The Case for Energy Conservation: Commercial Property, Industrial Sector and Domestic Level by Lou Theodore

ABSTRACT

The technical community, particularly the engineering profession, has expanded its responsibilities to society to include the management of environmental issues employing pollution prevention approaches. One of the areas that are incorporated under the pollution prevention umbrella is energy conservation (EC).

Both energy utilization and energy conservation issues have significantly affected American life since the Arab oil embargo in 1973. In addition, the environmental impacts of both energy consumption and conservation are today far reaching. This paper addresses these areas as they apply to not only commercial property but also the industrial sector and domestic activities.

The most dramatic energy conservation can be implemented in the industrial sector of the economy since industry accounts for approximately 40% of the energy consumed in this country. However, the major conservation measures in the future will unquestionably occur in the commercial property arena since practitioners have come to realize the enormous financial investment possibilities that exist today. As a result, interest in this area has increased at a near exponential rate. This activity is highlighted in this paper.

The initial energy efficiency investments made in the commercial real estate (CRE) market have been associated with lower cost improvements having relatively short payback periods (less than 2-3 years) and involving low technology risk. As a result, the CRE industry now has the opportunity to move from this initial phase of low cost, short payback energy efficiency improvements to the multifaceted second phase of implementing deep energy retrofits where the capital need is much more intensive and the payback period often longer. Thus, these technology changes can range from minor changes that can be implemented quickly and at low cost to major changes involving replacement of process equipment or processes at a very high cost. The challenge associated with deeper, more capital-intensive energy efficiency retrofit improvements is complicated when internal financing is limited or not available. Fortunately, this is changing and the market ready, commercially-attractive financing mechanisms that have arisen to meet these needs are also addressed.

The commitment to maximize energy savings by upgrading an organization’s (or individual’s) facility often requires a change in the way an organization does business. Management will have to take a fresh look at how the organization maintains and upgrades its facilities. For some organizations, this change will require significant planning and coordination among several different sectors of the organization. Specifically, energy conservation projects involving commercial properties are certain to increase in the future. This activity will be enhanced by:

  1. convincing CRE properties to operate in a more efficient manner, and
  2. providing incentives, e.g., underwriting loans, etc., to implement attractive energy efficient projects.

Two illustrative examples complement the presentation.

INTRODUCTION

The technical community, particularly the engineering profession, has expanded its responsibilities to society to include the management of environmental issues employing pollution prevention approaches. The term pollution prevention is defined by some as that process or operation that attempts to reduce or eliminate environmental problems. Unfortunately, the term pollution prevention has come to mean different things to different people. Although there are numerous areas of environmental concern that are incorporated under the pollution prevention umbrella, Theodore(1) has defined three areas of pollution prevention that need to be included in any environmental management analysis. The first of these areas is energy conservation (EC). EC programs have resulted in cost-saving measures that have directly reduced waste production. Thus, energy conservation is an integral part of pollution prevention since a reduction in energy consumption corresponds to less energy demand and, consequently, less pollutant generation. The second and third areas of concern are waste reduction (WR) and health, safety, and accident prevention (HS&AP)(2), respectively. A pictorial representation of this relationship is provided below in Figure 1. Although both the WR and HS&AP issues are partially addressed in this paper, the main focus is EC.

conservation-picture

Figure 1. Pollution Prevention Relationship(1,2)

Increasing numbers of engineers, technicians and maintenance personnel are being confronted with problems in energy conservation. Since EC is a relatively new concept for some, the engineers and scientists of today and tomorrow must develop proficiency and an improved understanding of all EC principles in order to cope with these challenges and changes ahead.

Energy utilization and energy conservation issues have significantly affected American life since the Arab oil embargo in 1973. In addition, the environmental impacts of both energy conservation and consumption are today far-reaching, affecting air and water (as well as land) quality and public health. Energy consumption may also be the primary man-made contribution to global warming (the greenhouse effect)(3). Thus, environmental concerns associated with energy issues must be considered in any energy-related policy(4) and program.

