renewable technologies
Make behavioral changes (turn
lights off, program systems)
Use fans and motors (VFDs, high
efficiency change outs)
Apply on site/distributive power
generation
Explore utility procurement options
Apply load shifting technology (ice
storage)
Implement comprehensive
maintenance and repair strategies
• Purpose of the building determines the investment strategy
• If a lifecycle return / financial approach is taken, owners can enjoy the benefits
of everything listed on the chart = significant energy, operating, environmental
and business benefits
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Confidential and Proprietary
Top 25 Energy Conservation Measures
Major ECM Category
ECM Type
Controls
General/Special
Industrial
Compressed Air
Water
Reduce Use
Controls
General/Special
Controls
General/Special
Supply Side Management
Manage Energy Supply
Water
Smart Metering
Electrical
Lighting
Electrical
Lighting
Plant
Boilers
Supply Side Management
Manage Energy Supply
Architectural
Envelope
Electrical
Lighting
Electrical
Lighting
Electrical
Lighting
Plant
Boilers
HVAC (Building/ Non-Plant)
Unit Upgrade
HVAC (Building/ Non-Plant)
Unit Upgrade
Electrical
Lighting
Electrical
Lighting
Architectural
RoofHeat Pump
Water Source
Plant
Systems
Plant
Motors/Pumping
Controls
Resetting
Controls
Resetting
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Technology/ECM Name
Rating
Upgrade to Direct Digital Control
100%
Implement Compressed Air Utility Management
100%
Install Low Flow/Use Fixtures
96%
Retro/Recommission Controls for Optimizing •Savings
94%
Many, many Energy Conservation
Install Lab Hoods Control - Flow Safe Lab Hoods Measure (ECM) technologies
94%and
applications

need
a
methodology
Change Regulated Utility Rate/Tariff
94%
to
assess
and
rate
Install Smart Meters & software -- for Billing & Accuracy
94%
•
Methodology developed using
Install Lighting Controls
92% Six
Sigma analysis processes and tools
Replace T-8s for HiBays with T5s
92%
•
Evaluation process based on 5 key
Install Tankless/Instantanious Water Heaters
92%
customer and Trane “importance
Change to Interruptible Rates and Use Electric Generators
92%
factors”
Install Weather-Stripping
92%
–
Savings potential, practicality,
Upgrade Fluorescent Fixtures w/ T8 or T5 Lamps and Electronic
Ballasts
commercial
viability, 92%
risk
management, business
Retrofit Incandescent Lamps w/ Compact Fluorescent Lamps
92%
differentiation
Replace Exit Sign w/new LED Fixture
92%
•
Score of 0-100% with 100%
being the
Adjust Burner as Regular Maintenance
92%
best
ranking
Convert CV to VAV
88%
Convert Dual Duct to VAV
Replace HID HiBay fixtures with T5s or T8s
Add LED night lights in halls
New Construction with Green Roofs (Plants)
Install Water Source Heat Pump System
Install VFD/VSDs for Pumps
Reduce Outdoor Air To Design Level
CO2-Based Demand-Controlled Ventilation
Utilizes six sigma methodology to select energy measures
Confidential and Proprietary
88%
86%
86%
85%
83%
81%
78%
78%
Making the Case for Energy Efficient Buildings
Critical question: What costs need to be considered when
financially modeling an energy project?
Visible Costs
Price/Time
Energy Costs
CFC Issues
Equipment
Shutdown
Costs
Security Costs
Being Green
Costs
Maintenance
Costs
Legal Costs
Start-up
Delays
Performance
Problems
Construction
Change Orders
Indoor Air Quality
Fire Protection
Cost
Hidden Costs
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Engineering
Charges
Confidential and Proprietary
Total cost of ownership approach
• All of these factors need to be addressed
at some point
• Modeling the building as a long-term
asset
– Offers greater financial transparency
– Will ultimately save energy and
operating dollars throughout the life
of the asset
Making the Case for Energy Efficient Buildings
Critical question: How do owners ensure ongoing performance
of energy projects?
Proactive maintenance strategy
• Ensure that desired outcomes are throughout
the life of the asset
• Have an agreement that is cost-beneficial and
provides value-driven service - doing so will
avoid capital, energy and repair costs
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Confidential and Proprietary
•
•
•
•
•
Return on investment: 10 times
Reduction in maintenance costs: 25%- 30%
Elimination of breakdowns: 70% to 75%
Reduction in downtime: 35% to 45%
Increase in production: 20% to 25%.
