(If you missed the Part I blog post in this series about ESPCs, CLICK HERE!)
An Energy Savings Performance Contract (ESPC) is arranged between an organization and a private partner/contractor, often called an Energy Services Company (ESCO), that will manage the project and provide a solid guarantee on savings. ESPC’s enable organizations to implement a wide range of ECMs, including building envelope measures, building automation and energy management systems, energy and utility distribution systems, and advanced metering systems. Other ESPC financial benefits can also include savings from scaled-down operations and maintenance (O&M) costs, as well as utility and tax incentives. (Learn more about ESPCs and why organizations and businesses use them within Part I of this ESPC blog series!).
ESPCs - Breaking Down the Basics
Following the completion of a comprehensive energy audit to identify energy saving opportunities, the selected ESCO will develop an Investment Grade Audit (IGA), incorporating an advanced design, estimated project costs, and a savings guarantee. An IGA provides a thorough breakdown of potential energy conservation measures at a facility, everything from operation and maintenance recommendations to suggestions for major renovation. The IGA also incorporates a savings guarantee and is used as a mechanism to procure financing.
Once a guaranteed savings contract is executed, the next phase of the ESPC is implementation. The ESCO acts as the general contractor for the energy improvement project, taking full ownership of the whole process. This ensures that the project is executed with the same integrity as the analysis and also ensures single-source accountability from the development phase to the guarantee phase. The ESCO manages the installation of equipment and related ECMs. The ESCO is also responsible for performing annual Measurement and Verification (M&V) to ensure that the guaranteed savings are realized over the life of the contract. Under an ESPC, the energy savings are projected to match or exceed the costs of the retrofit.
The ESPC model is a very effective mechanism that can be leveraged by organizations and businesses to provide budget flexibility and innovative funding solutions for capital projects. Although organizations can leverage various contract models to advance energy conservation projects, including an Energy Services Agreement (ESA).
Energy Services Agreements and Why You Should Avoid Them
An Energy Services Agreement (ESA) is a contract established between a business/organization and an ESCO, where the ESCO incurs the financial risk, for a share of the resulting savings. The organization pays the ESCO over time as energy savings are realized. Although the organization may initially benefit by avoiding immediate risk and short-term budgetary constraint, ESA’s may not be as favorable in the long term for the following reasons:
- An ESA requires a private partner committed to investing capital. Providing enough incentive for the private partner’s investment can result in an agreement that may not be as favorable in the long term as some other options.
- ESA’s also face strict M&V requirements, as well as tight legal parameters to work within.
- Organization are obligated to pay the ESCO a share of the savings resulting from the energy efficiency improvements during the term of the contract, which can extend up to 25 years.
- Finally, ESA’s require businesses and organizations to make a long-term commitment to an energy partner.
Leverage ESPCs to and Advance Infrastructure Projects
Organizations and businesses are often better served by procuring independent 3rdparty financing and leveraging an ESPC. Rather than share the resulting savings over the term of the contract with the ESCO, the organization absorbs the investment risk and reaps 100% of the savings throughout the life of the contract. An ESPC agreement limits long-term contract obligations and allows organizations to maintain control over their investment and assets. In addition, an independent energy consulting firm will design and select the best solution possible, rather than specifying and supplying its own equipment; which is a common practice of ESCO providers that also manufacture equipment. The ESPC model proved to be critical in advancing a boiler decentralization project for the Dimock Center, a non-profit health center located in Roxbury, Mass.
SourceOne Helps the Dimock Center Achieve $150,000 in Annual Guaranteed Savings Via An ESPC
Following an energy audit of the Dimock Center campus, SourceOne, a national energy consulting firm, identified the existing 1930’s central heating plant as a key energy conservation measure (ECM) and recommended its replacement. The projected energy savings and efficiencies presented by SourceOne persuaded the Dimock Center to replace its central plant; although, as a non-profit, the Dimock Center was unable to independently fund the project. In order to secure capital, SourceOne presented the ESPC model as a mechanism to finance and advance the project.
Public-sector entities, like the Dimock Center, are well-suited to take advantage of ESPC partnerships. Capital bonds and tax-exempt loans can be leveraged to enhance the ultimate financial outcome. Spreading a project’s cost out over time lessens the impact on budgets and ultimately allows the project to pay for itself as savings are realized.
Following the Dimock Center’s success in securing financing, SourceOne managed the ESPC, including the design and construction to replace the existing oil-fired steam plant with natural gas fired point-of-use boilers. The IGA, developed by SourceOne, identified an annual $150,000 guarantee on savings, and was an integral document enabling the Dimock Center to obtain 3rd-party financing.
Completed in October 2013, SourceOne successfully managed the design and construction for this boiler decentralization project, achieving a 30% reduction of capital costs, in addition to reducing the schedule by a year. By procuring independent financing, the Dimock Center will accrue 100% of the annual $150,000 guarantee on savings. Additional savings realized during the project implementation were also passed on to Dimock Center. This turn-key solution, completed a year ahead of schedule and significantly under budget, will generate significant savings, greater energy efficiencies, and improved occupant comfort for the non-profit for years to come.
