Title: 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
1Knowing the Fitness of Your
BuildingAnd Making the Financially-Driven
Business Case for Improving Energy Efficiency
Presented to International Conference on
Sustainable UrbanizationLarry Wash, President
Global ServicesHussmann, Thermo King and
TraneIngersoll Rand
December 15, 2010
2Agenda
- My Background
- Understanding Todays 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 Facilitys Energy Profile
- Making a Business Case for High Performance
Buildings - Proving the Model Case Studies
- Discussion
3My Background
- 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 organizations
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.
4Understanding Todays Operating Realities
- 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
An unprecedented energy and operating environment
5Furthering Energy Efficiency
- 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
6Building an Energy Efficient Building Plan
- Many of the worlds 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
Linking building performance to business
objectives benefits building owners, facility
engineers and occupants
7Develop 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
8Define 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 organizations overall business objectives
9Document the Facilitys Energy Profile
- The energy profile
- Includes energy costs and consumption data
- Benchmarks the facilitys 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
10Making the Case for Energy Efficient Buildings
- 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)
11Making the Case for Energy Efficient Buildings
Critical question What are your driving factors
for change?
- 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
12Making the Case for Energy Efficient Buildings
Critical question How will you fund your
project?
- 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
13Making the Case for Energy Efficient Buildings
Critical question How will you fund your
project?
- Goal Allocate potential savings and capital to
fund project and stay in budget - Set capital budget and revise annually project
out several years - Dont 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
14Making the Case for Energy Efficient Buildings
Critical question How will your project be
delivered?
- 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
15Making the Case for Energy Efficient Buildings
Critical question What changes can be made based
upon financial objectives?
- 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
16Top 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
17Making the Case for Energy Efficient Buildings
Critical question What costs need to be
considered when financially modeling an energy
project?
Visible Costs
- 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
Price/Time
Engineering Charges
Energy Costs
CFC Issues
Maintenance Costs
Equipment Shutdown Costs
Construction Change Orders
Legal Costs
Security Costs
Start-up Delays
Indoor Air Quality
Being Green Costs
Fire Protection Cost
Performance Problems
Hidden Costs
18Making the Case for Energy Efficient Buildings
Critical question How do owners ensure ongoing
performance of energy projects?
- 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
19Making the Case for Energy Efficient Buildings
Critical question What is the financial model
(example)?
20Making the Case for Energy Efficient Buildings
Critical question What is the financial model
(example)?
- 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
21Making the Case for Energy Efficient Buildings
Critical statement Different Payback, Same
Return on Investment
- 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
22Proving the Model Examples of Large Energy
Projects
23Royal London Hospital
- SITUATION
- Trane Care customer with needs including
environment, efficiency, reliability - APPROACH
- Offers from each Trane Care category
- Refrigerant retrofit
- Compressor Rnewal
- Compressor soft starters
- Controls upgrade
- Heat exchanger Rnewal
- 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
24Industrial Facility
- 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
Energy project makes manufacturing facility more
competitive
25Industrial Facility (cont.)
IDENTIFYING INVESTMENT BENEFITS
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 CO2
emissions from 11 tanker truckloads - On track to achieve mandated 15 reduction by 2013
Safer, more reliable and energy efficient plant
26Warsaw Marriott (Poland)
- 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
Upgrades for increased reliability
27Warsaw Marriott (Poland) (cont.)
1. Assessment
2. ECM Selection
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
- 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 million integrated system with projected
six-year payback
28Island Place Shopping Centre (Hong Kong)
- 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
29113 Argyle Street (Hong Kong)
- 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
30Bottom Line Business Case
- 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
- Energy efficiency makes more sense than ever
- Projects will move forward despite the economy
- Financial business case will drive decisions
- Theres proof that it works
31Larry Wash, President Global Services Hussmann,
Thermo King and Trane lwash_at_trane.com
32Questions