Category: Power

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Energy Storage Systems

Energy storage systems (ESS) present an opportunity for lowering energy costs, particularly for large energy consumers like industrial plants, hospitals, and large multifamily complexes. This is especially relevant in Massachusetts and New York, where incentives make the financial benefits compelling.

What is the value of storing energy?

ESS provide value in several ways.  For one, these systems can be configured to help utilities  reduce the energy transmitted during peak weather events, such as exceedingly hot or cold days.  The batteries are loaded in anticipation of the peak event, and subsequently disbursed of energy during the peak event.  By disbursing the energy in this way, the ESS acts like a small scale power plant.   This lowers power transmission spikes and the very high costs often associated with them.

Grid stability and resiliency are additional benefits.  If part of the grid goes down, for example, during a weather event like Superstorm Sandy, the energy in the batteries can be used to provide power in a local area, if they’re integrated within a microgrid.

A fourth point of value is in the context of renewable energy, particularly solar and wind energy.  Both energy sources are growing quickly, particularly in Massachusetts and New York State.  Solar and wind capture energy, but not always when it’s needed most.  So the ESS stores excess (or cheaper) energy when it’s produced, and then disburses it when its value is optimized.

ESS Optimization

As noted, customer-sited energy storage systems provide benefits to power producers and power distributors.  These benefits are monetizable for the owner of the ESS.  In a typical scenario, the utility pays the owner of the ESS for power drawn from the ESS to the grid. 

In a second common scenario, the energy is used on-site to flatten out demand and reduce utility demand charges.  Our partner, Enel X provides value in both scenarios.  The company’s software optimizes the revenue for the owner of the ESS, buying power when it is cheaper, storing it in the ESS, and either using it when utility demand charges kick in, or selling it back to the grid.

Development and Ownership of the ESS

Obtaining an ESS is not akin to buying an appliance or new motor… there’s much more scale and complexity with the storage system.  As you might expect, the capital requirements are significant.   Fortunately, they do not have to be born by the property owner.

For most ESS installations, the engineering, planning, installation, ownership, maintenance and operation of the ESS can all be farmed out, typically to one single entity.  That entity is proficient in doing (or managing) all of those things.  For most organizations considering an ESS, this is the type of arrangement that’s most suitable.  Exceptions might be large Fortune 500 type companies that have the scale to develop and maintain the specialized knowledge and expertise that’s needed to optimize the ESS.

The ESS developer/maintainer/owner attempts to maximize revenue from the equipment.  The owner of the property on which the ESS sits gets paid a percentage of the revenue derived from the ESS.  Because the payment is a percentage, it keeps the interests of all the parties, ESS owner and property owner, aligned.  

For the property owner upon which the ESS sits, there’s no capital required.   The ESS generates revenue with no downsides.

Resources

A good extra resource on this subject, with content that goes beyond battery storage can be see on this page published by the Federal government’s Energy Information Administration. 

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Time to Make Energy Systems Proactive


Making energy systems proactive is a logical step forward in improving building energy efficiency

Proactive building energy systems can increase energy efficiency, improve comfort, lower energy costs, reduce peak energy loads, and increase property values.

What is a proactive building energy system? 

A proactive building energy system uses forward-looking input factors such as a building’s thermal momentum, near-term weather forecasts*, and demand costs to help determine system outputs.  Artificial intelligence (AI) software uses strings of data inputs and self-learning to calculate outputs and optimize system performance. 

A proactive energy system can be an add-on part of a very basic system, or it can can be integrated with a complex building management system (BMS) using open protocols or something else.

Contrast with today’s reactive energy systems

Nearly all building energy systems in North America today are reactive.  A typical example would be a temperature set-point being reached which triggers a relay that starts or stops one or more devices (e.g. pump, boiler, chiller).  There may be a variable component to the output, such as a distribution temperature selected from a heating curve. Commonly, a PID control determines the targeted output .  The production and distribution technologies themselves (e.g. condensing boilers, variable speed heat pumps, low-temp hydronic distribution, etc.) may be high efficiency in a stand-alone sense.  Nevertheless, they are limited by the narrow range of input data that are available to them.

Key differences between reactive and proactive system control

When external factors are changing quickly as is typical with nearly constant changes in weather factors (such as temperature), or when demand rates kick in, the reactive system loses its ability to optimize energy inputs.

Proactive energy systems on the other hand, use a range of data that includes forward-looking data that feed dynamic algorithms.  With proactive systems, there can also be some automated learning involved as improvements build on past improvements.  This is where AI can play an important role.  The AI is used to determine thermal inertia and thermal momentum, both of which are important for maintaining targets without over or under performance.  Reactive controls don’t have this ability.

Fortunately, there are more similarities than differences.  Proactive systems and reactive systems use the same building assets.  So from an upgrade perspective, it can be very easy to make the change.

Examples of proactivity in our lives

Although you may not have thought about it in this way, being proactive is a natural part of our everyday lives.  There are countless examples of being proactive that illustrate this point. 

