Efficiency Valuation: Concepts and Practice

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Efficiency Valuation Concepts and Practice

• Steve KromerEfficiency Valuation Organization
• Taipei, Taiwan
• October 25, 2005

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Introductions Me

• Steve Kromer
• Twenty years experience in the field of energy
  efficiency
• Chair, Efficiency Valuation Organization (EVO)
• EVO Efficiency Valuation Organization
• International non-profit organization
• Manages the IPMVP
• Mission
• To develop and promote the use of standardized
  efficiency protocols
• To help users quantify the risks and benefits in
  efficiency business transactions

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Introductions You

• Efficiency Experts
• Engineers
• Facility Managers
• Metering Specialists
• ESCOs
• Owners
• Financial Experts
• Lending Agencies
• Banks
• ESCO Finance

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Goal for Today

• We both learn more about how to advance energy
  efficiency in Taiwan
• You leave with basic understanding of MV
• Concepts
• Tools
• Protocols / Training / Certification
• Practice / Community

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Agenda

• Background on Energy Development
• Why is there an opportunity for energy
  efficiency?
• What is MV?
• How do energy efficiency investments work?
• How do we quantify physical and financial
  results?
• Standard MV Documents and Methods
• Issues
• Opportunities for Taiwan Community of Practice

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Presenters Perspective

• Theory The basics of quantifying savings in
  energy savings projects
• Defining the terms of engagement
• Many different approaches to Settlement
• Practice Experience with large ESPC projects
• US Federal Government (FEMP)
• Enron Energy Services USA - Mostly Industrial
  Loads
• Californias MV Protocols
• Neutral Support Measurement Verification
  Documents
• IPMVP - Framework
• ASHRAE Technical

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Ripped From the Headlines
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Early Years of Energy Electricity is cool, but
what can we use it for?

• 1750s Benjamin Franklin captures electricity
• 1880s Edisonlet there be light
• Pioneers in Commercial Electrical Energy Services
• Edison, Thomson-Houston, Westinghouse
• Electricity was first used for lighting as a
  service
• Early years of Commercial Electric Power
• Building an infrastructure to allow delivery of
  services
• Discovery of Services Ever-changing, growing

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(No Transcript)
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Energy DevelopmentThe Big Divide

• Edison Electric Lighting Company
• grew, added new services became
• Edison General Electric Company
• and the industry shifted
• FROM Marketing Lighting Services
• TO Marketing Electrons (as Power)

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The Idea Caught ON
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Energy DevelopmentThe Big Divide

• Services - or - Power
• Whats the Difference?
• Who has the incentive to
• optimize delivery of service?
• generate and transmit as many electrons (power)
  as possible?
• What gets metered? The Service Provided or the
  Power Provided?

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Energy DevelopmentThe Big Divide

• Services - or - Power
• Whats the Difference?
• The facility owner is responsible productivity of
  energy assets
• The Lighting Company provides the power
• Energy industry is financed by TAIEX?
• Who invests in efficiency?
• What are the incentives?

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Energy Impacts Energy Efficiency -The Opportunity

• Energy Demand is a function of productivity
• Financial decisions within the firm drive energy
  purchases
• Optimizing energy utilization (not eliminating)
• Energy Demand contributes to environmental
  costs
• Society demands that these costs are priced
• Taxation Service charge on electric bill
• Markets drive value of efficiency

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Energy Investment Decisions Investment in Supply
Side

Investment

• What Information is needed to support Supply-Side
  
• Investment decisions ?
• Implementation ?
• Settlement ?

Demand-Side
Supply-Side
Generation Transmission Distribution
Efficiency Demand Response
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Energy Investment Decisions Investment in
Demand Side
Investment

• What Information is needed to support Demand-Side
  
• Investment decisions ?
• Implementation ?
• Settlement ?

