BEST PRACTICES IN SMALL COMMERCIAL HVAC PROGRAMS AT CALIFORINA UTILITIES CONSTANCE HARVEY, UNDERGRADUATE RESEARCHER ENERGY EFFICIENCY CENTER UNIVERSITY OF CALIFORNIA, DAVIS
TABLE OF CONTENTS pg. 1 EXECUTIVE SUMMARY pg. 2 OVERVIEW AND BACKGROUND pg. 5 ENERGY EFFICIENCY PROGRAMS pg. 6 REPORT SCOPE pg. 7 GENERAL PROBLEMS IN HVAC RETROFITTING pg. 9 POTENTIAL FOR SMALL COMMERICAL HVAC PROGRAMS AT LADWP pg. 10 COMMON EFFICIENCY PROGRAMS Rebate Incentives Demand Response Operational Definitions Upstream Incentives Quality Installations and Maintenance pg. 15 LESSONS LEARNED pg. 16 BEST PRACTICES pg. 17 CONCLUSION pg. 18 WORKS CITED Front cover photo: ThinkstockPhotos.com
EXECUTIVE SUMMARY This paper is a review of small commercial HVAC energy efficiency programs offered at three utilities in the state of California. The goal of this research is to provide the Los Angeles Department of Water and Power (LADWP) with up-to-date information on these programs to use as a resource in developing their own small commercial HVAC program. A literature review drawing from academic and industry sources was conducted to understand the history of the energy market and energy policies in California in general, and specifically at the following utilities: Pacific Gas & Electric (PG&E), Sacramento Municipal Utility District (SMUD) and Southern California Edison (SCE). Additional information was obtained through in-depth interviews with program managers at these utilities, as well as with academic researchers at centers such as the UC Davis Western Cooling Efficiency Center (WCEC). It was found that despite SMUD being municipally-owned and PG&E and SCE being investor-owned, the three utilities offer similar small commercial HVAC programs. These programs had similar delivery mechanisms, which included downstream and upstream incentives (with downstream including third party programs), and other features in common including demand response and quality installation and maintenance. BEST PRACTICES, 2013 1
OVERVIEW AND BACKGROUND Energy policy in the state of California is set by the California Energy Commission (CEC), and electricity is sold to residential and commercial customers through either investor owned utilities (IOUs) or municipally owned utilities (MOUs). IOUs are regulated by the California Public Utilities Commission (CPUC) and are mandated to set energy efficiency goals. This is to help the state of California achieve rigorous overall energy efficiency goals and to save money for California electricity customers in the long run. Increased energy efficiency in the market reduces state energy demand, which in turn saves ratepayers the cost of constructing new energy plants and reduces their carbon-footprint. As stated in the California Energy Efficiency Strategic Plan, Cost effective energy efficiency is the resource of first choice for meeting California s energy needs. Energy efficiency is the least cost, most reliable, and most environmentally sensitive resource, and minimizes our contribution to climate change (CPUC 2008). Both MOUs and IOUs have energy efficiency targets set by the state. In 2006, the passage of California Assembly Bill 2021 mandated that every three years MOUs would identify achievable, cost-effective efficiency potential and establish annual targets based on that potential for a 10-year period. (EPA 2007). IOU efficiency targets are set by the CPUC. The combined targets of MOUS and IOUs comprise the statewide estimated energy efficiency goals. All utilities have state efficiency goals to meet, but their incentives for pursuing them are different. IOUs are driven mainly by financial incentive. Due to decoupling, revenue is not increased by selling the greatest possible amount of electricity. Instead, CPUC provides financial incentives for IOUs who meet their energy reduction goals. These incentive earnings accrue only if the IOU meets at least 85% of the goals set by CPUC. Beyond this tenet, the incentive formula calls for utilities to receive 9% of net benefits if they achieve between 85-99% of savings goals, and 12% of net benefits if they meet or exceed savings goals up to the earnings caps established for each utility (ACEEE 2005). MOUs are driven to create energy efficiency programs by the state goals all utilities are expected to meet, with the understanding that it is less costly to have energy efficiency programs than construct new power plants to meet increasing demand, and by the type of leadership role they want to command in the industry (Patel 2012). According to a 2011 CPUC update on the California Energy Efficiency Strategic Plan, these goals are leading California toward success in its quest to have commercial buildings be on a path toward zero net energy by 2030. Energy efficiency is important because it helps lower the overall energy demand in California and reduces generation of electricity by non-environmentally friendly means such as coal and natural gas. Energy efficiency is most crucial in the commercial sector, as it is the largest user of electricity using 38% of the state s power (CPUC 2011). Energy efficiency programs 2 BEST PRACTICES, 2013