There are sectors of the economy where meaningful energy conservation measures can be applied. The three major areas are:

  1. Commercial Property
  2. Industrial Sector
  3. Domestic Property and Activities

Each of threes three areas provide energy conservation opportunities. Although significant progress has been made in (2) and (3), there is still potential for additional conservation measures to be applied. However, commercial property has yet to achieve all the conservation possibilities; it is essential an untapped resource at this time.

THE POLLUTION PREVENTION ACT (PPA)

When EPA was established in the early 1970’s, it had to focus first on controlling and cleaning up the most immediate problems. Those efforts yielded major reductions in pollution and environmental degradation. Over time, however, the Agency learned that traditional “end-of-pipe” approaches were not only expensive and less than fully effective but also could sometimes transfer pollution from one medium to another. Additional improvements to environmental quality were required; this was achieved by moving “upstream” to prevent pollution from occurring in the first place(5).

The most important federal regulation regarding pollution prevention in the U.S. is the Pollution Prevention Act of 1990. This Act was signed into law in November 1990, and established pollution prevention as a “national objective.” Pollution prevention is influenced by a number of factors, including EPA regulations and state programs, collaborative efforts that offer recognition and technical support, public data and the practices and policies of (large) public agencies. And, as noted above, energy conservation is an integral part of pollution prevention.

Six additional points need to be made regarding the Pollution Prevention Act.

  1. The Pollution Prevention Act has no provisions related to enforcement and contains no penalties for failure to comply.
  2. The effectiveness of implementation of the Pollution Prevention Act relies heavily on voluntary compliance.
  3. The Pollution Prevention Act calls on companies to disclose and report a great deal about their operations.
  4. The Act attempts to create a more cooperative relationship between environmental agencies and industry.
  5. Penalties for willful non-compliance, however, could be effective in reducing any open flaunting of the Act.
  6. Companies have numerous incentives to voluntarily comply with the Act; this is discussed in more detail in later Sections.

Some key EPA literature on pollution prevention are listed below:

  1. The Pollution Prevention Information Clearinghouse is located at http://www.epa.gov/opptintr/ppic
  2. Introduction to Pollution Prevention Training Manual is located at http://www.epa.gov/opptintr/ppic/pubs/intropollutionprevention.pdf.
  3. The Guide to Industrial Assessments for Pollution Prevention and Energy Efficiency is located at http://www.epa.gov/Pubs/2001/energy/complete.pdf.
  4. The final discussion of the EPA program concerning the 33-50 program can be found at http://www.epa.gov/opptintr/3350/ with the final report at http://www.epa.gov/opptintro/3350/3350-fnl.pdf.
  5. A discussion of the EPA program concerning “Persistent Bioaccumulative and Toxic Chemical Program” (PBT) is located at http://www.epa.gov/pbt/with the Waste Minimization Program discussed at http://www.epa.gov/epaoswer/hazwaste/minimize with priority chemicals listed at http://www.epa.gov/epaoswer/hazwaste/minimize/chemlist.htm.
  6. Compliance assistance for a variety of industrial sectors can be viewed at the EPA Website concerning compliance center notebooks at http://www.epa.gov/compliance/resources/publications/assistance/sectors/notebooks/
  7. General information
  1. http://www.epa.gov/glossary
  2. http://www.epa.gov/P2/pubs/basic.htm.

IMPLEMENTING ENERGY CONSERVATION:

INDUSTRIAL SECTOR

Industry accounts for approximately 40% of the energy consumed in this country. Also, industry might be considered more dynamic, progressive, and strongly motivated by the economic incentives offered by conservation than the other energy-user sectors, e.g., commercial property and domestic properties/activities. As such, the most dramatic improvements in energy conservation can be implemented in the industrial sector of the economy.

For the purpose of implementing an energy conservation strategy, process changes and/or design can be divided into four phases, each presenting different opportunities for implementing energy conservation measures.(1) These include:

  1. product conception,
  2. laboratory research,
  3. process development (pilot plant), and
  4. physical design.

Energy conservation measures can also be applied in existing chemical processes and other industries by implementing a sound operation, maintenance, and inspection (OM&I) program and instituting a formal training program for all employees.

There are numerous general energy conservation practices that can be instituted at industrial facilities. Twelve of the simpler ones are detailed below.