• T -8s
• New Chiller
• VAV Install
• Controls
• High Efficiency Motors

Demand-Side
Supply-Side
Generation Transmission Distribution
Efficiency Demand Response
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Balancing Investment in Supply and Demand

Investment

• T -8s
• New Chiller
• Boilers
• Plant Improvements
• Controls
• High Efficiency Motors

Demand-Side
Supply-Side
Generation Transmission Distribution
Efficiency Demand Response
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EXAMPLE California 2006-2008 Energy Efficiency
Programs
Investment 2.0 Billion

• T -8s
• New Chiller
• Boilers
• Plant Improvements
• High Efficiency Motors

Verified Using IPMVP
Demand-Side
Supply-Side
Generation Transmission Distribution
Efficiency Demand Response
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IPMVP

• International Performance Measurement and
  Verification Protocol
• Volume I - Energy Savings Concepts and Tools
• Defines basic MV terminology (4 Options)
• General procedures to achieve reliable and
  cost-effective determination of savings
• Applicable to energy or water efficiency projects
  in buildings and industrial plants
• Volume II - Indoor Environmental Quality
• Volume III - New Construction and Renewables

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Basic MV

• Change in Energy Use Before After
• or
• Baseline Energy Use Post-Project Energy
  Use
• Baseline -gt measured performance before
  project
• Post-Project -gt measured performance after
  project
• Savings -gt cant be measured directly

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MV Constraints

• EVERY SITUATION IS DIFFERENT
• Value of expected savings
• MV Plan Costs must be REASONABLE
• Uncertainty of metering/analysis
• Cost of MV should reflect uncertainty in project
• Lower uncertainty less MV
• Contractual Environment
• How does contract allocate risks from changes
  outside the scope of the project?

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MV Requires TWO Meters
WWHH meter
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Watt-hour (Wh) Meters What Would Have Happened
(WWHH) Meters
Watt-hour Meter
Components - Wheels, Dials, Wires, CTs
What Would Have Happened Meter Model
Components - Algorithms (Models), Inputs,
Metered data Example 1 - Change Point
Models Example 2 - Simple Lighting Spreadsheet
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What Do Meters Do?

• What is metering?
• A source of information -
• Physical Evidence - Meters measure the physical
  world
• What service does metering provide?
• Financial Evidence (billing)
• kWh gtgt Rs NT
• Monitoring / Controls
• Who sets rules for translating physical to
  financial?
• kWh gtgt Rs NT
• Regulators
• Politicians
• Economists
• Metering Industry

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What Do Models Do?

• What is modeling?
• A source of information -
• Physical Evidence - Models reflect the physical
  world
• What service does modeling provide?
• Predictions
• Future - What might happen
• Future - What might have happened
• Past - What would have happened
• kWh gtgt Rs NT

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Industrial Systems
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Watt-hour (Wh) Meters What Would Have Happened
(WWHH) Meters
WWHH meter
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First Law of Esco-Dynamics

• No matter how much energy you use, you would have
  used more..much more.

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The Value of Savings
Savings
Pie
Value
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Policy and Contract Environments

• Terms in the energy efficiency equation
• Public Policy Directs Behavior
• Issue - Carbon, GHG
• Solution Cap and Trade on Pollutant
• Economic Goods Assessed by Regulation
• Value of environmental good/harm set by markets?
  or by regulation?

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Energy Planning Environment

• Regulated or Deregulated?
• Who makes the following decisions?
• Integrated Resource Planning?
• Cost of Pollutants Externalities
• Value of a kWh?
• Availability of forward contracts?
• IPMVP users need to identify their context

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Metering and Regulation Dog or Tail?
Or?
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Challenge to the Metering Industry

• Can you deliver energy information cost
  effectively?
• Can you provide energy productivity information?
• Can you build a WWHH meter?
• Can you build a Negawatt meter?
• Do you lead with solutions? Or

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Financial Management and Energy Management

• A Big problem with efficiency is UNCERTAINTY
• Markets call past uncertainly VOLATILITY
• Volatility creates opportunity
• Financial markets have well-defined tools to
  manage volatility
• Engineers have well-defined tools to manage
  energy
• Lets TALK

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Energy Efficiency InvestmentsPhysical and
Financial Terminology
Power Watts Energy Project Wires Equipment
Value Investment Transaction Settlement Accounts A
ssets
Financial
Physical
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Settlement

• What does settlement mean to you?
• Meters?
• Models?
• Lawyers?
• How is it done?
• Haggling
• Win / Win
• Fight over limited pie?

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Settlement Quality

• Old Concept - New Name
• Can you trust the output of your MV?
• Will your MV plan hold up to tough scrutiny?
• Weve heard about Investment Grade Audits
• Is your MV plan a Settlement Quality plan?

