Richmond Building Energy Challenge

Transcription

1 Richmond Building Energy Challenge

2 Robert Greenwald, P.Eng., MBA, President (Principal) Robert Greenwald has 25 years of energy management experience including developing energy plans, determining opportunities, designing building upgrades, setting up MTR programs, acting as an Energy Coach and supporting cultural change through training and engagement programs. Robert has a genuine passion for training and has facilitated over 200 energy management workshops. 2 2

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4 The business case for EE is a strong one. The surprise is that more firms are not adopting EE. Why not? One obstacle appears to be the way in which the case for EE is being communicated. Engineers and operations managers need to better motivate their executive team. They must speak in the language of the Chief Financial Officer (CFO) and Chief Executive Officer (CEO), citing not just the costs, but the savings, the low financial risk, the decreased waste and the social benefits. 4

5 They must speak in the language of the Chief Financial Officer (CFO) and Chief Executive Officer (CEO), citing not just the costs, but the savings, the low financial risk, the decreased waste and the social benefits. 5

6 when return on investment, risk and time value of money are considered, often energy efficiency upgrades are shown to be very prudent. 6

7 Which investments make the best use of available money? Ensure optimum benefits from investment Minimize the risk A basis for subsequent performance analysis 7

8 Costs and Savings Impact on O&M (positive or negative) Simple payback Net Present Value Internal rate of return Sensitivity Analysis Assumptions 8

9 Costs Equipment Installation Metering Engineering Contingency Taxes Savings Electricity Fuel Maintenance Carbon Tax Carbon offset Taxes 9

10 Energy Savings: energy saved x incremental energy rate Demand Savings: kw saved x incremental demand rate Thermal Fuel Savings: Fuel Energy Saved = Point of Use Energy Saved Heating Plant Efficiency Fuel Cost Saved = Fuel Energy Saved x Incremental Cost of Fuel Energy Content of Fuel Indirect electrical savings e.g. reduced A/C loads due to more efficient lighting: A/C kwh Saved = Lighting kwh saved COP Less re-lamping labour and lamp cost from switching to a longer-life lamp type Increase in employee productivity from converting to a higher quality, higher efficiency fixture type Carbon Tax and Offsets as applicable 10

11 Decrease in lamp life - increased re-lamping costs Decrease in lamp life due to increase in switching Any increase in maintenance costs such as higher cost lamps and ballasts Higher cost of repairs or lower life of any replacement energy-efficient equipment Indirect energy costs: Increase in heating costs due to more efficient or switched lighting 11

12 Simple Payback Net Present Value (NPV) SPP years Capital Cost Annual Savings Return on Investment (ROI) and Internal Rate of Return (IRR) 12

13 Project Life (years) Project Life (years) Project A Project B Return of your Capital Return on your Capital 13

14 Doesn t take into account Ongoing savings after the payback period The time value of money But, it s a useful preliminary indication of the merits of a project 14

15 Credit: From Finance 101 for Facility and Property Managers Course presented by Alan Whitson, Oct 30, 2014 Sponsored by: Corporate Realty, Design & Management Institute ( 15

16 The time value of money needs to be considered as a dollar received now is worth more than same dollar received in the future. 16

17 Year Savings 2% 4% 6% 8% 1 $ 10, $ 9, $ 9, $ 9, $ 9, $ 10, $ 9, $ 9, $ 8, $ 8, $ 10, $ 9, $ 8, $ 8, $ 7, $ 10, $ 9, $ 8, $ 7, $ 7, $ 10, $ 9, $ 8, $ 7, $ 6, $ 10, $ 8, $ 7, $ 7, $ 6, $ 10, $ 8, $ 7, $ 6, $ 5, $ 10, $ 8, $ 7, $ 6, $ 5, $ 10, $ 8, $ 7, $ 5, $ 4, $ 10, $ 8, $ 6, $ 5, $ 4, $ 10, $ 8, $ 6, $ 5, $ 4, $ 10, $ 7, $ 6, $ 4, $ 3, $ 10, $ 7, $ 5, $ 4, $ 3, $ 10, $ 7, $ 5, $ 4, $ 3, $ 10, $ 7, $ 5, $ 4, $ 3, $ 10, $ 7, $ 5, $ 3, $ 2, $ 10, $ 7, $ 5, $ 3, $ 2, $ 10, $ 7, $ 4, $ 3, $ 2, $ 10, $ 6, $ 4, $ 3, $ 2, $ 10, $ 6, $ 4, $ 3, $ 2,

