m&v part 2: risk assessment & responsibility allocation

M&V Part 2: M&V Part 2: Risk Assessment Risk Assessment

&&Responsibility Responsibility

AllocationAllocation

2-2

Risk & ResponsibilityRisk & Responsibility

Risk AssessmentTypes of Risk.Allocating Risk.Cost Effectiveness.

Responsibility AllocationUsagePerformanceFinancial

2-3

Definition of SavingsDefinition of Savings

Energy Savings = UseBaseline - UsePost-Retrofit

Co

sts

Co

sts

TimeTime

ECMs ECMs installed hereinstalled here

ECMs ECMs installed hereinstalled here Baseline or adjusted baselineBaseline or adjusted baselineBaselineBaseline

Measured or calculated performanceMeasured or calculated performance

SavingsSavings

2-4



Energy Savings = (UseBaseline Adjustment) - UsePost-Retrofit

Co

sts

Co

sts

TimeTime

ECMs ECMs installed hereinstalled here

ECMs ECMs installed hereinstalled here Baseline or adjusted baselineBaseline or adjusted baselineBaselineBaseline

Measured or calculated performanceMeasured or calculated performance

SavingsSavings

2-5



Energy Savings = (UseBaseline Adjustment) - UsePost-Retrofit

Savings, $ = (Unit Cost) (Energy Savings)

2-6

Calculating SavingsCalculating Savings

There are two components to energy use and energy savings:

Rate of energy use (Performance) Hours of use (Usage)

Energy use is the product of the two.

Reducing the rate of energy use and/or the number of hours reduces the total energy use.

2-7

Performance and Usage: IdealPerformance and Usage: Ideal

Rate, kW

Hours per year

Post-retrofit Energy Use Baseline Energy Use

Increased Performance

Reduced Operating Hours

2-8

Types of RiskTypes of Risk

Energy savings are based on: Performance Usage

While cost savings are based on: Financial elements Uncertainty in the energy savings

Performance Usage Financial Uncertainty

2-9

Performance RiskPerformance Risk

Performance may be compromised by poor design or implementation.

Equipment performance may change over time due to degradation and/or poor O&M practices.

These are factors that the contractor normally (but not always) controls.


2-10

Usage RiskUsage Risk

Usage can be defined as:operating hours (lighting, equipment)occupancy or schedulesheating & cooling loads (& setpoints)weatherproduction

These are factors that the agency (or no one) controls.


2-11

Financial RiskFinancial Risk

Energy savings must be converted to cost savings.

What energy rates will be used? How might they change over time? What other savings will be claimed?


2-12

Savings UncertaintySavings Uncertainty

We don’t measure savings, we measure energy use before and after- the savings are the difference.

We never know the exact energy use before and after- there is always some uncertainty in each.


2-13

Performance and Usage: RealPerformance and Usage: Real

Rate, kW

Hours per year

Post-retrofit Energy Use Baseline Energy Use

Reduced Operating Hours

Increased Performance

2-14

Uncertainty RiskUncertainty Risk

Claimed savings are always estimates because savings cannot be measured.

Uncertainty is introduced through:Measurement and modeling errorSampling errorSimplifying assumptions

These are factors inherent in M&V. Uncertainty can be reduced but not eliminated.


2-15

Savings Uncertainty: Savings Uncertainty: LargeLarge

1 3 5 7 9

Savi

ngs

GuaranteedEstimated


2-16

Savings Uncertainty: Savings Uncertainty: SmallSmall

1 3 5 7 9

Savi

ngs

GuaranteedEstimated


2-17

Allocating RiskAllocating Risk

For SuperESPC, M&V only needs to show that savings guarantee has been met, not determine ‘actual’ savings.M&V can reduce uncertainties to

reasonable levels.M&V can allocate performance, usage &

financial risks to the appropriate parties.

2-18

Responsibility MatrixResponsibility Matrix

Items that influence savings are: Performance

EquipmentPerformance

FinancialEnergy PricesM&V Costs

UsageOperating HoursLoadsWeatherUser Participation

Performance Usage Financial

2-19

Equipment PerformanceEquipment Performance

Equipment performance is affected by design and by long-term maintenance.

Who is going to conduct the long-term maintenance?

How will long-term performance be verified?


2-20

Equipment PerformanceEquipment Performance

Equipment performance is often linked to operations & maintenance procedures.

If agency conducts O&M, will contractor be responsible for poor O&M practices?

If contractor conducts O&M, what services and at what cost?

What about repair & replacement? What if equipment life < contract term?


2-21

Operating HoursOperating Hours

Energy use and savings fluctuate with equipment and facility operating hours.