Here are a just a few examples from one thing many of us do every day: drive a car.  Imagine you’re behind the wheel of your car and you’re driving down the road.  You see a sign that says “Stop Ahead”. This is an opportunity to be proactive.  You can take your foot off the accelerator and let the momentum of the car carry you forward to the stop line.  That’s proactive and saves a little bit of energy.  Now imagine you’re on a highway and you see a sign that says “Exit Right 1 Mile”.  If that’s your exit, you can look for a good opportunity to move over to the right lane.  That’s also being proactive.  A third example is when you drive with your high beams on at night, you’re gaining more “visual data”; you can be more proactive in dealing with upcoming road hazards. 

Of course, being proactive doesn’t necessarily have to lead to greater efficiency.  Proactive measures in energy are worth doing if they help achieve an objective like lower energy use, lower demand charges, or higher comfort. 

Thermal momentum quantified and used proactively

Being proactive helps increase efficiency in cases where momentum (including thermal momentum) and inertia are significant factors.  Thermal momentum is identified and used by AI for proactive control. 

As momentum is the product of mass and velocity, higher mass leads to higher momentum. As an example of this concept, heavy trucks benefit more from that “Stop Ahead” sign than does a car, and the car benefits more than a bicycle. A pedestrian may not benefit at all. So the greater the mass, the greater the momentum, and this is true in buildings as well.  Proactive AI control can account for momentum and inertia, and use it to improve overall efficiency.

A multifamily building is full of walls, floors, ceilings, carpeting, furniture, and plumbing.  Therefore it is relatively dense. An empty airplane hangar, a big space filled with nothing but air, is not dense.  As a result, changes in thermal energy can occur much more quickly in the hangar (assuming the building size, energy systems, and building envelopes are equivalent).  Because the multifamily building is denser, it takes longer to heat up, and is slower to cool down. All that mass inside the building is a heat sink.  That mass is absorbing and radiating back out thermal energy constantly.  If a heating system reacts to a set point being reached, and stops pumping heat into the building, that building mass will continue to radiate heat back into the living space.  If the outdoor temperature rises or sunlight streams in, the interior of the building can become overheated. 

Consistent building temperatures with proactive control

Another thing we can say about the multifamily building is that steady temperature is important to the people that live there.  Zeroing in on a set point temperature is a challenge that is easier with AI and proactive control.  Multifamily building owners know that the alternative to consistent indoor temperatures is either complaints, open windows in winter, or both.  It also can lead to higher energy costs, increased tenant turnover, and lower rents.

Lowering demand peaks in district energy with proactive control

In cases where there is an energy demand rate**, it’s possible for a proactive energy system to optimize operation to pre-load heating or cooling, and to hold back from the high demand peaks that drive demand charges.  As noted earlier, this is a valuable tool where building mass can be used to advantage.  This is most common for buildings connected to district energy networks, but is evident in other energy scenarios as well. 

Other applications for proactive energy control

Besides thermal energy, as described above, there are other forms of energy consumption that can, and sometimes do benefit from proactive control. 

  • Natural gas consumption
  • Electrical power (demand response)
  • District energy (heating or cooling)
  • Chilled water /sensible cooling

 
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*useful weather data may include the timing of upcoming temperature, sunlight, wind, and precipitation.

**energy demand rate – charged by some district energy utilities and electric utilities.  Demand charges may be tiered, and can vary by time of day and time of year.  In some cases demand rates change daily, with a day or less of advance notice.  Demand charges help utilities pay for the higher marginal cost of supplemental energy sources, or the cost of infrastructure needed to meet peak demand.

© 2019

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The Effect of Energy Cost Cuts on Property Values


Cutting energy costs has many benefits, not the least of which is increasing property values.  The example below shows the effects on property values for a $10,000 cut in energy costs.  If you consider that many properties can have their costs cut by some multiple of that figure, it’s clear that building (or business) valuations can be increased a great deal.

Investment Payback Considerations

For anyone considering the possibility of selling their property or business, the valuation should be factored into the payback equation.  That is, even if a sale were contemplated for as little as one year out, an investment in energy cost cutting technology can make good sense even though the investment exceeds the returns on energy savings in that first year.  That’s because the investment is not just lowering annual expenses, it’s also increasing the valuation by some multiple of that expense reduction. In other words, the investment results in a positive net present value.

Property Taxes

Another benefit of cutting energy costs is that the benefits over costs go directly to the bottom line.  There should be little to no effect on property taxes because the added property valuation from the cost cuts would not be seen until the building or business is sold.  In the meantime, energy cost savings accrue for the entire time that the asset upgrade is in place.

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Identifying Opportunities for Energy Savings

Energy is used in many ways, from heating to cooling to power and motion.  Opportunities to lower energy use are available in all of these areas.  The challenge is to identify the best areas for reducing energy consumption by balancing opportunities with their costs.  It’s possible to find a positive net present value (NPV) for many different upgrades.

Energy Audits

For many building owners and managers, an energy audit is a worthwhile first step.  Often there are some glaring opportunities that easily apparent.  Old technologies that use lots of energy are an example.  Energy audits can provide a list of items where deficiencies exist, which can be prioritized and addressed by order of value.

Technical Fixes

The low-hanging fruit for energy reduction efforts is through the application of technical fixes.  In new-builds as well as in retrofit situations, older technologies are being supplanted by new.   Many leading industrial companies such as 3M, GM, and Volvo Group have made great efforts to reduce their use of energy in their processes.  For example, Volvo Group announced in May 2018 that they have successfully reduced their energy consumption by 25% at their US facilities!  As a company in an energy-intensive business, Volvo Group’s savings is impressive, and impactful.  Reducing costs, lowering environmental impacts, and increasing competitiveness and investor returns are all resulting benefits.