  1. Lubricate fans.
  2. Lubricate pumps.
  3. Lubricate compressors.
  4. Repair steam and compressed air leaks.
  5. Insulate bare steam lines.
  6. Inspect and repair steam traps.
  7. Increase condensate return.
  8. Minimize boiler blowdown.
  9. Maintain and inspect temperature measuring devices.
  10. Maintain and inspect pressure measuring devices.
  11. Maintain heat exchanger equipment.
  12. Maintain mass transfer equipment.

Providing details on energy conservation techniques for fans, pumps, compressors, steam lines, separation units, etc., along with their energy conservation techniques, is beyond the scope of this paper. Descriptive information(6, 7, 8) and calculational procedures(9,10) are available in the literature.

Some specific energy conservation practices applicable to industrial operations are also provided below.

  1. Recover energy from hot gases.
  2. Recover energy from hot liquids.
  3. Reduce reflux ratios in distillation columns.
  4. Reuse hot wash water.
  5. Add effects to existing evaporators.
  6. Use liquefied gases as refrigerants.
  7. Recompress water vapor for low-pressure steam.
  8. Generate low-pressure steam from flash operations.
  9. Use waste heat for absorption.
  10. Cover tanks of heated liquid to reduce heat loss.

Providing details on energy conservation measures for distillation columns, evaporators, and refrigerators, along with their accompanying energy conservation procedures, are also beyond the scope of this book. Descriptive information and calculational procedures are available in the literature. (6-10)

IMPLEMENTING ENERGY CONSERVATION:

DOMESTIC PROPERTY AND ACTIVITIES

Burke et. al.(11) addressed the following six major energy conservation topic areas as they relate to domestic applications.

  1. Cooling.
  2. Heating.
  3. Hot Water.
  4. Cooking.
  5. Lighting.
  6. New Appliances.

Extensive information is provided on each topic by Burke et. al.

Energy conservation measures were also examined in home specific physical areas.(11) These areas included:

  1. Living Quarters.
  2. Kitchen.
  3. Bathroom.
  4. Attic.
  5. Roofing.
  6. Siding.
  7. Basement.

Extensive information on each area is also provided.

One of the authors(12) has developed a popular pollution prevention calendar for domestic use. The calendar contains 365 one-line suggestions for each day that deals with waste reduction, energy conservation, and health safety and accident prevention. Each topic receives 4 months of coverage. The calendar is available in either hard copy or electronic format.(12)

IMPLEMENTATING ENERGY CONSERVATION: COMMERCIAL PROPERTIES


As noted earlier, major energy conservation measures in the future will unquestionably occur in the commercial property arena. Practitioners have come to realize the enormous financial investment possibilities. As a result, interest in this area has increased at a near exponential rate. In an exceptionally informative work, Buonicore(13) detailed much of this interest and activity. His analysis follows.

The commercial real estate (CRE) market in the U.S., consisting of approximately 4.8 million office, retail, service, lodging, multifamily, warehouse and storage buildings, etc., represents a significant opportunity for building owners to reduce energy use and monetize their energy savings. Moreover, it is now evident to CRE owners and lenders that improving energy performance can impact property value. As a result, less energy efficient buildings are at a growing competitive disadvantage and in danger of accelerated obsolescence.(14)

The above market developments have stimulated a growing number of retrofit projects designed to increase energy efficiency on any projects involving properties that still rely on original mechanical and electrical equipment that are often near the end of their useful life; this has resulted in a substantial increase in demand for equipment upgrades and replacement. Assuming this to be true, the floodgates holding back this demand for equipment replacement and upgrading may soon disappear. This dynamic will represent a significant opportunity for replacing or upgrading dated energy-consuming equipment with much more efficient units. The end-result of this powerful business driving force will likely be rapid acceleration of the deep energy efficiency retrofit market.

The initial energy efficiency investments made in the CRE market have been associated with lower cost improvements having relatively short payback periods (less than 2-3 years) and involving low risk technology. Some of these improvements have been detailed by one of the authors(12) who has also developed a popular pollution prevention calendar for office use. Similar in format to the aforementioned calendar, the calendar contains 365 one-line suggestions for each day dealing with waste reduction, energy conservation, and health safety and accident prevention. Each topic (including energy conservation) receives 4 months of coverage. This calendar is also available in either hard copy or electronic format.