If the agency reduces operating hours and savings are not realized, is the contractor responsible?

If the agency increases operating hours, utility bills will increase. Will savings increase or decrease?


2-22


If hours are stipulated: How were values estimated? Are they reasonable? What happens if agency changes schedule

or facility usage?

If hours are measured: When were they measured? What precision and confidence?


2-23


Office Space M-F 9-5: 2,080 hours/year M-F 9-9: 3,120 hours/year

Continuous operation 24/7: 8,760 hours/year

Nighttime Lighting Photocell control: 4,380 hours/year


2-24

LoadsLoads

The agency may make changes that affect equipment loads (e.g, additional air conditioning).

If loads increase and savings increase, who benefits?

If loads and savings decrease, who is responsible?


2-25

LoadsLoads

How will savings estimates be affected if: The agency adds or removes loads? Adds building space? Removes building space? Changes thermostat settings?


2-26

Loads ConstantLoads Constant

BaselineEnergy

Use(of affected

systems)

ReducedEnergy

Use

Agency Savings

ReducedEnergy

Use

Contractor Payments

Before ESCP During ESPC After ESPC Contract Contract Contract

Payments Other

Loads

Other Loads

Other Loads

2-27

Loads IncreaseLoads Increase

BaselineEnergy

Use(of affected

systems)

ReducedEnergy

USe

Agency Savings

ReducedEnergy

Use

Contractor Payments

Before ESCP During ESPC After ESPC Contract Contract Contract

Payments Other

Loads

Other Loads

Other Loads

2-28

WeatherWeather

No one controls the weather. How shall the baseline be adjusted for

weather conditions? What happens in mild seasons when

promised savings may not materialize? What happens in severe seasons?


2-29

WeatherWeather

1 2 3 4 5 6 7 8 9 10 11 12 13 14Contract Year

Savings

Actual

Estimated

Guaranteed

Savings can be adjusted to account for mild weather conditions.


2-30

WeatherWeather

Typical normalization procedures: Regression modeling on HDD & CDD. Building simulation.

Sources of weather data: Typical Meteorological Year (TMY). Data from Nat’l Climatic Data Center. Site measured.


2-31

User ParticipationUser Participation

Some measures require users to interact with equipment for proper operation (or at least not override it.)

If a measure does not workbecause the users do not use something as intended, is thecontractor responsible?


2-32

User ParticipationUser Participation

How will user interaction be maintained (or minimized)?

Training? Annual verification and reporting? Lockboxes (e.g., on thermostats)?


2-33

Energy PricesEnergy Prices

Energy prices fluctuate. In a long-term contract, how will the saved energy be valued?

On current rates fixed for the contract? On real rates that fluctuate over time? On fixed rates that escalate

for inflation?


2-34


Fixed rates are easiest to understand, but may not be realistic in 15+ year contract.

No one can predict what future rates will do. Sudden price escalation can make savings seem to disappear.

Escalating rates for assumed inflation minimizes risk and reflects real economics.


2-35


Savings with Constant Energy Prices

$50,000

$100,000

$150,000

$200,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Ene

rgy

Cos

ts

$40,000 $40,000


2-36


Energy Costs Increase by 50% in Year 2

$50,000

$100,000

$150,000

$200,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Ene

rgy

Cos

ts

$40,000

$60,000


2-37


Energy Costs and Savings at 3% Inflation

$50,000

$100,000

$150,000

$200,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Ene

rgy

Cos

ts

$40,000

$62,000


2-38


Use marginal rates*, not blended or average rates.

Rate or fuel changes:Value baseline use at old rate, new use at new

rates.

Demand charges:Demand savings calculations not trivial.Beware of ratchet clauses!

*Cost of last kWh or therm.


2-39


Baseline: Use 1 to 3 years of utility rates plus

common sense. Treat price spikes and anomalies

carefully.

Escalation: Use NIST Guidelines (BLCC) for energy

price escalation.


2-40

M&V CostsM&V Costs

The agency pays the contractor for M&V services rendered. Need to balance M&V rigor with project risk.

Law of Diminishing Returns applies. Typically, initial M&V costs will be 3% to

15% of the capital cost; annual M&V costs will be 3 to 15% of the savings.


2-41

M&V CostsM&V Costs

M&V Rigor

M&V Cost

Value of information

$


2-42

Review QuestionsReview Questions

Why might utility costs increase despite a successful SuperESPC project?

m&v part 2: risk assessment & responsibility allocation

Documents

retrofitenergy savings

total energy use

exact energy use

energy rates

financial riskenergy

rate of energy use andor

usebaseline usepost

cost effectiveness