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Wednesday, February 22, 2012
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FAQs - Frequently Asked Questions
Rising Energy Cost and uncertain supply lines introduce risk to your enterprise. New Government Policies, Legislation and Tax Incentives may require or inspire review of your energy usage.
Here are some of the most common questions we receive.
Policy makers and opinion leaders are actively discussing energy sustainability and working to overcome barriers to energy efficiency. As a result, local, state and federal governments are moving to set mandates and offer incentives for equipment manufacturers, building owners, and utilities to reduce their energy consumption and, thereby, their greenhouse gas emissions. Best known are the energy and CO2 emissions reduction goals set by cities and states; i.e.,
- NYC Mayor Bloomberg has proposed a 30% reduction of CO2 by 2030
- NY Governor Patterson has proposed a 15% energy use reduction by 2015
- Massachusetts Governor Patrick has proposed a 25% reduction of CO2 by 2020.
Another huge energy-saving opportunity focuses on outdated lighting. By law, certain equipment such as T-12 and metal halide lamps will no longer be manufactured after 2010. Consequently, millions of lighting fixtures will need replacement in the next few years.
There is a well-established process for reducing energy use and costs. Energy services companies like Long Island Energy Partners (EES) have a logical, step-by-step technical and financial process that is applied to energy cost reduction building projects, regardless of size or scope.
EES starts with an initial energy audit that has the following steps:
- Eliminate unnecessary energy use (e.g., turn off unneeded lights; plug compressed air leaks)
- Use energy more efficiently (e.g., install high-efficiency lighting, production equipment, and programmable controls)
- Purchase lower cost energy through a deregulated service provider
- Produce power at a lower rate than is available through the regulated utility.
The sequence of steps is important. Customers must first lower overall energy use in Steps 1 & 2 prior to purchasing or producing power. Otherwise, they will ultimately spend too much on their power contracts.
In other words, the process helps customers get “lean and green” first. Then, it looks for other ways to offset the high cost of energy in the region.
In general, most buildings will have a number of conservation projects readily apparent, each more or less attractive from a financial and energy consumption perspective. These projects are ranked in terms of simple payback; i.e., how many years will it take to recover the initial investment? Here are a few examples:
- Lighting and lighting controls: 2-3 years
- Energy management systems/controls: 2-3 years
- Cogeneration: 5-6 years (limited applications – 24/7/365)
- HVAC replacement: 8-12 years
- Boiler and chiller replacement: 13-15 years
- Renewable energy installations: 15-30 years (6-7 years with tax incentives).
Most customers we encounter have lighting and controls opportunities. Many customers also have obsolete and/or failing HVAC or heating systems, but are reluctant to replace them due to the high capital cost.
In order to address this problem, we take a comprehensive approach at EES, seeking to use quick payback projects like lighting to subsidize the cost of capital improvements such as a boiler or chiller replacement. In the aggregate, a customer winds up with an overall payback of perhaps 5-6 years, considerably less than the 13-15 years for a standalone boiler project. Attractive financing terms are available for comprehensive projects such as these.
A typical building in an industrial park is 30,000-50,000 ft2 and has obsolete lighting and HVAC systems designed and installed in the 1970s.
In the Long Island-metro NY area, EES is developing projects with installed costs that range from $20,000–200,000 with a payback of 2-5 years. Utility incentives are typically 25% of the total project cost. Federal tax incentives also offset the cost – a lighting project in this example would garner a tax credit of $18,000-30,000, further reducing the project’s simple payback and improving the overall economics.
In the final analysis, cutting energy costs and “Going Green” costs money. It is a financial decision that requires a company to balance costs versus benefits. Some costs and benefits are easy to define. For example, if your current energy cost is $100,000, your new bill will be $75,000 after a comprehensive project. The benefit is $25,000, as measured by the utility bill.
Other costs and benefits are more difficult to define. For instance, what is the cost of manufacturing rejects due to poor lighting quality in the plant? In addition to energy savings, what is the benefit of improving compressed air delivery when it costs $10,000/hr for production interruptions?
