Energy Incentives

Identifying Energy-Efficiency
Upgrades and Incentives

Mark Jewell
President, EEFG, Inc.
mjewell@eefg.com
San Diego Gas and Electric
Copyright 2010 Mark Jewell. All rights reserved.

mjewell@eefg.com 215-880-8173 cell
LEARNING OBJECTIVES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Identifying energy-saving opportunities

Setting savings targets
Planning your moves
Performance contracting
Calculating returns
Selecting the funding
Finding rebates/incentives to reduce first cost
Tax incentives
SDG&E programs
Formulating compelling value propositions
3
1.
IDENTIFYING ENERGY-SAVING
OPPORTUNITIES

STEP #1: BENCHMARKING
o
o
o
o
You cannot manage what you dont measure!

Helps establish a normalized baseline
Addresses the requirements of AB 1103
ENERGY STARs Portfolio Manager software
HOW DOES PORTFOLIO MANAGER WORK?
Normalizes building variables

affecting energy consumption
Building size
Space type
Weather
Hours of operation
Occupancy
Plug load
and creates a whole building mpg rating

Eligibility Requirements
Ratable Space Types
At least 50% of the building square footage
must be classified as one of the ratable space types
< 10% of SF can be classified as
computer data center (if estimates are used)
or other space
Minimum and maximum thresholds
for operating characteristics
To learn the specific eligibility requirements for your space type, go to:
www.ENERGYSTAR.gov/Benchmark
Eligible Space Types for 1-100 ENERGY

STAR score
Bank/Financial
Institutions
Hotels
Courthouses
Data Centers
Houses of
Worship
K-12 Schools
Retail Stores
Supermarkets

Dormitories
Medical Offices
Warehouses
Hospitals
Office Buildings
Wastewater
Treatment Plants
Examples of Non-Ratable Space Types
Police Stations
Fire Stations
Assisted Living Facilities
Convention Centers
Laboratories
Libraries
Malls
Movie Theatres
Restaurants
Stadiums and Arenas
Building clusters that share at least one energy meter
SPACES DEFINED AS OTHER

Education
College/University (campus-level)
Food Sales
Convenience Store (with or without gas
station)
Food Service
Restaurant/Cafeteria
Fast Food
Health Care: Inpatient (Specialty
Hospitals, Excluding Childrens)
Health Care: Long Term Care (Nursing
Home, Assisted Living)
Health Care: Outpatient
Clinic/Other Outpatient Health
Mall (Strip Mall and Enclosed)

Public Assembly
Entertainment/Culture
Library
Recreation
Social/Meeting
Public Order and Safety
Fire Station/Police Station
Service (Vehicle Repair/Service, Postal
Service)
Storage/Non-Refrigerated Warehouse
Self-Storage
Retail - Other
Other *
Lodging

OTHER SPACES FEATURE

ENERGY USE INTENSITY (EUI)
OTHER SPACES FEATURE ENERGY USE INTENSITY (EUI)

FUTURE OF BENCHMARKING IN
CALIFORNIA
AB 1103 (Saldana)
AB 1103 Commercial Building

Benchmarking Law
October 2007: Governor signed AB 1103 into law
Phase One of AB 1103
January 1, 2009: Utilities must provide consumption data upon
request from customer
Phase Two of AB 1103
As early as July 1, 2011*: Non-residential building owners are
required to disclose benchmarking data for sale, lease, or
refinancing of an entire building
AB 531 was signed by Governor in October 2009 which provided for
the California Energy Commission (CEC) to establish the schedule to
implement AB 1103
* Date subject to change.
14

14
AB 531 Authority to Draft

Schedule for AB 1103
Draft AB 1103 schedule for disclosure of benchmarking
data during sale, lease, or re-finance of an entire building
As early as July 1, 2011*
Owner-occupied buildings > 1,000 sq. ft.
Multi-tenant buildings > 50,000 sq. ft.
January 1, 2012*: Multi-tenant buildings > 10,000 sq. ft.
January 1, 2013*: All non-residential buildings sold,
leased, or refinanced >1,000 sq ft
* Dates subject to change.
15
15
AB 1103 Commercial Building

Benchmarking Law
Buildings eligible to receive an EPA ENERGY STAR
energy performance score of 1 to 100 must disclose
score
Buildings ineligible for ENERGY STAR score must
disclose energy use intensity level (kBtu/sf-yr)
CEC developing California benchmarking system
16

16
2.
SETTING SAVINGS TARGETS
Set Energy Performance Target
Set Baseline Periods


10
Difference between these two numbers is your energy savings target

11

12
Difference between these two numbers is your energy savings target

13
3.
PLANNING YOUR MOVES

THOUGHTFULLY
PLAN YOUR MOVES THOUGHTFULLY
Audit/upgrade in a way that does not preclude

future improvement
Decide what audit game youre playing
o
o
o
Preliminary
Targeted
Comprehensive
http://www.energy.ca.gov/reports/efficiency_handbooks/400-00-001C.PDF

14
PRELIMINARY AUDIT
o
o
o
Conducted by in-house staff?
Projects w/favorable economics justify further

study
o
o
Typically cost $0.01/SF to $0.03/SF
Determine whether to hire an energy consultant

Generate a rough estimate of costs and savings
for broad groups of projects
Minimal calcs; no measure interactions
TARGETED ENERGY AUDIT

Detailed analysis on one or more types of projects
o
o
o
o
Could be result of Preliminary Audit or a vendor

May be technology specific (e.g., vendor study)
Lighting audits: $0.03/SF to $0.07/SF (or less)
HVAC replacement project study: $0.05/SF to