The CRE industry now has the opportunity to move from this initial phase of low cost, short payback energy efficiency improvements to the multifaceted second phase of implementing deep energy retrofits (defined as resulting in at least a 30% reduction in whole building energy use) where the capital requirements are much more intensive and the payback period is often longer. Specific commercial property equipment that will become the target for and an integral part of these technology projects include(14, 15):

  1. heat exchanges,
  2. ovens and furnaces,
  3. boilers,
  4. air conditioning, and
  5. insulation.

These technology changes can range from minor changes that can be implemented quickly and at low cost to major changes involving replacement of equipment process or processes at a very high cost. Since technology modifications usually require greater capital cost than procedural changes, they should be investigated after all possible procedural changes have been instituted. Categories of technology modifications include:

  1. process changes,
  2. equipment, piping, or layout changes,
  3. changes to operational settings, and
  4. additional automation.

These four modifications, oftentimes industry specific, are discussed in more detail in the literature. (15)

The executive challenges associated with deeper, more capital-intensive energy efficiency retrofit improvements are complicated when internal financing is limited or not available. While some financing for energy efficiency upgrades has been available to CRE owners, the availability of “commercially-attractive” financing often has not. Fortunately, this is changing and market ready, commercially-attractive financing mechanisms have arisen to meet the need.

There are four requisites for CRE building owners contemplating external financing for an energy efficiency investment.

  1. Such external financing must be easily accessible and available with “commercially-attractive” terms.
  2. The investment must be based on a reliable and fully transparent methodology to project future energy savings with a high degree of confidence.
  3. Actual energy savings performance after improvements are made must be measureable and verifiable in a reliable, consistent and fully transparent manner.
  4. The risk of underperformance must be low.

The first and fourth requisites focus more on the financing structure, while the remaining two requisites focus more on the technical underwriting.

Buonicore(13) also discussed how to best implement a successful energy efficiency retrofit project and obtain financing under the most attractive terms. A “best practice” consisting of the following steps is emerging in the CRE market.

Preparatory Activity

  1. 1. Conduct an ASHRAE Level II or III energy audit incorporating ASTM BEPA (Building Energy Performance Assessment) methodology to identify baseline performance and energy savings opportunities.
  2. 2. Identify applicable government/utility grants, rebates and incentives.
  3. 3. Select energy conservation measures (ECMs) meeting certain economic criteria (return on investment, payback time, etc.).
  4. 4. Determine total project cost and payback time.
  5. 5. Identify projected energy savings at the selected confidence level using ASTM BEPA methodology and the IPMVP (International Performance Measurement and Verification Protocol) framework.

Financing

  1. 6. Establish the amount of financing required and the preferred payback period.
  2. 7. Obtain the cost of energy savings insurance and a commitment letter from the carrier.
  3. 8. Solicit interest from lending sources by providing a full documentation package, including the ASHRAE Level II or III energy audit report incorporating the ASTM BEPA, and the M&V (measurement and verification) plan, to support the energy savings projections at the required confidence level.
  4. 9. Secure financing under preferred terms.

Implementation

  1. 10. ECM engineering and design.
  2. 11. ECM installation.
  3. 12. ECM commissioning.

Performance M&V

  1. 13. ECM performance measurement and verification relying on the M&V plan and ASTM BEPA methodology within the IPMVP framework.
  2. 14. Conduct annual M&V and provide documentation to the lender, insurer and any other stakeholders.

BARRIERS AND INCENTIVES TO ENERGY CONSERVATION

There are numerous reasons why responsible individuals have not applied meaningful energy conservation measures in the past. The following “dirty dozen” are common disincentives.(1)

  1. Economic considerations (see next Section)
  2. Lack of information
  3. Consumer preference obstacles
  4. Concern over product quality decline (if applicable)
  5. Technical limitations
  6. Resistance to change
  7. Regulatory barriers
  8. Lack of markets
  9. Management apathy
  10. Institutional barriers
  11. Lack of awareness of energy conservation advantages
  12. Individual preferences

Various means exist to encourage energy conservation. Since the benefits of energy conservation can surpass preventive barriers, a “baker’s dozen” incentives is presented below:

