Jim Fitzgerald, "Financing Energy Retrofit Projects"
Jim Fitzgerald, Director of Building Diagnostics, Conservation Services Group, Minneapolis, MN
Summary: Mr. Fitzgerald’s presentation was a follow-up to Mr. Lee’s with information and examples of how communities, businesses and individuals can finance energy retrofit projects through an Energy Service Company (ESCo). He also strongly recommended taking a systematic approach to retrofits as opposed to a piecemeal approach. He gave an example of the problems that can be encountered if people focus on only one aspect to a structure’s problems rather than understanding and dealing with the whole picture. He concluded his presentation with a discussion on how to save energy and money, and which retrofit measures typically saved more money than others.
Mr. Fitzgerald began his presentation by reiterating the three questions posed at the conclusion of Mr. Lee’s presentation:
1. How do we get homeowners interested in energy retrofits rather than kitchen upgrades?
2. How do we pay for these retrofits?
3. How can homeowners be guaranteed a return on their investments?
Mr. Fitzgerald emphasized the concept of “packaging to make an impact.” Rather than doing a retrofit one piece at a time it is better to package it together and market it as a retrofit loan that will make a big impact. There are Energy Service Companies (ESCo) doing “Energy Performance Contracts” that provide financing or operating leases and offer a guarantee on energy savings from the installed retrofit measures. ESCo’s will offer a range of products, design, installation, and maintenance services. The energy savings gained is used to pay off the loan. This type of financing is often used for large projects and school districts.
To illustrate an ESCo, Mr. Fitzgerald presented the example of the Minneapolis Public Housing (MPH) Project. The ESCo provider was the U.S. Department of Housing and Urban Development (HUD) who loaned $50 million dollars to MPH for energy retrofits on 6,000 housing units. His company inspected the units as described in Mr. Lee’s presentation. They calculated the energy savings and cost of each measure recommended, and added in interest and administrative oversight. The payback period was figured at 15 – 20 years with the estimated savings to pay back the loan. The ESCo companies see the loan as an investment in the property. ESCo’s don’t just fix the building but return to check that everything is running efficiently. They have to make sure the owner saves money on energy so they can get paid back. That’s why it can be considered a guaranteed investment. The energy retrofit measures performed on the MPH project were estimated to yield greater than 40% savings.
“It works best when just one responsible party is involved such as a housing authority or school district to coordinate the systematic improvements for the homes to operate as efficiently as possible,” said Mr. Fitzgerald. He continued, “A builder working alone can’t get involved with how the people use the house. If they choose to run their thermostats at 85 ̊F you have no control over it. But asset owners such as public housing have a financial interest in how the tenants use the house because they own the property. It’s important to have the leverage. It doesn’t work as well when the one paying for the retrofit doesn’t get the benefit and the one who gets the benefit has no interest in maintaining the property.” Mr. Fitzgerald said there are 20 ESCo’s and recommended Honeywell as a Performance Contractor and to email william.thomae@honeywell.com if interested or go to www.naesco.org for a list of other providers.
A second type of ESCo is where there isn’t a single party involved but rather multiple parties. An example of this is the Cambridge Energy Alliance, a new nonprofit organization formed in 2007 in partnership with the City of Cambridge, Massachusetts to carry out a first-in-the-nation level of energy efficiency measures in a single city. Over the next five years, the Cambridge Energy Alliance will carry out a $100+ million energy efficiency implementation effort, while also installing new renewable and clean energy generation, and technologies that curb electricity use during peak demand periods. The goal is to reduce electricity demand by 50MW, a 15% peak load reduction; reduce water consumption by 10% citywide; and reduce annual greenhouse gas emissions from the city by 150,000 tons (10%) by 2011. The Alliance intends to achieve a participation rate of 50% in each sector of customers (municipal, commercial and residential) with three scales of revolving loans and conservation packages (homeowner, small commercial and institutional scales.)
Approximately 80% of the financing will come from private sources. The remaining 20% will come from a number of electrical utility incentive programs established to promote energy efficiency. The financing of energy saving measures and clean energy installations will be repaid from future energy savings of companies, municipal facilities, universities, hospitals, small businesses, and residents. The state of Massachusetts also set aside a $2 million revolving loan fund, called MassEfficiency, to allow the City of Boston and four other Massachusetts cities to implement an energy efficiency program modeled after the Cambridge project. He listed two staff members at the Energy Alliance: Finance Director Holly Andreozzi (781-756-0357) and Director Steve Morgan (919-490-3220) to contact with questions.
