Cooling Heels and Cutting Costs

Jan. 2, 2012

For Salvatore Filardi, not entering into the $33.9 million agreement with NORESCO would have been fiscally irresponsible.

The guaranteed energy savings agreement, in which Westborough, MA-based NORESCO will make infrastructure and energy efficiency changes at the campus of the University of Massachusetts Dartmouth (UMass), will provide a wide range of financial benefits. Not only will the campus, located in the municipality of Dartmouth, MA, significantly shave the size of its energy bills each year, it will also qualify-because of the work performed by NORESCO-for yearly financial incentives through Massachusetts’ Alternative Energy Portfolio Standard.

While the arrangement will certainly pay off for UMass Dartmouth, where Filardi serves as its associate vice chancellor for administrative services, it also offers evidence of the growing importance that schools, governments, and corporate building owners are placing on replacing outdated HVAC systems with newer, more energy-efficient models.

The work at the university includes the installation of a new gas turbine combined heat and power (CHP) system to replace the school’s inefficient heating plant boilers. It also includes 18 energy conservation measures designed to reduce the campus’ energy and water use.

A significant portion of the project, though, includes upgrades to UMass Dartmouth’s old, inefficient HVAC systems. These upgrades will significantly boost the school’s energy efficiency, and help, in a time in which schools across the country are facing often-severe budget cuts, to reduce the campus’ utility bills.

The best news is that the energy efficiencies generated by the project along with financial incentives from the local utility company will eventually cover the costs of the efficiency upgrades at the campus. If the energy savings fall short of guaranteed levels, NORESCO is contracted to pay the difference. This eliminates any risk on the part of UMass Dartmouth.

“I think schools that are not managing their energy are wasting valuable resources,” says Filardi. “When the economy is going through hard times, and especially as we are a public university and state contributions are being reduced or flat-lined, it makes it harder to operate within budget. People need to look for new ways to save money. They have to reduce costs wherever they can. I don’t think you need an economic slowdown or difficult times to try to boost the energy efficiency of your HVAC systems-that should be part of any good facility energy management program.”

The good news is that Filardi and UMass Dartmouth are far from alone. A growing number of universities, high schools, municipal governments, and corporations are seeking either new HVAC equipment or upgrades to existing equipment as a way to reduce the size of their energy bills.

And in these difficult economic times, building owners need to reduce their costs however they can. Improving the efficiency of a building’s HVAC system has the added bonus of being good for the environment, while also providing a safe and comfortable workplace for students and employees.

Tammy Fulop, regional sales director for Schneider Electric, says that building owners across the country are recognizing that they can achieve big savings from improving the efficiency of their HVAC systems.

And this can lead to more sales for manufacturers of highly efficient heating and cooling equipment.

“In the markets that we serve, building owners are definitely recognizing this as a huge opportunity,” says Fulop. “We see the potential for a 20% to 30% improvement in energy efficiency in many of the older HVAC systems we look at. A lot of the buildings that we see were built prior to 1999. The owners of these buildings want more energy efficiency. They want better equipment. They know that we can help support their initiatives.”

A Holistic Approach to HVAC Efficiency
Andrew Kelley doesn’t need convincing of the benefits that boosting HVAC efficiency can bring to a building.

Kelley is superintendent of Daleville City Schools, in Daleville, AL. In 2009, his district entered into a performance contract with Schneider Electric to increase the energy efficiency at his district’s buildings.

The contract wasn’t cheap; Daleville City Schools paid $571,000 for the efficiency work that Schneider undertook. But it has paid dividends. The performance contract guaranteed that Daleville City Schools would see a savings of $34,000 every year on their energy costs. And if these savings aren’t reached, Schneider is contracted to make up the difference.

A portion of that yearly savings can be traced to efficiency improvements for the district’s HVAC systems. HVAC systems account for a significant amount of the energy that any building consumes. Making these systems more efficient, then, is a key strategy in reducing a building’s overall energy consumption.

“This was an important project for us,” says Kelley. “Not only have we saved a significant amount of energy, but our buildings are now more comfortable. This makes for a better learning environment for our students. Students perform better when they are comfortable. So do teachers. It really was a good situation for us. With the guaranteed savings every year, we will pay back the project costs fairly soon. And now we have a building that is more comfortable and more conducive to learning.”

Justin Patrick, director for strategy and marketing at Johnson Controls, says that more of his company’s clients are seeking the same holistic approach taken at the Daleville City Schools.

Clients want their heating and cooling equipment to consume less energy. But they’re addressing these needs in the context of larger energy saving agreements at their buildings. It’s why performance contracting-in which providers guarantee a certain amount of energy savings each year from their improvements-has become so important, Patrick says.