  1. Economic benefits (see next Section)
  2. Regulatory compliance
  3. Liability reduction
  4. Enhanced public image
  5. Potential federal and state grants
  6. Market incentives
  7. Reduced waste-treatment costs
  8. Potential future incentives
  9. Decreased worker exposure
  10. Individual preference(s)
  11. Increased operating efficiencies
  12. Competitive advantages
  13. Reduced negative environmental impacts

More details on both the incentives and barriers are available in the literature.(1, 3, 11)

ECONOMIC CONSIDERATIONS

Buonicore(13) has provided specific details on what he has defined as “commercially attractive” financing for energy conservation projects. Financing is commonly available from multiple sources to support energy efficiency investment. However, finding “commercially-attractive” terms has often been problematic. “Commercially-attractive” terms can mean many things, but can be defined as financing with the following requirements/constraints.

  1. Without any capital expense
  2. That does not add debt to the property
  3. That covers 100% of the project cost, including all upfront (hard and soft) costs such that there is no “out-of-pocket” owner expense
  4. Structured such that payments can be treated as an operating expense
  5. Structured such that payments (along with the energy savings) can be passed along to tenants (in a multi-tenant building)
  6. Available at relatively low cost (interest rate) and payable over an extended period of time (10 years or longer), such that monthly energy savings can more than offset the monthly payment costs necessary to capture these savings, thereby enabling projects to achieve cash flow positive status immediately.

Item 6 requires an economic analysis, a topic that is treated later in this Section.

There are a number of financing mechanisms that can meet the commercially-attractive” financing criteria. These include:(16)

  1. Property Assessed Clean Energy (PACE) tax-lien financing
  2. Energy Service Company (ESCO) direct financing
  3. ESCO third party financing using the PACE structure
  4. Energy service agreement providers using private party financing
  5. Energy service agreement providers using PACE financing
  6. Bank debt provided through a PACE structure.

As noted above, Buonicore provides a detailed analysis of each of these financial mechanisms.

The greatest driving force behind any energy conservation project that is under financial consideration is the promise of economic opportunities and cost savings provided by the effort over the long term. Hence, an understanding of the costs and benefits involved in these programs/options is important in making decisions at both the engineering and management levels. If a project cannot be justified economically after all factors have been taken into account, it should obviously not be pursued and the fewer are the resources that will be wasted in its development.

Before the cost of an energy conservation program can be evaluated, the factors contributing to the cost not only must be recognized but also quantified. There are two major contributing factors that contribute to the overall cost of a project: capital costs and operating costs. Once the total cost of energy conservation option(s) has been estimated, the engineer or analyst must then determine whether or not a specific project will be profitable. This almost always involves converting all cost contributions to an annualized basis. If more than one energy project proposal is under study, this method provides a total cost basis for comparing alternate proposals and for choosing the best initial option. Project optimization may be another subject of concern.(17)

Detailed cost estimates are beyond the scope of this Section and this paper. Such procedures are capable of producing accuracies in the neighborhood of ± 5 percent; however, obtaining such estimates generally involve more extensive engineering work and project evaluation. The economic evaluation is generally carried out using standard measures of profitability and each company and organization has its own economic criteria for selecting projects for implementation.

As companies incorporate energy conservation approaches in their strategic planning as well as capital investment priorities and equipment/modification decisions, it is vital that they understand both the quantitative and qualitative dimensions of assessing any project. These approaches often tend to reduce or eliminate costs that may not be captured in cursory financial analyses due to the way costs are categorized and allocated by conventional management accounting systems. Additionally, energy conservation projects often have impacts on a broad range of issues that can be of strategic importance. Identifying and analyzing all costs and less tangible items is an important step in an evaluation of the potential benefits of energy conservation projects.

