Increased energy use is in direct conflict with our flagging economy and increased focus on energy efficiency. As a result, many are turning to consultants, in search of sustainable solutions.
“Energy efficiency touches us all,” believes Deb Harmon, senior vice president for infrastructure at Brown & Caldwell, a full-service environmental engineering and consulting firm in Walnut Creek, CA, whose core clients include water and wastewater utilities and industrial companies. “For us, energy is always a mainstream issue, but now clients are more motivated because of the cost. It’s a smart business move to think more wisely about energy savings, cost savings, and greenhouse gases, but we wonder how long it will last. Will there be a sustained commitment when oil prices drop? The ethics are changing; we’ve reached a tipping point. Money has helped us reach that tipping point, but will we go back or is this the new normal?”
Green by Presidential Dictate
Temporary or the new normal, the fact remains that incentives to “go green” are now in place, and it behooves corporations and organizations to take advantage. More organizations are interested in energy as an independent need in today’s business environment. Harmon believes that interest is directly related to President Barack Obama’s emphasis on green energy and federal and state incentives.
When President Obama signed the American Recovery and Reinvestment Act into law, $42 billion of the $787–billion stimulus bill was allocated for energy efficiency and renewable energy development, with another $21 billion in tax credits.
Specifics of the law dictate:
- $11 billion in grants to state and local governments for Department of Energy programs, $400 million for competitive grants under the Energy Efficiency and Conservation Block Grants
- $1 billion each to the Department of the Interior and the Department of Veterans Affairs for energy efficiency projects
- $300 million in transportation–related grant programs to support state and local government purchases of alternative fuel and advanced technology vehicles
- $2 billion for facility funding grants to manufacturers of advanced battery and battery system components
- $250 million for grants for HUD-assisted housing to be used for energy retrofits and green investments
- $14 billion for electric power transmission grid infrastructure and energy storage development that includes $4.5 billion to the Office of Electricity Delivery and Energy Reliability for grid modernization and electricity storage, and $6 billion in appropriations targeted at leveraging $60 billion in loan guarantees for rapid deployment of renewable energy and electric power transmission
In addition, the law includes several energy tax incentives, such as an extension of the Renewable Energy Electricity Production tax credit through the end of 2012 for wind facilities and through 2013 for other qualifying facilities (open- and closed-loop biomass, geothermal, small irrigation, incremental hydropower, landfill gas, municipal waste, etc.). In lieu of the production credit, a 30% investment tax credit is optional for all eligible facilities placed in service in 2009 and 2010. Grants, worth up to 30% of project cost, are also available in lieu of the production tax credit.
Other incentives include $1.6 billion in Clean Renewable Energy Bonds to finance wind energy, open- and closed-loop biomass, geothermal, small irrigation, incremental hydropower, landfill gas, municipal waste, and marine/hydrokinetic. Another $2.4 billion has been authorized for Energy Conservation Bonds to finance state, municipal, and tribal government programs for reduction for greenhouse gases and green community programs.
The legal mumbo-jumbo can be overwhelming and complicated, which could explain the deluge of inquiries consulting firms are receiving. “The stimulus is bringing more business from municipalities … and more confusion,” states Tom Moore, CEO of Calpwr, San Diego, CA. Explaining that most of the stimulus package is aimed at cities and towns, he’s quick to note that Calpwr does a lot of municipal business involving alternative energy such as biogas and solar power.
Formed in 2000, in anticipation of product and service marketing opportunities emerging from energy deregulation, Calpwr works with municipalities, educational facilities, manufacturers, and commercial entities to provide energy solutions. The stimulus incentives, Moore says, have caused a “big rush to market.”
However, he claims that the mechanisms to receive stimulus money aren’t in place yet, so because many entities look at the stimulus as a lifeline, several projects have slowed to a crawl while waiting for the funds.
Sifting through the complexities of funding is one of the main reasons consultants can benefit a group interested in energy projects, Moore believes. For instance, he explains that some grants cancel out state-sponsored incentives. “They subtract money if you get other money; it’s a double-dipping clause. We make our money by understanding where the stimulus dollars are.”
Finding Money to Save Money
There is no pre-packaged financing for energy projects, Harmon says, and due to the changes in financing and the fact that the financial industry is fragmented, with many potential sources, a consultant might be the best guide through the monetary miasma.
Finance is a double-edged sword, Moore contends. “It’s harder to get now: backup credit is required,” he says. “It’s unbelievably onerous; you can only qualify if you don’t need it. The challenge is that most banks don’t understand the project, the value of the equipment, and streams of revenue. Cogen is considered backup power, and the equipment is listed at scrap value.”
Calpwr employees spend time educating lenders about the value of energy projects, Moore says. “Our role becomes valuable because of our relationships with lenders. I have the same conversation with every customer. They have a good relationship with a bank and think they can get a loan at a great rate for anything, but eventually, they give up and come to us. We understand that finance is a real part of the business.”
