Combining the revenue stream from energy savings with demand response schemes can prove to be a very effective way to increase the economic attractiveness of Energy Performance Contracts (EPCs). However, not all buildings will have the same increase in return on investment using this business model compared to an approach that considers energy efficiency alone. In this post we are going to analyse the characteristics of buildings that make them more suited to this kind of dual services approach.
When it comes to EE (Energy Efficiency) interventions, in traditional EPCs, the major constraint is the size of the project and the absolute level of savings achieved. This is due to the high transactional costs involved in financing and procuring the contract. Sites with higher energy consumption will be, in principal, more attractive than those with low energy consumption. Moreover, if most energy is used on lighting and HVAC systems, the renovation potential is even higher since these interventions are already widely applied in the industry with proven high returns on investment (LED Upgrade, ventilation flow rates adjustment, faulty sensors replacement…).
As for DR (Demand Response) interventions, we are also looking for buildings with a large energy footprint and, ideally, in which the peak power consumption is measured at around the same time of the day as the peak power consumption of the electricity network to maximise the potential for peak-shaving (mid-afternoon). DR measures are, however, more limited in their applicability than EE due to the operational constraints of some commercial buildings: for example, shutting off some equipment, even for a short time, may affect the air or lighting quality to an extent that it negatively affects the organisation’s operational activity. Buildings with more flexible loads will be more attractive for DR schemes (lighting level in a supermarket would be a more flexible load than a medical ventilator, for example). As for the engineering equipment used in DR schemes, our survey shows that the most common participants in demand response programmes are backup generators and CHP units followed by energy storage and HVAC systems.
On a general note, looking into both EE and DR interventions, our experience has shown that it is much easier to engage in these type of long-term contracts when the building is operated by the owner. Owner-occupied buildings reduce the level of bureaucracy involved and facilitate the measurement and verification stage of EPCs. Obviously, businesses with strong environmental agendas are more prone to engage in this type of contracts.
In our experience the buildings with most potential for this dual revenue stream business model are retailers, leisure centres and offices with medium-sized data storage infrastructures.
Most energy consumption in offices is attributed to space heating and cooling, lighting, office equipment and appliances. These are big energy consumers that can be reduced through traditional EE measures and the use of automation via Building Energy Management Systems (BEMS). When it comes to DR, offices with data centres which typically have an energy consumption profile that peaks in summer mid-afternoons, makes them ideal candidates for peak-shaving. Offices can participate in demand side management through adjustments to HVAC set points, decreasing ventilation fan speeds, pre-cooling of spaces (overnight for example) and switching on onsite generation. One obstacle for DR events is that office occupants tend to stay in the same location for long periods of time and are therefore more prone to be sensitive to changes to the working space environmental conditions.
Retail usually offers one of the largest renovation potentials since owners regularly opt to renovate the floor area in order to attract customers and extend business. Most energy is spent on air conditioning and lighting (and refrigeration in the case of supermarkets). DR is particularly promising in the case of supermarkets due to the higher loads on refrigeration which can be turned off for short periods without fridge and freezer temperatures drifting outside of safe ranges. The presence of backup generators or cogeneration units can further extend the DR potential.
In sports facilities/leisure centres most energy is spent on heating, ventilation, lighting and water pumps for swimming pools. These are usually large buildings with high energy consumption and therefore suitable for EE interventions in the form of EPC’s. When it comes to DR, there is some lack of flexibility regarding ventilation due to the strict air quality restrictions but the other loads are very flexible (lighting, cooling/heating and there is a very high potential for DR schemes due to the centralised control and high energy demand. As for the case of retail, the common use of back-up generators and CHP units increase the attractiveness of DR. There is some concern from the building owners that DR events might affect customer comfort too much but a survey conducted during our research conclude that less than one quarter of leisure centre users have noticed the impact of a DR event on the indoor environment.
Ballymun Sports and Fitness Centre, under EPC contract with NLGES
On the other hand, health care facilities and schools/universities present the biggest challenges to implement a dual EE and DR scheme.
Health care facilities are heavy energy consumers, but renovations need to be carefully planned and executed since hospitals need to run continuously and can be complicated due to operational, economic and regulatory constraints. Also, because of the tight operational constraints, most hospital energy equipment has limited flexibility. However, hospitals need to regularly test to their back-up generators and these tests can be included in demand response schemes which presents some opportunity.
Finally, educational facilities are limited by the low annual operating hours of this type of building as they incorporate a large number of weeks off for holidays and shorter than average working days. Even for energy efficiency, these constraints rule out typical energy interventions. Moreover, there are very tight operational constraints on air and lighting quality in educational facilities which limits the options for DR events. Both EE and DR interventions are made more difficult by the highly bureaucratic processes involved in signing long-term EPCs. The IEA has recognized the potential of these facilities but also the increased problems in implementing them.
In summary, a dual services approach that considered both energy efficiency and demand response can reduce the payback period and contract duration of a typical EPC, but some building types are more suited to this approach than others.
Summary of buildings characteristics suitable for the NOVICE model