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Physical / Financial Risk Matrix
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Energy Efficiency InvestmentsPhysical and
Financial Risks


Financial
Physical
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Efficiency Valuation in Practice So.Whats
Needed?

• Building your projects Negawatt Meter -
• Identify all of the values and risks resulting
  from the energy project
• Assign responsibility for each of the risks and
  values
• Create cost-effective MV plan that takes into
  account specific risks for project
• Where can you go for help?

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IPMVP

• International Performance Measurement and
  Verification Protocol
• Volume I - Energy Savings Concepts and Tools
• Defines basic MV terminology (4 Options)
• General procedures to achieve reliable and
  cost-effective determination of savings
• Applicable to energy or water efficiency projects
  in buildings and industrial plants
• Volume II - Indoor Environmental Quality
• Volume III - New Construction and Renewables

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MV Methods

• Standard Terminology
• Four Defined Options
• Assigning Value to Savings

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Definition Performance

• Performance n.. (legal)
• 1.What is required to be performed in fulfillment
  of a contract, promise, or obligation
  (substituted a new performance in novation of the
  contract)
• 2.The fulfillment of a contract, promise, or
  obligation
• In engineering, performance relates to measuring
  some output or behaviour. Techniques for
  monitoring performance include
• Sampling
• logging
• taking snapshots?
• testing

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Performance Examples

• Automobile - Miles per Gallon (mpg)
• Kilometers/liter
• Lighting System - Watts/ Square Foot
• Watts/ Square
  Meter
• Chillers- kW/Ton (COP)

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Definition Operation

• The integrated effect of performing systems, i.e.
  the energy used over time. (kilowatt-hours)
• The contract must apportion responsibility for
  the long-term operation of the retrofit.
• (Who turned on/off the lights?)

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Definition Model

• Model (noun)
• A schematic description of a system, theory, or
  phenomenon that accounts for its known or
  inferred properties and may be used for further
  study of its characteristics.

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Definition Stipulate

• Stipulate v.
• 1.a. To lay down as a condition of an agreement
  require by contract.
• b. To specify or arrange in an agreement.

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IPMVP MV Options
MV Option How savings are calculated
Option A Based on measured equipment performance, measured or stipulated operational factors, and annual verification of potential to perform. Engineering calculations.
Option B Based on periodic or continuous measurements taken throughout the term of the contract at the device or system level. Engineering calculations using measured data.
Option C Based on whole-building or facility level utility meter or sub-metered data adjusted for weather and/or other factors. Analysis of utility meter data.
Option D Based on computer simulation of building or process simulation is calibrated with measured data. Comparing different models.
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Which Option Is Best?

• No option not necessarily better or more/less
  expensive than another
• Each MV option is applicable to different
  situations (particularly defined by risk-sharing)

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MV Options
Options A and B are retrofit-isolation
methods Options C and D are whole-facility
methods The difference is where the boundary
lines are drawn
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Option C

• Option C looks at energy use and cost of entire
  facility, not at specific equipment
• Conceptually simple, may be difficult in practice
• Can consider weather, occupancy, etc.
• Useful where total savings need to be valued but
  component savings do not
• Commercial software is available that simplifies
  implementation

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Option C Limitations

• Does not verify at component level
• Requires savings to be significant (gt 10-20 of
  baseline consumption)
• Requires historical data (gt 1 year)
• May take time to evaluate savings
• Requires building meters (not campus)
• May require baseline adjustment to account for
  non-project-related factors

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Option C Applications

• Projects where facility usage remains constant
  and historical data is present
• Weather-dependent projects
• Heating projects
• Comprehensive and/or campus-wide projects
  (w/reservation)
• Multiple interacting measures in a single building

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Option C Programs

• (examples)
• Texas Engineering Experiment Station
• http//ecalc.tamu.edu/gui/home/
• Metrix, Utility Manager Pro 4.0 (commerical
  software)
• http//www.abraxasenergy.com/
• EZ Sim Stellar Process
• http//ezsim.com
• University Dayton - Dr. Kelly Kissock
• Most standard statistical / regression texts

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Option C Models
Regression - Simple
Regression - Change Point
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Adjustments!?