18 Cash Flow Table for Purchase of new Boiler Capital Expenditure $100,000 Expected Savings $48,000 90% on delivery/commissioning, and 10% performance guarantee due at one year Half in first year, full amount in all remaining years (Values in $ 000) Year Costs (90.0) (10.0) Savings Net cash flow (90.0) Net Project Value (90.0) (76.0) (28.0)

19 Discount Factors 1/(1 + i) n Year (n) Discount Factor 6% % % % % % % $ $ $ $ $ $ $ $ $ Discount Factor 10% $ Year

20 NPV Calculation Year Net cash flow ($000s) (90.0) The discounted cash flow at 10% can be found as follows: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 1 x (90.0) x x x x x 48.0 = (90.0) = = = = = NPV = the sum of all these values = (compare to net project value = 116.0) 20 20

21 Basic and essential test method to evaluate projects among other available financial tests Considers financial impacts not revealed with the payback method Considers all relevant elements of projects - all variation of revenues, savings, and costs $ $ $ $ $ $ $ ($50 000) ($ ) Cumulative cash flow shown 21

22 For well-defined design and technology alternatives: Total investment costs for each alternative including: Initial investment costs Major equipment residual market value All variations of revenues realized as a result of the investment All variations of expenses (savings or cost increases) Replacement costs and major maintenance costs OM&R costs including energy, regular and preventive scheduled maintenance Income Taxes (when applicable) 22

23 Net Present Value (NPV) $10,000 $8,000 Cash Flows $6,000 $4,000 $2,000 $0 Present Value (Discounted cash flows) ($2,000) ($4,000) ($6,000) ($8,000) ($10,000) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Net Present Value (Aggregate of cash flows discounted to present value) 23 23

24 The project rate of return that makes the present value of all future cash flows equal to the initial investment value of the project. Also known as project yield. Discount NPV IRR 10% $61, % $25, % $11, % $ % 31% -$1, % -$8,

25 Capital costs Annual cash flows Taxes Asset depreciation Intermittent cash flows 25

26 Design, development, and engineering Initial capital investment and financing Operation, maintenance, and functional use Replacement Alteration, refurbishing, and improvement Salvage and retirement 26

27 Discount Rate Use the owner s after tax weighted average cost of capital; it is specific to the organization and is computed as the average of all current short and long term financing sources Inflation or Escalation Rate Use cash flows in current dollars (increased by the inflation rate) and apply various inflation rates (could be different for maintenance, fuel, power ) Time Frame Assessed alternatives on the same time frame Risk Risk is generated by uncertainty. Use sensitivity analysis to compare alternative assumptions for your forecasts 27

28 Computed as: - Initial Investment + Present value (discounted) of the revenue flows + Present value of all the savings flows (Energy + Maintenance Costs + OM&R) - Present Value of all the increase in costs flows (Energy + Maintenance Costs + OM&R) + Present Value of Residual Values = Net Present Value (or LCC if negative) $ $ $0 ($10 000) ($20 000) ($30 000) ($40 000) ($50 000) ($60 000) 28

29 Pessimistic e.g. much higher interest rates Realistic Best guess Optimistic e.g. much higher energy costs 29

30 Roundtable discussion on what assumptions are typically involved in the business case. Life (number of years to use) Operating hours Plans for the property expected future use Relocation potential Persistence in service use Discount rate Interest rate escalation rate (inflation is one method) Utility rate increase reinvestment rate (take out some savings 90/10) Weather conditions impacting energy use Equipment failure Maintenance costs 30

31 Costs and benefits can be valued in dollars Project life cycle or system life is basis for comparison To be compared, dollars in different years must be discounted to their present value amounts Various inflation factors can be taken into account For each year, the difference between benefit and cost is discounted to the present The discounted net (benefit-cost) for all years is summed and compared to the initial investment 31