directed at the small commercial sector are typically difficult to enact, and the sector is hard to reach and doesn t give a lot of bang for [the utility s] buck. These small commercial programs are often costly and do not yield high results because while there are many small businesses, each individual business is not a large energy user. However, small commercial buildings remain an important target, as they make up a substantial portion demand of the commercial sector and include banks, restaurants, offices and strip mall type buildings. Peak energy demand in the commercial sector is dominated by energy for air conditioning (45%) and lighting (33%) (Flex Your Power 2012). Utilities influence the energy use of small commercial buildings by targeting them through energy efficiency programs. Some of these programs promote energy efficiency in specific types of technology, such as lighting or HVAC. The table on the following page shows gross kwh energy savings at SCE from commercial energy efficiency programs and the commercial HVAC program. BEST PRACTICES, 2013 3
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ENERGY EFFICIENCY PROGRAMS An energy efficiency program is a program geared toward market transformation and or resource acquisition. It is an economic intervention that strives to create market effects that last after the program has been removed, reduced or changed as well as to reduce energy usage. Utilities must consider these goals when designing programs. For example, SMUD begins the design process by developing an Energy Efficiency Potential Study, which is a quantitative analysis of the amount of energy savings that either exists, is cost-effective, or could be realized through the implementation of energy efficiency programs and policies (EPA 2012). After this, the utility conducts a market assessment to answer fundamental questions that will mold the energy efficiency program. This assessment usually seeks answers such as how energy might be saved with no intervention, how much capital is accessible for the program, whether or not a loan program will need to be created or if the targeted sector will respond to a sizeable rebate. Other areas of interest include determining if the sector a good candidate for demand response, and identifying market players such as contractors, manufacturers, wholesalers, including how these players interact with each other. For instance, Many times contractors will only purchase their equipment from one or two sources and they know which products will sell to their small commercial customers (Ceniceros 2012). Once these market opportunities and barriers have been identified, they are quantified in a Total Resource Cost Test, which identifies what the program s net benefits to the utility are. The results of these inquiries guide the design of marketing and incentive plans for any resulting project. Ideas for new programs come from a variety of sources. These are often successful programs already in place at utilities. Other sources include Research, Development & Demonstration (RD&D) efforts provided by centers such as the UC Davis Western Cooling and Efficiency, and the results of strategic planning to reduce energy usage. BEST PRACTICES, 2013 5
REPORT SCOPE This report describes the current small commercial HVAC programs offered at three California utilities: SMUD, PG&E, and SCE. The goal of this report is to inform LADWP of current program practices, define overall best practices currently observed in the field, and present current problems with HVAC retrofitting and their potential solutions. These findings are based on primary and secondary data found through literature review of HVAC energy efficiency programs and interviews with utility managers, energy advisors, manufacturing companies, and academic researchers at PG&E, SCE, SMUD, Beutler Corporation, and the UC Davis Western Cooling Efficiency Center. 6 BEST PRACTICES, 2013
