Tuesday, January 24, 2012

A Word on Energy Audits

By Fred Fastiggi, CEM
Senior Vice President - Energy Services
Birdsall Services Group

Energy Audits are becoming more commonplace as the price and volatility of the various forms of energy (fuels and electricity) used in a building continue to rise. This upward trend, coupled with the proliferation of programs, grants and incentives offered by various governmental agencies or other sources, have greatly increased both the need for energy audit services and the number and types of consulting and audit firms chasing this work. If you ask one hundred people for the definition of an energy audit, you will get one hundred answers. The American Society of Heating, Refrigeration and Air-Conditioning Engineers (ASHRAE) has been at the forefront of providing a baseline and standard for defining energy audits. The energy user who seeks the efficient supply, demand and conversion of energy should understand the various types of energy audits and should know how to look for the differences in work scope and pricing that can make the difference between a successful and unsuccessful energy audit.


A Level I audit is also known as a “one-day” or “walk-through” audit and involves an analysis of energy bills and a brief survey of buildings to produce a rough estimate of how efficiently energy is used in the building. This level of effort will detect some “low hanging fruit” and may suggest other options worthy of more study, but should not be viewed as comprehensive. They are merely geared toward pointing you in the right direction.
A Level II audit invests more effort in the building survey and energy analysis and often includes some level of performance testing or benchmarking versus similar buildings. This level audit provides a breakdown of how energy is used in the building as well as a broader range of savings options, including simple capital budgeting analysis with payback calculations. It may address the “people factor” and its’ effect on the uncertainty of savings. It may explore maintenance procedures and assesses any impacts energy conservation measures may have on savings. The current New Jersey Board of Public Utilities Local Government Energy Audit program is largely based on a Level II audit specification.
A Level III audit, also known as an “Investment Grade Audit,” digs into the details on large capital projects that may have been discovered as part of a Level I or Level II audit, or are the result of a specifically commissioned Level III audit. More detail is gathered from field equipment inventories, extensive test measurements and interviews with operating and maintenance personnel. Sometimes utility data is logged over a period of time. Always, a sophisticated energy model is developed based on the physical audit of the building. Once this model is developed, the projected energy use and demand is compared to actual bills, and if there is a significant difference (>10%) the model is “calibrated” or adjusted until it produces energy projections which are within some elected level of accuracy (often 5-10% of the actual building usage). At times the client may want an even greater level of accuracy in the model, and in these instances, the recurring “calibration” effort can be costly and time consuming. Once an acceptable level of accuracy in the model is achieved, possible reasons for variation are highlighted, the capital requirements of proposed energy conservation measures are estimated (with a higher level of confidence), and the investment decision can be made with a significantly reduced amount of risk.


Needless to say, a client contemplating ESCO financing or any of the Performance based Incentive Programs like the NJ BPU’s Pay for Performance Program, should be sure to hire someone to perform its’ appropriate level of energy audit who understands the audit process. While the definition of the various levels of audit seem relatively straight forward, every company has a different idea of what an energy audit is, and the client would be well advised to make a clear distinction between what is being offered by the various vendors or consultants.
With the slowdown in the national and regional economies, companies who are slow in their core businesses are looking for ways to make money and are increasing turning to the energy auditing business. Energy consulting/auditing companies are doing well today despite the economy. This is the result of several factors: 1) With the focus on cost cutting, companies or government entities are realizing that energy costs don’t have to be a fixed cost but are actually a cost that can be reduced by 10-30% or more with a little analysis and planning, and; 2) With the availability of ARRA funds and/or state or utility funded programs, companies who are not in the energy consulting business see a prime target area for keeping staffs busy by energy auditing.
It is often we see architects, real estate management companies, real estate brokers, electrical and mechanical contractors and equipment vendors all trying to sell and perform energy audits. Giant engineering companies have also entered the market to offset the slowdown in their primary markets.
For potential buyers of audit services, there is a good and bad news from this rush into the market by new potential suppliers. With more competition, prices go down, but with decreased costs, the quality of work being done by unqualified suppliers can go down as well. Companies that are new to auditing often don’t have experienced auditors and produce poor quality audits. Often, contractors, real estate companies and giant engineering firms don’t even do the audit themselves, but contract the vast majority, or all of their work, out to others. They just take a cut off the top.
Sometimes equipment vendors or contractors offer audits at a deep discount, or even for free. They do this because their primary objective is to sell equipment and installation services and the audit serves as a loss leader to secure the more lucrative equipment sale or installation contract. Invariably these audits lack the depth of analysis and completeness to get the best solutions for the customer. The recommendations from these audits end up being the equipment (controls, automation, software, chillers, etc.), installation services, or projects requiring detailed engineering services, that the provider of the audit wants to sell.
The level of variation, and occasion for conflicts of interest, is even greater for a Level III audit because there are so many more elements of the job that need to be addressed (with varying levels of diligence and expertise). As a rule of thumb, experienced field auditor should be billed out at a rate of at least $100 per hour with specialists in various technical areas, project management or upper management at rates much higher than that. For a rough comparison on effort, if you take the price of labor the audit firm is giving you, and divide by $100, you will have a rough idea of how many hours are being spent on your audit job.