32 Net Present Value (NPV) is an essential tool for decision making about energy management strategies NPV must not be used in a static fashion, but as an exploratory tool with sensitivity analysis Selection of discount rate and inflation factors is the key to a good NPV analysis 32

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36 RETScreen Energy Model - Energy efficiency measures project Fuels & schedules Show data Fuel Fuel type 1 Fuel type 2 Fuel type 3 Fuel type 4 Fuel type 5 Fuel type 6 Fuel type Electricity Natural gas - m³ Fuel consumption - unit MWh m³ #N/A #N/A #N/A #N/A Fuel rate - unit $/kwh $/m³ #N/A #N/A #N/A #N/A Fuel rate Schedule Unit Schedule 1 Schedule 2 Schedule 3 Schedule 4 Schedule 5 Schedule 6 Description 24/7 Occupied Occupied Occupied Occupied Occupied Temperature - space heating C Temperature - space cooling C Unoccupied Unoccupied Unoccupied Unoccupied Unoccupied Temperature - unoccupied +/- C 3.0 Occupied Occupied Occupied Occupied Occupied Occupancy rate - daily h/d h/d h/d h/d h/d h/d Monday Tuesday Wednesday Thursday Friday Saturday Sunday Occupancy rate - annual h/yr 8,760 6, % 100% 75% 0% 0% 0% 0% Heating/cooling changeover temperature C 16.0 Length of heating season d 242 Length of cooling season d 123 Base case vs. proposed case Steps: 1. Fuel & schedules Facility characteristics Show data Incremental Fuel cost Incremental O&M savings Show: Heating Cooling Electricity initial costs savings Simple payback Fuel saved GJ GJ GJ $ $ $ yr Heating system Boiler Cooling system Air-conditioning Building envelope Appartment building 2, ,000 28, Ventilation Lights Electrical equipment Hot water Other Total 2, ,000 28, Include measure? 2. Facility characteristics (energy + costs) 3. Summary (energy) Summary Show data Fuel Base case Proposed case Fuel cost savings Fuel consumption - Fuel Fuel Fuel cost Fuel type unit Fuel rate consumption Fuel cost consumption Fuel cost Fuel saved savings 28,659 Natural gas m³ $ 160, ,078 $ 88, ,419 $ $ 71,647.8 $ 28,659 Total 64,078 $ 35,419 $ Fuel Fuel Fuel Project verification consumption - consumption - consumption Fuel type unit historical Base case Natural gas m³ 160,194.2 Fuel consumption - variance Heating Cooling Electricity Total Energy GJ GJ GJ GJ Energy - base case 4, ,204 Energy - proposed case 2, ,324 Energy saved 1, ,880 Energy saved - % 44.7% 44.7% 4. Emission analysis 5. Financial analysis Benchmark Energy unit kwh Reference unit m² 7,500 User-defined m² 2,000 Benchmark Heating Cooling Electricity Total Energy kwh/m² kwh/m² kwh/m² kwh/m² Energy - base case Energy - proposed case Energy saved

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51 Project management Construction Equipment installation Commissioning Training Verification of savings New equipment operation 51

52 Internal Implementation Central budget for capital improvements Department budget facilities management, engineering, etc. Payment by budget holders charge-back External Implementation External financing 52

53 Consultants Audits & Feasibility Studies Financing Project Management Commissioning Monitoring & Verification Training Contractor Construction & Installation Maintenance and operation 53

54 Low interest loans Lease equipment Green Revolving Funds 54

55 Equipment suppliers e.g. HVAC & controls Equipment service companies typically HVAC Former energy consultants broad expertise & knowledge Utility-originated firms driven by de-regulation One technology companies e.g. lighting 55

56 Energy audits Construction management Performance specs, project design, commissioning Project financing Measurement & verification Guarantee of savings Equipment maintenance & operations 56 56

57 Guaranteed savings Energy Performance Contract (EPC) Meeting or exceeding a certain amount up to 100% of savings specified by the audit Shared savings Proportions by agreement No guaranteed savings You are responsible for savings &/or performance 57