GENERAL PROBLEMS IN HVAC RETROFITTING A common problem in achieving energy-efficient retrofits with HVAC equipment is that contractors do not obtain the required permits (which mandate certain energy-efficient practices) due to lack of incentive. Though these permits are mandated by California law, contractors who comply with HVAC code provisions incur higher costs that are difficult to pass onto customers (CPUC 2011). Many contractors refuse to incur the costs of obtaining a permit in a market where the majority of contractors will not pull a permit to gain a cost advantage in a market where the low cost bid usually wins (CEC 2012). This issue of code noncompliance is a barrier to energy-efficient HVAC installations and retrofits; according to the California Long Term Energy Efficiency Strategic Plan, which was developed by the CPUC s regulated utilities and many other stakeholders, 30-50% of new central air conditioning systems are not being properly installed. Overcoming this problem will necessitate creating new incentives that encourage contractors to obtain the necessary permits. Without consistency in permit acquisition, there is no standardized method for verifying that contractors perform quality installations. A typical HVAC installation loses almost 25% of its energy to duct leakage, improper sizing, refrigerant level and air flow, as shown by the following chart. (Energy Star, 2012) BEST PRACTICES, 2013 7
The CA Energy Efficiency Strategic Plan proposes that there need to be ways to certify that a contractor correctly inspects and installs each HVAC unit, and that there should be penalties for contractors who do not (CPUC 2008). The CA Energy Efficient Strategic Plan suggests using the Air Conditioning Contractors of America s (ACCA) HVAC quality installation standards as the norm instead of Title 24 s optional quality control requirements, where a contractor may install higher efficiency measures in a new building in lieu of the quality installation and control requirements, absent any performance verification (Western HVAC Performance Alliance 2012). Improperly installed HVAC appliances impair energy usage reduction goals, and in turn increase costs. The CA Energy Efficiency Strategic Plan also states that quality installation and maintenance should become the industry and market norm (CPUC 2008). More specifically, this goal states that 100% of HVAC systems would be installed to quality standards and optimally maintained throughout their useful life by 2020, with HVAC-related permits obtained for 50 percent of installations by 2015 and 90 percent or more by 2020 (CPUC 2008). This would reduce overall energy use and lower energy costs. 8 BEST PRACTICES, 2013
POTENTIAL FOR SMALL COMMERCIAL HVAC PROGRAMS AT LADWP LADWP has a very large service area, covering 1.4 million energy customers spread across three climate zones. This is both a potential obstacle and a great opportunity. With such a large territory, LADWP may need to have multiple programs aimed at specific areas based on climate and energy usage characteristics (Hunt 2012). A single program might be easier to design and maintain, but customizing multiple programs for certain areas might yield better results. Though Los Angeles generally has a mild climate, very high temperatures often occur during the summer months. The high demand for power on hot days gives LADWP the opportunity to achieve high peak period energy savings on air conditioning and ventilation systems. Because there is no current program at LADWP for small commercial HVAC equipment, it gives LADWP the opportunity to be a leader in new technology. For example, by providing incentives for the use of new products, LADWP could stay ahead of increasing efficiency standards. These include the updated Title 24, which declares that by January of 2014 all roof-top units (the most commonly used HVAC set up in the commercial sector) must have fault detection and diagnostic devices installed that communicate off the board how well the system is working and when there is a failure (Markley 2012). This type of technology will greatly benefit customers that often do not know if there is something wrong with their HVAC system until it stops working. By immediately receiving information about a problem, the customer will be able to take quick measures to ensure that their unit is working efficiently and continuing to save energy. BEST PRACTICES, 2013 9