As noted in the previous paragraph, the main problem with the traditional type of economic analysis is that it is difficult – nay, in some cases impossible — to quantify some of the not-so-obvious economic merits of an energy conservation program. Several considerations discussed above need to be taken into account in any meaningful economic analysis. What follows is a summary listing of many of these considerations (where applicable), some of which have been detailed earlier in the previous Section.(1)

  1. Decreased long-term liabilities
  2. Regulatory compliance
  3. Regulatory recordkeeping
  4. Dealings with the EPA and/or DOE
  5. Dealings with state and local regulatory bodies
  6. Elimination or reduction of fines and penalties
  7. Potential tax benefits
  8. Customer relations
  9. Stockholder support (corporate image)
  10. Improved public image
  11. Reduced technical support
  12. Potential insurance costs and claims
  13. Effect on borrowing power
  14. Improved mental and physical well-being of employees
  15. Potential health-maintenance costs
  16. Employee morale
  17. Other process benefits
  18. Potential improved worker safety

Many proposed energy conservation projects have been squelched in their early stages because a comprehensive economic analysis was not performed. Until the effects described above are included, the true merits of a proposed program may be clouded by incorrect and/or incomplete economic data.

No discussion of economic analyses would be complete without mention of life cycle costing (LCC). LCC, also referred to as total cost accounting (TCA) by some, analyzes the costs and benefits associated with a piece of equipment or a procedure over the entire time the equipment or procedure is to be used. The concept was first applied to the purchase of weapons systems for the U.S. military. Experience showed that the initial purchase price was a poor indicator of the total cost: costs such as those associated with maintainability, reliability, salvage value, and training/education also needed to be considered in the financial decision-making process. As noted above, many projects historically considered only those impacts that could easily be translated into financial terms. Similarly, in justifying energy conservation projects, all benefits and costs must be spelled out in the most concrete terms possible over the life of each proposed option. By considering all costs, an LCC analysis can quantify relationships that exist between cost categories. In effect, LCC is a procedure to identify and evaluate “cradle-to-grave” economic requirements associated with processes, products, packaging, services, etc. This includes identifying and quantifying energy uses and evaluating opportunities for improvement. LCC concepts can also be particularly useful in ensuring that identified energy conservation opportunities are not causing unwanted secondary impacts by shifting burdens to other places within its life cycle.

ILLUSTRATIVE EXAMPLES

Engineers are often reminded that a picture is worth a thousand words. Two illustrative examples follow with this mind. Both examples attempt to demonstrate the ease with which standard economic analyses procedures can be applied to permit meaningful comparisons of energy conservation options. Although the second example is concerned with an insulation energy conservation project, a similar type of analysis would be employed for a new air conditioning system, boiler, storm windows, etc. The reader should note that any “rachet” clauses, fuel cost adjustments, power factor clauses, etc., were not included in the analysis.

Illustrative Example 1: An environmental engineer has compiled the data below for two different commercial property retrofit project options – one that includes a comprehensive energy conservation program option, and one that does not. From an economic point of view, which project should the engineer select? The lifetime of the equipment associated with the conservation project is 10 years and the interest rate is 10%. Economic data are provided in Table 1.

TABLE 1 – Economic Data for Illustrative Example 1

Costs/Credits

Project with Energy Conservation

Project without Energy Conservation

Equipment cost

$1,294,000

$1,081,000

Installation cost

$786,000

$659,000

Operating Labor

$39,900/yr

$8,500/yr

Maintenance

$43,000/yr

$17,000/yr

Utilities

$958,000/yr

$821,000/yr

Overhead

$51,000/yr

$13,000/yr

Taxes, insurance

and administration

$86,000/yr

$72,600/yr

Energy income (credits)

$380,000/yr

$0

Solution: For the project with energy conservation, calculate the total capital cost, TCC(w), as follows:

TCC(w) = $1,294,000 + $786,000=$2,080,000

Calculate the Capital Recovery Factor, CRF(w), using the following expression(9):

CRF(w) =

i (1 + i)n

(1 + i)n – 1

=

0.1 (1.1)10

(1.1)10 – 1

=

0.1627

Calculate the annualized capital cost, ACC(9), of the process with energy conservation

as follows:

ACC(w) = ($2,080, 000) (0.1627) = $338,500

For the project without energy conservation measures, calculate the total capital cost, TCC(w/o), as follows:

TCC(w/o) = $1,081,000 + $659,000 = $1,740,000

Calculate the annualized capital cost, ACC(w/o), for the option without energy conservation measures noting that the CRF for this option is identical to that calculated for the option with energy conservation:

ACC(w/o) = ($1,740,000) (0.1627) = $283,200

The better choice for the project can then be chosen based on the economic summary provided in Table 2.

