NON-ENERGY BENEFITS (NEBs) OF ESCO PROJECTS: NAESCO SURVEY RESULTS

1. NON-ENERGY BENEFITS (NEBs) OF ESCO PROJECTS: NAESCO SURVEY RESULTS Dave Birr, President Synchronous Energy Solutions, Inc. October 29, 2008

2. Survey Description • NAESCO online survey of NEBs of ESCO projects • Focused on ranking NEBs and potential barriers to measuring NEBs • 50 useful responses received over a 6-month period • Respondents included owners and owner representatives and ESCOs

3. Range Of Non-energy BenefitsFrom ESCO Projects • Operations and maintenance savings • Utility system savings/incentives • Avoided environmental compliance costs • Emission reductions/trading credits • Improved public relations • Improved occupant health • Improved occupant productivity

4. Yet Valuable To Whom?(e.g., Emissions Reductions) Avoided environmental compliance costs Emissions trading Improved PR Political credit Improved air quality • Owner with air permit problems • Owner able to sell/ exchange emissions • Owner with community relations problems related to air emissions • Elected representatives • General population

5. What Kind of Value? • Value in exchange only exists if there is a buyer willing to pay you for the NEBs • Value in use exists if there are actual future costs you can avoid, but the value of those avoided costs cannot be easily sold to another party

6. Potential Value in Exchange NEBs • Utility payments for energy efficiency and demand response based on ESPC project savings or technologies installed • Emissions credits based on ESPC project savings

7. Market Conditions for Monetization of NEBs • Multiple buyers and sellers of NEBs • Agreement on standards of measurement and valuation for NEBs • Low transaction costs to buy and sell NEBs • Size of market areas for NEBs • Frequency of transactions for NEBs • Stability over time of NEB markets

8. Potential Value in Use NEBs • Avoided future O&M costs • Avoided loss of employee productivity due to lost time (e.g., complaints)

9. Ranking of the Perceived Value of NEBs From NAESCO Survey • Reduced maintenance and operating costs • Avoided utility system capacity costs • Avoided environmental emissions • Improved productivity and health

10. Quantification of some NEBs Depends on Changes in Utility Consumption Avoided utility system capacity costs are a function of metered changes in utility consumption profiles Avoided environmental emissions are also a function of metered changes in utility consumption profiles

11. Survey CommentsQuestion 2: Top Motivations for EPC • Prime motivator is utility savings • Secondary would be deferred maintenance • Additional interests have moved original direction towards emission reduction, quality of air and occupant health issues

12. Quantified and Monetized vs. Perceived Value of NEBs Utility Incentive Payments Ability to Quantify and Monetize Avoided Environmental Compliance Costs Operational and Maintenance Savings Exchange Traded Emissions Credits Improved Air Quality Improved Employee Productivity Improved PR Political Credit Perceived Potential Value

13. Ranking Of Actions Which Reduce O&M Costs • New equipment • Improved controls • Reduction of the cost of external maintenance contracts

14. Ranking of Barriers to QuantifyingO&M NEBs • Poor documentation of existing O&M practices • Reactive maintenance philosophy • Difficulty in quantifying cost savings

15. How to Quantify O&M NEBs • Accurate O&M baselines and cost records • Sources of savings (commodity costs, inventory costs, equipment downtime, maintenance productivity) • Cost effective records system • Benchmark against O&M performance metrics • Tracking system for O&M savings

16. Example: Levelized Annual Maintenance Material Savings For Lighting Retrofit Number of existing lighting components: 12,104 Number of retrofit lighting components: 10,481 1,630 fewer components Annual material maintenance savings: $7,155 per year (or $107,325 over 15 year project term)

17. Critical Data Needed to Measure Maintenance Savings NEBs • Annual cost/square foot of maintenance • Average square foot managed per full-time maintenance staff • Current equipment age and condition • Current level of maintenance performance • Annual number of complaints, cost per complaint