$0.09/SF
Number/type of lighting fixtures, spot checks of lighting levels,

operating hours
Equipment operating data, computer simulations
EMS audits: interactivity between systems

15
TARGETED ENERGY AUDIT
o
o
o
o
Provides detailed analysis of specific technologies

Provides no energy management plan
Potentially biased analysis
May miss non-targeted opportunities
COMPREHENSIVE AUDIT
o
o
o
o
All major energy-related systems
Should include energy balance calcs (estimated

use by system compared to utility bills; prevents
over/under estimates of savings.
Costs typically $0.18/SF to $0.50/SF for <50KSF;

$0.12/SF for >250KSF; $0.10/SF for >1MSF
May consider thermal storage and/or cogeneration

Considers interactivity
Includes detailed energy cost savings calcs and
project costs; may use computer models

16

17
DATA TO COLLECT IN ADVANCE

o
Building design: Square footage, location of doors/windows,

insulation type, operating hrs., etc.
o
o
Lighting: types, wattage, operating hours
Process equipment: size/efficiency ratings on motors,

refrigeration equipment, compressors, heat recovery systems
o
o
o
o
Architecture, electrical, mechanical systems drawings
Ventilation: Volume of air, size of motors relative to make-up

air and exhaust systems
Operating and production schedules

Operating manuals and equipment specifications
Utility data
http://www.energy.ca.gov/reports/2000-03-20_400-00-002.PDF
OVERALL ORDER OF EVALUATION
o
o
o
o
o
o
O&M
Building envelope
Lighting
HVAC
Domestic hot water
Energy generation

18
ELECTRICITY END USE IN COMM. OFFICE
http://www.fypower.org/bpg/index.html?b=offices&print=true
BUILDING ENVELOPE

19
LIGHTING
DOMESTIC HOT WATER

20
HVAC
LIST OF TYPICAL MEASURES
SEE ENTIRE LIST ON PAGES 3-6 FF


21
ENERGY AUDIT WORKBOOKS
http://www.energy.wsu.edu/documents/rem/energyaudit/audit2.pdf
INDUSTRIAL ENERGY AUDITS
http://www.oregon.gov/ENERGY/CONS/Industry/docs/AuditGuide.pdf

22
BUILDING ENERGY SOFTWARE TOOLS
http://apps1.eere.energy.gov/buildings/tools_directory/subjects_sub.cfm
http://www1.eere.energy.gov/industry/bestpractices/software.html

23
ENERGY AUDIT BOOKS
https://www.aeeprograms.com/store/category.cfm?category_id=6
KEY MEASURES FOUND IN PORTFOLIO

of >100 LARGE OFFICE BLDGS.
Controls
Night setback and

optimum start
Outside air (CO2 sensors)
Mixed air setpoint

Cooling Equipment
Water-cooled DX vs. aircooled DX
VFD Compressors
Water-side economizer
Heating Equipment
Cost per BTU of heat
output
Warm-up strategy
Condensing Boilers
Pumps
VFDs (no reset)
Right-Sizing vs. Throttling
This Building Triage process identified plenty of potential improvements, even in

ENERGY STAR-labeled buildings.

24
KEY MEASURES FOUND IN PORTFOLIO

of >100 LARGE OFFICE BLDGS.
Fans
VFDs (no reset)
Fan-powered VAV (series or

parallel)
Lighting
T-8s, CFLs, LEDs, etc.
Light levels
Garage Ventilation
Carbon monoxide controls
Makeup air
This Building Triage process identified plenty of potential improvements, even in

ENERGY STAR-labeled buildings.
CASE STUDY: BUILDING A

ECOs with rebates identified: ECOs with savings but no rebate:
LED exit signs
Kitchen steamer
Occupancy sensors
Domestic hot water boiler
Retrofit 32W T8 with 25W T8s Low-flow toilets
VFDs for boiler fans
Low-flow valves on faucets
Waterside economizer system Boiler lead-lag control
Exhaust energy recovery
Balancing air and water flows
CO2 based ventilation
Air handler shutdown
VFD pump drives
Convert pneumatic controls to
DDC
Chiller lead-lag control

25
IDENTIFIED VS. IMPLEMENTED SAVINGS
Building
kWh per
SF
Total IDd
kWh Savings
Estim.
% kWh
savings
Implem.
ECOs
kWh saved
Implem.
ECOs
cost saved
Implem.
% kWh
savings
19.4
2,009,493
31%
1,134,977
$93,491
17%
14.2
5,528,248
41%
4,456,753 $277,506
33%
15.5
939,369
28%
123,275
$8,305
4%
ASSESS NEEDS AND CAPABILITIES
o
o
o
o
o
o

In-house vs. outsourced

Utility audits
Energy consultant
Engineering firm
Vendors
Energy Service Company (ESCO)
26
HOW TO HIRE AN ENERGY AUDITOR
What type of audit

do you need?
How should you

select an energy
auditor?
What factors affect

energy audit cost?
What should be in
the contract?
More
ADVANTAGES OF OUTSOURCING
o
o
o
o
o
Helps confirm project feasibility

Uses latest technical and cost information
Uses computerized building simulation models
Identifies technological problems before installation
Frees up in-house staff time

