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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
Definition of SavingsDefinition of Savings
Energy Savings = UseBaseline - UsePost-Retrofit
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
Definition of SavingsDefinition of Savings
Energy Savings = UseBaseline - UsePost-Retrofit
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.
Performance Usage Financial Uncertainty
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.
Performance Usage Financial Uncertainty
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?
Performance Usage Financial Uncertainty
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.
Performance Usage Financial Uncertainty
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.
Performance Usage Financial Uncertainty
2-15
Savings Uncertainty: Savings Uncertainty: LargeLarge
1 3 5 7 9
Savi
ngs
GuaranteedEstimated
Performance Usage Financial Uncertainty
2-16
Savings Uncertainty: Savings Uncertainty: SmallSmall
1 3 5 7 9
Savi
ngs
GuaranteedEstimated
Performance Usage Financial Uncertainty
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?
Performance Usage Financial
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?
Performance Usage Financial
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?
Performance Usage Financial
2-22
Operating HoursOperating Hours
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?
Performance Usage Financial
2-23
Operating HoursOperating Hours
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
Performance Usage Financial
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?
Performance Usage Financial
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?
Performance Usage Financial
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?
Performance Usage Financial
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.
Performance Usage Financial
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.
Performance Usage Financial
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?
Performance Usage Financial
2-32
User ParticipationUser Participation
How will user interaction be maintained (or minimized)?
Training? Annual verification and reporting? Lockboxes (e.g., on thermostats)?
Performance Usage Financial
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?
Performance Usage Financial
2-34
Energy PricesEnergy Prices
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.
Performance Usage Financial
2-35
Energy PricesEnergy Prices
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
Performance Usage Financial
2-36
Energy PricesEnergy Prices
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
Performance Usage Financial
2-37
Energy PricesEnergy Prices
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
Performance Usage Financial
2-38
Energy PricesEnergy Prices
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.
Performance Usage Financial
2-39
Energy PricesEnergy Prices
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.
Performance Usage Financial
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.
Performance Usage Financial
2-41
M&V CostsM&V Costs
M&V Rigor
M&V Cost
Value of information
$
Performance Usage Financial
2-42
Review QuestionsReview Questions
Why might utility costs increase despite a successful SuperESPC project?