There are a number of ways to finance energy conservation projects:
- Utility incentive programs, which are growing in scope and benefit
- Internal operating or capital budgets
- Local banking relationships
- Lease finance companies (e.g., Bank of America, Siemens Financial)
- Local Industrial Development Authority, or similar public authorities
- Tax incentive programs
- Federal stimulus package (NYS will gain at least $126 million for energy efficiency and renewable projects; the spending process is yet to be determined.)
Most projects use a combination of 2-3 financing sources to maximize the impact of the program and reduce the final cost to the customer. For instance, utility incentives to cover 25% of the cost, a low-cost energy lease to finance the balance, and tax credits to partially prepay the lease after construction is complete.
Regardless of the mechanism, EES is knowledgeable in all aspects of the process and works with its customers to craft a custom financing program.
An important point in today’s economy—financing for energy efficiency projects (lights, controls, boilers and chillers) continues to be robust and available. However, due to recent falling energy prices, long simple paybacks, and 15-20 year contract terms, financing for renewable energy projects has largely dried up. Tax incentives can produce solar projects with a 6-7 year payback, but structuring is important.
The following alarming statistics from the federal Energy Information Administration (EIA) demonstrate the importance of energy conservation in today’s environment.
- Total U.S. CO2 emissions in 2007 increased by 75.9 million metric tons (MMT) or 1.3% compared with 2006 emissions of 5,946 MMT.
- Energy-related CO2 emissions account for more than 80% of U.S. greenhouse gas emissions, with the vast majority coming from fossil-fuel consumption.
- Commercial and residential buildings are responsible for almost half (48%) of all energy consumption and greenhouse gas emissions in the United States.
EES’s energy conservation and renewable projects directly combat the serious issue of greenhouse gas emissions, which are widely accepted as the major contributing factor in global climate change. Upon implementation, projects offer immediate environmental benefits. For example:
- For every kilowatt-hour of electricity saved, CO2 emissions are reduced by 1.297 lb. (Source: The Green-e Climate Protocol for Renewable Energy.)
- For every CCF of natural gas saved, CO2 emissions are reduced by 12.0593 lb. (Source: US DOE 1605(b) Voluntary Reporting of Greenhouse Gases Program.)
- For every gallon of heating oil (diesel fuel) saved, CO2 emissions are reduced by 22.384 lb. (Source: US DOE 1605(b) Voluntary Reporting of Greenhouse Gases Program.)
The most direct economic benefit is to EES’s commercial and industrial customers, who, upon project completion, will realize immediate savings in the form of lower energy and equipment maintenance costs. Utilities also will benefit because reduced demand slows the need for new power plants and distribution systems.
Energy efficiency and renewable energy projects create market opportunities for local businesses as well. The campaign to transform our energy use will ensure profitability for companies with the vision and organization to participate in the Green Revolution. These market opportunities include those service providers directly involved in the installation and maintenance of equipment used in projects, as well as those who supply materials, components and subassemblies.
Energy efficiency and renewable projects also create many jobs. Workforce development research indicates that 11 jobs are created for every $1 million invested in renewable energy projects; almost 40 jobs are created for every $1 million invested in energy efficiency.
- In a time of high energy prices and environmental drivers to reduce energy costs and consumption, there are well-established avenues to help you with the process of “Going Green.”
- EES uses a logical, step-by-step technical and financial process for energy conservation and cost reduction projects that is readily available and easily understood.
- Many buildings have significant opportunities to reduce energy costs and emissions by 15-25% using commercially proven technologies.
- It does cost money to “Go Green,” but the returns can be rapid and financial incentives are available to make projects even more attractive – better than the stock market.
- Energy efficiency financing is well-established and readily available. Coupling conservation projects with renewables maximizes cost savings.
- For firms seeking to gain a ‘green” product marketing label (i.e., Energy Star), energy efficiency projects are easy to develop and their environmental benefits are easily quantified.
- The federal stimulus package has significant tax and other financial incentives with at least $126 million directed to energy projects in NYS alone.
- EES is actively developing and implementing energy conservation projects, and, together with other energy services companies, we represent the core of the new energy economy.
Be an early adopter. Now is the time to step up to the plate and take advantage of the intellectual capital and the financial incentives to help your company and the region as a whole. Become an example to the rest of the nation.
“Going Green” makes economic and environmental sense.
If you have further questions, feel free to contact us directly.
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