Friday, October 7, 2011

The Confusion Around "Energy Savings"

Unfortunately, in the commercial real estate industry "energy savings" means different things to different people. To some, such as the energy service companies, it generally means savings in energy use (in kBtu/year or kBtu/sq. ft. per year). To others, such as building owners, it generally means actual savings in energy expenditures (in $/year or $/sq. ft. per year). Of course, if you are relying on the energy cost savings to offset the cost of the installation, it's the actual savings in energy cost that really matters. Further complicating the picture is the fact that energy use and energy cost savings are often "adjusted." This can happen for a variety of reasons, such as to reflect changes in weather conditions or building occupancy or energy pricing. Notwithstanding, from a practical viewpoint the concern is that "adjusted" energy cost savings may not be sufficent to offset repayment of the loan.

At the heart of the problem, in my view, is the all too often lack of complete transparency on what exactly the performance guarantee is really guaranteeing. For example, even if the type energy savings is fully defined, the question still arises of how exactly it will be determined so that all parties fully understand, and if "adjustments" are made, how exactly this will be done and what it means to the building owner. The need for consistency, accuracy and transparency is of paramount importance to owners of commercial real estate. As such, we as an industry should do everything we can to comply with this mandate.

1 comment:

Mark and Sharon Stetz said...

Openness and transparency are critical to evaluating 'savings', either from energy-efficiency retrofits or from new construction projects. The Efficiency Valuation Organization (EVO) publishes the International Performance Measurement & Verification Protocols that define common terms and normalization procedures to promote transparency. These are used in federal and private-sector performance contracts as well as LEED BD&C projects. See for yourself.

Mark Stetz P.E. CMVP