Technical fixes are also available for other large energy users such as multifamily buildings, hospitals, and hotels.  Larger organizations may have in-house expertise, or work with management companies that dedicate staff to energy reduction efforts.  Smaller and medium size organizations in these business areas also stand to benefit from significant cost savings, and a corresponding increase in profitability.

Operational Fixes

As noted in the article at the Volvo link (above), that company is going beyond technical fixes:  “As we shift from technical changes — which tend to have a large one-time impact — to operational and behavioral changes that are more people-driven” the company’s objectives are to continue to reduce energy consumption. 

Companies like Volvo Group are showing great leadership in their commitment to, and success in  reducing energy consumption.  The behavioral and operational changes are a frontier that is ahead for everyone, though for the time being, for most, it is the technical changes which will bear the quickest payback.

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Cutting Energy Costs to Avoid Reverse Compounding

Energy use remains a low-hanging fruit for cutting costs. For many buildings, energy cost cuts of 10-50% are easily achievable. Energy costs are the single largest expense for some buildings, meaning that cutting energy costs can have an outsized impact on a building owner’s cost structure.

By not cutting energy costs where they can, and as soon as they can, building owners incur a reverse compounding (or negative compounding) of that opportunity. The chart below shows the effect of savings lost as if it were an expense. In this example we look at $10,000 in initial energy costs, 5 levels of savings, and the opportunity costs for not taking those savings compounded at 5%.

Reverse (Negative) Compounding

Multifamily building owners, managers, and tenants all benefit when energy costs are reduced. And cost cuts are both desirable and necessary. Competition in the multifamily sector is increasing. The total number of multifamily housing units increased by 587,000 units last year (2017), the most since 1971. That increased supply ripples across the housing markets, and puts pressure on every owner and manager, whether they be condo owners, multifamily REITs, municipal housing authorities, or direct investors.

The opportunity to cut costs is greatest for those paying the energy bills. Many building owners have already made changes to lighting, and perhaps upgraded to more efficient boilers and chillers. Others have entered into contracts that shave costs from their energy suppliers. There remain many others who don’t have the capital to invest in necessary upgrades. Fortunately, for all of these groups, the biggest opportunities for cost cuts remain. These opportunities are made possible through the application of innovative technologies.

Opportunities for significant cost savings are present whether a building has central heating and cooling, pays variable time-of-day energy rates, includes heating in rent, and more. When the scale of the savings opportunity is large, as it usually is, a solution can usually be found that’s suitable for almost any building.
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Advancing Beyond Outdoor Reset by Using a Building’s “Unique Energy Fingerprint”


It’s now possible to lower energy costs by applying bundled technologies that find and use each building’s “Unique Energy Fingerprint” (UEF). Our partner Leanheat has created energy intelligence software that bundles artificial intelligence (AI) with the Internet of Things (IoT) to determine each building’s UEF. The technologies integrate seamlessly with existing building assets. Building energy use is reduced through improvements in system efficiency.

Before this technology became available, this level of efficiency improvement was not achievable in a cost-effective way using current assets. Improvements that have been made have been limited by the available technology. The potential for improved control technology has expanded greatly. Leanheat has been able to focus on realizing that potential for the purpose of lowering building energy use and costs.

There are two major differences between using a building’s UEF and today’s common control optimizer, outdoor reset (OR). First is that the UEF is based on more variables (as opposed to just one or two with OR), giving a more precise picture of the heating and cooling load at any given time. Second, the technology that determines the UEF is able to anticipate loads, and thus to proactively optimize settings so that energy use is reduced.

Proactive beats reactive.

Outdoor reset is reactive. It operates on a curve tied to the outdoor temperature. Outdoor reset depends on finding a heating curve that matches up with the output with the load. Because outdoor reset is reactive, there’s an inherent uncertainty with the load matching. To compensate, outdoor reset curves must provide some extra buffer, and that extra buffer creates inefficiency.

On the other hand, Leanheat proactively anticipates the heating and cooling needs of the building. It does this in two ways. First, it factors in more data related to weather and climate. Factors include:

1. Present and anticipated outdoor temperatures
2. Present and anticipated solar irradiation (sunshine) on the building
3. Sun angle (latitude, time-of-day, and time-of year)
4. Wind direction and speed (“building wind chill”)

Other factors are indirectly (and automatically) factored in based on how the building responds:

1. Capacity of the heating and cooling system assets
2. Building mass & orientation
3. Insulation, windows, etc.
4. Air infiltration

Together, these are the variables that make a building’s UEF. Because it uses more variables, it’s able to get a more complete picture of the building’s energy load.

The second way that the Leanheat technology is proactive is that it monitors how building data correlates with naturally occurring changes in weather. As a result, the technology finds the UEF and its algorithms keep the building systems matched appropriately to current and incoming weather. The result is a typical cost savings of 10-15%.

