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Efficiency Valuation: Concepts and Practice
Steve KromerEfficiency Valuation Organization
Taipei, TaiwanOctober 25, 2005
2
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
3
Introductions: You
• Efficiency Experts– Engineers– Facility Managers– Metering Specialists– ESCOs– Owners
• Financial Experts– Lending Agencies – Banks– ESCO Finance
4
Goal for Today
• We both learn more about how to advance energy efficiency in Taiwan
• You leave with basic understanding of M&V– Concepts
– Tools
• Protocols / Training / Certification
– Practice / Community
5
Agenda
• Background on Energy Development – Why is there an opportunity for energy efficiency?
• What is M&V? – How do energy efficiency investments work?– How do we quantify physical and financial results?
• Standard M&V Documents and Methods• Issues • Opportunities for Taiwan Community of
Practice
6
Presenter’s 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
– California’s M&V Protocols
• Neutral Support – Measurement & Verification Documents– IPMVP - Framework
– ASHRAE – Technical
7
Ripped From the Headlines
8
Early Years of Energy Electricity is cool, but what can we use it for?
• 1750’s Benjamin Franklin “captures” electricity
• 1880’s Edison…let 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
9
Edison’s Brightest Idea
10
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”)
11
The Idea Caught ON…
12
Energy DevelopmentThe Big Divide
Services - or - PowerWhat’s 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?
13
Energy DevelopmentThe Big Divide
Services - or - Power
What’s 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?
14
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
15
Energy Investment Decisions Investment in Supply Side
Demand-Side
Investment
Supply-SideGenerationTransmissionDistribution
Efficiency Demand Response
What Information is needed to support Supply-Side
• Investment decisions ?• Implementation ?• Settlement ?
What Information is needed to support Supply-Side
• Investment decisions ?• Implementation ?• Settlement ?
16
Energy Investment Decisions Investment in Demand Side
Demand-Side
Investment
Supply-SideGenerationTransmissionDistribution
Efficiency Demand Response
What Information is needed to support Demand-Side
• Investment decisions ?• Implementation ?• Settlement ?
What Information is needed to support Demand-Side
• Investment decisions ?• Implementation ?• Settlement ?
•T -8s•New Chiller•VAV Install•Controls•High Efficiency Motors
17
Balancing Investment in Supply and Demand
Demand-Side
Investment
Supply-SideGenerationTransmissionDistribution
Efficiency Demand Response
•T -8s•New Chiller•Boilers•Plant Improvements•Controls•High Efficiency Motors
18
EXAMPLE: California 2006-2008 Energy Efficiency Programs
Demand-Side
InvestmentInvestment
$2.0 Billion$2.0 Billion
Supply-SideGenerationTransmissionDistribution
Efficiency Demand Response
•T -8s•New Chiller•Boilers •Plant Improvements•High Efficiency Motors
Verified Using
IPMVP
19
IPMVP
International Performance Measurement and Verification Protocol
• Volume I - Energy Savings Concepts and Tools– Defines basic M&V 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
20
Basic M&V
• Change in Energy Use = Before – After
or= Baseline Energy Use – Post-Project Energy Use
• Baseline -> measured performance before project
• Post-Project -> measured performance after project
• Savings -> can’t be measured directly
21
M&V Constraints
• EVERY SITUATION IS DIFFERENT– Value of expected savings
• M&V Plan Costs must be REASONABLE– Uncertainty of metering/analysis
• Cost of M&V should reflect uncertainty in project
• Lower uncertainty = less M&V– Contractual Environment
• How does contract allocate risks from changes outside the scope of the project?
22
M&V Requires TWO Meters
250,000
500,000
750,000
1,000,000
kWh
Baseline Period Performance Period
WWHH meter
Watt-hour MeterWatt-hour Meter
What Would Have Happened MeterWhat Would Have Happened Meter
23
Watt-hour (Wh) Meters & What Would Have Happened (WWHH) Meters
What Would Have Happened Meter = Model
Components - Algorithms (Models), Inputs, Metered data
Example 1 - Change Point Models…Example 2 - Simple Lighting Spreadsheet
Watt-hour Meter
Components - Wheels, Dials, Wires, CTs
24
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 =>> € $ Rs NT$– Monitoring / Controls
• Who sets rules for translating physical to financial?» kWh =>> € $ Rs NT$» Regulators» Politicians» Economists» Metering Industry
25
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 =>> € $ Rs NT$
26
Industrial Systems
27
Watt-hour (Wh) Meters & What Would Have Happened (WWHH) Meters
250,000
500,000
750,000
1,000,000
kWh
Baseline Period Performance Period
WWHH meter
Watt-hour MeterWatt-hour Meter
What Would Have Happened MeterWhat Would Have Happened Meter
28
First Law of Esco-Dynamics
• No matter how much energy you use, you would have used more…..much more.