27
DISADVANTAGES OF OUTSOURCING
Still need to prepare an RFP and scope of work to

select the consultant
Still need to manage the consultant and review the

energy audit
Still need to resolve protests and conflicts from

losing bidders and consultants
ENERGY CONSULTANTS
o
o
Energy consultants evaluate/recommend projects
Can provide other services, too
On-staff engineers estimate energy use, project

costs and savings
o
o
Prep project specifications

Engineering and design
Usually do not provide financial or management

services
Assist in hiring vendors, managing contractors,

reviewing bid packages, evaluating proposals

28
ENERGY SERVICE COMPANIES
o
o
o
Perform energy audits
Vested interest in the completion, operation and

resulting savings
Main interests are installing and managing upgrades

Some arrange financing and provide equipment
maintenance
4.
PERFORMANCE CONTRACTING

29
IS PERFORMANCE CONTRACTING A FIT?
o
o
o
o
o
o
o
o
o
o
Aging buildings or equipment

Recurring maintenance problems or high costs
Comfort complaints
Scarce budget resources
Lack of energy expertise
No recent upgrades
Energy-related equipment ready for replacement
Stable use of facility
Reasonable project size
Project paybacks predicted to be >18 months
TYPES OF ESCOs
o
o
o
o
Independent ESCOs
Building equipment manufacturers
Utility companies
Other energy/engineering companies

30
TYPES OF
ESCOs
FOCUS ON MUSH
AND FEDERAL

31
FOCUS ON ENERGY
EFFICIENCY
EMPHASIS ON
PERFORMANCE

32
5 STEPS TO SUCCESSFUL
1.
Decide if energy performance contracting is a good

solution for your situation
2.
3.
Select an energy service company (ESCO)
4.
5.
Negotiate a long-term contract with your ESCO
Contract with your ESCO to identify energy-saving

opportunities
Verify savings and enjoy the benefits
Adapted from the Energy Services Coalition website at
www.energyservicescoalition.org
SELECTING THE ESCO
o
o
o
o
Develop a facility profile

Develop an RFP
Invite ESCOs to tour the facility
Evaluate the proposals
Excerpted from the Energy Services Coalition website at


33

34

35

36

37
CLARIFYING EXPECTATIONS
(ADVICE FROM DOE FEMP SuperESPC)
o
o
Site goals
Project boundaries
Project building sites

Energy conservation measures
Simple payback ranges
(contd)
Project requirements/limitations
Contract length
Amount of investment
Operations and maintenance services
Escalation
Codes and environmental requirements
Available studies

38
(contd)
Project timeline
Contractor milestones
Agency milestones
Risk/commitment points
Asking the right questions leads

to a superior outcome!
FOR MORE INFO ON ESCOs

Federal Energy Management Program
www1.eere.energy.gov/femp
Energy Services Coalition
National Association of Energy Service Companies
(NAESCO)
www.naesco.org

39
5.
CALCULATING RETURNS
USING THE RIGHT FIGURES

o How did you calculate your costs?
o
Were local figures for labor and material used?
Any prevailing wage considerations?
How about demolition, recycling, disposal, soft costs?
How much contingency has been added?
Were rebates, incentives, tax benefits deducted from

the first cost?
Who actually pays the cost?

40
USING THE RIGHT FIGURES

o How did you calculate your savings?
o
Which utility tariff?
Time of day or year significant?
When do the savings start?
What about interaction between the measures?
Using balancing calculations and other rules
Who actually gets the savings?
Simple Payback Period (SPP)

How long to recover your investment?
Advantages
Simple & accepted
Often considered in relation to expected holding
period of property
Disadvantages
Ignores Time Value of Money
Ignores period after payback
Do you reject a project just because its SPP is
longer than your projected holding period?

41
MORE DISADVANTAGES OF SPP

Cannot consider reduced probability of receiving
one or more future cash flows
Maximum acceptable SPP seems arbitrary given
market conditions or organizational hurdle
rates
SPP is only as accurate as the costs & benefits
used to calculate it
In Landlord/Tenant settings, calculating the SPP
is not necessarily simple!
IN LANDLORD/TENANT SETTINGS
What are the Landlords shares of costs and

savings?
Could the Landlord recover part of the cost from the

tenants?
Would the Landlord see a reduction in unreimbursed

operating expenses?
Would lower Op Ex result in higher base rents

and/or better tenant retention/attraction?
Would higher NOI support higher asset value upon

refinancing or sale?

42
Return On Investment (ROI)

The annual interest rate earned on an
investment or the ratio of net savings to
cost
Advantages
Simple & accepted
Easy to compare to the owners cost of capital
Disadvantages
Calculated using savings in Year 1
Assumes consistent annual rate of savings
Not useful w/irregular cash flows
Doesnt reflect duration of savings stream
Discount Rate
The minimum rate of return required by
the investor
Interest rate used in present value
calculations
The higher the perceived risk of an
investment, the higher the discount rate
The higher the discount rate, the lower
the present value

43
Present Value (PV)

What is a particular cash flow worth in
todays dollars?
Based on the concept that money earns
interest
If $0.91 invested at 10% = $1.00 after 1 year

then the PV of $1.00 at Date 1 must be $0.91
Present Value (PV)

Determine value of each cash flow at Date 0
using discount rate, then add them together
Date 1
$1.00 = $ .91
at Date 0
Date 2
$1.00 = $ .83
at Date 0
Date 3
$1.00 = $ .75
at Date 0
= $2.49
at Date 0
TOTAL
Date 0 is today
Date 1 is the end of Year 1

44
Present Value
Present Value
(contd)
Cash Flow
( 1 + Disc. Rate ) Date
Net Present Value (NPV)

Advantages
Recognizes Time Value of Money
Widely accepted & frequently understood
Recognizes ups & downs in cash flows
Disadvantages
Constant discount ratebut which rate?
Project must have an end date