ESPCs Deliver a Solid Return on Investment
The guaranteed savings, positive cash flow, and projected Return on Investment (ROI) offered by an ESPC provide public entities and businesses the ability to argue in favor of investment. Coupled with the flexibility of the financing options, ESPC’s provide a strong case for implementation.
Stay tuned for Part III of this series to learn why you should engage an Owner’s Representative if you are considering hiring an ESCO. If you missed the ESPC Part I blog post in this series, CLICK HERE!
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Implement Infrastructure Projects With Energy Savings Performance Contracts
These days, many businesses and organizations are reevaluating capital budgets and pinching pennies wherever possible to meet infrastructure needs, while still trying to grow their core business. Aging infrastructure, significant up-front capital cost requirements, and rising energy costs and volatility, represent significant challenges for businesses and organizations that are often unable to fund critical infrastructure improvements. Fortunately, there are financing options available to advance these projects, such as Energy Savings Performance Contracts (ESPC). An ESPC is an agreement between an organization and a contractor, often called an Energy Services Company (ESCO), who will design and manage a project to reduce energy and maintenance costs at a facility and provide guarantee on the resulting savings.
Finance Energy Efficiency Projects Via Future Estimated Savings
Through an ESPC contract, organizations can essentially finance the cost of the project from the future estimated savings resulting from the capital improvements. The ESPC model can be leveraged by organizations and businesses to advance complex and expensive capital infrastructure projects. By integrating energy conservation measures (ECMs) into consolidation plans, ESPCs can be used to execute projects of all sizes for commercial properties in any industry.
Facility improvements can constitute a wide range of energy efficiency enhancements, including the installation of new lighting, energy-efficient windows, automated controls, energy management systems, new high efficiency boilers, heating, ventilation and air conditioning (HVAC) upgrades, insulation improvements, water conservation upgrades or solar panel installations.
Why Organizations and Businesses Use ESPCs
Through an ESPC, facilities can achieve consolidation and energy efficiency incentives that may have previously been out of reach due to upfront fiscal restrictions. There are several motivating factors driving the adoption of Energy Savings Performance Contracts, including:
- Lack of capital to advance facility improvements within existing budgets.
- Guaranteed performance; Ensures accountability for
- Budget control through reduced utility, service and operating expenditures.
- Life-cycle cost solutions and technology improvements.
- The ability leverage a wide array of supporting services from external vendors for energy related infrastructure needs.
- Processes improvements.
- Enhanced occupant experience and productivity.
- Supports energy efficiency and environmental conservation goals.
- Building system-wide efficiency improvements and modernization.
- Capital avoidance resulting from incorporating capital costs into energy projects that generate Return on Investment (ROI) and/or positive cash flow.
Qualified projects and organizations should be looking at ESPCs as a best practice for optimizing their facilities. Although there are different contract models used to implement energy conservation projects and organizations should consider and weigh each option carefully.
CLICK HERE to read Part II of this post to learn more about ESPCs and various contract models used to implement capital improvement projects.
In light of today's complex business and energy environment, complicated lease language, and complex allocation models, managing utility costs and energy consumption can be difficult, time consuming, and costly. However, by implementing a web-based energy management system, tied to a robust metering system, organizations can achieve significant cost and energy savings. These systems allow you to track and quantify energy use, streamline meter data collection, and accelerate cost recovery, while providing customized energy tenant invoicing and reporting options....
Click on the link below to read the January 2014 New England Real Estate Journal article! Chris Barros, PE, SourceOne's Vice President and the General Manager of Energy Management, highlights the benefits of metering and web-based energy management systems in reducing energy use and generating cost savings for commercial buildings.
Learn how demand control ventilation can reduce energy use
Can ventilation requirements and energy conservation go hand in hand? They can if you implement demand control ventilation (DCV).
There’s no reason to waste energy conditioning air for people who aren’t in your building. Instead of supplying air at fixed rates, DCV automatically adjusts ventilation levels based on real-time occupancy measurements. This strategy allows you to meet code and reduce energy use without sacrificing indoor air quality.....
Click on the link below to read the Buildings Magazine article! Jules Nohra, SourceOne's Manager of Energy Efficiency, was quoted in the article and highlights the benefits of DCV in reducing energy use, improving indoor air quality, and generating cost savings.
Avoid Schedule Delays and Spiraling Construction Costs
Coordinating utility power requirements for a large-scale construction project can be time-consuming and costly for real estate investment trusts (REITs), land developers, and construction firms. Projects that involve utility infrastructure modifications, including new service requests, existing service upgrades, temporary power requests, or infrastructure relocation, require coordination with the local utility. Hurdles navigating investor-owned utility companies can lead to significant cost and schedule overruns. However, initiating planning early in the project lifecycle, involving key stakeholders and utility experts, and establishing a single point of accountability, can greatly reduce schedule delays and unnecessary costs.