• An example of why we need Adjustments
• An energy retrofit was performed but plant
  production (operation) is lower this year than
  last. How much of the raw savings were due to
  the retrofit and not the production change?
• To identify the retrofits effect we must adjust
  for unrelated changes. Therefore we adjust
  baseyear and post-retrofit energy use data to a
  common set of conditions.

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Option A

• Simple approach (and low cost)
• Performance parameters are measured (before and
  after), usage parameters may be estimated and
  then stipulated
• Used where the potential to perform needs to be
  verified but accurate savings estimation is not
  necessary
• Option A is NOT stipulated savings!

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EXAMPLE of Option A
Inputs to model are based on measured data, past
experiences, and facility interviews
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Implications of Assumptions

• Effort is needed to get data and justify the
  assumption.
• Less to measure usually means lower measurement
  costs.
• Probable lower costs may leave more money for
  more accurate meters or other retrofits.

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Deciding What to Assume

• What can you assume?
• Consider plausible assumption errors.
• Make assumptions where the error is not
  significant, or where the parameter is not the
  performance item of concern.
• IPMVP defines manufacturer specifications as
  assumptions (because they are not field
  measurements).

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Option B

• Under Option B, some or all parameters are
  measured periodically or continuously
• Applicable where accurate savings estimation is
  necessary and where long-term performance needs
  to be tracked
• Reduced uncertainty, but requires more effort

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VSD-B-01 Monitor Fan Performance
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Option B Applications

• Projects with large elements of uncertainty
  and/or risk ()
• Variable-speed drives on fans and pumps
• Chillers and chiller plants
• Energy management control systems
• Projects where equipment needs constant attention

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Option B Benefits

• Reasons to use Option B instead of A
• Real MV
• Better equipment performance
• Improved OM
• Ongoing Commissioning
• Remote monitoring

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Option D

• Option D treats building as computer model
• Flexible, but requires significant effort
• Applications
• New construction
• Energy management control systems
• Building use changes
• Building envelope modifications additions

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Option D Limitations

• Uses specialized software that requires
  significant experience to use
• Results vary with effort (and ) expended
• Requires measurements for calibration
• Still need to verify potential to perform
• Annual inspections recommended

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Option D Programs

• DOE-2
• J.J. Hirsch Associates http//www.doe2.com/
• eQuest
• Energy Design Resources http//www.doe2.com/
• PowerDOE
• J.J. Hirsch Associates http//www.doe2.com/
• EnergyPlus
• LBNL DOE http//gundog.lbl.gov
• Visual DOE 4.0
• Eley Associates http//www.archenergy.com/
• Trace 700
• Trane http//www.trane.com/commercial/software/tra
  ce/index.asp
• Market Manager
• Optimum Energy http//www.abraxasenergy.com

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Selecting An Option

• Each project is different
• Each situation must be analyzed
• Consider costs relative to savings and desired
  accuracy
• The following are suggestions of common best
  fit applications

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Selecting an Option - 1
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Selecting an Option - 2
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Selecting - 3
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MV Requires TWO Meters
WWHH meter
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Converting Energy to Value

• Avoided Cost
• Based on rates
• Informed by futures markets
• Environmental Costs
• Emissions Markets
• Local
• CDM - UNFCCC
• Hedge Value (Financial Options)
• Tradable Certificates

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Avoided Cost

• Reduction in your utility bill
• Based on tariff
• Time of use / time of savings
• May require savings load shape
• Demand charge

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Emissions

• Energy Efficiency and Emissions
• World-wide SOx, NOx, GHG Verification
• Registries, Mechanisms, Schemes
• State and EPA Rules
• IPMVP activities
• Future Trends

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Real Options Theory and Application

• Implications
• Options always have some value not negative
• Actuarial Approach will allow expansion of
  concept
• Database of projects
• Fungible projects tradable

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Trading

• Trading Platforms
• Partnering with federal, state, private sector,
  and international organizations
• Modeling Resources
• Quant Shops
• Brokerage Houses
• Build your own trade

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Efficiency Valuation_protocol

• Protocols
• IPMVP - International Performance Measurement and
  Verification Protocol
• IEEFP - International Energy Efficiency Finance
  Protocol
• IPEP - International Program Evaluation Protocol