Proactive heating and cooling control is especially important in buildings that react slowly to changes in weather and climate factors. Of course, any building with traditional controls can react slowly to a cold front with wind and rain or snow. Or when the cloud cover breaks up and suddenly the building is in full sunshine. Proactive technology controls the water temperature (or steam) with greater precision (and “less cushion”) than is possible with a reactive-based system like outdoor reset.

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Pros and Cons of Energy Services Agreements (ESAs)

Energy Services Agreements (ESAs) are an innovation in how energy is managed and paid for. ESAs provide funding for energy-related capital improvements. They also provide other benefits as described in the list that follows. As might be expected, there are limitations that organizations need to weigh when considering entering into an ESA.

Pros of ESAs

1. No capital costs for retrofit borne by building owners
2. Net cash flow positive for building owners (usually)
3. Planning and execution of capital upgrade costs handled by ESA contractor
4. Maintenance of capital equipment managed, and costs borne by contractor
5. Organization management can stay focused on organization’s mission
6. ESAs often enable needed improvements to take place more quickly
7. Larger financial benefits can accrue when an ESA enables capital upgrades to be made near-term rather than waiting for capital to become available
8.  ESA payments can be treated as an expense
9. Gas is cheaper in some locations when used in CHP

Cons of ESAs

1. Upgrades to existing energy and water assets can cause temporary disruptions that need to be planned for
2. Contracting organization must have trust in ability of contractor to plan, execute and manage properly

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Energy Services Agreements (ESAs)

ABOUT ENERGY SERVICES AGREEMENTS (ESAs)
Energy Services Agreements essentially outsource your energy in a way that saves you money. Outsourcing has proven to be effective in many areas where core experience and focus are an advantage. Think about payroll services, food services, custodian services, headhunting services, etc. These are areas where outsourcing has taken hold long ago.

The production and consumption of energy has been going through big changes in recent years, leading to a great opportunity for organizations to cut energy costs significantly. To seize the opportunity, however, it takes specialized knowledge, an experienced team of engineers, and new capital equipment.

Ordinarily something like this would take a management team’s time and focus away from their core mission. It would ordinarily require a significant amount of capital to get it off the ground. Capital that could perhaps be preserved, or put to better use on something core to the mission of the organization.

So if an ESA can 1. save you money, 2. doesn’t distract your management team, and 3. requires no upfront capital, then you have a winning formula. That’s why we partner with RENEW Energy Partners, a pioneer in specialized Energy Service Agreements (ESAs) that require no upfront capital.

Advantages of an ESA
Operating Expenditures Saved Through Lower Energy Costs
ESAs save money. Typical ESAs involve replacing old, inefficient energy-consuming assets with new, more efficient assets. Examples include boilers, cooling units, lighting, building controls, etc. Experience has shown that reductions in energy use of between 30% and 50% can be achieved.

Savings Start Sooner
By moving forward with your energy upgrade through an ESA today, you start to gain the benefits of lower energy costs right away. Contrast this with an alternative scenario where you move forward with an energy upgrade independently, but 2 or 3 years further in the future. This alternative means that you miss out on 2 or 3 years of energy savings.

Lower Environmental Impact
By achieving large reductions in energy consumption, the environmental impact of operations is proportionally reduced as well. Carbon emissions in particular are reduced, thereby lowering the carbon footprint of your operations.

Increased Valuation
With an ESA, energy costs are lower, which leads to operating expenditures being lower. Therefore the profitability of the organization is typically increased. Profitability is obviously one key metric that organizations look at, as is valuation, which is also typically higher as well. A building with new HVAC, lighting and controls is valued more highly.

No Added Debt, Preservation of Capital
If an ESA bundles in all the capital, then there’s no upfront capital that’s necessary. Therefore, there’s no debt added to the balance sheet. Capital gets preserved, or deployed in other ways.

Outsourced Maintenance, Repairs & Insurance
By entering into an ESA, an organization essentially outsources all the fixed costs (i.e. equipment capital costs, maintenance, and insurance) related to the energy production. Additionally, during the length of the ESA, the ESA provider covers any equipment repairs, if any.

Less Risk of Breakdown or Failure
An organization that operates old and inefficient capital equipment bears a substantially higher risk of failure. Not everything that can go wrong is evident through inspections, or avoided through routine maintenance. The higher risk of failure leads to a higher risk of incurring repair costs, as well as going without energy for a period of time while the repair is being made.

Full Scope of Improvements Outsourced
By having an experienced team plan and manage the improvements, and optimize those improvements to maximize savings, the heavy lifting needed to make these big improvements is not placed on management.

Leveraging Team of Experts
The ESA comes backed with an experienced team of experts who have completed these types of projects in the past. The team includes financial investors, industry experts, and channel partners such as product manufacturers, engineers, and general contractors.

ESA Payments Can Be Expensed
ESA payments can be treated as a capital expense or as an operating expense.

Disadvantages of an ESA
No Depreciation
The only potential downside to entering into an ESA is that the “buyer” organization doesn’t get to depreciate the cost of the equipment. Of course, in most cases the equipment that’s being replaced is already fully depreciated, so there’s no depreciation impact in the financial statements of the organization.

Of course, if the buyer of the ESA invests in capital or labor instead of spending on the energy assets, that disadvantage is greatly mitigated, or even eliminated.