45
Internal Rate of Return (IRR)

At what Discount Rate will NPV = 0?
Advantages
Project return vs. cost of capital
Recognizes up and down cash flows
Widely accepted & occasionally understood
Disadvantages
Project must have an endbut when?
Multiple sign changes in cash flows can cause > one
IRR
Assumes that all cash inflows are reinvested at IRR
Modified IRR
Reinvesting cash inflows at the safe rate
Modified IRR (MIRR)

Like IRR, but reinvestment rate is specified by
user
Advantages
More realistic than IRR
Assumes that cash flows are reinvested at a safe
rate
Widely accepted & occasionally understood
Disadvantages
Project must have an endbut when?
Multiple sign changes in cash flows can cause more
than one MIRR

46
Before-tax vs. After-tax IRR

End of Year 1 is Date 1
Date 0
Before-tax
cash flow
-$2,550,000
$214,025
$239,960
$266,314
$284,765 $4,678,551
After-tax
cash flow
-$2,550,000
$168,224
$181,110
$193,941
$201,156 $4,105,037
Before-tax IRR
(BTIRR)
19.64%
After-tax IRR
(ATIRR)
15.17%
Discounted Cash Flow (DCF)

Basics of time value of money
and present value (PV)
1) A dollar is worth more today than tomorrow.
2) An income propertys value can be thought of
as
PV of cash inflows minus PV of cash outflows

47

Assign negative value to each cash outflow and
positive value to each cash inflow
Properly place each cash flow on the timeline
Does the cash flow occur at the beginning or end
of the period?

Evaluate the stacked cash flows over the life
of the project
First cost (and/or payments w/financing cost, if
any)
Operating and maintenance costs
Salvage value (+ or - ?)
Convert all cash flows back to Date 0 (i.e.,
today) using appropriate discount rate to
generate the present values

48
Discounted Cash Flow Analysis (DCF)
Energy efficiency can affect both inflows and

outflows
Cash inflows: higher rent, lower vacancy, lower
unreimbursed Op Ex, rebates
Cash outflows: upgrade costs, tenant fit-outs,
maintenance, capital expense reserves
Sample Discounted Cash Flow Analysis
"Today"
End of
1st Year
End of
2nd
Year
End of
3rd Year
End of
4th Year
Date
Cash Flow
(1,000)
$1,000
$ 1,000
$1,000
$1,000
Present Value (PV)
(1,000)
$ 909
$ 826
$ 751
$ 683

IRR
Discount Rate
Present Value Formula

2,170
92.76%
10%
PV = $ divided by (1+ discount rate)^year
49
IRR is discount rate at which NPV = 0
"Today"
Date
End of
1st Year
End of
2nd
Year
End of
3rd
Year
End of
4th Year
Cash Flow
(1,000)
$1,000
$ 1,000
$1,000
$1,000
Present Value (PV)
(1,000)
$ 519
$ 269
$ 140
$ 72
IRR
92.76%
Discount Rate
92.76%
Present Value Formula

PV = $ divided by (1+ discount rate)^year
50
What is the formula that

converts a future value
into a present value?
Present Value =

Cash Flow
( 1 + Disc. Rate ) Date
51
What is the formula that

converts a present value
into a future value?
Future Value = Cash Flow x ( 1 + Disc. Rate ) Date

52
Time Value of Money (TVM) functions

on a handheld calculator
PV
Present Value
PMT
Payment
Number of periods
INT
Interest rate per period
FV
Future value
TVM on an Excel worksheet

PV = PV ( rate, nper, pmt, [fv], [type] )
PMT
= PMT ( rate, nper, pv, [fv], [type] )
NPER = NPER ( rate, pmt, pv, [fv], [type] )

RATE = RATE ( nper, pmt, pv, [fv], [type], [guess] )
FV= FV ( rate, nper, pmt, [pv], [type] )
Using the fx button for formula syntax
Getting the positive/negative values right

53
Modeling cash flows for typical projects

Today
YR1
YR2
YR n
Cash outflows
Single investment
Phased investment
Financed investment
Cash inflows
Rebate/incentive recd
Energy savings
Maintenance savings (or cost)
Life-Cycle Cost Analysis (LCCA)

Life-Cycle Cost Analysis (LCCA) looks at the
total cost of a design choice:
First-cost
Operation, maintenance and repair costs
Financing costs
Serviceable life of the design
Salvage

54
Should you use LCCA?

Benefits
Offsets higher first-cost with benefits over time
Incorporates time value of money into
decision-making
Caveats
Not widely understood
Accuracy & usefulness depend on inputs

Today
YR1
YR2
YR n
Cash outflows
Single investment
Phased investment
Financed investment
Cash inflows
Rebate/incentive recd
Energy savings
Maintenance savings (or cost)

55
Lighting retrofit
Chiller replacement
Various motors/drives
Retrocommissioning
Capitalization Rate
A special discount rate used in the
income approach to appraisal
The rate of return an investor would
expect to receive if the income-producing
property were purchased with all cash
Net operating income

Capitalization rate

= Asset value
56
EE NOI Asset Value

Appraisal Methods
Cost approach
Market comparison approach
Income approach
Efficiency can boost NOI and appraisal
Owners view of lower OpEx

Before-Tax Cash Flow
In this example, a $1.00/SF upgrade with
~3-year simple payback period supports

potential gross income
$3.50/SF in higher asset value.
- vacancy and bad debt allowance
+ miscellaneous income
= effective gross income
- operating expenses
+ operating expense reimbursements
Income Approach to Appraisal
- cap ex reserve for replacements
net operating income
= net operating income
= asset value
- debt service (interest + princ. amort.)
capitalization rate
= before-tax cash flow from operations

$0.35 SF/year
Taxable Income
net operating income
- interest portion of debt service
- depreciation allowance
= taxable income
$3.50/SF
10%
57
Line-by-line view of improved efficiency
What kind of lease did you say it was?
Graphic excerpted from Jewell leasing brief for BetterBricks

58
LEASING BASICS
o Gross lease
o Net lease
o Fixed-base lease
o Regional variations
o The devil is in the details
Language is sacred.