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Efficiency Valuation_physical

• IPMVP -
• Measurements (and stipulations) of physical
  factors.
• Global standard for creating savings
  quantification plans
• Revision underway. Due Early 2006
• CMVP certification program
• Several thousand downloads/year

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Efficiency Valuation_financial

• IEEFP - Int. Energy Efficiency Finance Protocol
• New Initiative
• Concept from UN Foundation / Energy Futures
  Coalition
• Create standard financing terminology and
  applications
• Requires IPMVP
• Umbrella document, plus specific efforts in
  Europe, South Asia and South

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Efficiency Valuation_financial

• International Energy Efficiency Financing
  Protocol
• a blue print for financiers of energy
  efficiency projects
• a focus on the value of savings for loan
  repayment and credit capacity
• guidance on procedures for evaluating and
  assessing benefits and risks of energy efficiency
  projects
• minimum criteria for energy efficiency project
  lending and use of proven technologies and
• generic terms and conditions for various
  agreements (Loan, Security, ESCO, Construction,
  etc.)

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Efficiency Valuation_programs

• IPEP - Int. Program Evaluation Protocol
• New Initiative
• Requires IPMVP
• Applies to large programs
• Umbrella document, plus specific efforts in
  Europe, California

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Efficiency Valuation_regional

• European (EU) Working Group
• Focus on EU issues
• Emissions trading, white credits, other
• Member Country Targets
• South Asian Working Group (?)
• PCRA
• India Green Buildings Program
• Asian ESCO conference 10/05
• Taiwan Green Productivity Foundation

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Efficiency Valuation_research

• Generic Energy Asset Risk Simulation
• (GEARS)
• Model value and risk of efficiency investments
• Explicit accounting of value, risk and
  responsibility in efficiency programs and
  contracts

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Efficiency Valuation_board

• Steve Kromer, USA Chair
• John Armstrong, USA Vice Chair
• Satish Kumar, USA Treasurer
• Paolo Bertoldi, Italy
• Dr. Eang Siew Lee, Singapore
• Henri-Claude Bailly, USA
• Tom Dreessen, USA
• Shen Longhai, China
• Srinivasan Padmanaban, India
• Steve Schiller, USA
• Pierre Langlois, Canada

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Efficiency Valuation_skills

• Requires the full range of skills/services
• Forecasting
• Audits
• Models
• Metering and Monitoring
• Hardware
• Energy Information Systems
• Analysis -
• Settlement -

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IPMVP User Base
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Lessons Learned

• At EVO, weve learned many lessons
• But were still learning and adapting our tools
• IPMVP adapts
• IPMVP is adopted for EE programs in
• California
• Texas
• Northwest (Bonneville Power)

89
Lessons Learned

• What youll find - What to avoid
• MV skills and plans will vary widely
• The worst will be egregious and should be
  thrown out.
• The most aggressive will reflect over-ambitious
  metering/analysis plans and will be too expensive
• Try to find the sweet spot
• Usually involves some negotiation

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Lessons Learned

• MV is Site-Specific
• MV must agree with contract clauses for
• Repair and Replacement
• Operations
• Maintenance
• Site Personnel must understand MV trade-offs
• Reasonable people agree on MV
• MV begins BEFORE the project begins

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Tools

• Protocols
• Industry Standards
• Training, Certification
• Offered in conjunction with AEE (CMVP)
• Armenia (AEE / USAID) - (IMVP)
• India, China, Taiwan (under development)
• Building Community, Promoting Efficiency
• PCRA
• USGBC - US Green Building Council - LEED
• Metering International
• (coming soon - EVO subscriber services)

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Taiwans Challenge

• Physics is the same all over the world
• Economics apply similarly across markets
• However, every country has its own types of
• Government
• Regulation
• Markets
• Taiwan will require its own unique solution
• EVO - a global non-profit partner

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Conclusion

• Do you have a basic understanding of MV
• Concepts?
• Tools?
• Protocols / Training / Certification
• Practice / Community?
• GOOD LUCK!

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Thank You

• Join us today
• www.efficiencyvaluation.org
• Download IPMVP Volumes
• www.ipmvp.org
• Contact me
• Steve Kromer, Chair, EVO Board of Directors
• stevek_at_efficiencyvaluation.org