Want to learn more about energy audits? Feel free to contact Fred at 732-751-9592, ext. 6503, or email him at ffastiggi@birdsall.com.

Monday, January 16, 2012

Financing School Energy Infrastructure Improvements with the Energy Savings Improvement Program (ESIP)

With rising energy costs straining limited educational resources, a number of New Jersey school districts are implementing energy efficiency measures to stretch their tax dollars. These districts are, and will become, models for the many other districts throughout the state, placing pressure on school board administrators to follow suit and make energy infrastructure improvements with an ultimate goal of saving money. Finding the funds among escalating operating expenses and tight budget caps has become a significant challenge. Funding is often unavailable to front the capital costs of improvement projects, and in these tough economic times, bond referendums may be unattractive. In 2009 the state legislature introduced a new solution to this old problem with the Energy Savings Improvement Program (ESIP). The ESIP law provides districts and other government agencies in New Jersey with a flexible tool to improve and reduce energy usage with minimal expenditure of new financial resources.

The ESIP solution
Fifteen years in the making, the Energy Savings Improvement Program is based on similar programs in other states and allows government entities to contract with Energy Services Companies (ESCOs) in lease-purchase agreements for energy infrastructure improvement projects. Before passage of the ESIP legislation, government agencies were prohibited from making contractual arrangements for energy projects if the contract had a term of longer than five years. Since many of the energy projects under consideration required more than five years to recover their investment, traditional ESCO financing offered for years by reputable companies like Honeywell, Johnson Controls, Siemens, Noresco, Ameresco, Constellation and others, was generally unavailable to them. Compounding this problem for school districts was the significant failure rate of bond referendums. These hurdles prevented many districts from moving forward on projects resulting in continued use of old infrastructure, excessive maintenance requirements and high energy costs.

The ESIP provides a clearer, more defined process to finance these projects. Now, through an ESIP, initial project funding comes from the energy companies using Energy Savings Obligations (ESOs), and the debt is repaid through the savings from the reduced energy operations over a period of time. Replacing the rigid contractual time limits of the previous ESCO financing program, the ESIP payback period now allows fifteen years on most improvements, and twenty on those for combined heat and power. And with no need for a bond referendum specific to improvements under this program, districts now have a much more viable way to finally address the energy needs of their schools.

Another benefit of the ESIP legislation is the safeguards, which were written into it to protect the government entities making the improvements. The Department of Community Affairs governs the utilization of an ESIP using Board of Public Utilities guidelines. Additionally, the entire ESIP process can be streamlined with the various elements of design, installation, finance, and maintenance combined into a comprehensive agreement with the ESCO. However, the use of third-party consultants for different components of the process provides a system of checks and balances that protects the interests of the district.