--- FEMP Guide, page 5.4
Making the Case for Energy Efficient Buildings
Critical question: What is the financial model (example)?
Construction Customer
Pro Forma
Cash Purchase
Yes
Energy Savings - Gas
Energy Savings - Electric
Operational Savings
Capital Cost Avoidance
Utility Rebate
Total Annual Savings
0
Year 0
300,000
125,000
425,000
1
Year 1
600,000
250,000
300,000
4
Year 4
694,575
281,216
327,818
5
Year 5
729,304
292,465
337,653
Yes
6
Year 6
765,769
304,163
347,782
Yes
Yes
7
Year 7
804,057
316,330
358,216
2
Year 2
630,000
260,000
309,000
250,000
3
Year 3
661,500
270,400
318,270
500,000
1,650,000
1,449,000
1,250,170
1,303,609
1,359,421
1,417,714
1,478,603
Totals
5,185,205
2,099,574
2,298,739
250,000
500,000
10,333,517
65,000
78,750
143,750
66,950
82,688
149,638
68,959
86,822
155,780
71,027
91,163
162,190
73,158
95,721
168,879
75,353
100,507
175,860
5,000,000
445,447
610,651
6,056,097
4,277,420
Installation Costs
Maintenance Costs
Central Plant Operations
Total Annual Costs
5,000,000
5,000,000
25,000
75,000
100,000
Annual Net Cash Flow
(4,575,000)
1,550,000
1,305,250
1,100,533
1,147,829
1,197,231
1,248,835
1,302,743
Cumulative Cash Flow
(4,575,000)
0
(4,575,000)
(4,575,000)
(3,025,000)
(1,719,750)
(619,218)
528,611
1,725,842
2,974,677
4,277,420
1,550,000
(3,025,000)
1.00
1,305,250
(1,719,750)
1.00
4,277,420
1,100,533
(619,218)
1.00
1,147,829
1,197,231
528,611
1,725,842
0.54
0.00
Financing Institution:
1,248,835
2,974,677
0.00
Fleet
1,302,743
4,277,420
0.00
Assumptions
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14-Apr-09
Net Cash Flow
NPV @ 15%
664,840
Amount Financed:
4,000,000
Payback Period
3.5 Years
Interest Rate:
8.50%
Confidential and Proprietary
250,000
500,000
Making the Case for Energy Efficient Buildings
Critical question: What is the financial model (example)?
Model offers comprehensive view
• Driving factors, funding and budget allocations, capital expenses, total cost of
ownership and financial return
• Analyzes cash flow over project life
Model incorporates more ECMs
• If owner considers only energy savings in financial decision
– Project would yield a 11.7 year payback
• If owner considers energy, operating cost, maintenance and asset replacement cost
savings over the life of the project
– Project yields a 3 year payback and it generates positive cash flow
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Confidential and Proprietary
Making the Case for Energy Efficient Buildings
Critical statement: Different Payback, Same Return on Investment
•
Return on Investment
•
$450,000
$400,000
$350,000
$1,000 Invest, 30% Savings, 16.7% IRR
$10,000 Invest, 20% Savings, 16.9% IRR
$100,000 Invest, 16% Savings, 17.0% IRR
$300,000
$1,000 Invest
$250,000
$10,000 Invest
$200,000
$100,000 Invest
$150,000
$100,000
$50,000
$0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
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Confidential and Proprietary
•
•
Return calculations dependent on benefits
received beyond initial payback
Guaranteed returns support analysis beyond
simple payback calculations and provide
financial basis for long term investment in
sustainability
Simple payback calculations help assess risk
Guaranteed savings minimize risk of
evaluating longer term projects
Proving the Model:
Examples of Large Energy Projects
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Confidential and Proprietary
Royal London Hospital
SITUATION
• Trane Care customer with needs including:
environment, efficiency, reliability
APPROACH
• Offers from each Trane Care category
– Refrigerant retrofit
– Compressor R’newal
– Compressor soft starters
– Controls upgrade
– Heat exchanger R’newal
– Soft starts on condensers and
evaporator water pumps
– Chiller re-paint
RESULTS
• Tuned in to customer needs
• Trusted source of solution
• Used all knowledge
• Managing equipment life cycle
• Mastering project management
Addressing building owner needs with service innovation
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Confidential and Proprietary
Industrial Facility
SITUATION
• Campus-style (1.1 million-sq-ft) heavy industrial manufacturing plant
• Aging infrastructure with low energy efficiency and reliability and high
operating and maintenance costs
– Dramatic downturn in product sales
– While experiencing 70+% increase in energy costs
• Corporate goal, 15% reduction in energy cost by 2013
APPROACH
• Factors driving improvements:
– Need to stay competitive
– Reduce maintenance and operating costs
– Add asset value
Energy project makes manufacturing facility more competitive
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Industrial Facility (cont.)