29
The Value of Savings
Savings = Pie = Value
30
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?
31
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
32
Or?
Metering and Regulation
Dog or Tail?
33
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…
34
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
• Let’s TALK
35
Energy Efficiency Investments
Physical and Financial Terminology
FinancialPhysical
Power
Watts
Energy
Project
Wires
Equipment
Value
Investment
Transaction
Settlement
Accounts
Assets
36
Settlement
• What does settlement mean to you?– Meters?– Models?– Lawyers?
• How is it done?– Haggling– Win / Win– Fight over limited “pie”?
37
Settlement Quality
• Old Concept - New Name
• Can you trust the output of your M&V?
• Will your M&V plan hold up to tough scrutiny?
• We’ve heard about “Investment Grade” Audits
• Is your M&V plan a “Settlement Quality” plan?
38
Physical / Financial Risk Matrix
39
Energy Efficiency Investments
Physical and Financial Risks
FinancialPhysical
+ =
40
Efficiency Valuation in Practice: So….What’s
Needed?Building your project’s Negawatt Meter -
1.Identify all of the values and risks resulting from the
energy project
2.Assign responsibility for each of the risks and values
3.Create cost-effective M&V plan that takes into
account specific risks for project
• Where can you go for help?
41
IPMVP
International Performance Measurement and Verification Protocol
• Volume I - Energy Savings Concepts and Tools– Defines basic M&V 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
42
M&V Methods
• Standard Terminology
• Four Defined “Options”
• Assigning Value to Savings
43
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
44
Performance: Examples
• Automobile - Miles per Gallon (mpg)
Kilometers/liter
• Lighting System - Watts/ Square Foot
Watts/ Square Meter
Chillers- kW/Ton (COP)
45
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?)
46
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.
47
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.
48
IPMVP M&V Options
M&V 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.
49
Which Option Is Best?
• No option not necessarily better or more/less expensive than another
• Each M&V option is applicable to different situations (particularly defined by risk-sharing)
50
M&V 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
51
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
52
Option C Limitations
• Does not verify at component level• Requires savings to be significant
(> 10-20% of baseline consumption)• Requires historical data (> 1 year)• May take time to evaluate savings• Requires building meters (not campus)• May require baseline adjustment to
account for non-project-related factors
53
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
54
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
55
Option C Models
Regression - Change Point
Regression - Simple
56
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 retrofit’s effect we must adjust for unrelated changes. Therefore we adjust baseyear and post-retrofit energy use data to a common set of conditions.
57
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”!
58
EXAMPLE of Option A
Before After# or Fixtures Watts Watts Hours/yr Savings
100 100.0 50.0 3000 = 15,000 kWh200 100.0 50.0 2000 = 20,000 kWh300 100.0 50.0 1000 = 15,000 kWh
= 50,000 kWh
Lighting Retrofit
Inputs to model are based on measured data, past experiences, and facility interviews
Inputs to model are based on measured data, past experiences, and facility interviews
59
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.
60
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).
