Presentation on theme: "Knowing the Fitness of Your Building And Making the Financially-Driven Business Case for Improving Energy Efficiency Presented to International Conference."— Presentation transcript:
Knowing the Fitness of Your Building And Making the Financially-Driven Business Case for Improving Energy Efficiency Presented to International Conference on Sustainable Urbanization Larry Wash, President Global Services Hussmann, Thermo King and Trane Ingersoll Rand December 15, 2010
Confidential and Proprietary 2 My Background Understanding Today’s Operating Realities and What This Means for Furthering Energy Efficiency Linking Building Health to the Business Plan –Develop an Energy Program –Define Program Objectives –Document the Facility’s Energy Profile Making a Business Case for High Performance Buildings Proving the Model – Case Studies Discussion Agenda
Confidential and Proprietary 3 Responsible for the profit and loss of the service, contracting and parts business. Fully responsible for the management and performance of the services businesses which include aftermarket service and parts, turnkey and controls contracting, and performance-based energy services for commercial buildings and transportation. Executive responsibility for the organization’s strategic direction, operating performance and marketplace differentiation. Extensive service industry expertise. –Previously served as vice president of service and contracting for Trane within North and South America, and in various services leadership roles with Xerox and Eastman Kodak Company. Speaker and author on the subjects of growing a profitable global services business and making the business case for energy and operational efficiencies. Presented at many high-level events and published in numerous industry and business journals. My Background
Confidential and Proprietary 4 New construction outlook remains weak Considered to be operating in a global recessionary market Businesses pinched more than ever –Operating costs continue to rise with intense pressure to reduce –Access to cash and credit more limited –Limited appetite for capital investments without clear payback Energy use in buildings projected to grow – Up to 40% of total operating expenses of some buildings –Contributes to Climate Change Tremendous amount of energy-related policy to –Improve environment and reduce oil reliance –Stimulate the economy and create jobs –Reduce risk and increase business confidence Understanding Today’s Operating Realities An unprecedented energy and operating environment
Confidential and Proprietary 5 Opportunity is with existing buildings New construction outlook remains weak Large cost saving potential for energy improvements –Buildings account for 45% of total energy consumption in Hong Kong –Buildings account for 40% of total energy consumption in the European Union –Buildings account for 72% of total U.S. energy consumption –Retrofits enable 20-50% cost savings Potential for job creation Ability to reduce environmental impact Proven technology, low risk retrofit approaches and financing are available to public entities and private corporations Furthering Energy Efficiency
Confidential and Proprietary 6 Many of the world’s best companies do not have effective business processes to align their facilities’ infrastructure needs with their business plans As a result, facilities engineers, who are responsible for the comfort, health effects, operating specifications and utilities management, often get trapped in a “deferred maintenance / catch-up loop” Building an Energy Efficient Building Plan Linking building performance to business objectives benefits building owners, facility engineers and occupants
Confidential and Proprietary 7 Develop an Energy Program Assemble a team –Building owner –Facility manager –Energy solutions provider –Department representatives Appoint a team leader Build an energy management team with “buy in” from key internal stakeholders, including owners, managers and department heads
Confidential and Proprietary 8 Define Program Objectives What are the desired outcomes? –decreased operating costs –higher operations performance –better occupant comfort and productivity –tax benefits –environmental certification –others Identify energy management goals that reinforce the organization’s overall business objectives
Confidential and Proprietary 9 Document the Facility’s Energy Profile The energy profile: –Includes energy costs and consumption data –Benchmarks the facility’s energy consumption Your energy management program will only be as good as the data you collect – accurate tracking is vital! Successful strategic energy plans combine the latest climate control technology with consistent monitoring and personal decisions
Confidential and Proprietary 10 Critical question: Is your building overhead or an asset? Owners who view their building as assets link the physical environment to business outcomes – customer and employee satisfaction, productivity, operating expense reduction, among others These buildings can be “high performance” and tie to the mission, values and results of a business Value to people the building serves (environment, comfort, safety) Value to customers and community (competence, environmental responsibility) Value to the bottom line (cost savings, avoidance, ROIC) Making the Case for Energy Efficient Buildings
Confidential and Proprietary 11 Every building, project and customer is different – making each project unique Modeling begins with understanding: –Why project was initiated –Goals and objectives –Appetite for risk PublicPrivate Improve InfrastructureStay Competitive (Attract Tenants, Customers, Talent) Reduce Maintenance Costs Reduce Operating Costs Optimize Capital Budget Improve Indoor Environment (Comfort & Occupant Performance) Be Socially ResponsibleAdd Asset Value Making the Case for Energy Efficient Buildings Critical question: What are your driving factors for change?