The “Black Box” – Hurdles Navigating the Utility
Unexpected changes or project requirements that arise further along into design and construction can have a significant impact on schedule and cost. This is particularly true for utility infrastructure requirements for large-scale construction projects. Challenges procuring temporary or permanent power from the utility can have significant cost and schedule implications.
Utilities have undergone significant restructuring and cost-cutting in recent years, resulting in utility workers that are stretched too thin and frequent changes to policies and procedures. Investor-owned utilities have their own unique engineering and construction policies and procedures, which are often not well understood outside of the utility by project stakeholders. These challenges have created a “black box” within the utilities, while developers and construction firms struggle to understand and navigate its internal workings.
Because project stakeholders may not have the relationships at the utility to streamline utility power requirements, REITs and commercial developers often run into hurdles in procuring utility power for their construction projects. Delays in obtaining temporary or permanent utility power can lead to significant schedule delays and unforeseen construction costs, such as on-site diesel-fueled generators.
Utility Power Delays and On-site Generators Can Spiral Project Costs
Cost Avoidance is critical for any construction project. The cost for an on-site generator, depending on the size and fuel consumed, can have a huge impact on overall project costs and schedule. For example, a typical 500kW diesel generator will incur approximately $45,000/month (est.) in rental fees, maintenance, delivery charges, operator costs, and fuel consumed. Whereas, if temporary power is coordinated through the utility prior to construction, these additional costs are avoided, resulting in significant savings. Therefore, it’s critical to engage an expert that is familiar with utility processes and procedures, gas infrastructure, and medium to high-voltage electrical applications.
Specialized Experts in Utility Management – SourceOne Unlocks the ”Black Box”
With decades of medium and high-voltage power systems expertise and years of natural gas construction experience working directly for investor-owned utilities (such as NSTAR and National Grid), SourceOne can take the headache and expense out of utility coordination.
SourceOne provides turnkey utility management services, scalable to the project size, scope, and requirements, including electrical and gas infrastructure due diligence, power master planning, and utility power coordination. SourceOne is providing utility power coordination on several notable, multi-million dollar development projects across New England, including the Chestnut Hill Mall development in Chestnut Hill, MA, the Pier 4 Mixed Use Development in Boston, and LoveJoy Wharf, Converse’s new world headquarters in Boston.
Because of this direct utility experience and expertise in power systems, SourceOne experts are able to unlock the “black box” to successfully navigate and coordinate with the utility. This includes proposing alternative designs to the utility, providing checks and balances to the design process, and scrutinizing designs, work orders, and estimates to make sure the customer is getting exactly what they are paying for. In addition, SourceOne actively looks for parts of the design that may be considered system improvement and subsequently non-billable to the customer. With SourceOne at the helm, scheduling is more likely to stay on track, and any gaps in the division of work are quickly identified and filled. By leveraging utility relationships and using a “boots on the ground” approach, SourceOne acts as an intermediary between the utility and key stakeholders to actively manage power needs through to project completion.
REITs, land developers, and construction firms should engage a qualified utility expert to manage utility requirements, from inception to energization. With proper planning and the right experts in place, both unnecessary costs and schedule delays can be avoided.
About the 2013 City Energy Efficiency Scorecard
On September 17, 2013, the American Council for an Energy-Efficient Economy (ACEEE) released a new report titled 2013 City Energy Efficiency Scorecard. ACEEE’s new report ranks America’s 34 largest cities on their efforts to save energy and costs in five key areas. These categories cover local government operations, community-wide initiatives, buildings policies, energy and water utilities, and public benefits programs and transportation policies.
Boston Scores High In Five Key Areas
With its Renew Boston initiative, strict building energy codes, new energy benchmarking ordinance, transportation and other community-wide programs, it is no surprise that Boston was ranked the most energy-efficient US city, scoring 76.75 points out of a possible 100. Portland, Oregon, New York City, San Francisco, Seattle and Austin came in just behind Boston.
Here is a look at Boston’s scores in five key areas:
- Local Government Operations: 11/15
- Community-wide Initiatives: 9.5/10
- Buildings Policies: 21.5/29
- Energy and Water Utilities and Public Benefits Programs: 15.75/18
- Transportation Policies: 19/28
Energy Audits Quantify Energy Use and Drive Efficiencies
Energy efficiency encompasses a wide range of cost-saving energy conservation and planning initiatives to minimize energy usage, maximize savings and reduce carbon footprint. In order to address inefficiencies, energy usage must first be quantified. This is often accomplished via an energy audit by a trained engineer. The objective of an energy audit is first to quantify and analyze usage and then to identify applicable Energy Conservation Measures (ECMs) to increase energy efficiency and reduce Greenhouse Gas (GHG) emissions. Energy audits typically adhere to the parameters established by the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) Procedures for Commercial Building Energy Audits and, depending on the level, encompass varying degrees of detail (historical energy data, existing conditions assessment, projected energy savings, project cost estimate, payback period, etc.).
Energy Conservation Measures – The Path to Savings and Sustainability
Energy Conservation Measures can incorporate a wide range of infrastructure and operational improvements, including; recommendations for building envelope (replacing windows, installing insulation, controlling air leakage, etc.), heating and cooling and improvements (building automation controls, heat pumps, installing thermostats, etc.), lighting improvements, implementing efficient and/or renewable energy technologies (solar power, wind power, geothermal, etc.), and adjusting building operations.