59
The terms Net and Gross are

often incorrectly used to refer to
who performs building services
rather than
who ultimately pays the expense.
and remember to consider all of the expense,

not just the amount up to a certain base year or expense stop.
THE FIXED-BASE LEASE
YR 1
$1.90/SF
Expense Stop
for Energy
YR 2
$2.00/SF
$1.60/SF
Energy Cost
BEFORE
Upgrade
Energy Cost
AFTER
Upgrade
T = $0.10/SF
$2.00/SF in YR1
T saves $0.10/SF
SAVE
$0.40/SF
L saves $0.30/SF
L = $1.90/SF

L = $1.60/SF
$1.60/SF in YR2
60
Increases in NOI must be persistent to

impact the buildings appraised value
Increased efficiency reduces utility expense
How long will the EE savings persist?
Owners share of savings affects NOI
How long will building owner realize savings?
Increases in rental income affect NOI
How long will the new rental rates last?
How long will tenant attraction/retention benefits
last?
6.

SELECTING THE FUNDING
61
POTENTIAL FUNDING ANGLES

There are
plenty of viable
financing
options for
both private
and public
organizations
PURCHASE
o
o
o
Cash
Loans
Bonds
Content for this and related slides was excerpted and/or adapted from US EPAs ENERGY STAR
Building Upgrade Manual, Chapter 4, a full copy of which is available at the following link:
http://www.energystar.gov/ia/business/EPA_BUM_CH4_Financing.pdf

62
IS ON-BILL FINANCING AVAILABLE?
o
o
Tariff-based systems vs. On-bill loans
Loan sizes and terms vary for private and publicsector applications
For more information, consult Alliance to Save

Energys Brief #3: Paying for Energy Efficiency
Upgrades through Utility Bills available at
Available in a growing number of locations around the

country
http://ase.org/content/article/detail/5476
LEASING
o
o
o
Operating Lease
Capital Lease
Municipal Lease

63
OPERATING LEASE
A lease in which the clear

intent is to return the
equipment to the Lessor at
the end of the lease term
o
o
Lessor owns the equipment
Extend the lease, negotiate a

new lease, or return the
equipment
Rents it to the Lessee for

fixed period of time
OPERATING LEASE

o
o
o
Simple
Payments usually lower than

for capital leases
Payments are 100% taxdeductible
Funded by operating budget

May be ideal for shorterterm projects or projects
where owning the
equipment is not desirable
64
CAPITAL LEASE
Essentially installment purchase of equipment, though

legal title remains with Lessor during the lease term
o
o
o
Little or no initial capital required
Fixed assets and debt are added to the balance sheet
Both financial and tax rules treat it as purchase

Leased assets depreciated; depreciation as well as
interest portion of the lease payment are tax-deductible
FASB 13
Financial Accounting Standards Board (FASB) created

rules for lease classification in its Statement No. 13
A lease meeting any of the following criteria must be

treated as a capital lease:
Ownership of the property is transferred at the end of the

lease term
Lease includes a bargain purchase option
PV of the future lease payments >= 90% of the fair market

value at the beginning of the lease
Lease term covers 75% or more of the propertys economic

life

65
CAPITAL LEASE VS. LOAN
Leasing companies have more flexibility than banks in

setting terms
Capital leases typically require little/no down payment

and significantly less paperwork
o
o
Capital leases may finance soft costs

Other advantages.
MUNICIPAL LEASE

Faster, simpler than a bond

referendum
o
o
Reduced transaction costs
o
o
Full financing of all project costs
o
o
No large capital outlay
Lower interest rates (tax-exempt

interest to the Lessor)
Practical terms match the lease
term with the useful life of the
asset
Pathway to future unencumbered
project ownership
66
PEFORMANCE CONTRACTING
Complex and lengthy to

negotiate
Specify detailed work for

individual facilities
o
o
Involve large sums of capital
Require expertise in law,

engineering and finance
Savings first service the debt

financing the project
Cover a wide range of

contingencies
o
o
o

(contd)
Guaranteed Savings
Shared Savings
Paid-from Savings
67
ADDITIONAL OPPORTUNITIES
Rebates and
incentives
State/local govts;
other agencies
ARRA Stimulusbased funding
Other sources
WHICH OPTION IS THE BEST FIT?

68
Content for this slide and previous one was excerpted from EPAs Easy
Access to Energy Improvement Funds in the Private Sector, Nov. 2004

69
7. REBATES & INCENTIVES
REBATES AND INCENTIVES

o Why do they give rebates/incentives?
1
2
NIMBY & BANANA prevent new

generation 1,2
Transmission and distribution bottlenecks
Uncertainties re: carbon-counting landscape
Ratepayers relief as energy prices rise
More states setting Renewable Portfolio

Standards (RPS) and Energy Efficiency
Portfolio Standards (EEPS)
Not In My Back Yard

Build Almost Nothing Around Nearly Anyone

70

o Rebates/incentives are not
just for retrofits
o Types of rebates/incentives
Equipment efficiency
improvements
Demand response programs
Distributed generation
Technical assistance
Other

o Project must be in a
rebate friendly
jurisdiction
o Components used must
meet efficiency guidelines
o Rebate applicant usually
party appearing on utility
bill