“Boosting the efficiency of HVAC no longer means that you’re just selling equipment to clients,” he says. “That is more of the entry point just to play in this market today. At some point, there are diminishing returns as you continue to improve HVAC equipment. There are theoretical limits to the gains that you can get from the separate pieces of equipment. Today, succeeding in this marketplace comes down to who can provide the best long-term energy solutions to their clients. And, yes, that certainly involves boosting the efficiency of buildings’ HVAC systems. But it involves a lot more than that, too.”

Several factors are leading building owners to take a closer look at the efficiency levels of both their HVAC systems and their buildings in general.

One of the drivers, of course, is the cost of energy. As officials at the University of Massachusetts Dartmouth and at the Daleville City Schools discovered, it often makes sound financial sense to reduce the amount of energy that HVAC systems are consuming.

“When customers talk about saving energy, they are really talking about saving dollars,” says Patrick. “They are looking for someone who can help them engineer a technical and a financial solution for their buildings.”

Neil Maldeis, energy solutions engineering leader with Trane, says that building owners today are trying to squeeze as much savings as they can from their buildings. Performance contracting is one way for owners to find guaranteed savings.

Governments, school districts, and private-sector businesses are all struggling today with budget shortfalls. They’re being asked to provide services while spending as few dollars as possible.

Certain budget cuts are less painful than others. It’s not much fun to fire staff members or to ask workers to take voluntary pay cuts. But slicing a building’s energy bills? That’s not painful at all.

Successful manufacturers of high-efficiency HVAC equipment understand this. And they’re emphasizing this fact when they try to sell their products to building owners.

“Everything today has to be financially justified,” says Maldeis. “This holds true whether building owners are talking about entering into a performance contract or whether they’re just considering replacing a unit that’s no longer efficient. Everyone wants to know how much money a move is going to save them. They want to know what financial impact new equipment or a new efficiency plan is going to have.”

When it comes to HVAC equipment, the impact is generally significant. That’s because building HVAC systems are notorious for the amount of energy they consume. Maldeis says that HVAC equipment, including chillers, air handlers, and pumps, will usually account for about 40% of the energy costs of operating a building.

“This means that building owners have big chunks to play with when they are looking to cut costs by increasing the efficiency of their HVAC systems,” he says.

Selling Efficiency in a Down Economy
But just because HVAC systems are energy hogs, doesn’t mean that every building owner immediately recognizes the benefits of increasing their efficiency. It’s true that many potential clients are turning to performance contracting and HVAC efficiency boosters to cut their energy bills. Others, though, are spooked by today’s rough economy. They don’t want to spend money on anything, even projects that come with a guaranteed payback period.

This means that selling the benefits of energy efficient HVAC equipment requires a new kind of skill set today, says Johnson Controls’ Patrick.

Today, it’s important for manufacturers and sales officials to focus on the holistic approach to energy efficiency, he adds. Sales staffers have to focus on the financial benefits that building owners will receive when they take a whole-building approach to cutting energy costs. This whole-building approach can include everything from new HVAC equipment, lighting that only switches on when rooms are occupied, heat that only comes on during certain portions of the day, digital control systems that give building operators more control of their facilities, and a host of other efficiency boosters.

The bad economy has even changed to whom manufacturers have to aim their sales pitches, Patrick says.

“You really have to target the right people when you’re making the case for an efficiency program,” he explains. “It is even more important today to talk to the CEO, CFO, and CIO about the benefits of a total solution. We have to be able to explain to them what an investment in higher efficiency is going to mean to them financially. We have to explain to them just how long the payback period will take, how fast they’ll be able to have their initial investment paid off. Today, whoever comes to the table with the best solutions, and does the best job selling those solutions, will win the business.”

The good news is that a growing number of building owners have become more sophisticated in their approach to energy efficiency, meaning that they’ve set aside dollars in their capital budgets for upgrades to their HVAC systems.

Building managers are also increasingly mastering the art of selling the benefits of equipment upgrades and retrofits, too. It’s a skill that’s become important as owners must explain to their superiors-whether those superiors be the board of a government entity or the owner of an apartment building-just how soon they’ll be able to recapture the money that they invest in energy efficiency.

“That skill comes from a focused effort and a concerted force of will,” says Patrick. “The person who makes equipment decisions is the person who controls the wallet. It is a shift in our industry. The manufacturers and the different energy companies who are winning business are the ones who have the relationships with those people who are part of the C-suite.”

Josh Pittman, sales manager with Schneider Electric, points to an efficiency project that his company recently completed with the Alabama Emergency Management Agency, as an example of the benefits that HVAC improvements can bring to an important building. The project also serves as a ready example that Schneider can turn to when pitching their services to other potential clients.

This is a key step today in nabbing new business: Manufacturers have to be able to provide real-life examples of the financial impact that their past HVAC improvements have brought to building owners.

Photos: Jeff Amram Photography
Specifiers know, clients want their HVAC to consume
less energy as part of a larger energy plan.