18. Average Savings From Computerized Maintenance Management Systems* • 28.3% increase in maintenance productivity • 20.1% reduction in equipment downtime • 19.4% lower material costs • 17.8% reduction in MRO inventory *Study by A.T. Kearny and Industry Week Magazine

19. Annual Facility Maintenance Costs Per Square Foot Source: International Facility Management Association, 2001 Research Report 21: Project Management Benchmarks External building Process treatmt. / environment. maintenance systems $0.18 $0.09 Utility central systems maintenance $0.35 Roads & grounds maintenance $0.31 Interior systems maintenance $1.13 CBPD / ABSIC BIDS TM

20. Ranking Of Actions Which Reduce Utility System Costs • M&V services • Dedicated controls for existing central plant • Building controls for utility demand response programs

21. Ranking of Barriers to Quantifying Avoided Utility System Costs • Poor understanding of utility system economics • No data collection system • Inadequate training of building maintenance staff

22. Critical Data to Measure the Value of Utility System NEB Savings • Line losses of energy (LL) • Marginal T&D capacity costs (MDCC) • Marginal generation capacity costs (MGCC) • Marginal and average energy generation costs Sources: Local electric utility (LDC) Public utility commissioners (PUC)

23. Sample Utility System NEB Costs • $30/1000 kwh of LL • $200-$400/KW MDCC • $600-$800/KW MGCC

24. Ranking of Actions Which ReduceEnvironmental Emissions • Quantification of environmental emissions • Fuel switching • Dedicated controls for existing central plants

25. Ranking of Barriers to Quantifying Avoided Environmental Compliance Costs and Environmental Emissions NEBs • Separate capital and operating budgets • Regulatory uncertainty • Lack of baseline data about environmental compliance costs

26. General Survey Comments To date, emissions credits have not been available for most conservation activities (exception is effective boiler replacements or direct emissions controls of existing pollution sources). Obtaining credits (or RECs) for conservation with an active market for their sale would be valuable.

27. Sample Utility Data Needed for Quantifying Emissions NEBs • CO2 by coal = 2.249 lb/kwh • CO2 by gas = 1.135 lb/kwh

28. Example: Annual Emissions Avoided by 450,000 kwh of Energy Savings (Midwest) • Carbon dioxide 779,400 pounds • Sulfur dioxide 6,359 pounds • Nitrogen oxides 3,195 pounds • Particulates 90 pounds

29. Why Avoided Environmental Emissions are Undercounted • Line Loss kwh must be generated which produces additional emissions savings of about 8-10% of metered building kwh savings • Water savings reduce associated electricity and fuel combustion energy which produce additional emissions savings

30. Sample Data Needed to Measure SiteCombustion Emissions for NEBs NOx SOx CO2 Pounds per gallon of oil, per ton of coal, per therm of gas Sources: Fuel Suppliers Gas utility State and federal environmental agencies

31. Emissions from U.S. Electricity Production (2000) • 62.6% sulfur dioxide emissions that contribute to acid rain • 21.1% nitrous oxides emissions that contribute to urban smog • 40% carbon emissions that contribute to global climate change • Among the other major environmental issues linked to electricity are water impacts, generation of wastes and disruption of land uses SOURCE: Environmental Defense Air Quality Fact Sheet, November 2002

32. Ranking of Actions which Improve Health and Productivity NEBs • High Quality Lighting • Better Ventilation • Better Temperature Control

33. Sample Measures to Improve Indoor Environmental Quality • Repair or replace components of HVAC systems (e.g., fans, dampers, motors, drives, pumps, ductwork) • Test and balance services to improve interior ventilation effectiveness • New control systems that improve ventilation and temperature control • Commissioning services may significantly improve thermal comfort and improve IAQ • Lighting quality is also routinely improved in most ESCO projects

34. Ranking of Barriers to Measuring Health and Productivity NEBs • Lack of baseline data (e.g., absenteeism, health costs, performance at task) • No data collection system to track data • Lack of cost-effective analysis tools

35. Ranking of Metrics Indicating Improved Health And Productivity • Reduced comfort complaints • Positive publicity about project • Employee health statistics