How an ESA is Priced and Paid For
With a RENEW Energy Partners ESA, no upfront payments are required. Energy audits (including a review of historical energy consumption), planning, and construction costs are all bundled into the ESA. Payments under the ESA are only a portion of the savings, so the organization making those payments is net cash flow positive from the start. The organization continues to pay its utility bills directly to the utility, which become lower, of course, after the investment in high-efficiency equipment is completed.

At the end of the term, the building owner can buy the project at fair market value or renew the ESA.

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Energy Services Agreements and Their Alternatives

CIMI Energy’s funding partner is a premier provider of Energy Services Agreements (ESAs). ESAs provide organizations with off-balance sheet funding for energy retrofits. For the term of the agreement, the provider of the ESA maintains ownership of the equipment, and provides maintenance. Energy costs are paid by the customer, with the ESA provider receiving compensation through a portion of  the energy large energy savings.

Owner execution risk is low, and there are NO upfront costs.  The net result for the customer organization is a reliable and cost-saving energy system  that requires no cash and no debt.  It’s an off-balance sheet solution with short and long-term benefits. For more details on ESAs, visit CIMI Energy’s ESA page.

Alternatives to ESAs

Self Funding

Energy retrofits can be achieved in a number of other ways.  The most common way is self-funding, either with cash on hand, or with a combination of cash and borrowing.  However, because the capital costs for large energy retrofits can be very high, this requires tying up a lot of capital.  Furthermore, by planning and investing capital for purposes outside the core mission of the organization, management can get distracted, and takes on execution risks.
Nevertheless, if an organization has a lot of free capital, and no higher yielding alternative uses, this can still be a good approach.  But if the organization can use that capital for other purposes, either right away or off in the future, then it’s prudent not to spend it on an energy retrofit.

Operating Lease

There’s less upfront capital required with an operating lease, and  less execution risk than self funding.  An operating lease is essentially renting, and payments are expensed.  This method of funding is not suitable for many types of integrated hard assets such as heating and cooling equipment, and other large equipment that’s an integral part of a building system.

Capital Lease

A capital lease is attractive for having low upfront cash requirements.  The downside to capital leasing is that the responsibility for project management and ongoing maintenance falls upon the lessee.  These are small issues when the products are straightforward, as is the case with trucks, furniture, and computers.  For complex projects like large energy retrofits, this is a management responsibility that can require added manpower.

Performance Contract / Energy Services Company (ESCO)

Performance contracts, also known as Energy Savings Performance Contracts (ESPCs) or Energy Management Services (EMS) have achieved some popularity in recent years.  They provide a way to fund capital improvements for energy management, maintenance, and energy generation.  They typically bundle together investments with short and long-term paybacks, with a resulting medium-term payback for the bundle.

The ESCO is the entity that proposes the ESPC (or EMS), and that carries the responsibility for engineering & design, equipment purchasing, construction management, maintenance, training, measurement and verification (M&V), etc.

Upfront capital costs are high.  On the other hand, there is a performance guarantee for up to 20 years as part of the contract.  Savings are shared between the organization and the ESCO.

Power Purchase Agreements (PPAs)

Similar to ESAs (see at top), Power Purchase Agreements (PPAs) require no capital, and have low execution risk.  While ESAs are for efficiency, PPAs are for power, typically produced on site.  A typical example is an installation of a large power producing asset, such as a district heating plant, where power produced is billed, as is the heat (byproduct).

Property Assessed Clean Energy (PACE)

PACE loans are loans which are paid for through property taxes.  They are specific for what they can be used for, with energy reduction or efficiency upgrades being accepted investments.  As they are geography-specific, they are only available in some communities.

CIMI Energy partners have the experience and expertise to manage PACE-supported projects, and others.  Together we can find the right balance of risk, capital, project management, and ongoing equipment management to meet your goals.

Summary

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Control and Reduction of Peak Power Loads


Peak power loads are high points, sometimes spikes in demand for power. Peak loads are a problem for utilities and their customers alike. For utilities, peak loads must be balanced with supply to avoid power shortages. When the utilities can’t respond quickly enough with their own power, they need to source power on the open market, where price spikes of 1000% or more are possible. Utilities will often attempt to reduce the occurrence of demand spikes by charging power users higher rates for peak power. It’s then incumbent on the customer to reduce or eliminate spikes in power consumption to avoid those charges.

Peak Power Background

In buildings, peaks in power usage are often, but not always associated with a high demand for cooling on summer afternoons. Aggregations of power users all using their air conditioning at the same time result in demand peaks. It shouldn’t be surprising that these aggregations of power consumption are hardest to control because they are all independent of each other and are all responding to the weather, which is out of their control. On the other hand, larger consumers of power may be better able to reduce their peak power consumption by taking steps to reduce power purchases during these peak times. This is possible either by anticipating power peaks and taking proactive steps to reduce demand from the utility during those times, or by supplementing with other power sources.

Utility Rate Structures for Power

Energy Rate

Utilities charge for the power they produce by charging for delivered energy. Energy in the form of electricity is sold in units of kilowatt hours (kWh). Along with a charge for distribution, the energy charge covers most of the costs incurred by the utility for the power it produces and delivers. What these charges do not cover are the added fixed and variable costs associated with peak power production and delivery.