Confidential and Proprietary 12 Three budget categories Energy budget Operating expense budget Capital improvement budget Potential for more robust projects Evaluate impact beyond simple payback to energy budget Energy projects reduce operating and capital improvement budgets Goal to Remain Budget Neutral Capital Contribution future planned monies allocated today to broaden project impact Capital Budget money for projects planned to be completed in the future Operating Savings non-energy savings from conservation measures and maintenance practices Operating Budget Energy Savings from Conservation Measures Energy Budget Making the Case for Energy Efficient Buildings Critical question: How will you fund your project?
Confidential and Proprietary 13 Goal: Allocate potential savings and capital to fund project and stay in budget –Set capital budget and revise annually – project out several years –Don’t spend capital in large amounts for major energy projects when they happen –Allocate capital amounts in an annualized approach Plan for $100K per year for 10 years Rather than $500K in year 3, $250K in year 5 and $250K in year 7 Making the Case for Energy Efficient Buildings Critical question: How will you fund your project?
Confidential and Proprietary 14 Though capital remains the same, performance can be guaranteed by providers Providers compensated based upon success in achieving goals Contracts typically stipulate how incentives will be paid out for elevated performance or penalties assessed for missed targets. Performance criteria examples Reliability (uptime, # of unplanned incidents), Efficiency (COP) Operating status (state of readiness, availability) Field conditions (clean towers, condensers, air intake) Output (Joules, kW, Ls, Lpm) Capacity (peak output matched to load) Quality (power quality, load factors, IAQ) Rate of economic return (sustained energy efficiency) The Aberdeen Group, February 2007 Making the Case for Energy Efficient Buildings Critical question: How will your project be delivered?
Confidential and Proprietary 15 Quick Return (0-3 yr payback) Intermediate (3-8 yr payback) Long-term Retrofit lightingInstall new building automation system Replace high efficiency equipment (major systems chiller/boilers) Update existing building automation systems Improve HVAC systems (CV to VAV)Building envelope improvements Conduct retro/re-commissioningImplement water conservationApply renewable technologies Make behavioral changes (turn lights off, program systems) Use fans and motors (VFDs, high efficiency change outs) Apply on site/distributive power generation Explore utility procurement optionsApply load shifting technology (ice storage) Implement comprehensive maintenance and repair strategies Purpose of the building determines the investment strategy If a lifecycle return / financial approach is taken, owners can enjoy the benefits of everything listed on the chart = significant energy, operating, environmental and business benefits Making the Case for Energy Efficient Buildings Critical question: What changes can be made based upon financial objectives?
Confidential and Proprietary 16 Top 25 Energy Conservation Measures Many, many Energy Conservation Measure (ECM) technologies and applications need a methodology to assess and rate Methodology developed using Six Sigma analysis processes and tools Evaluation process based on 5 key customer and Trane “importance factors” – Savings potential, practicality, commercial viability, risk management, business differentiation Score of 0-100% with 100% being the best ranking Utilizes six sigma methodology to select energy measures
Confidential and Proprietary 17 Total cost of ownership approach All of these factors need to be addressed at some point Modeling the building as a long-term asset –Offers greater financial transparency –Will ultimately save energy and operating dollars throughout the life of the asset Hidden Costs Visible Costs Price/Time CFC Issues Energy Costs Engineering Charges Equipment Shutdown Costs Maintenance Costs Legal Costs Security Costs Construction Change Orders Being Green Costs Performance Problems Start-up Delays Indoor Air Quality Fire Protection Cost Making the Case for Energy Efficient Buildings Critical question: What costs need to be considered when financially modeling an energy project?
Confidential and Proprietary 18 Proactive maintenance strategy Ensure that desired outcomes are throughout the life of the asset Have an agreement that is cost-beneficial and provides value-driven service - doing so will avoid capital, energy and repair costs Return on investment: 10 times Reduction in maintenance costs: 25%- 30% Elimination of breakdowns: 70% to 75% Reduction in downtime: 35% to 45% Increase in production: 20% to 25%. --- FEMP Guide, page 5.4 Making the Case for Energy Efficient Buildings Critical question: How do owners ensure ongoing performance of energy projects?
Confidential and Proprietary 19 Making the Case for Energy Efficient Buildings Critical question: What is the financial model (example)?
Confidential and Proprietary 20 Model offers comprehensive view Driving factors, funding and budget allocations, capital expenses, total cost of ownership and financial return Analyzes cash flow over project life Model incorporates more ECMs If owner considers only energy savings in financial decision – Project would yield a 11.7 year payback If owner considers energy, operating cost, maintenance and asset replacement cost savings over the life of the project – Project yields a 3 year payback and it generates positive cash flow Making the Case for Energy Efficient Buildings Critical question: What is the financial model (example)?