36. Survey CommentsQuestion 4: Barriers to Measuring Health and Productivity • Biggest barrier: Employee productivity is paid out of different budget than utility energy and building maintenance budget - gains in productivity do not reduce energy or building operating budgets • Next barrier: Other things can be done to improve productivity and health: health club promotions, preventative health screening for employees, wellness education programs. Management cannot easily compare these options • Managers would prefer identifiable budget savings

37. Survey CommentsQuestion 4: Barriers to Measuring Health and Productivity (continued) • Significant disconnect between advisory staff, implementation staff and policy staff on these issues and benefits • Claims challenged by insurance industry and HR/personnel groups • Privacy issues and perceived infringement of rights • Occasional concerns about potential exposure to liability (baseline or post-ESCO data may lead to liability and litigation) • No conclusive or hard data (health, economic, reduced claims, etc.) to differentiate “placebo effect” (no control groups to confirm data)

38. Example: Estimate of Value of Improved Occupant Satisfaction and Productivity • Avoidance of complaints causing productivity disruption: $10-$32/square feet/year based on a payroll cost of $200/square foot • Avoidance of operator response to complaints: $.05/square foot/year • Estimated annual value based on 400,000 square feet could be $4,020,000 Source: E-Source

39. Needed Baseline Data for Health and Productivity NEBs Per Square Foot • DATA SOURCES: • Department of Labor, Bureau of Labor Statistics, June 2000. Based on an average annual salary of $53,373 and annual benefits of $14,040. Average office space per worker is 319 SF, from the BOMA International 2000 Experience Exchange report. • Building Owners and Managers Association, 2000 Experience Exchange Report. • International Facility Management Association, Benchmarks III, Research Report #18, 1997. • Assumptions include an energy rate of $.08 per kWh, annual burn hours of 3,640, and a power density of 0.9 watts /SF.

40. Critical Building Data Needed to Measure NEBs • Number of occupants (each day of week) • Square footage • Facility type • Age of building/construction type • Building operating hours • Accurate O&M baselines and cost Building Owner Operating Staff

41. Critical Building Data Needed to Measure NEBs (continued) • Utility consumption and cost for several years • Internal and external maintenance cost history for several years • Current temperatures and ventilation control schedules • Significant environmental compliance costs Sources: Agency Records and Budgets Maintenance Logs and Data Loggers

42. Critical Project Data Needed to Measure NEBs • EE measures installed • Date of project completion • Quantities and types of utilities and fuels savings (e.g., water, oil, steam, etc.) Sources: ESCO Contracts Agency Records M&V Reports

43. Energy Performance Metrics(Utility Consumption) • Watts/square feet • Btu/square feet (EUI) • Gallons water/occupant • Square feet per ton of cooling

44. Site Energy Intensity Of U.S. Office Buildings By End Use Categories Source: Energy Information Administration, DOE/EIA-0625 (95)

45. Standards For NEB Metrics • To what extent is it based on observable data which can be directly measured? • What are the reporting periods for measuring performance? • Are the definitions extremely technical or user friendly to building decision-makers?

46. Standards For NEB Metrics • How do you cost-effectively collect baseline and performance data? • What is the potential value of measuring performance?

47. Recommendation: Focus onGovernment Office Buildings • Most buildings are individually metered • Higher occupancy than other building types • Usually have significant deferred maintenance • Long-term stable occupancy • Similarities to private office buildings

48. Recommendation:Quantifying O&M NEBs • Collect adequate documentation • Promote the use of CMMS • Review sources of savings • Dates of on-site activities • Review key variables affecting savings • Verify standards of performance have been met

49. Recommendation: Account for Utility System Capacity and Line Loss Savings • Collect cost data on local utility system marginal costs • Calculate the impact of energy and demand savings on line losses and marginal distribution and capacity costs • Participate in Demand Response and Utility Rebate Programs

50. Recommendation: Count All Emissions Avoided by the Project • Count emissions reductions from line losses • Count emissions reductions from water savings • Count the full range of regulated air emissions (e. g. NOX, SOX, CO2, particulates)