“Demand Rate” for Peak Power Consumption

Where the utility has reliable base load but is challenged in meeting peak loads, they may institute a demand rate billing structure. The demand rate structure imposes a higher charge for power consumption at peak times. The demand rate structure is common in industrial and large commercial application, and has been seen in some residential applications as well.

Responding to Demand Rates

As utilities impose demand rates as a response to their challenges is meeting peaks in demand, a logical response by the customer is to lower demand at those times. If a utility charges different rates depending on time of day, the natural response is to buy energy at the less expensive time of day, and use it when rates are higher. An example of this is when a power buyer makes ice at lower rates, and then melts the ice for cooling purposes during peak rate hours. This is great for cooling, but if electrical energy is what’s needed at peak hours, then other solutions are needed.

Combined Heat & Power (CHP)

CHP is a technology that large energy users can turn to for producing their own economical baseload power, while also reducing peak levels of purchased power. As described on the CHP post, the technology can be cost-effective on its own, in economically producing heat and power, and by increasing the reliability of power. The cost savings CHP can offer by avoiding costly demand rates can also be compelling.

SCADA

Demand control for large energy users can also be accomplished with SCADA applications. From a simple metering device with peak demand warning to a full monitoring network, SCADA can be used to reduce power usage automatically or manually, as needed. This type of demand response is appropriate in situations where reducing power consumption in an ad hoc manner is realistic. Therefore, this may not be a good option for hospitals, hotels, and commercial buildings.

Throttling down, or completely shutting off power to one or several powered items is called load shedding. It makes sense to shed load from one application in order to temporarily provide load somewhere else, and when the power is constrained in some way. The constraint may be peak power pricing, or it may be a limitation in the power infrastructure. In any case, load shed is most often a temporary measure, and SCADA can be used in that way.

Conclusion

Building owners and operators have multiple avenues available for reducing energy costs through peak shaving. Having a working knowledge of these options is a step in the right direction. Contact CIMI Energy to find ways to reduce your energy costs.

Additional Resources

The Peak Load Management Alliance exists, with more detailed information about peak loads and demand response.

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Building Energy: Evaluate, Plan, and Act


An evaluation of energy use, energy assets and systems is a worthwhile undertaking for any large user of energy. Whatever the end use of the energy in question, a thorough evaluation provides a foundation or baseline for any planning and action that takes place after. Although the focus of this post is on building energy, the takeaway is equally valid for energy used to support industrial processes.

The goal of an energy evaluation is have enough information to create a strategy that upon implementation leads to lower costs and equal or better reliability. To find the best course of action for reducing energy costs and increasing reliability, an organization should make that evaluation comprehensive. To be comprehensive, think broad and deep. It should cover all aspects of power and heat consumption, including historical and anticipated consumption data, energy pricing, equipment condition, maintenance requirements, reliability, location, and so on.

How to Begin

Choose an Evaluation Plan

It may not be clear at first, but a decision will need to be made about whether the plan will include outside help. An internal team may be sufficient for when the broad set of energy assets are still in good operating condition, and if energy costs are satisfactory and a relatively small part of the budget. On the other hand, when energy costs are significant, and/or assets are unreliable, and causing extra maintenance or risk of failure, it’s probably worthwhile to bring in an external team. The external team adds some costs, but also brings expertise, and leaves the home team with the time to focus on their jobs.

In any case, an evaluation will start by evaluating energy assets as deployed at present.  Look at the condition of those assets and factor in the amount of maintenance that’s required to keep them in working order. Connect those energy assets in the evaluation with energy consumption and pricing data.

Also consider your building’s energy needs at present, and anticipate what they will be in the future.  Consider the expected remaining life expectancy of the equipment.  Prioritize which needs are most urgent, and which ones are not.

Power Review

Have a professional evaluate your power consumption and the price you’re paying for it.  Are there demand charges?  At what point do they kick in? Are there other energy providers worth looking at?

Cooling & Refrigeration

How does cooling factor in?  Is cooling something that’s used year round, or just at certain times of year?  If cooling is a significant expense, a cooling demand estimate should be calculated.  Chart it over time.  Does cooling cause a spike in demand?  Is that spike in demand causing expensive demand charges?

How does refrigeration factor in, if at all? If it does, an evaluation of refrigeration assets is probably worthwhile.

Heat Review

Review the demand and uses of heat.  Space heating is typically seasonal.  A heat loss calculation can be made to estimate demand for space heat over time.

Process heating is usually more consistent over time rather than tied to the heating season.  Still, process heating demand may ebb and flow based on time of day, or with some periods peaking, and others where it’s non-existent.  The more you know, the more useful the evaluation will be.

When you have all this information and data together, you can then make a judgement on the best course of action.

Nonlinear Effects of Efficiency Upgrades on Energy Use and Cost Savings

Care must be taken to factor in the nonlinear effects of asset upgrades. That is, when selecting efficiency upgrades, the energy reduction will count for more than the amount of efficiency increase. The cost savings will be greater. The following chart illustrates this using the examples of two sets of pumps; Pump #1 and Pump #2.