As a national energy management consulting firm, SourceOne has helped several public agencies and private companies on a wide range of energy efficiency initiatives to achieve significant economic and environmental benefits. Relevant examples include the Massachusetts Water Resources Authority (MWRA), the City of New Bedford, and the Division of Capital Asset Management and Maintenance (DCAMM), to name a few. The MWRA, for example, has benefitted greatly from the implementation of a 1.2 MW Back-Pressure Steam Turbine Generator at its Boston Harbor Deer Island Waste Water Treatment Plant. As the Owner’s Representative, SourceOne managed the project from conceptual design to construction. Since completion of the upgrades in 2011, the plant is offsetting approximately $550,000 in annual energy costs and avoids the release of 3,591 Metric Tons of Carbon Dioxide (CO2) Emissions.
Energy Efficiency Supports Local Economic and Community Development
The clean energy industry continues to thrive in Boston and Massachusetts, benefiting the environment, economy and local communities. The executive summary of the 2013 City Energy Efficiency Scorecard report highlights the underutilized value of energy efficiency in improving and addressing a myriad of economic, environmental, infrastructure, and health concerns:
“Energy efficiency may be the cheapest, most abundant, and most underutilized resource for local economic and community development. Considerable evidence documents that investments in energy efficiency can improve community self-reliance and resilience, save money for households, businesses, anchor institutions, and local governments; create local jobs; extend the life of and reduce the costs and risks of critical infrastructure investments; catalyze local economic reinvestment; improve the livability and local asset value of the built environment; and protect human health and the natural environment through reducing emissions of criteria pollutants and greenhouse gases.”
After reading the opening statement of the report you begin to ask yourself “Why wouldn’t cities want to invest in energy efficiency?” Saving money, creating jobs, and improving community self-reliance are powerful incentives driving energy efficiency.
What’s Next for Energy Efficiency?
While many improvements have been made in recent years by cities and towns, energy efficiency is still an underutilized resource. Every town and city in the US should leverage and implement energy reduction opportunities to both achieve energy savings and meet environmental goals. The 2013 City Energy Efficiency Scorecard serves as an important tool highlighting best practices and encouraging and inspiring cities to become more energy efficient.
Increasing energy costs and volatility, along with environmental and reliability concerns, have shifted the focus of many commercial and industrial sectors away from initial capital costs toward infrastructure. With a fiduciary responsibility to their owners, partners, and shareholders, developers have historically focused on initial capital costs for facility development projects, with energy representing a minimal concern. However, changing world conditions have increased the importance of infrastructure and the operational cost of an asset over its lifetime.
Energy is Changing the Dynamic
With energy costs often ranking among a business’ biggest expense, initial capital costs are now overshadowed by lifetime operating costs. High operation costs can significantly affect the return on investment of nearly all facility development projects, as well as the competitiveness of an institution over time. Simultaneously, an increase and focus on sustainable operations has also emerged at the forefront of development.
In light of growing environmental concerns, businesses have adopted more stringent environmental policy to help reduce carbon emissions and demonstrate sustainable commitment to customers and investors. Over 86% of the energy used in the U.S. each year is generated from the combustion of fossil fuels, which releases carbon dioxide into the atmosphere. This increase in carbon emissions has been linked to the overall rise in average temperature (global warming), health concerns, and increased incidents of extreme weather. To proactively mitigate and reduce these environmental impacts, the industry has shifted towards integrating sustainability and energy reduction goals into the development process. Simply put: Energy is changing the dynamic.
Reducing the amount of energy required in operations through energy efficiency and employing more efficient technologies, such as micogrids, cogeneration, or renewable energy, can both reduce carbon footprint and benefit the bottom line. Facility development projects now require proactive and comprehensive energy plans to mitigate market risk, reduce operational costs, and ensure continued success. Infrastructure Master Planning has become an essential tool for owners, developers, and facility managers to proactively manage their assets as efficiently as possible, minimize long term costs affecting profitability, and support corporate sustainability goals.
Infrastructure Master Planning Process
The development process for Infrastructure Master Planning is intended to be dynamic and methodical. It is important that each step in the process is completed prior to moving forward, but it is always beneficial to return to earlier phases and confirm proper alignment with stated project goals and requirements.
Establish the Need
Identify all Governing Requirements
- Accommodate Growth
- Lower Operating Costs
- Higher Reliability
- More Sustainable Operation
- Duration of Implementation
- Develop metrics for success
Hypothesize and Study Potential Solutions
- Simple Financial Payback
- Increased Worker Productivity
- Lower Operational Cost
- Reduced Carbon Footprint
- Reduced Production Downtime
Assess Project Impacts
- Conduct benchmarking & audits of existing facilities
- Conduct feasibility studies of potential projects
- Develop schematic designs and processes
- Identify impacts to global, local and individual stakeholders
- Environmental impacts
- Land disruption
- Personnel relocation
Develop Overall Master Plan
- Identify project success metrics and compare those to governing requirements
- Identify financial commitment required & get buy in from appropriate parties
- Prioritize projects based upon specific needs and operational requirements
- Implement low cost, higher impact projects first if possible
- Complete design based upon priority
- Phase construction to minimize impact to business, but balance with need to support continued operation
- Develop periodic goals, i.e.