The trick is, no project has the same financing, according to Juliet Don, manager of media and PR/spokesperson for Chevron Energy Solutions, a wholly-owned subsidiary of Chevron, in San Francisco, CA. “There are so many variables: size, scope, resources, opportunities … Our team identifies financial opportunities and works to find financing.”
Harmon says Brown & Caldwell’s funding expertise includes looking at financial options, “not just borrowing. We help with grant applications and look at other sources.” She sees increased interest in private third-party companies with financial capabilities, particularly concerning purchase of byproducts.
Byproducts could also be reused for savings. “A consultant should look at payback opportunities,” suggests Harmon. “It’s as important as financing. There’s a lot of money in just improving efficiency. If you reduce your energy costs 20–30%, you may not need to finance.”
Due Diligence
With a primary market made up of the public sector (cities, states, federal government, educational institutions, transit authorities), Chevron’s expertise extends beyond renewable power to energy efficiency. In fact, Don considers energy efficiency even more important than renewable power.
“We’re encouraging business to look at all opportunities,” she says. “Our approach is that meeting the growing demand will take all forms of energy. Saving money in this environment is important.”
It starts with an audit to determine what measures can best benefit a client. “We determine the type of energy savings possible, arrange financing, and act as general contractor for installation,” adds Don. “We purchase equipment, oversee delivery and supply of materials, hire subs for installation—we manage the whole process.”
If that’s not benefit enough, she says that because Chevron is not a manufacturer, they don’t “push” any vendor, stating, “We recommend what’s best for the client.”
Citing the example of LAMT, Don says the Metro bus facility had “a lot of opportunity” for energy savings. “We looked at HVAC and lighting first,” she says. “Placing 7,000 solar panels—a 1.2-megawatt system—on the roof reduced their energy costs by 50%.”
Emphasizing “priority through cost savings,” Don says this project relied on incentives from power and water and gas utilities, and an air quality board, but still needed traditional funding. For that, Chevron uses traditional financial institutions, such as Bank of America.
Energy efficiency is a hallmark of Brown & Caldwell, Harmon concedes, and has been one of the company’s core services for 35 years. “Pumping is a huge cost to the energy consumer. Any reduction is a savings.”
She says clients approach energy in different ways. Some focus on a specific facility project or issue, such as reusing biogas. Others set targets for energy use: either reduction or energy efficiency improvement. “One client reduced energy usage 20% in 18 to 24 months.”
Targeted usage plans contain more complexity, because their scope extends beyond what the client can control to include what’s happening in the market and with regulatory issues. “We like to solve those challenges,” says Harmon. “It gives us the opportunity to look at a wide range of opportunities.”
But again, it all starts with an audit or assessment. “We have to know what the issue is,” she says. “We look at energy consumption. Both factors shape the audit.” Then, Harmon adds, they discuss best practices: issues related to peak energy usage.
Moore says Calpwr’s focus is developing energy projects. Their role includes the initial site evaluation, engineering, construction, and finance, including power purchase agreements.
Don also has some experience with those. In February, Chevron Energy Solutions completed the largest solar K–12 project—5.5 MW of solar power—for the San Jose Unified School District. Accomplishments included reducing greenhouse gas and energy costs while teaching teach students about solar power. Although the school is the ultimate beneficiary, because Bank of America owns the panels through equipment rental and lease, the bank was able to capitalize by taking the tax credit under the California Solar Initiative.
James A. Sinnema, P.E., with West Coast–based RBF Consulting, shares the due diligence study of multiple sites in various locations, ranging from 160 to 4,100 acres, for a client seeking suitable land for photovoltaic (PV) solar panels to be installed in large-scale arrays, covering as much of the site as possible. The energy developer under contract brought in an international technology provider at the due diligence level to review work and provide preliminary layouts for the sites. Once a suitable site is determined, the technology provider will construct the PV arrays.
Meanwhile, RBF’s role on the project includes many tasks:
Constraints map/paper boundary survey. To include:
- Review boundary/vesting
- Review title reports/easements
- Title exception investigation
Obtain topographic mapping
Slope analysis
Rough hydrology or low-resolution FLO-2D analysis
Geomorphic assessment
Non-invasive geotechnical assessment
Site access road assessment. To include:
- Site visit
- Preliminary design of primary and secondary access
Determine availability/requirements for fire protection
Prepare preliminary estimate of probably offsite costs
Prepare site parameters table. To include:
- Minimum/maximum temperature
- Maximum relative humidity
- Soil corrosivity (samples and lab testing)
- Seismic design criteria
- Wind design criteria
- Snow load
- Maximum stormwater velocity and depth
- Maximum rainfall rate
- Design frost line
- Wetlands determination
Prepare executive summary
Exhibit preparation
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The task list can be daunting and unfamiliar territory. “Most organizations do this only once,” speculates Moore. “It’s not their primary job.” He believes relying on a consultant will decrease the time to get the deal and shed light on things to consider.