71
ELIGIBLE TECHNOLOGIES
o Energy Mgmt. Systems (EMS) & controls
o Lighting
o HVAC
o Motors/drives
o Building envelope (e.g., window film, cool roof)
o Process technologies
o Other (e.g., gas, water, renewables, custom measures)
o Projected savings must be defensible and persistent
REBATE PROGRAM TYPES

o Prescriptive Measures
o Performance Measures
o Custom Measures

72
PRESCRIPTIVE REBATES
o Set rebate amounts for
specific measures or
component
o Before >>> mainly new
construction and small
retrofit/renovation
o Now >>> many larger
projects also eligible
o Limitations may include
capped rebate amounts,
restrictive technologies
PERFORMANCE REBATES
o Rebates based on calculated energy savings
o Measurement and Verification (M&V) may be required,
and if so, must meet pre-set savings level
o Payments may be made over time based on M&V
o Detailed Energy Analysis (DEA) may be required
o Pre- & post-construction inspections may be needed
Be sure to file early enough in the process!

73
CUSTOM MEASURES
o Often innovative ways for
reducing demand (i.e., not
simply a one-for-one
replacement)
o Measurement and
Verification may be required
o Detailed proposal & savings
analysis prior to purchasing
materials
o Custom Measures must
represent permanent
wattage reductions
REBATE BEST PRACTICES

o Utility jurisdictions relevant to your facilities
Existing buildings
Remodeling targets
New construction targets
Energy-related maintenance activities
o Matching program timelines to your timelines
Funding cycles are not always calendar year!
Some $$$ is extremely short-lived!
Might have to pre-file to qualify
Might have to buy equipment AFTER pre-filing/approval

74
REBATE BEST PRACTICES
(contd)
o Equipment specifications
Energy efficiency of existing
specs?
Willing to increase EE to get
rebate to cover added cost?
Can/does or equivalent
lower EE (and rebate
eligibility)?
How far ahead do you order
equipment?
BEST PRACTICE #1: COMMUNICATION!

with utilities
Get to know the program managers!
Know when funding windows open/close
Understand which program gives the most $$$
Know what qualifies as a custom measure
Negotiate M&V to simplify savings verification

75

with utilities (contd)
Know when free design assistance is available
Know if multiple applications can be
consolidated
Know how rules apply to national accounts
Know whether multiple measures get rebate
bonus
Emulate successfully funded projects

with partners
Maximize cost-effective EE given rebate climate
Avoid or equivalent substitution if less efficient
Have accurate equip. specs/counts before/after
Use proper invoice format & timing
Adhere to guidelines when purchasing equipment

76

throughout your organization
Can Construction give you enough advance notice on
remodels & new sites?

Can Procurement enforce the equipment specs needed
to qualify?
Can Maintenance tell you when theyre ready to
change energy-related equipment?
Can A/P get you copies of invoices?
Can CFO pool all rebate $$$ for other EE initiatives?
Can you record & leverage past filing successes to help
guide future equipment specs and rebate filings?
with the landlord (or tenant)
GETTING YOUR SHARE OF THE $6.1 BILLION

o
No capital project is too small to investigate
Its not just about retrofits!
New construction
Remodeling/renovations
Tenant fit-out
Typical energy/water retrofit campaigns
Emergency replacements of energy/water-consuming

equipment
Feasibility studies
Remember to explore custom programs

Some rebates are available retroactively

77
13 TIPS FOR SUCCESSFUL REBATE FILING

1. Know who is eligible
* Excerpted from Winning with Incentives, Mark Jewell,

Energy & Power Management, September 2005

78

2. Understand all funding angles

3. Compare programs to maximize $$$

79

4. Invest engineering expertise upfront

4. Invest engineering expertise upfront
5. Specify proper configuration

80

6. Ensure specs remain rebate-eligible

7. Fine-tune specifications

81

8. Verify accurate input by 3rd parties

9. File as early as possible

82

9. File as early as possible
10. Document changes

11. Connect purchases with incentive approvals

83

12. Monitor the measurement and verification (M&V)
process

12. Monitor the measurement and verification (M&V)
process
13. Align all interests

84
FOLLOWING THE TIPS SAVES $$$

o
Tip #3 turned a $100K rebate into $400K once $50K

M&V was added
Tip #6 could have avoided loss of a $40K rebate due

to non-compliant equipment
Tip #7 could have saved $17K in rebates and $49K

in operating expenses over 10 yrs.
Tip #10 could have preserved a $70K rebate
8. SDG&E PROGRAMS

85
SDG&Es REBATES
Energy Efficiency Business Rebates (Express Efficiency)
http://www.sdge.com/business/rebatesincentives/programs/energyEfficiency.shtml
Food Service Rebates

http://www.sdge.com/business/rebatesincentives/programs/foodService.shtml
High Tech Rebates

http://www.sdge.com/business/rebatesincentives/programs/highTech.shtml
SDG&Es NO-/LOW-COST IMPROVEMENTS

Mobile Energy Clinic
http://www.sdge.com/business/rebatesincentives/programs/mobileClinic.shtml

86
SDG&Es CUSTOMIZED SAVINGS PLANS

Energy Efficiency Business Incentives (SPC)
http://www.sdge.com/business/rebatesincentives/programs/standardPerformanceContract
.shtml
Energy Savings Bid

http://www.sdge.com/business/rebatesincentives/programs/energySavingsBid.shtml
Premium Efficiency Cooling

RCx Retrocommissioning Program

http://www.sdge.com/business/rebatesincentives/programs/rcxRetrocommissioning.shtml
BENCHMARKING REQUIREMENT
http://www.sdge.com/business/rebatesincentives/benchmarking/