- 1 year Reduce annual expenses by proper operation and maintenance practices
- Implement Standard Operating Procedures (SOP) & training program
- 3 Year Consolidate operations to more effectively manage infrastructure requirements
- 5 Year – Construct new facility to meet growth projections
- Consolidate to newer higher efficiency facility
- 10 Year – Move into new market and develop sustainably competitive operations with highly reliable cost effective infrastructure
Infrastructure Master Planning is a process, seamlessly tying design, construction, operation and maintenance together to enable efficient business operation. With proper planning and sound investment, infrastructure management can yield lower operational costs, increase profitability, and support environmental sustainability goals.
Want to learn more?
Join SourceOne and Veolia Energy at the 2014 Efficiency Vermont Better Buildings by Design Conference on Wednesday, February 5th, 10:20 am - 11:50 am, during an engaging panel presentation on Infrastructure Master Planning: Building a Business from the Inside – Out!
Julia Pyper, E&E reporter
ClimateWire: Wednesday, September 11, 2013
In the wake of Superstorm Sandy, when most of lower Manhattan was a sea of darkness, New York University's Washington Square campus shone like a beacon in the night.
"The entire neighborhood was dark -- everything. And then there was us," said John Bradley, NYU's assistant vice president of sustainability, energy and technical services. "It really was a little surreal."
Swaths of Manhattan below 36th Street were powerless after Sandy hit, due to pre-emptive shutdowns and severe flooding that knocked out a power station in the East Village. But key buildings on NYU's campus stayed alight thanks to a self-sufficient microgrid system, designed to distribute electricity independently of Consolidated Edison Inc.'s main grid network.
A 13.4-megawatt combined heat and power (CHP) plant -- made up of two giant natural gas-fired turbines housed below Mercer Street -- powers the university's 26 electrically connected buildings. It also provides hot and cold water for up to 40 buildings by harnessing waste heat that would otherwise be released into the atmosphere. The efficient CHP facility produces 30 percent less greenhouse gas emissions than the oil-fired power plant it replaced.
In response to Superstorm Sandy, which made landfall last Oct. 30, leaders at all levels of the U.S. government have identified microgrids like the one at NYU as key components to improving energy resiliency on the East Coast. A recent federal report by the Hurricane Sandy Rebuilding Task Force cites microgrid systems as a means of mitigating the sprawling impacts of disasters fueled by climate change.
There's no official definition of a microgrid, but they're generally considered to be self-contained grid systems equipped with on-site power generation, like a CHP plant or a renewable resource like wind or solar. As isolated entities, microgrids can keep operating -- and, in NYU's case, keep students safe and power flowing to research projects -- even in the event of a large-scale power outage.
According to Navigant Research, North America will lead the microgrid market through 2020 with nearly 6 gigawatts of capacity, the equivalent of six large nuclear power plants.
A number of projects are already underway. Last month, the Department of Energy announced it will partner with the state of New Jersey, NJ Transit and the New Jersey Board of Public Utilities to build a microgrid that will power the transit system among Newark, Jersey City and Hoboken as well as critical stations and maintenance facilities.
"This first-of-its-kind electrical microgrid will supply highly reliable power during storms and help keep our public transportation systems running during natural times of disaster, which is critical not only to our economy, but also emergency and evacuation-related activities," Gov. Chris Christie (R) said at the announcement.
Connecticut, the first state to launch a microgrid program, awarded $18 million to nine microgrid projects across the state in July. Gov. Dannel Malloy (D) plans to commit an additional $30 million in the next two years for additional microgrid sites.
New York's Moreland Commission, launched by Gov. Andrew Cuomo (D), has also expressed support for establishing strategic microgrid systems following Sandy. In New York City Mayor Michael Bloomberg's Special Initiative for Rebuilding and Resiliency postmortem report on Sandy, the mayor specifically called for public and private partners to scale up distributed generation systems and microgrids, with the goal of reaching 800 MW of installed capacity by 2030.
The New York State Smart Grid Consortium (NYSSGC), a public-private partnership, is helping coordinate utilities, technology providers, policymakers and universities in the implementation of microgrid systems at various locations in New York City and upstate New York. James Gallagher, executive director of NYSSGC, praised the mayor's focus on modernizing the grid in the face of increasingly frequent and intense weather events. Over the last century, three of the four worst events to hit the New York grid system have taken place in the last two years, he said.
Gallagher underscored at New York Energy Week in June the urgency to build a more robust grid post-Sandy, while also advancing innovative microgrid technologies in the region.
