Efficiency Incentives: A Larger Slice Of A Growing Pie
They’re dishing out incentives, but do you have a recipe for successfully acquiring them?
Utilities, governments, and other agencies have been providing incentives to encourage energy-efficiency improvements for almost 30 years. Not surprisingly, highs and lows in annual funding levels have been closely associated with important shifts in the energy markets. For example, the emergence of utility deregulation in the 1990s was accompanied by a marked decrease in energy-efficiency-related funding. More recently, concerns about grid reliability, global warming, and rising utility bills have motivated a sharp increase in both efficiency and renewable energy initiatives. In its new publication, Energy Efficiency Programs: A $3.7 Billion US and Canadian Industry, the Consortium for Energy Efficiency (CEE) provides ample evidence of the latest boom in energy-efficiency budgets (Table 1).
This recent surge in spending is truly multi-dimensional. New programs are appearing in utility jurisdictions that were previously absent from the list of rebate-friendly areas. Many existing programs are boosting funding levels to support the attainment of aggressive new goals for reducing load growth or curbing carbon emissions. As time-of-day rates and the hardware and software needed to take advantage of them in real time continue to gain traction, DR programs are becoming more practical and popular. Retrocommissioning programs are also becoming more widespread. This is a very timely development considering how much energy continues to be wasted by mechanical and electrical systems that are woefully out of sync with the levels of HVAC and lighting actually required by building occupants.
A New ApproachAnother dimension of incentive program evolution worth noting is the recent move from technology-specific to market-sector-specific offerings. Until recently, most rebate programs were organized according to building system type or energy-saving strategy - HVAC, lighting, retrocommissioning, etc. While utility program managers and account reps are supposed to work together to shepherd their customers into and between these various incentive offerings, this sort of “silo” approach can be frustrating to endusers. The result: missed opportunities for both energy savings and incentives.
Xcel Energy’s Commercial Real Estate Efficiency (CREE) program provides an excellent example of the “new and improved” market-sector approach. CREE is designed to address the typically hard-to-reach income-producing property market. It combines energy engineering with financial engineering - leasing, property management, real estate finance, and appraisal expertise that helps assess how the costs and savings of proposed improvements would be allocated between the building owner and tenants, and what effect the owner’s share would have on net operating income and asset value.
Moreover, the program combines retrofit and retrocommissioning-related technical assistance in a single, well-integrated diagnostic routine. This approach allows the building owner or manager to assess the whole landscape of potential improvements, and then prioritize hardware and operational fixes to maximize energy savings and returns. In the first half of its three-year funding cycle, CREE has attracted more than 25 million sq ft of office buildings in Xcel Energy’s Minnesota territory. The program is now being expanded to include the retail sector.
Are You Getting Your Fair Share?Would you ever consider having FICA contributions deducted from your paycheck throughout your working career and then not filing for the Social Security benefits you deserve? Of course you wouldn’t. Then why would you allow the utility to assess your electricity bill each month to pay for public benefits programs and then neglect to file for the incentives that are funded with those dollars?
There are actually plenty of reasons organizations neglect to claim their fair share of incentives each year. It’s always been a challenge to keep apprised of all available funding avenues. Eligibility requirements typically vary by utility jurisdiction, time period, customer size, and other factors. Large, geographically dispersed organizations must sift through mountains of data to learn which programs are available at any given time and which of their projects are eligible. And remember, those projects may come from a variety of departments - e.g., new construction, facilities, and energy management.
A large organization’s ability to find and capture all of the incentives it deserves may ultimately depend on its ability to convince all of the various departments to play ball. In fact, unless all of the supporting players agree to cooperate by issuing and enforcing incentive-eligible equipment specs, delaying equipment purchases until incentive approvals are documented, and providing clear paper trails to support those incentive applications, a large organization’s ability to capture this “free money” may be severely compromised.
The situation can be just as challenging for smaller organizations. Granted, they may have fewer projects to evaluate for incentive eligibility and lower barriers to interdepartmental cooperation. However, they may also have fewer in-house resources to handle rebate screening, application, and collection activities.
Winning Strategies Need Winning MechanismsIn his best-selling management treatise, Good to Great, Jim Collins writes that each winning strategy needs to be supported by a winning mechanism. Managers who decide to embrace a strategy like, “From this point forward, we’re going to get a bigger slice of the incentives pie!” should start by creating some winning mechanisms. Without a doubt, the following three should be at the top of the list:
- Establish a no-exceptions best practice for gathering potentially rebate-eligible projects from all corners of the organization. A mandate from the CEO might be just what you need to secure lists of energy-related projects from all of your colleagues in new construction, facilities, and other departments. And remember to include both planned and emergency replacements of equipment. Both are potentially rebate-eligible.
- Secure the commitment of all vendors and service providers who support you in the design, procurement, and implementation of energy-related products and services. They must agree to propose the most cost-effective specifications based on payback analyses that consider not first cost but life-cycle cost - and those calculations must include all applicable incentives. They must also agree to provide all the paperwork necessary to support incentive filings in a timely fashion. Before requiring (or even allowing) contractors to find and file for incentives, verify that they have the know-how, resources, and motivation to maximize the dollars received. If neither the customer nor the contractor “knows what a good job looks like” when it comes to capturing all available incentives, countless dollars may remain uncollected.
- Establish bilateral communication with your utility account reps and, if possible, with the program managers responsible for the design and implementation of any incentive programs that may apply to your projects. Alternatively, engage the services of a well-established third-party rebate administrator who has a comprehensive understanding of incentive programs and good working relationships with the program managers who design and implement them.
Lost Opportunities Are ExpensiveAs long as projections of load growth continue to outstrip projections of new generation, transmission, and distribution capacity in many areas of this country, the utility grid faces a precarious future. As the CEE report mentioned above suggests, utilities and other agencies are allocating massive amounts of incentive dollars to motivate managers to make smarter energy-related decisions.
If organizations fail to marshal the resources necessary to screen all potentially eligible projects and secure whatever dollars are available to improve equipment efficiency … If vendors shirk their moral and ethical responsibility to consider any and all applicable incentives prior to recommending a given level of efficiency for equipment that they specify or install … If utilities design or administer their incentive programs in a manner that discourages end-users from taking advantage of them ... then both the utility grid and its customers suffer.
The incremental cost of increasing the efficiency of a component when it is first installed is typically a lot less than the cost of replacing that component with a more efficient model later. And from the utility’s perspective, the financial incentive necessary to motivate the purchase of an incrementally more efficient model today is typically a lot lower than the incentive that would be necessary to motivate a retrofit of the less efficient model tomorrow.
Lost opportunities to save energy result in unnecessarily high utility bills as well as environmental degradation, and it is in everyone’s best interest to minimize them. The winning mechanisms listed above are three steps forward in that direction. ES