IDENTIFYING INVESTMENT BENEFITS
1. Assessment
2. ECM Selection
Analyzed HVAC systems,
compressed air and lighting
for efficiency, capacity and
effective operating and
maintenance practices.
Evaluated remote monitoring
application potential.
Lighting retrofits,
building automation
upgrades and hot water
boiler
3. Payback
Selected ECMs
offer quick return
$2.1 million project investment in new air compressors,
hot water boiler, lighting retrofit and remote monitoring
RESULTS
• Two-year payback with projected $1.13 mil. in annual energy savings +
$275,000 in annual labor cost reduction
• Energy reduction of 11.5 MKWH equivalent to CO2 emissions from 11 tanker
truckloads
• On track to achieve mandated 15% reduction by 2013
Safer, more reliable and energy efficient plant
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Confidential and Proprietary
Warsaw Marriott (Poland)
SITUATION
• 20-story hotel with 518 guest rooms, casino and meeting and exhibition
• Frequent breakdowns, reduced efficiency and high operating costs from outdated
systems
• Difficult-to-access plant room and decentralized system control
• Infrastructure systems generating noise complaints from guests
APPROACH
• Factors driving improvements:
– Increase competitiveness
– Reduce operating costs
– Increase asset value
– Environmental responsibility in compliance with 2010 mandate
Upgrades for increased reliability
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Confidential and Proprietary
Warsaw Marriott (Poland) (cont.)
1. Assessment
Evaluated central plant
comfort systems for
performance, energy
consumption, operational
efficiencies and
maintenance access
2. ECM Selection
High-efficiency chiller
systems with variable
flow water pumps to
reduce energy use and a
centralized BAS
3. Payback
Selected ECMs
offer medium
timed return
RESULTS
•
•
•
•
•
•
15% improvement in overall building energy efficiency (30% system
improvement)
Significantly reduced carbon emissions to meet 2010 mandates
Increased comfort by reducing system noise by 25dbA
Lower noise operating levels
Reduced system breakdowns to near zero (reduction in maintenance costs)
Completed project off-season without disrupting hotel operations
$2 million integrated system with projected six-year payback
27
Confidential and Proprietary
Island Place Shopping Centre (Hong Kong)
SITUATION
• Customer: Swire Properties
• To change the mindset of landlord
technicians to new water cooled system
operation instead of air cooled system
• Limited space for installation
• Statutory approval for application for pilot
scheme of fresh water usage for cooling
tower
RESULTS
APPROACH
• Provide more practical training and method • Annual energy saving of around
statement to handle water cooled plant
1,176,000kWh and payback of
• Site modification work to suit the limited
4.8 years
space
• Ask the appropriate people to get approval • Conversion of 660RT A/C to W/C
system
in short time frame
• Annual saving ~35% achieved
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Confidential and Proprietary
113 Argyle Street (Hong Kong)
SITUATION
• Customer: Nan Fung Properties
• New business partner for supply and
installation project
• Difficult chilled water system installation on
high rise tower roof
• Merging low and high zone into one circuit
APPROACH
• Provide professional image and job
reference to the client
• Dismantle chilled water system in pieces
for delivery to roof
• Precise site measurement for equipment
selection
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Confidential and Proprietary
RESULTS
• Annual energy saving is around
1,460,000kWh and payback 7.5
years
• Conversion of 1,100RT A/C to
W/C system
• Guarantee annual saving 37%
Bottom Line Business Case
Energy efficiency makes
more sense than ever
Link the building to a business
mission
Projects will move forward
despite the economy
Determine the funding strategy
Financial business case will
drive decisions
There’s proof that it works
Understand ECMs and their
payback
Consider total cost of
ownership
Conduct the financial analysis
– including cash flow
30
Confidential and Proprietary
Larry Wash, President Global Services
Hussmann, Thermo King and Trane
lwash@trane.com
31
Confidential and Proprietary
Questions