“The Consortium is working with its utility members to establish microgrid projects both in New York City and in upstate New York,” he said. “These action-oriented projects will demonstrate the advances that have been made in power technology, and most importantly, they will show customers tangible benefits and what the smart grid and the utility of the future will truly mean to them. New York should and will lead, and is poised to be recognized as the innovation center of the nation in the field of power research.”
Adaptation, not mitigation
Spurred by Sandy, the New York State Energy Research and Development Authority (NYSERDA) is undergoing a yearlong study on the role of microgrids in providing mission-critical backup power generation. The microgrids NYSERDA is envisioning would not necessarily generate electricity year-round but would only come online in the event of an extended power outage, said Mark Torpey, director of research at NYSERDA.
The state group will also be evaluating a variety of energy technologies, from CHP plants to diesel generators to renewable energy sources, Torpey said. Despite the climate change mitigation benefits offered by low-carbon energy sources like solar and wind, these power plants may be too expensive or too big to install in New York City and the surrounding areas, he added.
"I wouldn't want to give the impression there's a significant potential for microgrids in and of themselves to provide significant [climate] mitigation; it's not their primary purpose. It's more on the adaptation side," he said.
Last month, NYSERDA also closed a solicitation for $10 million in support of research and engineering studies designed to improve the reliability and efficiency of the electric power delivery system in New York state.
Con Edison submitted a proposal to establish a showcase microgrid project in Cortlandt, N.Y., which was severely hit by Superstorm Sandy.
"Running electric grids safely and reliably is what we're good at, and we want to be a part of this implementation," said Troy Devries, director for research and development at Con Edison.
"In addition to that, we see this as an opportunity to transform the grid," he added. "The next phase of the grid is probably going to be a more interactive relationship, not just a one-way feed, both for energy transfers and communication transfers, and control is probably going to be going both ways and lots of different directions."
NYSSGC is also working with National Grid to identify potential microgrid projects in the western part of the state, as well as Clarkson University in Potsdam, N.Y.
Costs and payback of not going dark
Stand-alone microgrids with distributed generation systems are very expensive and logistically challenging to install. But valuing both the direct and indirect benefits microgrids provide could make for an attractive business case, according to Louis Schoen, director of development at the energy consulting firm SourceOne Inc.
In addition to the power outages and physical damage it caused, Sandy cost an estimated $5.7 billion in lost economic productivity. Operating microgrids could have reduced that burden, Schoen said. He added that cities and states may not want to risk losing out on future revenue by failing to fortify their power systems.
"If you are in a place that does not have consistent power and reliability, you're not a good place to be for business," he said. "If you are in a place like New York and you can't depend on your power grid, you move to New Jersey."
The economics are also more or less attractive based on location. In New York, where electricity rates are among the highest in the country, the payback period on a CHP-powered microgrid system could be six to seven years, Schoen said.
But as the first microgrid systems come online, there are concerns related to fair pricing. Self-sufficient microgrids undermine utilities' traditional economic model by ostensibly taking one of their clients away. But at the same time, utilities are responsible for backing up the capacity of a microgrid should it fail.
"If I'm a customer and I have a big building or I have a campus like NYU and I have a microgrid and my microgrid can sustain itself, that's all well and good for me, but when my power goes offline, what do I expect to happen? I expect the utility to be there to back me up. And that can happen on the worst day, on the hottest day of the year, which means lots of expensive infrastructure upgrades," Con Edison's Devries said. "Asking all the other customers to pay for that is not really appropriate."
But it's also important to ensure that utility rates for backup power are fair and equitable to microgrid customers, said Thomas Bourgeois, deputy director of the Pace University Energy and Climate Center. Utilities may try to overcharge microgrid users for standby power to recuperate costs from losing them as regular customers. Utility rates also need to reflect the benefits microgrids can offer by reducing demand on congested grid systems, like in New York City where there's an energy crunch during peak hours.
The best sites for microgrids are likely to be where utility interests combine with end-user interests and the social need to keep electricity flowing throughout disastrous events like Superstorm Sandy, Bourgeois said.
"I think we need to start kicking the tires and testing these systems," he added. "I think we're past paper studies and past doing road maps."
Reproduced with permission. Copyright 2013, E&E Publishing, LLC. www.ClimateWire.net
Earlier this month, New York University (NYU) and the Environmental Defense Fund (EDF) co-hosted an event called “The Value Proposition in Microgrids: Reliability, Resiliency and Investment Opportunities after Sandy.” Mike Byrnes, Executive Vice President and Chief Operating Officer of SourceOne, was joined by other industry experts in a panel that focused on “Varieties of Microgrids: Examples from across the Region.” Mike Byrnes’ discussion focused on Hurricane Sandy’s impact on the NYU Campus and the benefit of district energy systems and microgrids for NYU’s Greenwich Village campus during the storm.
What is a Microgrid?
A microgrid can be characterized as ‘a localized grouping of electricity generation, energy storage, and loads that normally operates connected to a traditional centralized grid….Microgrid generation resources can include fuel cells, wind, solar, or other energy sources,' such as CHP/cogeneration (Source: wikipedia.org). Microgrid systems, linking distributed power generation sources into a small network to serve energy needs can provide reduced energy costs, increased energy efficiency, improved environmental performance, and local electric system reliability.