COMMON EFFICIENCY PROGRAMS Common Technology Offered in Rebate Incentive Programs PG&E SMUD* SCE Advanced Evaporative Cooler $123/ton Package Terminal AC $100/unit $100/unit Variable Frequency Drive for HVAC fans w/ motor $80/hp Less than or equal to 100hp: $50/hp $80/HP Packaged AC and Heat Pump Greater than 760,000 Btu/hr or 63.3 tons: $0.15/kWh or $100/kW Greater than or equal to 240,000Btu/hr or 20 tons that exceed Title 24 baseline requirements: $0.08/kWh and $200/kW $100/unit AC complete subsystem replacements (evaporative condensers, air cooled condenser, compressors) $0.15/kWh or $100/kW $0.08/kWh and $200/kW Evaporative Cooling Unit $0.15/kWh or $100/kW $0.08/kWh and $200/kW $123/ton or $0.15/kWh or $100/kW Evaporative Pre Cooling Unit $0.15/kWh or $100/kW $0.08/kWh and $200/kW Indirect Evaporative Cooling (single stage and $0.15/kWh or $100/kW dual stage) $0.08/kWh and $200/kW Heat transfer (including heat pumps) to heat sinks, such as ground source cooling in airconditioned buildings $0.08/kWh and $200/kW Demand control ventilation installation (CO2 sensors) $0.09/kWh or $100/kW $0.08/kWh Conversions from constant air volume to variable air volume $0.15/kWh or $100/kW $0.08/kWh Controls and Energy Management Systems for HVAC equipment $0.09/kWh or $100/kW $0.08/kWh Variable speed drives on fans (including supply fans, exhaust fans) $0.09/kWh or $100/kW $0.08/kWh Variable speed drive installations on existing air conditioning compressor motors $0.15/kWh or $100/kW $0.08/kWh Air Conditioner air-side or water-side economizer installations on units not already equipped with a 100% economizer $0.09/kWh or $100/kW $0.08/kWh Window Film $1.35/square ft. $1.35/sq. ft. Split System $0.15/kWh or $100/kW Water source heat pumps Of any size: $0.15/kWh or $100/kW Variable Refrigerant Flow *Offered through third party *Offered through third party ( = Not offered directly through the utility) *SMUD custom incentives are $0.08/kWh and $200/kWup to 30% of project cost or $150,000, whichever is less. 10 BEST PRACTICES, 2013
Rebate Incentives The three utilities analyzed in this report, PG&E, SCE and SMUD, all offer basic financial incentive programs. All three utilities offer rebate programs, which are delivered through turnkey customer installations or by installations from an approved contractor. According to members of the American Council for an Energy-Efficient Economy (ACEEE) in a review of lessons learned at a New York State Utility, financial rebates should catch the customer s attention [ ] and should be 50% or more of measure cost (Nadel 1990). At SCE, the financial rebate program is commenced by the customer. The customer interested in having an energy efficient HVAC unit approaches a contractor to learn about which systems will work best for them, and the contractor installs it. The customer then submits an application for a rebate to SCE. SCE will pay the rebate to the customer, or to the contractor if the customer passes on the rebate. This program has been working very well at SCE because they have been providing the program for so long that they understand the process and the customer response very well. It is considered the volume producing program at SCE. Common technology offered for rebate incentives at SCE as well as PG&E and SMUD include: evaporative coolers, variable frequency drives for HVAC fans, variable speed motors, air conditioning subsystems, and economizer installations. Customers apply for these rebates by paper mail in applications at SMUD and by mail or online application at PG&E and SCE. Demand Response Demand Response (DR) is a set of time-dependent program activities and tariffs that seek to reduce electricity use or shift usage to another time period. DR provides control systems that encourage load shedding or load shifting during times when the electric grid is near its capacity or electricity prices are high (Motegi et al. 2006). This type of program is present in different forms at SMUD, SCE and PG&E, though in each case customer participation is initiated by the customer. Perhaps the simplest of these programs is offered by SMUD. This program, called the Voluntary Curtailment Program, asks commercial customers to decrease energy use by a pre-determined amount on summer days when there is an energy shortage emergency. There is no financial incentive for this program, and SMUD reports that more than 100 of their business customer s sign up for this program each year. To acknowledge these customers, SMUD provides a public Thank You by listing the businesses name in the newspaper and local ads. SMUD also offers a Time of Use program, which increases the electrical costs during peak hours and reduce the costs during BEST PRACTICES, 2013 11
