7 Ways Using an Energy Model Can Make or Save Money on your New Construction Projects

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How much money did the energy model on your last project create?

If you are in the field of designing new buildings, you have probably worked on a project that involved an energy model. Perhaps it was a LEED certified project, or one that was for energy code compliance.  On any given new building, there are typically multiple ways an energy model can and should save or earn money. This article illustrates the specific ways this can be done.

Please note that the topics listed below are not always applicable for all projects and all designers, but some of the information serves as a helpful resource for future projects and clients.

 

1. Making the building more efficient during design

We’ll start with the obvious.

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Typically, the primary aim of an energy model is to highlight areas where a building can be made more energy efficient. Energy models do this by simulating how a building uses energy, then computing various potential efficiency upgrades across the building’s systems. Once the cost savings of these upgrades are quantified, it is more likely that they will be implemented.

Whether the improvement is a more efficient glass, improved insulation, enhanced HVAC or lighting controls, or just going up to the next tier of HVAC efficiency, knowing the benefits of an upgrade will help justify the expense and keep the selection in the design.

2. Reducing first cost by making the building less efficient during design

Whatever it is, the way you tell your story online can make all the difference.

Wait… what? How could an energy model make a building less efficient? And why would anyone want to do that?

This concept seems to contradict the first strategy, but reserve your judgement for a moment.

It is possible to over-invest in energy efficiency, especially in projects with aggressive sustainability objectives. Some of these situations are easily spotted, like an upgrade to a super-efficient boiler in Phoenix, Arizona for space heating or an upgrade to super-efficient air conditioning in Montana. In these cases, there are not enough heating or cooling hours for either efficiency upgrade to pay back.

Whatever it is, the way you tell your story online can make all the difference.

Other situations are less apparent, and this is where an energy model is particularly useful.

For example, the energy model may reveal that the $50,000 expense for super-premium SEER 20 HVAC equipment instead of SEER 16 equipment only saves $2,500 per year (20 year payback). Or the R-40 above-deck insulation only saves $1,000 per year, despite having a cost of $25,000 more than R-30 (25 year payback).

For some owners, a 20+ year simple payback is acceptable. However, for many, this is not the case. They may feel the money would be better invested in other areas of efficiency, upgrading the building in a non-energy format, or simply keeping the money and reducing the budget.

For most people, energy efficiency is best applied when combined with cost effectiveness.

 

3. Reducing first cost through performance-based energy code compliance

Whatever it is, the way you tell your story online can make all the difference.

Performance-based code compliance is another great way to ensure that money is spent on energy efficiency wisely.

For those not familiar with this concept, performance-based code compliance is another way to pass energy codes, and it is used in lieu of the more common, checklist-structured COMcheck approach. The COMcheck route is also referred to as “prescriptive” compliance.

The COMcheck approach requires a set list of efficiency requirements for the building’s envelope, lighting/electrical, water heating, and HVAC systems to be met to pass energy code. Performance-based code compliance differs from COMcheck by allowing some systems to be less efficient. As long as the overall building uses less energy than an equivalent code-compliant building and is verified by an energy model, this method can be used. An analogy for these two methods would be standard and itemized deductions on a personal tax return: both methods work, but sometimes the extra work will get you more money.

“COMcheck vs. performance code compliance is like the standard vs. itemized deductions on a tax return: sometimes the extra work will get you more money.”

Performance-based energy code compliance is commonly used for projects that have glazing to wall ratios that exceed the (typically 40%) glass area that COMcheck allows.  However, more and more, typical commercial projects are using this method to reduce the first cost of the project and/or avoid maintenance or aesthetic issues associated with certain building systems.

Common examples include not insulating the roof deck of a parking garage underneath a conditioned space, or not insulating the first 10-15 feet of a warehouse’s walls. Neither of these scenarios would pass COMcheck. However, in most cases (especially projects in climates with mild winters), the energy model is likely to show a very small energy cost penalty from non-insulating and a substantial first cost savings. If the lighting, water heating, or mechanical efficiencies exceed code enough to offset the penalty from reducing insulation levels, the project passes code!

As modern lighting and HVAC technology evolve to comply with increasingly more stringent codes, this approach works smoothly, especially in jurisdictions that still use older energy codes. Even in areas with the newer codes (IECC 2018 for example), the performance path approach is still viable, albeit slightly more challenging. In any case, it is best to conduct the energy modeling evaluations earlier in the design phase, to avoid the cost and time challenges that follow making later changes in CDs.

4. Obtaining utility incentives

There are few better ways to finish a new project than helping the owner receive a nice, big check to thank them for their business!

Whatever it is, the way you tell your story online can make all the difference.

Many of you have most likely worked on projects with efficient HVAC and/or lighting equipment that receive incentives or rebates from the local electric or gas utility company. Depending on the utility company and the magnitude of a new building’s equipment, these incentives or rebates may be quite substantial; it is not uncommon to see rebate checks over $100,000. A safe estimate for minimum incentive levels is about $0.10 per square foot, though much higher numbers are common. 

Did you know that an energy model can unlock additional incentives that would not normally be available? Major incentive programs, like NV Energy’s powershift program, have special incentives that are only accessible through the results of an energy model. These programs have the potential to reward new projects with more money than usual, because the energy model gives more flexibility in terms of how the incentive is calculated.

Here is an example:

Whatever it is, the way you tell your story online can make all the difference.

A normal incentive calculation for a chiller is just based on a comparison to a basic, standard efficiency chiller option. However, an energy model incentive for a building with a chiller may be compared to something much less efficient, like a regular air conditioning system, allowing for a larger incentive. Additionally, on a larger scale, the energy model approach may allow the building to be compared to a standard efficiency building.