The example shows the nonlinear effects of an efficiency upgrade. Two choices are available in this example: an efficiency upgrade for two types of pumps, and the effects of an efficiency upgrade on each. With a much bigger drop in energy use connected with the efficiency upgrade of Pump #1, the example shows that cost savings are 3 times higher. This can seem to be surprising because the efficiency of the upgraded Pump #1 is still lower than the efficiency of Pump #2, even before an upgrade. To summarize this example, the graphic shows that the best upgrade, when faced with an either/or choice, is the one that decreases energy use the most, even though the increase in efficiency is much smaller.

A good example of this effect is the large but short-lived cash4clunkers program described below.

Taking Action on Findings

Your completed energy use evaluation should include a set of next step recommendations.  The recommendations should be weighted with regard to level of urgency, amount of expected costs savings, and expected increase in energy security, if any.  Those recommendations should be actionable in some way.  The recommendation could be direct, such as recommending an investment in CHP.  Or the recommendation may be to look more deeply into the calculus of an issue before significant capital is deployed or obligations are entered into.

Decisions will have to be made on how best to actuate changes.  An internal team may be sufficient to manage the process if the fixes are simple.  Alternatively, hiring an outside team will bring expertise to the process, and allow internal resources to be deployed in other ways.

Keeping Evaluations Up-to-date

If you’re a very large energy user, the energy evaluation should be templated and updated yearly.  For moderate consumers of energy, the original evaluation should be updated with new data every few years at least.

Paying for Energy Upgrades

Investments can be made in a standard way; out of free capital, a lease, or with loans.  As a further option, the equipment and installation can be obtained through an energy service agreement (ESA).  With an ESA, there is no capital or lease required. You purchase power and heat from the 3rd party investor but you don’t own the assets at the start.  Once the equipment is fully depreciated, you take full ownership.

Contact CIMI Energy for more information.

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The Federal government’s “Cash for Clunkers” program from 1999 was a prominent example of this effect. The program was one where “clunkers”, low-efficiency cars and trucks were permanently scrapped and replaced by cars with significantly higher efficiency. Although the primary purpose of the program was billed as a stimulant for the economy, the government also recognized that a relatively small pool of older automobiles was providing CO2 emissions far beyond their numbers. A lot of money was already being spent on increasing automobile efficiency, but those marginal gains were outweighed by the smaller numbers of old gas guzzlers people were driving around. An incentive was set up pay people to scrap their “clunkers” and buy a new automobile with higher gas mileage. The program was controversial as it was mainly judged on the cost vs benefit of the economic effects, where the economic returns from higher new car sales were judged to be less than the $3 billion spent on the program. Nevertheless, the program undoubtedly had an outsized effect on reducing auto emissions nationwide.

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CHP (Combined Heat and Power)


CHP (Combined Heat and Power)

Combined Heat and Power (CHP), also known as cogen, or cogeneration, is a fast-growing energy technology in North America and around the world. A large reduction in energy costs (up to about 50%) is the primary reason for this growth.

For typical applications, where there is no change of fuel, the energy cost savings result from dramatically higher system efficiency (power + heat instead of just one or the other), and minimal distribution losses due to power produced on site. In many applications, another cost-saving benefit is peak shaving (the reduction of peak power load bought from the utility). Lowering peak power purchases can greatly reduce costs by avoiding demand rates when they spike.

In areas where electricity costs are high, and natural gas prices are low, CHP yields an excellent payback on investment due to the inherent efficiency in maximizing the utilization of the energy content of the fuel.

How CHP works
As its name suggests, Combined Heat and Power creates both heat and power at the same time.

Various fuels can be used for CHP, such as natural gas, oil, or biomass chips or pellets. The most efficient and cost effective systems use natural gas. Creating power from the combustion of a fuel yields heat as a byproduct.

Ordinarily, most of the heat that’s created during power production, such as at a utility-owned power plant, is wasted. That’s because heat is not transferable over distance the way electric power is. Heat has to be used nearby to where it is produced, and at the time it is produced, or it is lost.

By using the byproduct of power production, heat, CHP uses a higher proportion of the energy content of a fuel than is the case with power production alone.

The sankey diagram below provides another look at how much energy is wasted from the production of power at utilities. That wasted energy is largely in the form of heat, which is what you capture when the CHP power production is at your site.  Further energy losses from utilities occur in transmission and distribution (T&D).

Reliability and Resiliency
One of the great advantages of CHP is the capability to provide heat and power to a building even during power outages. This is a great advantage where the grid is not so reliable, or where large storm events like hurricanes, tornadoes, ice storms , and human-caused events can cut power.

Not every CHP unit is capable of providing power during a blackout. The  units that can do so have inverters to support this capability. 

Typical CHP Applications
As mentioned above, CHP is most attractive in areas where electricity costs are relatively high, and where natural gas prices are comparatively low. Applications such as large multifamily buildings, industrial plants, hospitals, and schools are all good candidates because they all use both heat and power.

Selling Electricity for a Profit with CHP
In some multifamily buildings, power comes in through a single metered connection, from which power is separately metered to individual units. In such cases, it may be possible for the landlord to pay a lower, commercial rate and charge tenants a higher, retail rate. This adds to profits, as well as to the value of the building.

Investigating CHP
CHP is worth investigating to cut energy costs, increase your capacity to produce heat, and to lower your peak power from your utility.

Take a look at the blog post on evaluating your options here.

Additional Resources

The US EPA has an in-depth overview in a 24 page PDF on their website here.

