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| Explore Options for Building Performance Goals |
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| By Dane Taival | |
| Sunday, 01 July 2007 | |
 Poor building performance and low efficiency can have a major impact on a company’s bottom line. Poor building performance and low efficiency can have a major impact on a company’s bottom line. Not only do they cause utility costs to skyrocket, but they can lead to problems such as occupant discomfort, worker health problems and lower productivity. By contrast, energy efficiency improvements can reduce energy costs by up to 30 percent, according to the U.S. Green Building Council. Improvements to HVAC systems also significantly raise indoor comfort, occupant productivity and occupant satisfaction, while increasing the performance of your building and asset value. Performance contracting, lease and rental agreements, discount programs and government incentives are some ways to fund these projects and meet building performance and cost objectives. Ultimately, it is possible to improve your building systems, even if you are short on investment capital. A Low-Risk Option One option is energy savings performance contracting, which pays for upgrades, total retrofits or renewable energy projects through future energy and operational savings. It is a low-risk option that funds the project with money already included in utility or other operating budgets. Performance contracts can be structured in many ways, but generally involve a third-party contractor – an energy service company (ESCO) – that designs, installs and maintains the energy efficiency upgrade and is paid through the resulting energy and operational savings. The business or institution secures financing, often with the help of the ESCO, and the ESCO guarantees that energy savings will at least cover the cost of the project. In one example of successful performance contracting, the management of an aging school in Texas used federal bonding to finance $2 million in improvements, including replacing window air-conditioners with modern split systems, installing HVAC compact closets and other upgrades. Under a performance contract agreement, the school will repay the costs through savings in a little more than a decade. The ESCO in this case is an HVAC contractor that implemented the project and guaranteed the results. The advantages of performance contracting go well beyond financing. The facility gains a team of experts to develop custom-tailored turnkey solutions and access to the latest energy efficiency and renewable energy technologies and applications. Cost savings in operating and maintenance budgets are often included in the payback analysis. Find a Good Partner Strong partnerships achieve the best outcomes. Performance contracting is a long-term arrangement that demands intimate understanding of the building’s design, operations and systems. To achieve maximum results, facility management and the ESCO must work closely together throughout the contract. It is not only important to choose a highly experienced and local ESCO, but a partner that listens and will be available after the installation. Accurate payback analysis is critical. A successful performance contract requires clearly defined methodologies for setting baseline usage and costs, measuring performance and quantifying the resulting cost savings. The latest energy modeling tools should be used to precisely determine energy savings and payback. Larger-scope projects reap greater benefits. Performance contracting is well suited to larger projects where quick-payback improvements are packaged with longer payback infrastructure improvements. It is often used for buildings that have a great need for improvements but limited capital. Creativity drives outcomes. The most successful performance contracting solutions are customized to the building’s design, budget and objectives. They might involve simple adjustments to existing systems, or more complex installations such as HVAC retrofits, renewable energy or cogeneration systems. The ESCO should be prepared to think innovatively to reach the efficiency goals. Renting and Leasing Many facilities use renting or leasing to update HVAC systems with operating expense budgets. The payback in energy savings finances the equipment. Leasing not only allows immediate procurement of an energy performance upgrade, but enables the building to regularly update systems technology. In addition, it provides flexibility to procure individual equipment pieces or install complete systems. Leasing allows facility operators to make system retrofits without cutting into capital budgets and minimizes the impact on cash flow. Rather than delaying the point at which they can begin saving energy costs, facility operators can spread out the term of payments for equipment. Leasing can be combined with other types of financing agreements as part of a comprehensive solution for modernizing building systems. Types of lease and rental options Lease purchase or capital lease agreements involve installment payments for equipment. The facility eventually owns the equipment and can take deductions for depreciation and interest. Through an operating lease, the facility leases the equipment for a fixed monthly fee during a contract period. At the end of the contract term, the facility can purchase the equipment, renegotiate the lease, or return the equipment. Rental options help facilities manage cash flow for HVAC projects. Rentals enable facilities to constantly have updated equipment and avoid repair costs. They are also an option for facilities with seasonal cooling needs. Facilities that are undergoing expansion, contraction or construction often turn to rentals during phases of change. For example, one pharmaceutical plant, in the midst of revising its production, installed rented chillers to maintain optimal indoor conditions for its very sensitive production needs. After the process was finalized, facility management was able to make decisions about the best equipment to purchase. Government Incentives Federal and state incentive programs can be important sources of financing for building energy efficiency projects. Some utilities and states offer rebate programs for energy efficiency investments. For example, some utilities offer incentives for customers to lower energy consumption by providing equipment rebates on energy efficient retrofits or facility improvements. Many facilities can take advantage of the commercial building deduction enacted in the Energy Policy Act of 2005, which allows taxpayers to deduct the cost of energy efficient equipment installed in commercial buildings. There are numerous state energy incentive programs designed to reduce the investment costs of acquiring and installing energy performance projects. They promote renewable energy and energy efficiency through incentives, grants, loans or tax exemptions. Financial services giant Morgan Stanley received a $300,000 incentive from the New York State Energy Research and Development Authority (NYSERDA) for installing an innovative thermal storage solution for air-conditioning in its Purchase, N.Y., facility. NYSERDA promotes initiatives that improve energy efficiency and lessen impacts on the environment. Energy programs vary from state to state, but many offer grants for projects that achieve significant energy savings and environmental responsibility. To find out about programs available in your state, visit the Database of State Incentives for Renewables and Efficiency at www.dsireusa.org. Supplier Agreements Discount programs offered by your HVAC solutions provider can also help to offset investment costs. Some providers offer discounts for early payment, as an example. Special financing arrangements are also available, such as an agreement in which the facility purchases utilities from the supplier, who owns, operates and maintains the equipment. These are among options available to help building owners and operators meet their goals within existing budgets. |
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