Microgrids Provide Critical Value During Severe Weather Events
Microgrids took a front seat during Superstorm Sandy, proving its critical value in supporting resiliency and ensuring reliable power and heat supply. The storm left over 8 million customers in the tri-state area without power, and depending on the location, many communities lost power for weeks. Throughout Manhattan, over 250 large buildings were also without power for several weeks, and in many cases months. While the majority of Manhattan was without power, most of NYU’s Greenwich Village campus had electricity, heat, and hot water.
NYU is one of the largest campuses in New York City, and since the 1970s has been generating its own electricity. In 2011, NYU expanded their existing cogeneration plant, providing the majority of its Greenwich Village campus with electricity and steam for heating and cooling water. When Sandy hit last October, NYU was able to generate its own electricity and heat via a 15 megawatt (MW) peak cogeneration plant where SourceOne served as the Owner's Representative. Since these systems can disconnect (or “island”) from the grid, they helped the campus to stand on its own during the storm, providing further value of a microgrid in a disaster. In addition, by producing its own energy, the cogeneration plant generates an operating efficiency of nearly 75 percent and prevents an estimated 43,400 tons per year of CO2 emissions. By reducing demands on existing transmission and distribution infrastructure, the CHP system also helps support Grid stability. Finally, NYU is also able to sell excess electricity to the utility when campus demand is low, resulting in additional savings.
Distributed Generation Supports Critical Energy Needs
A real microgrid is considerably more than a backup power system; it also has to embody real-time, on-site controls that sync with the microgrid’s generation and storage capacity to power use in real time, in addition to finding a way to somehow interact with the grid. The Sierra Club states that a microgrid “empowers a geographic area to use its own electricity when it's available and to rely on the existing utility grid when it's not.” So, if the big grid “flickers”, the microgrid can hum along in "island mode" and keep critical functions running. It is inevitable that we will encounter more storms like Sandy, and if other organizations follow the lead of NYU and their distributed generation systems, it that could mean fewer blackouts. Furthermore, if the local energy sources are renewable, it could translate into a significant carbon footprint reduction.
Microgrids Reap Significant Environmental and Economic Benefits
In light of recent severe weather events, such as Superstorm Sandy, the value of microgrids and distributed generation has gained renewed credibility as a viable energy solution. These systems not only enable buildings and campuses to control their energy supply, reliability, and utility expenses, but they also represent a necessary and critical component to improving New York’s energy infrastructure and resiliency, especially after the impact of a storm like Sandy. While the path to implementing a distributed generation project can be challenging, with the right strategy, process, and people in place, distributed projects can reap both significant environmental and economic benefits.
Extreme Weather And Legislation is Driving Investment in CHP
As extreme weather events, such as Superstorm Sandy, threaten the electric grid and cause widespread outages and billions in damages, both public and private entities are looking towards distributed generation as an alternative, cost-effective, and reliable source of power. Combined heat and power (CHP)/Cogeneration has garnered more attention in recent years as an efficient energy source, particularly with the advent of President Obama’s Executive Order 13626, released in August 2012. Executive Order 13626-Accelerating Investment in Industrial Energy Efficiency, calls for 40 gigawatts (GW) of new, cost-effective CHP by 2020, in addition to encouraging greater investment in industrial energy efficiency.
Industrial and Commercial Facilities Can Achieve Significant Efficiencies With CHP
‘CHP can provide significant energy, energy system, and environmental benefits,’ according to the US Department of Energy (DOE). Industrial and large commercial facilities, in particular, are great candidates for CHP. Medical, institutional and research buildings with high process loads and heating and cooling requirements critical to day-to-day operations require both thermal energy and electricity, which have traditionally been produced in two separate processes. Traditional methods of separately producing electricity in power plants and heat and steam in boilers require the consumption of significantly higher volumes of fuel relative to CHP. When electricity is produced by a conventional generator, about 40% of the fuel consumed is converted into electricity, and the remaining 60% becomes waste heat. Conversely, CHP technology consumes 40 percent less fossil fuel than traditional utility power plant technologies by recycling waste heat and converting it to useful thermal energy. Since less fuel is burned per unit of useful energy output, cogeneration reduces CO2 emissions and decreases air pollution.
Relevant examples of successful CHP implementation include New York University’s (NYU) 13.4 MW cogeneration plant and a 6 MW cogeneration plant for a world leading biotechnology company. In addition to providing electricity, heat, and hot water during Superstorm Sandy, NYU’s expanded cogeneration plant has resulted in $5 Million in annual energy savings and prevents an estimated 43,400 tons per year of CO2 emissions. In the case of the biotechnology company, they have achieved carbon reductions totaling approximately 36,000 tons per year as a result of the new cogeneration plant.
Is CHP the Right Fit For Your Organization?