58 You need: Help identifying and implementing projects Help getting internal buy-in for the project You lack: Available &/or experienced staff to install and manage the project Available &/or experienced staff to maintain the equipment Project financing 58

59 Savings can be realized sooner earlier initiation earlier execution They know what projects are cost effective Can provide financing Can provide off balance sheet financing Responsible and accountable for benefits Can guarantee equipment performance and savings 59

60 You may have to share savings A 2nd audit may be required ESCO may have a technical bias You may be required to purchase a maintenance contract Markups & risk management will add to costs 60

61 ESCOs can be used for some or all of the tasks Various options for off balance sheet financing Performance guarantees are available from third party risk insurers You may start with an ESCO, and assume increased responsibility as you become experienced 61

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64 Operational Analysis Financial Analysis Energy Efficiency Opportunity Energy Efficiency Funding Capital Competition Strategic Analysis Credit/ Source: NRCan Energy Efficiency Finance Workshop 64

65 Is there local support for the technology? Is the technology proven? What training is required? Do we have the internal expertise required? What impact will the project have on staffing? Are there environmental and safety implications? 65

66 Are there hidden or additional costs? What are the benefits? Energy Savings? How realistic are the costs and savings projections? What financial impact will this have on other areas of our organization? How do you propose to finance the project? How quickly will we see benefits? 66

67 How does this project fit with our mission? How disruptive will the project be to our operations? What is the impact of delaying for 1 year? What other options have been considered? How does this fit with our current priorities? 67

68 Which investments make the best use of available money? Ensure optimum benefits from investment Minimize the risk A basis for subsequent performance analysis 68

69 Current situation Proposed modifications Energy and non-energy benefits Financial summary Risks Implementation plan 69

70 Know your audience Grab their attention early Start with key positive points Be logical stay on topic Use appropriate data End with a follow-up statement 70 70

71 Build the VALUE argument Build the RISK argument Connect with other initiatives that have funding secured Make it non descretionary! Build the business case 71 71

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74 General Info (real building and retrofit) 38,000 m2 BC Hydro Customer Lighting Retrofit o $165,000 capital costs o $25,000 incentive o $18,675 annual energy savings o $3,500 annual maintenance savings 74 74

75 2% energy cost increase per year 2% maintenance cost increase per year 6% discount rate 10% depreciation rate Corporate taxes excluded 75 75

76 Use own capital, gets all the energy savings Simple Payback 6.8 years Net present value $23,795 (over 10 years) Net present value $137,471 (over 20 years) IRR 9.3% (over 10 years) IRR 15.4% (over 20 years) 76 76

77 Over a 10 year lease Pay $0.925 per square foot in energy and maintenance Or (after retrofit) Pay $0.917 per square foot in energy, maintenance and depreciation Net benefit of nearly $50,000 over lease Renewed System (less glare) + other benefits 77 77

78 Put up the capital but charge a competitive interest rate to the tenant to cover costs Keep rents the same for 10 years Increase rent by 6 cents/sqft at the end of lease (the same amount as the project savings) $22,300 additional rent each year At 5% cap rate, increase in BUILDING ASSET VALUE by $445,

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82 Build the VALUE argument (using financial analysis) Build the RISK argument Connect with other initiatives that have funding secured and aligned with corporate priorities Build the business case showing the appropriate benefits for all decision makers 82 82

83 A story One of my first energy audits 1994 Power Smart Excellence Award Downtown Vancouver office Building 100,000 square feet, multiple tenants First exposure to DDC for Operator 83 83

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85 Session Dates Topic 1 Dec 1 Energy Benchmarking (including Portfolio Manager) 2 Jan 12 Lighting Opportunities 3 Jan 26 HVAC Opportunities 4 Feb 9 Behavioural Change 5 Feb 23 Preparing the Business Case for Energy Management 6 Mar 8 Monitoring, Targeting, and Reporting 85

86 Robert Greenwald, P.Eng., MBA, Tel: Gilmore Way, Burnaby, BC V5G 4X5 86