Frankford Township School District implemented ESIP 

To cite an example, in 2010 the Frankford Township School District hired Honeywell to develop an Energy Savings Plan. The necessary, first step audit, was performed by Steven Winter Associates, Inc., and another firm, Birdsall Services Group, performed the Third Party Verification of the energy savings calculations as indicated by both Honeywell’s Energy Savings Plan and the original Steven Winters energy audit. Birdsall’s verification was performed subject to specific New Jersey Board of Public Utility protocols.

Developing and Implementing an ESIP
There are three options to developing and implementing an ESIP: the Traditional Model, the Do-it-Yourself Model, and the Hybrid Model. The Traditional Model uses an ESCO to manage the various functions that make up an ESIP, while the Do-it-Yourself Model is usually utilized when a school district already has the funds to finance the improvements either from their own capital budgets, an Improvement Authority or some other source. In the Do-it-Yourself model, many of the responsibilities an ESCO would normally perform are given to the school district’s own staff, an engineer, or other specialist. As the name suggests, the Hybrid Model can be a combination of the two, an ESCO being hired for some purposes, while other components may be left to the discretion of the district on how to manage them.

The Energy Audit The ESIP process begins with an Energy Audit, which can be conducted through the BPU's Local Energy Audit Program (which is 100% reimbursed by the Office of Clean Energy) or by a contracted firm qualified to perform the audit. The use of an independent third party to conduct the audit is essential in order to provide the district with an unbiased assessment of the range of potential Energy Conservation Measures. This also ensures that vendors, who will be subsequently competing to develop the Energy Savings Plan, have an independent document on which to base their proposals. When completed, the Energy Audit will provide the district with a comprehensive analysis of current energy usage of the facilities in their current state and will identify the possible energy improvements that can be implemented to
produce energy savings and maximize energy efficiencies.

The Energy Savings Plan
Once the audit is completed, an Energy Savings Plan (ESP) is developed. The ESP is a critical document in the ESIP process as it describes in detail the Energy Conservation Measures that will be implemented and the cost calculations that support how the plan will pay for itself through the energy cost savings. The ESP must contain a number of elements, including the results of the Energy Audit, a description of the Energy Conservation Measures that will comprise the program, an estimate of Green House Gas emission reductions resulting from the energy savings, identification of all design and compliance issues, an assessment of risks involved in the successful implementation of the plan, schedules showing calculation of all costs of implementing the proposed measures, and the projected energy savings. The ESP will also indicate maintenance requirements for the measures that must be taken which are necessary to ensure continued energy savings. Moreover, if the ESP is developed by an ESCO, they must provide an option for an Energy Savings Guarantee, with the cost, or premium, for this guarantee.

Implementing the ESIP After third party verification of the ESP, financing is secured in order to implement the plan and begin improvements. Many energy infrastructure improvements are eligible under the ESIP, such as boiler and chiller improvements and retrofits, Building Automation Systems (BAS) upgrades and installations, HVAC improvements, lighting improvements, renewable energy systems, energy related process improvements, recycling programs, and any number of other improvements that provide energy cost reduction and conservation. Finally, post-installation Measurement and Verification (M&V) of the improvements must be conducted by a firm independent of the one that prepared the ESP.

As a financing mechanism for energy improvement projects, the Energy Savings Improvement Program is beneficial to school districts that want to reduce the size of a public referendum for overall school improvements, and cannot otherwise afford to begin making energy infrastructure improvements. Since its implementation, the Energy Savings Improvement Program has encouraged many districts to begin moving forward with the measures that can make their schools more efficient, as defined in audits already performed through the BPU’s Local Government Energy Audit Program.

ESIP legislation undoubtedly benefits the school district in terms of energy conservation and economical investment in improving the performance of its buildings. Even after meeting the debt service on the financing, there are net savings to the district which can be turned into additional resources for student education or taxpayer savings.

By Fred Fastiggi
Senior Vice President - Energy Services

Fred has over two decades of experience integrating the specialized and interdependent areas of auditing energy usage, quantifying project economics, design and engineering of energy solutions, project development, securing project finance, construction management and maintenance of energy infrastructure.  Fred has extensive experience in the development of Combined Heat and Power and District Energy projects, and his consulting experience inlcudes extensive work for both Fortune 100 industrials and several public utilities.