87
http://www.sdge.com/documents/business/savings/SDGEBenchmark.pdf
ENERGY EFFICIENCY BUSINESS REBATES

http://www.sdge.com/business/rebatesincentives/programs/energyEfficiency.shtml

88

o
Rebates to businesses to retrofit or upgrade

equipment to higher efficiency
One rebate application
Rebate levels are consistent statewide
New products added:

o
LED fixtures, LED case lighting, T8-to-T8, Motors
Many lighting base cases extended
Removed most CFLs
Lighting products require collection of wattage and

technology info for existing and new lamps
ENERGY EFFICIENCY BUSINESS REBATES (contd)

o
Browse the Product Catalog for eligibility
Benchmark your facility
http://www.sdge.com/business/benchmarking/
Calculate rebate
Non-lighting projects: Complete Rebate Product

Information table
Lighting measures: Complete the lighting worksheet
Calculate and submit Annual Hours of Operation

Worksheet
Submit Rebate Application and supplemental forms,

if applicable

89

http://www.sdge.com/documents/business/savings/express/EEProductCatalog.pdf

http://www.sdge.com/documents/business/savings/express/EERebateWorksheet.pdf

90
ENERGY EFFICIENCY BUSINESS INCENTIVES

http://www.sdge.com/business/rebatesincentives/programs/standardPerformanceContract.shtml
ENERGY EFFICIENCY BUSINESS INCENTIVES

(SPC)
o
Incentive payments for energy-efficient projects

involving the installation of new, high-efficiency
equipment or systems gas or electric
Incentives based on amount of documented energy

saved
Lighting: $0.05/kWh $100/Peak kW
A/C & Refrigeration: $0.15/kWh $100/Peak kW
Other (motors, fans, etc.): $0.09/kWh $100/Peak kW
Natural gas: $1.00/therm
Program open to all commercial, industrial, agricultural

customers
Address questions to eebi@semprautilities.com

91
ENERGY SAVINGS BID

ENERGY SAVINGS BID

Customers can propose incentive amounts for

nonresidential energy-saving retrofit projects
Projects may include a single customer or a

combination of customers at multiple sites
Receive large incentives for projects that produce

energy savings of at least 500,000 kWh annually or
25,000 therms

92
ON-BILL FINANCING
http://www.sdge.com/business/rebatesincentives/programs/onbillfinancing.shtml
OBF PROCESS FLOW CHART

http://www.sdge.com/documents/business/savings/obf/OBFCustomerProcessFlow.pdf

93
ON-BILL FINANCING
http://www.sdge.com/business/rebatesincentives/programs/onbillfinancing.shtml
http://www.sdge.com/documents/business/savings/obf/OBFFactSheet.pdf
Customer must receive a rebate or incentive through

an SDG&E energy-efficiency program
Customer must have had an active SDG&E account for

the past two years for the same business
Customers SDG&E account must in good standing
Rebates/incentives for non-comprehensive (i.e., two or

more end uses) are reduced by 10%
Loan term calculated based on estimated annual

savings; cannot exceed max loan term
Loan max per meter, with minimum of $5K:
$100K for business customers; 5-year max
$250K for taxpayer-funded customers; 10-year max
9. TAX INCENTIVES

94
TAX INCENTIVES
o
o
o
o
o
Depreciation
Interest
Commercial Buildings Deduction
State and local tax incentives
Other
THE IMPACT OF EPACT 2005

o Deductions versus
Credits
o Section 1331,
Commercial Buildings
Deduction
o Section 1337, Solar
Energy Tax Credit

95
THE EMERGENCY ECONOMIC

STABILIZATION ACT OF 2008
(HR-1424)
o Approved and signed on October 3, 2008
o Extends the benefits of the Energy Policy Act
of 2005 through December 31, 2013
THREE PATHS TO SECTION 1331

o Whole Building Deduction
Reduce entire building by 50% vs. 90.1-2001
Max deduction is $1.80/SF
o Partial Deduction (Lighting, HVAC or Building Envelope)
Upgrade one system, achieve cost savings of 20%, 20% or

10% (for lighting, HVAC/hot water, and bldg. envelope,
respectively) compared to Standard 90.1-2001 Reference
Building
Max deduction is $0.60/SF
o Interim Lighting Rules
Upgrade lighting, achieve LPD savings of 25-40% (or 50% if

warehouse) compared to tables in 90.1-2001
Max deduction is $0.30 to $0.60/SF (or $0.60/SF)

96
INTERIM LIGHTING RULES
www.efficientbuildings.org

97
(frequently asked questions page)
http://www1.eere.energy.gov/buildings/
printable_versions/tax_commercial.html

98
http://www1.eere.energy.gov/buildings/
qualified_software.html
www.energytaxincentives.org

99
(frequently asked questions page)

100
www.lightingtaxdeduction.org
http://www.lightingtaxdeduction.org/faq.html

101
http://www.lightingtaxdeduction.org/standard.
html
10.

FORMULATING COMPELLING
VALUE PROPOSITIONS
102
Value is created by the

compression of time.
- Peter Drucker
EPAs CASH FLOW OPPORTUNITY CALCULATOR
o
o
Confirming financial viability

Estimating the cost of project delay
o
o
Waiting for cash

Waiting for a lower interest rate
Results are often counter-intuitive!

Particularly useful for persuading public sector
decision-makers to approve a project now rather
than waiting.

103
EPAs CASH FLOW OPPORTUNITY CALCULATOR
http://www.energystar.gov/index.cfm?c=assess_value.financial_tools
The quality of
your outcome is
directly related
to the quality of
the questions
you ask.