Confidential and Proprietary 21 Return calculations dependent on benefits received beyond initial payback Guaranteed returns support analysis beyond simple payback calculations and provide financial basis for long term investment in sustainability Simple payback calculations help assess risk Guaranteed savings minimize risk of evaluating longer term projects Making the Case for Energy Efficient Buildings Critical statement: Different Payback, Same Return on Investment
Confidential and Proprietary 22 Proving the Model: Examples of Large Energy Projects
Confidential and Proprietary 23 Royal London Hospital SITUATION Trane Care customer with needs including: environment, efficiency, reliability APPROACH Offers from each Trane Care category –Refrigerant retrofit –Compressor R’newal –Compressor soft starters –Controls upgrade –Heat exchanger R’newal –Soft starts on condensers and evaporator water pumps –Chiller re-paint RESULTS Tuned in to customer needs Trusted source of solution Used all knowledge Managing equipment life cycle Mastering project management Addressing building owner needs with service innovation
Confidential and Proprietary 24 SITUATION Campus-style (1.1 million-sq-ft) heavy industrial manufacturing plant Aging infrastructure with low energy efficiency and reliability and high operating and maintenance costs –Dramatic downturn in product sales –While experiencing 70+% increase in energy costs Corporate goal, 15% reduction in energy cost by 2013 APPROACH Factors driving improvements: –Need to stay competitive –Reduce maintenance and operating costs –Add asset value Industrial Facility Energy project makes manufacturing facility more competitive
Confidential and Proprietary 25 $ 2.1 million project investment in new air compressors, hot water boiler, lighting retrofit and remote monitoring RESULTS Two-year payback with projected $1.13 mil. in annual energy savings + $275,000 in annual labor cost reduction Energy reduction of 11.5 MKWH equivalent to CO 2 emissions from 11 tanker truckloads On track to achieve mandated 15% reduction by 2013 IDENTIFYING INVESTMENT BENEFITS Industrial Facility (cont.) Safer, more reliable and energy efficient plant 2. ECM Selection 1. Assessment 3. Payback Analyzed HVAC systems, compressed air and lighting for efficiency, capacity and effective operating and maintenance practices. Evaluated remote monitoring application potential. Lighting retrofits, building automation upgrades and hot water boiler Selected ECMs offer quick return
Confidential and Proprietary 26 SITUATION 20-story hotel with 518 guest rooms, casino and meeting and exhibition Frequent breakdowns, reduced efficiency and high operating costs from outdated systems Difficult-to-access plant room and decentralized system control Infrastructure systems generating noise complaints from guests APPROACH Factors driving improvements: –Increase competitiveness –Reduce operating costs –Increase asset value –Environmental responsibility in compliance with 2010 mandate Warsaw Marriott (Poland) Upgrades for increased reliability
Confidential and Proprietary 27 RESULTS 15% improvement in overall building energy efficiency (30% system improvement) Significantly reduced carbon emissions to meet 2010 mandates Increased comfort by reducing system noise by 25dbA Lower noise operating levels Reduced system breakdowns to near zero (reduction in maintenance costs) Completed project off-season without disrupting hotel operations 2. ECM Selection 1. Assessment 3. Payback Evaluated central plant comfort systems for performance, energy consumption, operational efficiencies and maintenance access High-efficiency chiller systems with variable flow water pumps to reduce energy use and a centralized BAS Selected ECMs offer medium timed return Warsaw Marriott (Poland) (cont.) $2 million integrated system with projected six-year payback
Confidential and Proprietary 28 SITUATION Customer: Swire Properties To change the mindset of landlord technicians to new water cooled system operation instead of air cooled system Limited space for installation Statutory approval for application for pilot scheme of fresh water usage for cooling tower APPROACH Provide more practical training and method statement to handle water cooled plant Site modification work to suit the limited space Ask the appropriate people to get approval in short time frame RESULTS Annual energy saving of around 1,176,000kWh and payback of 4.8 years Conversion of 660RT A/C to W/C system Annual saving ~35% achieved Island Place Shopping Centre (Hong Kong)
Confidential and Proprietary 29 SITUATION Customer: Nan Fung Properties New business partner for supply and installation project Difficult chilled water system installation on high rise tower roof Merging low and high zone into one circuit APPROACH Provide professional image and job reference to the client Dismantle chilled water system in pieces for delivery to roof Precise site measurement for equipment selection RESULTS Annual energy saving is around 1,460,000kWh and payback 7.5 years Conversion of 1,100RT A/C to W/C system Guarantee annual saving 37% 113 Argyle Street (Hong Kong)
Confidential and Proprietary 30 Bottom Line Business Case Energy efficiency makes more sense than ever Projects will move forward despite the economy Financial business case will drive decisions There’s proof that it works Link the building to a business mission Determine the funding strategy Understand ECMs and their payback Consider total cost of ownership Conduct the financial analysis – including cash flow
Confidential and Proprietary 31 Larry Wash, President Global Services Hussmann, Thermo King and Trane firstname.lastname@example.org