61
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
62
VSD-B-01: Monitor Fan Performance
Variable Speed Drive Fan Power
0
50
100
150
1-Jul-97 6-Jul-97 11-Jul-97 16-Jul-97 21-Jul-97 26-Jul-97 31-Jul-97
VS
D F
an k
W
0
30
60
90
120
Tem
pera
ture
, F
Baseline
Post-retrofit
Air Temperature
baseline fan power
savings
gap in data collection
63
Option B Applications
• Projects with large elements of uncertainty and/or risk ($$$)
• Variable-speed drives on fans and pumps• Chillers and chiller plants• Energy management & control systems• Projects where equipment needs constant
attention
64
Option B Benefits
Reasons to use Option B instead of A:• “Real” M&V• Better equipment performance• Improved O&M• Ongoing Commissioning• Remote monitoring
65
Option D
• Option D treats building as computer model
• Flexible, but requires significant effort• Applications:
– New construction– Energy management & control systems– Building use changes– Building envelope modifications & additions
66
Option D Limitations
• Uses specialized software that requires significant experience to use
• Results vary with effort (and $$$) expended
• Requires measurements for calibration• Still need to verify potential to perform
– Annual inspections recommended
67
Option D Programs
• DOE-2J.J. Hirsch & Associates http://www.doe2.com/
• eQuestEnergy Design Resources http://www.doe2.com/
• PowerDOEJ.J. Hirsch & Associates http://www.doe2.com/
• EnergyPlusLBNL & DOE http://gundog.lbl.gov
• Visual DOE 4.0Eley Associates http://www.archenergy.com/
• Trace 700Trane http://www.trane.com/commercial/software/trace/index.asp
• Market ManagerOptimum Energy http://www.abraxasenergy.com
68
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
69
Selecting an Option - 1
A B C D
Assess retrofits individually x x x
Assess facility only x x Savings <10% of utility meter’s energy x x x
Multiple energy conservation measures x x x
Industrial processes x x x
70
Selecting an Option - 2
A B C D Significance of variables is unclear x x x
Interactive effects are significant or not measurable
x x
Expect many future changes within the measurement boundary
x x
Long term assessment needed x x
No baseyear energy data x
71
Selecting - 3
A B C D Need non-technical people to understand the meaning of savings reports
x x x
Have metering skill and experience x x
Have simulation skill and experience x
Have utility bill reading skill x
72
M&V Requires TWO Meters
250,000
500,000
750,000
1,000,000
kWh
Baseline Period Performance Period
WWHH meter
Watt-hour MeterWatt-hour Meter
What Would Have Happened MeterWhat Would Have Happened Meter
73
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
74
Avoided Cost
• Reduction in your utility bill• Based on tariff
– Time of use / time of savings• May require “savings load shape”
– Demand charge
75
Emissions
• Energy Efficiency and Emissions• World-wide SOx, NOx, GHG Verification • Registries, Mechanisms, Schemes• State and EPA Rules• IPMVP activities• Future Trends
76
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
77
Trading
• Trading Platforms– Partnering with federal, state, private sector,
and international organizations
• Modeling Resources– Quant Shops– Brokerage Houses– Build your own trade
78
Efficiency Valuation_protocol
• Protocols
• IPMVP - International Performance Measurement and Verification Protocol
• IEEFP - International Energy Efficiency Finance Protocol
• IPEP - International Program Evaluation Protocol
79
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
80
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
81
International Energy Efficiency International Energy Efficiency FinancingFinancing Protocol 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.)
Efficiency Valuation_financial
82
Efficiency Valuation_programs
• IPEP - Int. Program Evaluation Protocol
– New Initiative– Requires IPMVP– Applies to large programs– Umbrella document, plus specific efforts
in Europe, California
83
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
84
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
85
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
86
Efficiency Valuation_skills
• Requires the full range of skills/services
• Forecasting– Audits– Models
• Metering and Monitoring– Hardware – Energy Information Systems
• Analysis - • Settlement -
87
IPMVP User Base
88
Lessons Learned
• At EVO, we’ve learned many lessons• But we’re still learning and adapting our
tools
• IPMVP adapts• IPMVP is adopted for EE programs in
– California– Texas– Northwest (Bonneville Power)
89
Lessons Learned
• What you’ll find - What to avoid
– M&V 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
90
Lessons Learned
• M&V is Site-Specific
• M&V must agree with contract clauses for– Repair and Replacement
– Operations
– Maintenance
• Site Personnel must understand M&V trade-offs
• Reasonable people agree on M&V
• M&V begins BEFORE the project begins
91
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)
92
Taiwan’s 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
93
Conclusion
• Do you have a basic understanding of M&V
– Concepts?
– Tools?
•Protocols / Training / Certification
– Practice / Community?
GOOD LUCK!
94
Thank You
Join us today:www.efficiencyvaluation.org
Download IPMVP Volumes:www.ipmvp.org
Contact me:Steve Kromer, Chair, EVO Board of Directors:
stevek@efficiencyvaluation.org
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