104
ASK BETTER QUESTIONS.
o
o
What is the projects Net Present Value?
Which project has the lowest Life-Cycle Cost? (when
What is each projects Modified Internal Rate of

Return? (when ranking non-mutually exclusive alternatives)
choosing between two or more mutually exclusive alternatives)
ASK BETTER QUESTIONS

What is our cost of capital?
o
o
o
What is our hurdle rate for energy projects?

Could we justify reserving capital for EE projects?
Overcome priority given to manuf./mktg. projects

Elevate EE projects to mandatory or compliance-driven
Link to CSR goals, GHG-reduction targets, etc.
Include the value of future carbon credits, etc. in analysis
Monetize other benefits (e.g., hiring/retention; productivity)

105
In Landlord/Tenant settings, how are the costs and

benefits allocated between the parties?
Are there other reasons to fund this EE project?
o
o
o
o
Addressing tenant comfort/convenience issues?

Improving tenant attraction/retention?
Acquiring ENERGY STAR label, LEED certification, etc.?
Fulfilling portfolio-wide commitments re: CSR, GHG, etc.
What would the impacts be on Net Operating Income

(NOI) and asset value?
How would those impacts improve the projects return?
o
o
What depth of audit are we prepared to undertake?
o
o
o
o
What is our cash position?
Do we have in-house skills/bandwidth, or do we need

to outsource?
How important is minimizing the transaction cost?
Does the project have to be off-balance-sheet?
Could we monetize the value of tax benefits?

106
o
o
How quickly would we like to do the project?
o
o
o
Do we need to fund soft costs as well?
Have we convinced management to look beyond

Simple Payback Period?
Is there any advantage to classifying the project as

capital budget or operating budget?
What is our appetite for performance risk?
Have we aligned all of our internal stakeholders to
ensure a successful team effort?

107
Value is created by the

compression of time.
- Peter Drucker
Value is created by the compression of time

- Peter Drucker
Assume 10 upgrade projects

(five 4-year SPP & five 2.5-year SPP)
Scenario A
10 projects this year
Scenario B
2 projects per year
Total Cap Ex
$1,681,000
$1,764,503
PV of Investment
$1,681,000
$1,241,656
IRR
27.2%
19.3%
NPV
$1,016,071*
$578,366
NPV of avoided cost of delay
$437,705
*75% higher NPV helps build shareholder value faster

108
Thank you!
Mark Jewell
President
EEFG, Inc.
mjewell@eefg.com
215-880-8173 cell
Every winning strategy needs a winning mechanism.
- Jim Collins, author of Good to Great

109

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Identifying Energy-Efficiency

Upgrades and Incentives

San Diego Gas and Electric

Copyright 2010 Mark Jewell. All rights reserved.

Identifying energy-saving opportunities

Copyright 2010 Mark Jewell. All rights reserved.

STEP #1: BENCHMARKING

You cannot manage what you dont measure!

HOW DOES PORTFOLIO MANAGER WORK?

Normalizes building variables

Copyright 2010 Mark Jewell. All rights reserved.

Eligible Space Types for 1-100 ENERGY

Copyright 2010 Mark Jewell. All rights reserved.

Examples of Non-Ratable Space Types

SPACES DEFINED AS OTHER

Mall (Strip Mall and Enclosed)

Copyright 2010 Mark Jewell. All rights reserved.

OTHER SPACES FEATURE

OTHER SPACES FEATURE ENERGY USE INTENSITY (EUI)

Copyright 2010 Mark Jewell. All rights reserved.

AB 1103 Commercial Building

Copyright 2010 Mark Jewell. All rights reserved.

AB 531 Authority to Draft

AB 1103 Commercial Building

Copyright 2010 Mark Jewell. All rights reserved.

SETTING SAVINGS TARGETS

Set Energy Performance Target

Set Baseline Periods

Copyright 2010 Mark Jewell. All rights reserved.

Copyright 2010 Mark Jewell. All rights reserved.

Difference between these two numbers is your energy savings target

Copyright 2010 Mark Jewell. All rights reserved.

Copyright 2010 Mark Jewell. All rights reserved.

Difference between these two numbers is your energy savings target

Copyright 2010 Mark Jewell. All rights reserved.

PLANNING YOUR MOVES

PLAN YOUR MOVES THOUGHTFULLY

Audit/upgrade in a way that does not preclude

Decide what audit game youre playing

Copyright 2010 Mark Jewell. All rights reserved.

Conducted by in-house staff?

Projects w/favorable economics justify further

Typically cost $0.01/SF to $0.03/SF

Determine whether to hire an energy consultant

Minimal calcs; no measure interactions

TARGETED ENERGY AUDIT

Could be result of Preliminary Audit or a vendor

HVAC replacement project study: $0.05/SF to

Number/type of lighting fixtures, spot checks of lighting levels,

Equipment operating data, computer simulations

EMS audits: interactivity between systems

Copyright 2010 Mark Jewell. All rights reserved.

TARGETED ENERGY AUDIT

Provides detailed analysis of specific technologies

All major energy-related systems

Should include energy balance calcs (estimated

Costs typically $0.18/SF to $0.50/SF for <50KSF;

May consider thermal storage and/or cogeneration

Copyright 2010 Mark Jewell. All rights reserved.

Copyright 2010 Mark Jewell. All rights reserved.

DATA TO COLLECT IN ADVANCE

Building design: Square footage, location of doors/windows,

Lighting: types, wattage, operating hours

Process equipment: size/efficiency ratings on motors,