The Town of Chapel Hill Energy Bank will provide various Town projects with capital to improve the energy efficiency and decrease the operating costs for selected buildings in the Town’s inventory.  The primary objective is to reduce the recurring operating expenditures by utilizing capital to improve the energy efficiency.  All, or nearly all, the recurring expenditure savings would be returned to the energy bank.

Generally speaking, the axiom that you have to spend money to make money is true with respect to energy efficiency.  High efficiency cooling equipment costs more than standard efficiency equipment, adding energy management controls to a system adds cost to a standard system and utilizing the ‘free’ energy from the sun to heat domestic water or create electricity are some examples.  Unfortunately, today’s project budgets have more demands placed on them in different ways, so many are only able to comply with minimum requirements either dictated by code or by the standard equipment offerings of vendors.

The Town of Chapel Hill has obtained capital to spend on energy efficiency through the sale of bonds and has elected to distribute these funds in the form of an “Energy Bank”.  The purpose of this bank is to provide the means to finance projects which go beyond minimum efficiency requirements.  Additionally, the concept of the bank is intended to be self sufficient by generating its own fund source from the generated savings.

Energy Bank Mechanics

The specific mechanics of the Energy Bank need to be defined. In this case, the program will utilize the bank as a simple lending institution.  Capital will be ‘loaned’ to any facility to finance improvements, over that required by code, in a project.  This would be called an energy conservation measure (ECM).  After the project is reviewed internally for both the technical and the financial merits, the ECM would be installed.  The savings for that ECM would be returned to the energy bank over the life of the measure with the intention of paying off the capital, paying for the cost of money over that time period, and provide capital for future energy saving projects.  The savings could be either ‘actual’, ‘calculated’, ‘measured’ or ‘adjusted actual’ (See Savings Calculations section below for discussion).

Here’s an example:

            Building A is going to be replacing its HVAC system and staff has determined that for an additional $5,000 they can install premium efficiency units as opposed to the standard efficiency units required by code.  This will result in a $1500 per year operating cost savings or about $125 per month. With a loan of $5,000 from the Bank at an interest rate of 8.5%, the facility would payback the loan to the Energy Bank in approximately 4 years.  From this point, savings would accumulate in the bank to finance other projects. The savings could be based on actual utility savings or on calculated savings and would have an expected savings period of approximately ten years. (The useful life of this type of equipment is generally fifteen years, but because the efficiency degrades each year, savings would be generated for only a portion of the useful life.)

There are a few other factors that need discussion as well.  One of these which that can be critical to the success of an energy conservation program is providing an incentive for the facility to utilize the program.  In other words, one of the difficulties is the ‘what’s in it for me’ attitude if all of the operating cost savings are applied to ‘debt service’.  This can be mitigated by having the facility apply for ‘no cost’ measures.  In this case, operating savings could be returned to the operating budget of the facility rather than back to the energy bank.

For example, if the facility chooses to decreases its heating setpoint and consequently saves winter heating costs, the measure has had no capital cost but has a recurring return.  Allowing the facility to ‘share’ in the savings even during the period of debt service might serve as an incentive to continue these types of measures.

 

 

 

 

 

 

 

 

 

 

 

Implementation

A typical project could flow either from the Departments or from the CIP funding for other renovations or energy-related projects.  The following flow chart illustrates how an Energy Conservation Measure (ECM) would flow through the process.

 

Enrollment in the Energy Bank Program

The Energy Bank program requires definition of parameters for eligible projects as well as a methodology for applying for the funds.  For purposes of the program, there are two different types of projects, Minor Energy Conservation Measures or Major Energy Conservation Measures. In general, Major projects are defined as those having an overall capital cost of more than $100,000.

For any major project, at a minimum, an application will include an Energy Audit similar to those completed at Fire Station Number One and Town Hall.  This should be used as a basis for determining eligibility. 

An energy audit is a fairly simple analysis of the building to be improved.  It includes general information about the size and construction of the building, the general occupancy and type of HVAC and other systems.  It also includes a compilation of one year’s utility data as well as some straight forward calculations to normalize the data and determine the energy saving potential of the site. It can be completed either by in-house personnel familiar with energy-using systems or by an on-site consultant in approximately 4 hours.

As a supplement to that Audit, or for those projects which are not completing an audit, a basic project feasibility analysis should be completed for each project(s) applying for funding.  This analysis should include a description of the project, a feasibility grade cost estimate, an estimate of annual energy savings as well as an explanation of how these savings are calculated (modeling, hand calculation, metered estimate, etc.), expected maintenance costs and a simple payback, life cycle cost or Return on Revenue depending on the Town’s requirements.

Public Works will be responsible for reviewing the applications and recommending to the Finance Department, which administers the Bank, which projects should receive funding.  In addition, at that time, the finance department and the Public Works department would jointly review/determine the expected savings and select the appropriate savings calculation methodology.

As a general rule, Energy Conservation Measures which have a minimum payback of 80% of the published life span of the technology being installed and a minimum rate of return of x percent annually at an interest rate of x percent per annum.  These could be set as guidelines for attractive projects.  Exceptions of course, would be reviewed by public works and finance on individual projects. 

Savings Calculations

A complicating factor in administering the Energy Bank will be determining savings. Some relatively simple projects could utilize direct metering to determine savings.  In other words, simple projects can measure the utility consumption before and after the measure and determine the savings based on the difference (IPMVP, Option A). An example of this type of savings would be a lighting retrofit. In that case, the connected lighting load would be measured prior to the retrofit, and subsequent to the retrofit.  From here, the savings is a simple multiplication of operating hours times load.  This would determine the amount of funding that would be transferred from the facilities operating account to the energy bank. Most projects, however, will be a bit more complicated and require savings to be estimated on a whole building basis.

A part of the calculation methodology which needs to be assessed is to what degree the data is adjusted or normalized.  Realistically, there are a myriad of factors that can complicate the cost savings calculations. These include the weather, facility population changes, utility rate changes, equipment maintenance or operating failures, operating parameters such as temperature set points, degradation of equipment efficiencies and consequently savings over the life of the project, life cycle of ECM and operating hours.

These factors are not usually directly controlled by the facility so the Town must decide whether the facility should be ‘penalized’ when these factors increase utility consumption? And conversely, should it get ‘credit’ when those factors decrease the energy cost. 

The key to success is finding a balancing point between effort and effect.  In other words, the objective is to keep the calculations as simple as possible to determine, within reason, the amount of savings being achieved while avoiding spending those savings in labor costs to analyze the data.  To what degree the above factors are considered determines the appropriate software used for utility tracking and subsequent data analysis.  The more factors that you adjust for, the more complicated the software is and consequently, the more labor intensive it would be.

Experience tells us that generally speaking, unless the operating hours, population or utility costs significantly change (more than about 10%), or a combination of these factors occur, savings can generally be calculated directly from the utility data. In the case of Major ECMs, Energy modeling could be used to determine the order of magnitude affects of these parameters to determine whether they should be a part of the calculation or could be added to the savings parameters for an individual project if any of these events are projected to occur (i.e. addition to a facility) where energy bank monies are being utilized. 

Finally, the frequency that the calculations are completed and monies are deposited into the Energy Bank needs to be decided.  Because utilities are generally billed on a monthly basis, it makes sense to at least do the savings calculations on that same basis.  However, to keep the accounting a bit less complex, it is suggested that deposits to the Energy Bank occur on a quarterly basis.  The other option is for these to occur annually.  The disadvantage of this is the lack of visibility of the program.  Again, it is a matter of balancing the cost of administration and the benefits to the program.