While CHP certainly offers multiple benefits, including increased efficiencies, cost savings in fuel consumed, environmental benefits, greenhouse gas emission reductions, and improved reliability, CHP is not always cost-effective or appropriate in every application. Various factors impede cost effective CHP, including technical barriers (inherent site or operation limitations), net-metering and interconnection standards, financial constraints, standby rates garnering high demand charges, and political and regulatory barriers. In addition, the proliferation of new CHP technologies (microturbines, fuel cells, etc.) in the marketplace and complicated financing models (debt financing, equity financing, lease financing, bonds, etc.) create confusion and pose constraints to the adoption and application of CHP. So how does one assess whether CHP is the right fit?
The Step-By-Step Process of Evaluating CHP
The first step towards determining whether CHP is right for your business includes engaging an outside energy management consultant with an expertise in planning, managing, developing, and deploying CHP technologies and solutions. In order to appropriately mitigate risk, organizations should adhere to a structured approach, engage both internal and external expertise, and assign defined roles, responsibilities and subject matter expertise. Once the project team is established, the energy consulting firm should conduct a thorough requirements assessment with respect to energy needs, reliability, and sustainability.
Step 1: Initial Assessment (Screening)
The initial assessment will determine and benchmark existing conditions, and should include a review of physical assets, utilization rates, costs and other resources, physical or financial, available to meet current and projected future energy demand. It should also address the planned changes that are expected in facilities, uses, and utilization rates over a five to twenty year planning horizon. The assessment should first determine if the facility’s coincidental electrical and thermal loads support a CHP installation and then identify prime movers that best fit the facility’s energy requirements. In addition to identifying several plant configurations, the screening should also provide high-level analysis on the capital and operational costs associated with development, the environmental impact, and opportunity costs for the use of land. At this stage, it is also important to ensure that potential fatal flaws are addressed: Is there a suitable fuel source on site? Are there local permitting constraints that would prevent a CHP project? The assessment should also include an evaluation of centralization vs. decentralization of energy facilities, off-site and on-site cogeneration, ownership models, and their implications. Step 1 will likely produce a few major options for consideration. This initial process is should be highly interactive, and the energy consulting firm should engage all stakeholders involved. Specific steps and deliverables include the following:
a) Current Energy Requirements Profile
b) Utility Infrastructure Assessment
c) Fatal Flaw Analysis (fuel availability, site
restrictions, constructability, etc.)
• Financial Analysis
• Total Energy
• Requirement Model
Step 2: Detailed Feasibility Analyses
Based on the resulting analysis, an optimal solution for CHP application should be selected and the energy management firm should provide a deeper analysis of the selected option. This detailed feasibility analysis should incorporate potential sites for deployment, data collection via utilities and/or metering, budget and life-cycle cost estimates, financial and operational modeling, financing options, and risk mitigation strategies. The energy management consultant should also engage relevant energy efficiency program administrators in the evaluation process for their input. There are several government and utility incentive programs that can potentially help subsidize costs. Engaging an energy management consulting firm can be extremely beneficial in helping institutions navigate these programs, create transparency, and facilitate incentives. This proved to be critical for Lahey Clinic Medical Center’s (Lahey Clinic) new 3MW cogeneration plant. Lahey Clinic was awarded $2.3 Million in incentives (representing approximately 20% of the estimated capital costs), which was critical in advancing the project. Specific steps and deliverables in Step 2 include the following:
a) Major Component Selection
b) Detailed Planning Cost Estimate
c) Detailed Financial Analysis
• Feasibility Report
• 8760 Hourly Energy Model
• 20 Year Financial Pro Forma
Step 3: Schematic Level Design – or – Investment Grade Assessment
Following the results of the feasibility report, the owner may choose to conduct an Investment Grade Assessment (IGA). An IGA is an interim step which is taken when the Feasibility Assessment indicates the positive benefit of cogeneration; however, the owner requires a deeper analysis to resolve open issues prior to proceeding. Relevant examples include complex engineering questions related to interconnection and operability, unconfirmed incentive amounts, etc. If the owner choses to move forward with the optimum solution, the schematic level design should incorporate major equipment general arrangement, process flow diagrams, electrical one-lines, and costs estimates for engineering, permitting, developer costs, construction, electric and steam distribution, demolition (if warranted) and restoration of the existing site. Following the Schematic phase, owners can competitively obtain engineering, permitting, and construction resources to construct, commission, and operate the CHP system.Specific steps and deliverables in Step 3 include the following:
a) Finalize Component Selection
b) Engineering & Construction Plans
c) Project Construction Program
d) Updated Financial Analysis
• Construction Drawings and Specifications
• Procurement Documents
• Permits & Permissions to build and Operate
Follow the Steps to CHP Success
CHP offers a versatile solution as a sustainable energy model, providing enhanced reliability, power usage optimization, reduced environmental impacts, and energy savings. Industrial and large commercial facilities seeking to evaluate the viability of CHP should engage an energy management consultant to help facilitate the process and mitigate risks. Successful CHP implementation is commensurate upon engaging the right internal and external resources, a thorough CHP evaluation, and an organized, collaborative, and structured approach. To learn about CHP or how SourceOne can help, contact an energy expert at (800) 510-4485.