off-peak hours. This incentivizes customers reduce their energy usage during peak hours to save on their electrical bill. PG&E and SCE both have at least 4 different demand response programs, however, this paper highlights only a few. At PG&E the Scheduled Load Reduction Program (SLRP) allows customers to reduce their energy use during peak hours and weekdays they pre-select between the months of June and September. The incentive pays $0.10/kWh per month for the actual energy reductions the customer is able to achieve. The energy reductions are the difference between a calculated baseline specific to the facility and actual energy usage during SLRP hours on SLRP days. The committed load reduction must also be 15 of the customer s average monthly demand or 100kW, whichever is greater (PG&E 2012). PG&E also offers a program very similar to SMUD s Time of Use program, called Peak Day Pricing, that increases the price of electricity during peak hours and reduce the price during off-peak hours. At SCE, the two demand response programs that are most pertinent to small business HVAC efficiency are their 10 for 10 program and their Summer Discount Plan. The 10 for 10 program allows eligible customers to earn a 10% bill credit on their summer 2012 electricity costs if they reduce their cumulative kilowatt-hour energy use between July1st and September 30th by at least 10% compared to the same period in 2011. The Summer Discount Plan permits SCE to install a cycling device on the customer s air conditioner at no charge to the customer. In addition SCE has a Demand Response Contracts Portfolio which consists of four aggregators (third party implementers), contracted to provide SCE with price-responsive and/or demand response events that SCE may call at its discretion. Each aggregator designs its own programs, and offers demand response program structures and options that may not be directly available through SCE. Customers may select an aggregator with services that best meet their business needs (SCE 2012). This program allows SCE to reach more business customers and provides those customers with more options so they can find a program that best suits their needs. Upstream Incentives Upstream incentives target manufacturers and distributors of HVAC appliances, with the goal of making certain energy efficient technology choices more readily available to customers. The upstream shift is challenging, yet when implemented successfully, this focus is more effective because a small number of manufacturers and distributors are in a position to impact a larger magnitude of decisions to purchase and install high efficiency equipment (Linn et al. 2010). In 12 BEST PRACTICES, 2013
this way the utility is able to interact with fewer stakeholders than they might with downstream incentive programs, but still yield high energy savings. All three utilities have used the third party implementer Energy Solutions for their Upstream HVAC Distributor Incentive Program. The goal of this program is to engage the HVAC market to significantly increase the sale and stocking of high efficiency HVAC equipment for commercial installation (Energy Solutions 2012). SMUD has recently discontinued the program due to the struggling small commercial economy in Sacramento and falling participation rates, but said it was a good program. In 2008 this program won the ACEEE Exemplary Energy Efficiency Program Award and in 2011 saved 26.7 million kwh between 5 utilities (PG&E, SCE, SMUD, San Diego Gas & Electric and Nevada Energy). By targeting the distributor market, Energy Solutions claims to provide better customer service, streamline/simplify process and reduce confusion, and accelerate market transformation (Energy Solutions 2012). Their program has a fullyautomated application processing system that includes real-time tracking (like FedEx), automated reporting and large batch submissions. It enables applications to be processed in 2 minutes and makes participation easy for participating distributors and utilities (Energy Solutions 2012). This program also offers some of the newest AC systems including Heat Pumps and Variable Refrigerant Flow. For SCE this program is working very well and its total resource cost (TRC) is 3.93 (SCE 2009), making it cost effective. Quality Installations & Maintenance PG&E and SCE both offer a quality maintenance program. This program is a customized 3 year contract with the customer and provides comprehensive ASHRAE/ACCA 180 based treatments on 3 ton or larger capacity unitary and split HVAC units on commercial building roof tops The ACCA Standard 180 supports increased HVAC performance baseline conditioning, enhanced planning and a more comprehensive approach to maintenance (PG&E 2012). The customized plan is developed by noting the tonnage, age and other system components (SCE 2012). PG&E covers all initial tune-up costs and minor repairs on existing equipment through additional incentives paid to the customer s HVAC contractor. The contractor calculates the incentive amount for the customer based on the inspection findings and the number of identifiable eligible units at the customer s business. Payments to the customer take place over three years with 20% paid initially and then 25% of the incentive paid after the first year of tasks are completed, 35% after the second year and 20% after the third year. BEST PRACTICES, 2013 13
