Energy Matters: Verifying Energy Cost Avoidance
Your Energy Manager
Topic: Energy Cost Avoidance
November 2006
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Independent Energy Consultants, is committed to helping its clients make well-informed and cost-effective decisions regarding their energy supply and consumption. We are sending you this newsletter to help you understand how energy decisions that are made, or not made, effect your company's bottom line.

You just purchased energy efficient equipment and/or finally implemented that energy reduction policy that is going to save you thousands of dollars. Now it is time to see if you are reaping the expected benefits that justified your decision. If you think a quick review of utility bills will do the trick, you are probably in for a surprise. (Note: The phrase "energy savings" is often used but can be misleading. Because utility rates change and usually rise with inflation, a reduction in usage may not lower the dollar amount of a bill. It does, however, result in "avoided costs" so we use that terminology.)

A natural gas bill or electric bill is usually influenced by a number of factors and those need to be identified and tracked before and after an energy efficiency project is implemented. Understanding your bills before the change allows you to establish a baseline against which to compare. If you do not do this before implementing an Energy Conservation Measure (ECM) the data are lost and cannot be recreated after installation. Tracking your bills after a change allows you to isolate your avoided costs to either your ECM, or changing conditions that drive your energy bills.

A word of caution to our readers. In our July 2006 newsletter "Energy Efficiency Projects" we stressed the need to do a bill analysis before proceeding with an ECM. Utility tariffs are complicated and bills are often calculated based on many factors such as energy use, peak demand, reactive power, time of use, seasonal rates, etc. An ECM designed solely to reduce energy consumption often will not translate into a 1:1 reduction in cost. Independent Energy Consultants believes in the concept that people can not manage what they do not understand or can not measure. Contact us and we will help you with your unique needs.
The answer to what drives your energy use and resultant cost is usually unique to your line of business and the climate in which you operate. A facility may have none, one or several factors that are highly correlated to their energy consumption. Here are a few examples of what might influence the energy use for a particular business:
  • Hotel - Occupancy rate
  • Bakery - Pounds of product produced
  • Office Building - Climate (Temperature, humidity, wind speed)
  • Assembly Line - Person-hours worked
The key to accurately tracking avoided costs, is to identify those independent variables which influence your bills and over which you have no control. Once you understand the contribution those variables have to your overall bill, you can make sure you do not receive credit, or blame, for things beyond your control. For example, a utility bill might need to be adjusted for:
  • More or less days in a billing period
  • A change in the size of a facility
  • A change in operating hours
  • A hotter summer
  • A colder winter
  • Addition of equipment, or
  • A change in utility rates
The examples above point out how misleading it can be to do a simple "before and after" comparison of utility bills.
Now that we understand it is important to determine what drives our energy use, how do we go about quantifying the same? As you might suspect there is still some work to do before we can provide an intelligent answer to that question. Let us consider the energy bills for a hospital located in Chicago. Anyone who is familiar with the windy city could safely assume that their bills will be influenced by weather changes. Further analysis, however, would reveal that not all loads are weather sensitive nor are they sensitive at all times. For example, the natural gas bills would be influenced by heating needs only in the months of November through March and the natural gas used to heat water, dry linens or operate the cafeteria would remain fairly constant in every month. We would have to separate those loads so we only adjusted the weather sensitive portion and only at the appropriate times. A similar situation would exist for electric bills in the summer months of June through September. Higher temperatures would mean increased use of air- conditioning in these months, but many other electric loads such as computers, lighting and ventilation would not change with moves in the temperature.

The U.S. Department of Energy has prepared a standard to help identify and quantify avoided costs. The standard is titled "International Performance Measurement & Verification Protocol". The document provides various means of tracking avoided cost, such as a comparison using average unit cost or marginal unit cost, and tracking costs at an equipment level basis or using a whole building methodology.

If you are looking to finance an ECM you should know that lending institutions do not like uncertainty and the standard Measurement & Verification protocols will provide them assurance that an open, transparent, and replicable method will be used to calculate the energy cost avoided for any type of ECM. Tracking cost avoidance is an important and often overlooked aspect of an ECM. Independent Energy Consultants has access to sophisticated tools to help our clients do the best job possible in estimating their avoided costs. Whether you are considering a small ECM or a major Performance Contract with an Energy Service Company, contact us and we will help you analyze your project and verify its results.

Contact us for your energy management needs.


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