TABLE 2 – Economic Analysis for Illustrative Example 1

Costs/Credits

Project with

Energy Conservation

Project without

Energy Conservation

Annual capital cost

$338,500/yr

$283,200/yr

Operating Labor

$39,900/yr

$8,500/yr

Maintenance

$43,000/yr

$17,000/yr

Utilities

$958,000/yr

$821,000/yr

Overhead

$51,300/yr

$13,000/yr

Taxes, insurance

and administration

$86,200/yr

$72,600/yr

Energy Credits

$380,000/yr

$0

Total annual cost

$1,136,900/yr

$1,216,200/yr

The project with energy conservation is the better choice on a total annual cost basis by $79,300/yr.

Illustrative Example 2: Plans are underway to purchase and install insulation at a commercial property. The company is still undecided as to whether to institute the energy conservation
project. The present unit is less expensive to operate than a comparable insulated system. However, an energy audit indicates that projected savings from the latter unit are higher since it will recover energy and reduce energy loss. Based on the economic and financial data given in Table 3, select the option that will yield the higher annual profit for the facility. Calculations should be based on an interest rate of 12% and a process lifetime of 12 years for the insulated unit.

TABLE 3 – Economic Data for Illustrative Example 2

Costs/Credits

Present Unit(PU)

Insulated Unit (IU)

Equipment

$0

$2,175,000

Peripherals

$0

$800,000

Installation

$0

$1,700,000

Total capital

$0

$4,675,000

Operation

$400,000/yr

$350,000/yr

Maintenance

$650,000/yr

$775,000/yr

Energy income (credit)

$0

$2,300,000/yr

Solution. Calculate the capital recovery factor, CRF.

CRF = (0.12)(1 + 0.12)12 /[(1 + 0.12)12 – 1]

= 0.1614

Determine the total annual capital cost for the insulated unit (IU):

COST(IU)=(4,675,000)(0.1614)=$755,000/yr

The profits for the 2 projects are provided in Table 4:

PROFIT (PU) = (-400,000) + (-650,000) = -$1,040,000/yr

PROFIT (IU) = 2,300,000 + (-1,880,000) = +$420,000/yr

Table 4 also provides a comparison of costs and credits for both energy options.

TABLE 4 – Economic Analysis for Illustrative Example 2

Costs/Credits

Present Unit

(PU)

Insulated Project Unit (IU)

Annual Capital Cost

$0/yr

$755,000/yr

Operation

$400,000/yr

$350,000/yr

Maintenance

$650,000/yr

$775,000/yr

Total cost

$1,050,000/yr

$1,880,000/yr

Energy Income (credit)

$0/yr

$2,300,000/yr

Profit (loss)

($1,050,000/yr)

$420,000/yr

The insulation option should be selected based on the above economic analysis.

Although this is a relatively simple comparative energy analysis, it does provide some quantitative information. The reader should be aware that there are other factors that can, and often are, included in this type of calculation. Any standard economics text can provide additional details. In addition, it should be noted that the energy income (credit) is at best an estimate – even with detailed heat transfer calculations(7) – and care should be exercised in interpreting the results.

FUTURE TRENDS

Energy conservation will continue to reduce the environmental damage from various energy use systems. Conservation will also enhance the reliability of future energy supplies. By slowing the rate of growth of energy demand, the longevity of energy supplies may be extended, allowing more flexibility in developing systems for meeting long-term needs. For too long a time, energy has been considered a limitless commodity; energy was continuously wasted earlier because it was abundant and cheap. This situation must be reversed.

Most architects have committed to build green in the future. New buildings will incorporate a range of green elements including: radiant ceiling panels that heat and cool, saving energy and improving occupant comfort; a possible cogeneration plant that utilizes waste heat; a green roof that is irrigated exclusively with rainwater and mitigates the heat island effect, etc. Additionally, buildings are being designed to maximize day-lighting and air circulation. For example, a bird nest’s design has been employed that is efficient, withstanding wind loads and wind shear while simultaneously enabling light and air to move through it. Urban planners are employing designs that operate like a wall of morning glories – adjusting to sunlight throughout the day, both regulating light and gathering solar energy. In effect, the design can create an energy surplus that can be employed elsewhere. Measurement and verification plans are also being employed to track utility usage for sustainability purposes.

