…and how to use efficiency as a lever

Efficiency is simply doing the same thing with less input.  Efficiency does not actually change anything; it just allows more of the same to occur with less impact. When economic growth is taken into account, efficiency becomes a slippery slope.  In order to become “sustainable”, we must change the fundamental manner in which we utilize energy.  Efficiency is not enough. For a more in depth discussion of this issue, please see my first article titled, “Integration is Effective”.

The good news is that efficiency can be used as a lever for creating real change. There is no doubt that efficiency should be the first step in decreasing the impact of the built environment.  However, efficiency should always be viewed as a tool to increase the effectiveness and feasibility of moving towards a clean energy economy.  This only happens when renewable and clean sources of energy, hereafter referred to as “renewables”, are integrated into projects.

Utility companies catch a lot of criticism in the media for providing dirty power.  When one delves deeper and looks at the structure of the power industry, and the long term purchasing contracts for these dirty power sources, it is hard to place as much blame on the utility companies.  The incentive programs that create such a demand for efficiency before renewables reveal a darker truth.  The utility companies attempt to decrease the impact of their business by getting their consumers to increase efficiency, but they do not actually want consumers moving away from buying their dirty energy.  For instance, if I install a photovoltaic system that provides half of my energy, I will only be able to receive half of the incentives for decreasing my energy demand.  If I want to receive a “0% on-bill finance” loan from Southern California Edison, I cannot use those loan dollars to purchase generation assets.  Utility companies get to have their cake and eat it too by being rewarded for efficiency at the same time as creating rules that keep consumers buying dirty fossil fuels.

Again, efficiency is the lever that can break businesses and consumers free of the dirty energy paradigm.  In order to achieve this goal, a few process changes need to be made.  Typically, the first step in an energy retrofit would be to perform an energy audit targeted at reducing as much energy as possible within a certain budget.  Then the changes would be modeled, financed, and made.  Savings would occur, but savings would also be trapped.

The efficiency leverage process begins by asking how much renewable energy could possibly be generated on the building property.  This brings the renewable generation concept into the conversation early so it doesn’t become a large and surprising expense towards the end of the process.  This step will also frame the project in terms of how to power the building with on-site renewables instead of just using less from remote and dirty energy sources.

The second step is to figure out how much energy the building is using, where it is being used, when it is being used, and how to cost-effectively reduce energy consumption with best practice technology.  The efficiency goal should be to decrease the buildings energy consumption enough to be met by renewables.  Impact-optimized projects, where the goal is 100% renewable power, can be created through investing in the relatively cheap efficient technology in order to make the renewables cost-effective.

For example, let’s take a building that uses 10,000 kWh of electricity in an average year.  After the first step we learn that a photovoltaic (PV) system can provide 5,000 kWh per year.  The second step reveals that the building load can be reduced to 4,000 kWh per year.  The two scenarios to reach 100% renewable power are installing a 5,000 kWh/year PV system and reducing the building load to 5,000 kWh/year or installing a 4,000 kWh/year PV system and reducing the building load to 4,000 kWh/year.  The question then becomes whether the extra 1,000 kWh of efficiency or extra 1,000 kWh of PV is more expensive.  Efficiency is usually cheaper, but efficiency also experiences diminishing returns as projects begin to maximize efficiency.  The impact-optimization model is about creating real change while spending as little as possible.

Another important point is that integrated paybacks are achieved when integrating renewables with efficiency projects.  On a recent parking garage project, where the goal was 100% renewable energy, we discovered that funding renewables alone was out of the question in terms of payback, but funding efficiency and renewables together became attractive.  The PV system would have cost around $1 million with a payback of 23 years, however, the impact-optimized project cost around $700,000 with a payback of 8 years.  In addition, the impact-optimized project would be cash flow positive after the first year and had a dramatically lower total cost of ownership.

In summary, I encourage project managers that wish to inspire real change to begin with renewables and to use efficiency as a lever to make impact-optimized projects feasible.  Drinking diluted poison will still kill you if you drink enough.  If you completely remove the poison you can drink to your heart’s content.