This means that the finer details of design, like building orientation, shading features, fan sizing, etc. now work in the owner’s favor, toward an incentive. This type of comparison cannot happen in a typical format, and it can result in significantly larger rebates than in the usual, like-for-like equipment comparison case!

Beyond this, many utility incentive programs will pay for part, if not all, of the energy model cost. These programs recognize that energy models help projects become more energy efficient. Because this is desirable for the utility company, it leads the programs to fund or subsidize the cost of the energy model. This funding or subsidizing is a major bonus for projects that would be using an energy model for other purposes, like LEED or code compliance.

To take full advantage of utility incentives, design teams must engage with the utility company early on. Many utility companies require paperwork to be submitted in the design phase of a project for it to be eligible.

5. Obtaining tax incentives

There can be significant tax benefits associated with energy models.

Perhaps the most common is the 179D tax deduction, a form of accelerated depreciation for new buildings, as well as major renovations or additions. This deduction can provide up to $1.80 per square foot of deductions for projects that meet certain levels of efficiency within the building envelope, lighting, or HVAC system, as quantified by an energy model. The 179D tax deduction also has a non-energy model option, called Interim Lighting, which rewards a project with up to $0.60 per square foot for high efficiency lighting.

This tax deduction is always subject to current tax laws; it is generally approved retroactively for the current year and 1 year ahead by Congress. As of 2020 (this year), projects that are placed into service in 2020 and earlier are eligible.  New legislation needs to be approved for buildings beyond 2020, however.

Whatever it is, the way you tell your story online can make all the difference.

An incredible opportunity within 179D exists for design teams working for non-tax paying owners, such as local government or public school projects:  the ability to receive the deduction on behalf of the owner. This is a great way for firms to reduce tax liability!


“Design teams working for non-tax paying owners, such as public schools, can receive the 179D tax deduction from the owner!”

In certain parts of the country, there are other programs that offer other forms of tax benefits. For example, Nevada allows a portion (up to 35%) of property tax to be abated for up to 10 years. With large projects, this can mean millions of dollars in savings! The project only needs to get LEED or Green Globes certified and meet certain criteria for energy efficiency. The duration and amount of tax abatement is determined by the output of the energy model and the final score of the LEED or Green Globes evaluation.

As with all tax deductions, these options should be discussed carefully with an accountant or tax consultant.

6. Reducing first cost by optimizing PV sizing

Projects with photovoltaic (PV) solar panels are exciting!

In addition to making a statement about the importance of sustainability on a project, PV panels provide long term cost savings. However, it is not uncommon for PV systems to have too much capacity, relative to the energy usage of the building. Unfortunately, this may result in the owner seeing a much smaller return on his or her investment than expected.

Initially, correct PV sizing is easily missed. PV system designers know the ins and outs of the tax benefits and incentives associated with solar panels, in addition to how much energy a system can produce. These two factors are paired to create a life cycle cost analysis (LCCA) that factors in rising utility rates. However, in a LCCA, it is easy to overlook whether the actual usage profile of the building matches up with the PV production.

If solar production is too high for a building’s usage profile, over-production of energy will occur. Unless there is a net metering agreement with the utility, the over produced energy will typically be bought back by the electric company at wholesale costs. These wholesale costs, unfortunately, are often much less than what the customer normally pays.

Here is an example to better illustrate this problem:

Let’s say a 50 kW PV system will produce 80,000 kWh per year. The PV company estimated $0.08/kWh, making first year cost savings $6,400. Easy, right?

Easy, until the energy model shows that 25% of the generated energy is over-produced. Because the local utility does not have a net metering agreement, it buys back the energy at $0.03/kWh.

Whatever it is, the way you tell your story online can make all the difference.

Doing the math, that’s only $5,400 in annual cost savings, which is 15% lower than estimated. The only way around this savings reduction is adding battery storage, which can become expensive and is not always in the budget. The 50 kW system already costs $125,000, before counting tax credits and other benefits, and that does not include batteries. 

Instead, avoid this hassle. An energy model helps to size a PV system correctly and properly aligns it with the building usage profile. For example, say that 30 kW is the right size. This means the building gets $0.08/kWh for solar production all the time, resulting in $3,840 in annual savings and a cost of only $75,000 before tax credits. This change improves the payback of the PV system, while reducing the installed cost by $50,000.

7. Establishing a benchmark of energy use

When are a building’s energy costs too high?

Whatever it is, the way you tell your story online can make all the difference.

Many people would be tempted to find another building to compare to theirs. This might mean finding a similar building in a different location, a building with a comparable size or type, or some building with “similar enough” aspects.

But what if the other part of the country has a much different climate? Or perhaps your building has a lab or server room or tenants that need the space 24/7? Well, that justifies the difference then, right?

Unfortunately, building owners may overlook significant differences, many times resulting in an energy use and/or cost that is higher than it needs to be. The common culprits are normally equipment or controls operating outside of the intended design, either through installation errors or the manual overrides of new operators.

An easy way to determine the expected energy use is to update or calibrate an energy model to reflect its actual operation. If a model was created correctly during design, only minor updates should be required. This would include things like fine-tuning schedules and setpoints, making sure utility rates are current, or using actual weather conditions to compare to the true utility usage of the building. Ideally, this is best done in conjunction with continuous commissioning and/or metering of individual systems.

When the energy use is not lining up, something is out-of-sync. That is when further investigation is needed to correct the issues before they become a long-term cost.

About Craig Green

Craig Green is the managing principal at G2 Energy Solutions, an energy engineering consulting firm based in Phoenix, Arizona. Over the last decade, has had the pleasure of helping hundreds of owners save money from the energy models he developed.

For questions on the article or to discuss working with G2 Energy Solutions, please contact Craig at 602-989-3974 or craig.green@g2energysolutions.com.

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