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Continue reading “CHP (Combined Heat and Power)”

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Distributed Energy


A powerful business case can be made for harnessing distributed energy, making it a fast growing category within the energy field. The fast pace of growth results from a combination of the maturation of a variety of alternative energy technologies, and the unwinding of utility regulation. The alternative energy technologies that typically comprise distributed energy provide building owners with the ability to cut energy costs, increase energy efficiency, reduce carbon emissions, increase reliability, and eliminate peak utility charges.

The Energy Market Transforms

Distributed energy equipment suppliers have invested heavily in hardware and software in order to achieve the goal of safe and dependable integration with the grid.  Having achieved this goal, the available options for building owners to utilize alternative energy have broadened out.

A “mature” distributed energy sector means that all aspects of a distributed energy network operate safely, predictably, reliably, and cost effectively.  Tying in new energy sources becomes a straightforward matter, and doing so does not adversely affect production and distribution from other parts of the grid.  A mature sector also means that the power produced meets acceptable standards.

As noted above, deregulation of energy markets has been a driver of growth in distributed energy as well.  With the elimination of utility monopolies, competition from new sources of power give organizations a choice in where they get their power. Among the available choices for building owners is to produce their own power, in whole or in part.  In such cases, consumers become producers as well, leading to the label “prosumer”*.

With distributed energy, power sources can be placed on-site  (such as on-site CHP), or off-site, such as from renewable energy sources like solar, wind, and biomass (usually as CHP). The power sources need not be local, as innovative energy contracts allow buyers to purchase the output from remote energy sources.

The Impetus for Distributed Energy

For building owners, making an investment in distributed energy must of course make sense from a timing perspective, as something that’s working is not ordinarily high on the priority list for change.  The initial impetus that shifts an organization’s “energy inertia” can come from failing energy assets (such as a heating or cooling system that breaks down), or simply an energy audit that reveals costs above achievable benchmarks.

In most cases, there are several benefits that can be identified in advance.  Opportunities in cost savings, as well as in enhanced efficiency and increased security and reliability are usually all present when the decision is made.

Benefits of Distributed Energy

Cost Savings

The most salient reason organizations give for choosing a distributed energy solution is to save money.  The IRR (internal rate of return) for investing in distributed energy must be greater than the anticipated return offered by alternatives, including not doing anything (i.e. maintaining status quo) if that is a possibility.

With the fast pace of advancements in energy systems in recent decades, there are often good cost savings available just from reduced maintenance and repairs.   By incorporating the right solutions at the outset, an on-site CHP project such as producing electricity while making process heat, space heat or hot water can bring predictable cost savings to the user.

Efficiency

Decentralization can also lead to higher efficiency where energy assets allow more energy to be captured from the fuel.  A great example of this is when an organization produces it own power, and at the same time captures the “waste” heat for some internal process.  Combined Heat and Power (CHP) is inherently more efficient than a case where standard power generators are used.

Higher system efficiency is to be had where companies with large electricity demand such as server farms (e.g. IT Services, ISPs, Amazon, Google, and other cloud services) are locating in out-of-the-way places that are newly served by the expansion of distributed energy. Server farms create a lot of heat, so their locations are often being located where electricity is cheap, and either where the climate is cool (making cooling the equipment much more efficient), or where the waste heat from the server farm can be used for some other purpose.

Security and Reliability

The electric grid is old and suffering from technological senescence. It is vulnerable to damaging natural and man-made events. Flooding events that cause power outages are more threatening than they used to be, particularly alongside rivers and sea coasts where much of the traditional power producing infrastructure is located. Wind storms, ice storms, fires, and human threats are thankfully uncommon, but real enough to be taken seriously.

Businesses rely on power. Distributed energy makes the power supply more reliable for those businesses with the foresight to take advantage.

Reduced Carbon Emissions

Alternative energy sources reduce carbon emissions. This result is caused either through the higher utilization of the energy content of fuel (i.e. efficiency), displacing a high-carbon fuel with a lower carbon fuel, or through the utilization of some form of renewable energy, such as wind or solar.

Hedging Against a Possible Carbon Tax

The idea of imposing a carbon tax is routinely discussed in Washington these days.  Supporters include market-oriented conservatives, and progressives concerned about climate change. If a carbon tax were to be passed into law, it will be advantageous for organizations to be positioned with low-carbon utilizing assets in place.

For energy investments in durable goods expected to last 5 years or more, the possibility of a carbon tax is definitely something to weigh.

Eliminating Peak Power Charges

By providing an alternative source of energy to traditional utility-provided grid energy, additional cost savings can be secured by avoiding peak energy charges. More on this topic will be available in a separate blog post on this topic.

How to Proceed with Distributed Energy

What is required to reach cost savings, efficiency, and reliability goals with distributed energy is good planning, modelling, and execution.  These are essential to achieve long-term success.  Working with a team that has experience with all these working parts, and which is willing to learn about your businesses’ energy needs is probably the best way to achieve success.

CIMI Energy will serve as a conducer*, working with you and your internal team to ensure a successful result.


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*An equivalent producer/consumer word blend to “prosumer” is “conducer”.  But what I thought might have a lower chance of getting baked into the language, “conducer” is, as it turns out, an actual word in the dictionary. It means “a person or thing contributing to a specific result” 🙂