Sustainability(3, 15) requires conservation of resources, minimizing depletion of non-renewable resources, and using sustainable practices for managing renewable resources. There can be no project development or economic activity of any kind without available resources. Except for solar energy, the supply of resources is finite. Depletion of nonrenewable resources and overuse of otherwise renewable resources naturally limit their availability to future generations. The positive impact energy conservation has on sustainability will continue to increase with time.

The commitment to maximize energy savings by upgrading an organization’s (or individual’s) facility often requires a change in the way an organization does business. Management will have to take a fresh look at how the organization maintains and upgrades its facilities and ensures environmental responsibility. For some organizations, this change will require significant planning and coordination among several different sectors of the organization.

Energy conservation project involving commercial properties are certain to increase in the future. This actively will be enhanced by:

  1. Convincing commercial properties to operate in a more efficient manner,
  2. Providing incentives, e.g., underwriting loans, for commercial properties to implement attractive energy efficient projects.

REFERENCES

  1. L. Theodore, personal notes, East Williston, NY, 1990.
  1. R. Dupont and L. Theodore, “Environmental Health and Hazard Risk Assessment: Principles and Calculations.” CRC Press, Taylor & Francis Group, Boca Raton, FL, 2012.
  1. M. K. Theodore and L. Theodore, “Introduction to Environmental Management.” CRC Press/Taylor & Francis Group, Boca Raton, FL, 2010.
  1. K. Skipka and L. Theodore, “U.S. Energy Resources: Past, Present and Future Management,” CRC Press/Taylor & Francis Group, Boca Raton, FL, 2013.
  1. L. Stander and L. Theodore, “Environmental Regulatory Calculations Handbook,” John Wiley & Sons, Hoboken, NJ, 2008.
  1. P. Abulencia and L. Theodore, “Fluid Flow for the Practicing Chemical Engineer,” John Wiley & sons, Hoboken, NJ, 2009.
  1. L. Theodore, “Heat Transfer for the Practicing Engineer,” John Wiley & Sons, Hoboken, NJ, 2012.
  1. L. Theodore and F. Ricci, “Mass transfer Operations for the Practicing Engineer,” John Wiley & Sons, Hoboken, NJ, 2010.
  1. J. Reynolds, J. Jeris, and L. Theodore, “Handbook of Chemical and Environmental Engineering Calculations,” John Wiley & Sons, Hoboken, NJ, 2004.
  1. D. Kauffman, “Process and Plant Design,” A Theodore Tutorial, Theodore Tutorials, East Williston, NY, 1992.
  1. G. Burke, B. Singh, and L. Theodore, “Handbook of Environmental Management and Technology,” 2nd Edition, John Wiley & Sons, Hoboken, NJ, 2005.
  1. M. K. Theodore and L. Theodore, “Environmental Calendars,” Theodore Tutorials, East Williston, NY, Copyrighted 2000.
  1. A. J. Buonicore, “Emerging Best Practice for Underwriting Commercially-Attractive Energy Efficiency Loans,” Paper No. 12-002, Critical Issues Series, Energy Efficiency in the Real Estate Industry, 2012.
  1. A. J. Buonicore, “Using the New ASTM BEPA Standard in the Property Transaction Market,” Building Energy Performance Assessment News, Critical Issues Series, Paper No. 11-001, August 2, 2011.
  1. R. Dupont, L. Theodore, and K. Ganesan, “Pollution Prevention: The Waste Management Option for the 21st Century,” CRC Press/Taylor & Francis Group, Boca Raton, FL, 2000.
  1. A. J. Buonicore, “Energy Efficiency Retrofit Financing Options for the Commercial Real Estate Market,” Building Energy Performance Assessment News, Critical Issues Series, Paper No. 120-1, February 25, 2012.
  1. L. Theodore, “Essential Calculations for Chemical Engineers,” McGraw-Hill, New York City, NY, 2013.
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