The Alabama Emergency Management Agency is an important entity. As its name suggests, it coordinates relief and emergency services when a disaster strikes in the state of Alabama. The state governor will report to this building in emergencies, and government officials use it as a base of operations to make announcements to the public.

The building was also an energy hog. Until, of course, Schneider Electric upgraded its HVAC systems.

As part of an overall energy efficiency plan, Schneider recommended that the building’s central HVAC plant be completely gutted. The building made the move from a four-pump water-cooled system to a two-pump, closed-loop, air-cooled system.

This work entailed eliminating the building’s cooling towers. Schneider also redesigned the building’s HVAC duct and lighting systems to provide additional space in some of the building’s more cramped quarters.

The end result? The building is now more comfortable. It’s also far more efficient, on pace to consume 44% less energy every year.

The emergency building now also boasts a dry sump cooling system, something made necessary when Schneider called for the elimination of the building’s water-cooled system. The dry sump cooling system cools the building’s backup generator. The building also features a new digital control system that allows operators to easily control how hot or cool the building will be on any day. This, too, will result in a more energy-efficient building.

“As you can imagine, these changes have made a significant impact,” says Pittman. “Going in a new direction with the two-pump system is far more efficient. There is also less maintenance involved with this new system. They are now spending a lot less money to heat and cool their building.”

This successful project also helps Schneider sell its efficiency services to other clients. That 44% boost in energy efficiency is an impressive figure, and one that will catch the ear of many other building owners.

“It definitely helps having an example, a real-life example, that someone can go visit,” says Pittman. “It helps when you can put potential clients in touch with people who have already worked with you and have had success. They can tell their side of the story and explain the benefits that they’ve received. It brings validity to the program.”

In the Alabama Emergency Management Agency’s case, Schneider officials can tell potential clients that they improved the comfort level of the building, freed up more room for the building’s employees and boosted the site’s energy efficiency by a significant amount.

Having successful case studies is just one more tool that manufacturers have when trying to sell their efficiency equipment or close performance contract agreements.

“To succeed today, you often have multiple conversations and multiple meetings with potential clients to make sure that everyone is aligned on the same page,” says Pittman. “We are always as clear as possible about what we can provide them and how we can support them.”

Fulop agrees with her fellow employee. With building owners facing more pressure to cut costs, and to spend as little as possible, it’s important for companies like Schneider to emphasize the value that their clients will receive if they sign on for an HVAC efficiency boost.

Photos: Lincoln Barbour
HVAC equipment can account for up to 40% of a
building’s energy costs.

Companies that can clearly spell out the benefits that their services will bring to building owners and managers have the best chance at closing deals, Fulop says.

And those manufacturers that guarantee a certain rate of return on clients’ investments? They have an even better chance to land business in these economically uncertain times.

“Our clients still have to maintain their buildings,” says Fulop. “They still have to make sure that their occupants are safe and comfortable. And they have to do this without interrupting the main services going on inside their buildings. But our clients are also challenged with lower tax revenues and lower funding. They are challenged to do with more or less today. That’s why we always emphasize the return on their investment that they’ll receive when working with us. We promise them a guaranteed return on investment, so that they always know when they stand financially. It makes it easier for them to make a decision. It takes away the risk.”

The key, though, still remains persistence. Some building owners and managers need more convincing that boosting the efficiency of their facilities’ HVAC systems is an important way to cut costs.

This often requires manufacturers to hold not just one or two meetings but a series of them with key decision-makers. “It’s all about making them understand the basics of the overall project,” says Fulop. “There is definitely an education process involved.”

Maldeis from Trane says that more building owners and managers today are concentrating on fixing HVAC equipment when it malfunctions rather than adding new equipment or updating sometimes-outdated systems. The reason for this is simple: They don’t have as much money to spend, so they’re taking the band-aid approach until the economy finally begins a stronger recovery.

Maldeis considers performance contracting to be a financial tool that, as he puts its, “helps get things done.”

Thanks to the guaranteed return on investment that comes with a performance contract, building owners can more easily gain the funding needed for an energy efficiency project.

“On the public side, you see a lot of equipment that needs to be replaced,” says Maldeis. “You see infrastructure inefficiencies and deferred maintenance. Clients in the public sector are willing to consider projects when they know they’ll have a guaranteed payback on it in 10, 15, or 20 years. That guarantee provides a financial picture that is far more acceptable to the boards and councils that need to approve the projects.”

Of course, companies like Trane still face challenges. It’s especially difficult today to sell efficiency upgrades to clients in the private sector. This holds true even when manufacturers can guarantee a certain rate of energy savings every year.

“In the private sector they want to see payback periods as short as two or three years. Some are open to five-year paybacks,” says Maldeis. “That’s definitely a challenge to meet. But the private-sector clients are very focused on the financials today. Our building projects are competing against other moneymaking projects for their attention. It’s a challenge.” 
About the Author

Dan Rafter

Dan Rafter is a technical writer and frequent contributor.

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