With the go-it-alone approach, money may be left on the table or a bad agreement could be written. For example, Moore mentions a municipality approached by one manufacturer to review its energy efficiency. “It sounded great on the surface, but the contract favored that manufacturer,” he says. Problems arose, the contract was defaulted on, and the manufacturer had to sell the project. “You need the experienced eyes of a consultant.”
It takes more than just a set of “fresh eyes” these days. “The old way [of consulting] meant telling a client what to do and how to do it and finding money,” says Moore. “The new way keeps the consultant involved throughout the project to make sure its promises are delivered.”
A good contract should ensure that they are. But, advises Moore, know the difference between a good and bad deal, and know what’s in the contract. “It should be fair to both sides,” he says.
It also should be a living document, not just a reference when things go wrong. He references a project in southern California in which a wastewater and bog energy plant was selling power to the municipality. “It treated more gas than it was obligated to provide, but if it didn’t, we would need to modify the contract.” Fortunately, he says, the contract was “very fair,” adding “it keeps us both honest.”
That contract took six months to negotiate and included a ground lease. “There was $2 million in equipment on the facility grounds,” says Moore. “Legally, once it’s on their property, they could claim it. We needed to lease the property to place equipment and make sure they could not attach it.” Moore says many clients don’t consider liability issues and that corporate attorneys may not be well-versed in energy issues, which is why consultants can be so valuable.
That said, consultants are not a one-size-fits-all commodity. “The client needs to do some homework to get the right consultant,” states Moore.
Key metrics to consider include relevant experience. “Don’t hire a coal-fire power plant guy for solar projects,” he adds. “There are different ‘languages’ in different sectors. Consultants understand equipment that is the mechanism of prime movement in their area. If you find one guy who claims to know everything, run away.” Moore believes a team is necessary to solve all the legal, engineering, and environmental issues involved with a project.
In addition to getting the right “type” of consultant with the appropriate technical or business focus, Harmon recommends seeking someone who is a good fit for the organization and, above all, checking credentials and qualifications. “Our firm put together teams with mixed skill sets. We employ innovative thinking—looking at old problems in new ways.”
Additionally, finding a consultant who treats the project like it’s their own can also be an asset. Chevron maintains a hands-on approach by keeping project management onsite as if it’s their office, Don says. “We look as it as a relationship, an opportunity to do more.”
That added attention has enabled the company to rely on reputation, referrals, and repeat business. Before working on the Metro’s maintenance facility, they did work on the parking lot. The San Jose School District project included four sites, and then expanded. “Professionalism and brand are very important to Chevron,” says Don. “We do everything we can to help our clients have successful projects.”
Harmon says there are many benefits in working with a consultant. “A consultant has wider exposure to different technology. We get many ideas from many clients and all the different projects we work on.”
One Brown & Caldwell client in the mid-Atlantic reaped the benefit of such widespread experience when designing a new pump station. “We had an innovative design—the intake and equipment selection,” she says. “Our client thought the pump was too small to work for the capacity, but based on previous experience, we knew it would, so we demonstrated with a model.” When the project started in April, “the operators were blown away” by 60% energy savings.
Mapping Out the Components of the Deal
Although most consultants advise beginning with clearly defined goals, expectations, and obligations, first there have to be opportunities in a facility, Don indicates, and a willingness to embark on the project.
Harmon also suggests being open-minded to new ideas. “After all, that’s why you bring in consultants,” she says. She believes it’s important to engage the client’s staff in the effort. “You can be open-minded and listen to recommendations given by outside consultants, but is the staff on board?” It’s important to build a consensus. The more engagement in the process of identifying places for change—the more buy-in from the staff—the better the result.
Once everyone’s on board and goals, objectives, and expectations have been set, Harmon says communication is critical in managing progress and changed conditions along the way.
Make no mistake, Moore adds, there will be changes along the way. To help set realistic expectations, he recommends a risk analysis.
Evaluating five basic risk factors can lead to a successful result:
- Credit—how to get funded
- Applications—does it do what it claims? Does it do what the customer expected? Make sure the application is correct.
- Execution—Can the team design, build, and deliver? The consultant needs to be involved: the expert from afar.
- Expectations—relevance check: Does the system do what the customer expects? Manage expectations of both parties. Communication is important. When changes occur, the customer may not understand why unless you keep him informed.
- Follow-through—make sure the mechanism is in place to ensure ongoing success. Will the technology still be around in 10 years? Is there an adequate fuel supply? Who pays for maintenance?
Performance is the only ongoing risk, Moore points out. Mitigate the other risk factors as much as possible and try to plan ahead. What if natural gas prices rise or fall?
Moore describes a college that put an energy system in place. “The contractor gave a performance guarantee that it would save ‘X’ amount of dollars per year, but he didn’t account for the changing nature of natural gas,” he says. “In the end, the contractor defaulted because he couldn’t fulfill the contract. They settled out of court.
“It’s a niche market,” sums up Moore. Relying on a little consultative assistance could mean a more economical, financially secure approach to energy efficiency.