According to Mugimin Lukito of SCE, the three year commitment can be difficult to operate and maintain because the scheduled check-ups throughout the years can be costly. When analyzed with a TRC test, the program did not perform above a 1 and as thus not cost effective. SCE continues offering the program because they are mandated by the CPUC to have it, and with a few adjustments they foresee it making a cost effective impact in the future. PG&E has been at the forefront of quality installations and maintenance programs, in support of the CA Energy Efficiency Strategic Plan s request to have 100% of systems installed to specified quality standards by 2020. As part of this effort, PG&E established the PG&E Energy Education Center to offer certification classes on HVAC quality installation and HVAC equipment. Their Contractor Training/NATE Certification incentive gives a financial rebate to contractors that complete any of three levels of certification classes. By doing this, PG&E is able to ensure that the contractors they recommend are capable of performing quality installations and can ensure that an appliance contributes its anticipated energy savings. 14 BEST PRACTICES, 2013
LESSONS LEARNED From this study of PG&E, SCE and SMUD, two program examples stand out as highlighting issues that should be considered in program design and implementation. The first example is SMUD s rebate for the residential Aqua Chill by Beutler Corporation, which teaches the importance of aligning the goals of utilities and their associated stakeholders. The program began in 2010 and offered $1,100 per unit installed. Beutler was going through internal changes at the time and did not aggressively market the project, and in turn the project only sold 5 units. Recently Beutler increased their marketing efforts and the rebate offering was increased to $2,000 per unit, and sales rose to 20-25 units in summer of 2012. SMUD and Beutler each have different priorities in the implementation of this program; SMUD is trying to reduce energy usage quickly by selling the units as fast as possible, but Beutler s priority is to ensure that each unit is installed to certain quality standards, and thus is in no rush to sell its units quickly. The prior distributor of Aquachill did not ensure quality installations and as a result the units failed in the field, customers had a bad image of the Aqua Chill and the distributor went out of business. This is what Beutler is trying to avoid. The concerns of SMUD and Beutler Corporation are both valid, but the conflict between them may negatively impact program effectiveness. Another lesson is to understand the market sector for a small commercial HVAC program. SMUD recently discontinued its HVAC distributor program due to a struggling small commercial economy in Sacramento. While this program worked very successfully in the past at SMUD, last year it was no longer yielding significant energy savings over the baseline to make it a program worthwhile for this fiscal year. BEST PRACTICES, 2013 15
BEST PRACTICES The HVAC Distributor Incentive Program offered by Energy Solutions works very well for all three utilities researched. It is able to target the small commercial HVAC sector through the distributors who provide energy efficient equipment to contractors that small business owners employ. Its automated application process is able to immediately process applications, allowing it to increase its reach to distributors quickly. Although SMUD currently no longer has the program, they, as well as PG&E and SCE, speak highly of it. PG&E s contractor training courses are a best practice that supports the CA Energy Efficiency Strategic Plan s goals for quality installations. All the utilities have a quality maintenance program where periodic check-ups (and needed tune-ups for older models) are performed to a Standard 180 level, yet by training its contractors PG&E takes a whole process approach to ensuring that quality installations are taking place. 16 BEST PRACTICES, 2013
CONCLUSION In conclusion, energy efficiency presents a challenge in California due to its large population and climate zones that drive high levels of HVAC use. A small commercial HVAC energy efficiency program is vital for attacking this problem, though the sector is historically hard to reach. There are currently promising programs in place at some of the biggest utilities in California, which include downstream incentives (including third party programs), upstream incentives, demand response and quality installation and maintenance programs. BEST PRACTICES, 2013 17
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