Another approach is to work directly with contractors skilled in this type of work who are proven to deliver the best energy performance and outcomes. Mr. Fitzgerald recommended the Environments for Living Program which coordinates various contractors and has retrofitted over 140,000 units. According to an evaluation done in Phoenix , AZ , their work is 40% better than what is required by code. He listed John Tooley, Advanced Energy 919-857-9011 as a contact.
Mr. Fitzgerald discussed a large-scale retrofit project called the MSP Airport Part 150 Sound Insulation Program (SIP), how it was implemented, and the pitfalls encountered along the way. “This project is a classic example of the problems that can be encountered if you only deal with one aspect to a structure’s problems rather than dealing with the whole picture. The solutions chosen for these homes to reduce air traffic noise had certain side effects,” stated Mr. Fitzgerald.
SIP is funded by the Metro Airports Commission, a program self-financed through an airport facilities charge to air travelers. The purpose of SIP is to custom treat 7,000 houses near the Minneapolis / St. Paul airport to reduce interior sound levels by 5 decibels (dba) at no cost to the homeowners. The program installed new prime windows, acoustic storm windows and doors, central A/C, new furnaces, attic insulation, air sealing, wall insulation, roof vent baffles, and fireplace chimney caps with a customized scope of work for each house. SIP was well organized with an architect, program manager and project manager. SIP released public bids for work, published a monthly 400 page spec book, and followed building codes. It was very popular with a 99% participation rate in the target area.
By October, 1996, after treating 3000 homes, there were numerous media reports that the program was causing indoor air problems and creating unsafe “sick” houses. The application of acoustic treatments had the side effect of reducing air leakage that led to poor interior air quality (IAQ) due to combustion appliances back-drafting into the home, creating unhealthy air and by retaining moisture, creating mold problems. They established an IAQ committee and within six months published new program standards on ventilation, carbon monoxide, venting, house tightness and moisture. They implemented an IAQ procedure based on these new standards.
“When a program is created such as SIPs, liability follows. The $500 average cost for air sealing the homes led to a $7000 average “add-on” to fix it,” declared Mr. Fitzgerald. Utilizing a central database of information of the tests done before and after the changes were made, SIP determined what pre-existing problem repairs homeowners were liable for and what the program had to pay for to fix these homes. Out of the 3,000 homes, 2,300 responded to the invitation to have their homes brought up to the new ventilation standards. They remedied a high frequency of low ventilation rates, combustion spillage and carbon monoxide in these homes. Spillage occurs with negative pressurization. They did an extensive depressurization study and found water heater spillage lessened when winter temperatures are less than 40 ̊F. They wanted to make sure everything was done right so they even conducted insulation contractor certification and designed ventilation system specifics and combustion system test standards. All of the HRV’s they put in failed so they switched to Panasonic bathroom fans but then they had to design completely new duct specifications as well as test and commission every single fan. Everything in the scope of work had to have specifications so it was clear. SIP fixed the problems and began work on 6000 new homes.
“Programs such as this must have pre-bid meetings for the contractors as well as in-process construction inspections. You have to “show and tell” the people what you want them to do, train those writing the scope of work, the auditors, the architects, and have a follow-up quality assurance to make sure the contractors did what you wanted before you pay them. It was a huge lesson to learn and it would have been better if it had been done right in the first place,” exclaimed Mr. Fitzgerald.
Mr. Fitzgerald discussed how to save energy and money. Savings comes from stopping waste. “Look at past usage to identify waste and what things to focus on. You can’t save what you don’t use so focus on items you use a lot. Look at seasonal use of energy. Is usage highest for heating, cooling, or base loads? A rule of thumb is the highest winter bill is a rough estimate of heat savings potential,” said Mr. Fitzgerald. He continued, "It’s not always easy to figure out why some homes use more energy than average. It may take some “sleuthing out.” Is it a big house? Is the insulation inadequate or the appliances inefficient? Are there a lot of unnecessary electrical items (like second freezers)? Are there thermal defects such as air leaks or a poor building envelope design? Does the homeowner need education to change their behavior (turning down thermostats and turning off unused equipment)?”
The energy efficiency fixes in a high energy use home may cost more but will have a higher cost/benefit ratio. The higher energy users stand to gain the most in implementing energy saving measures so the best use of energy efficiency program dollars is to fix the high use homes first. It’s also best if these programs are diagnostically driven. An Ohio Weatherization study found that homes that had extensive energy audits using diagnostic tests averaged a 50% energy savings compared to the ”entitlement group” (homeowners who were given the average amount of dollars spent on energy measures). This group did the work their own way and averaged an energy savings of only 15%.
Mr. Fitzgerald concluded his presentation with a discussion on what energy saving treatments work better than others. Measures that always work to save thermal energy are: insulating walls and attics, air sealing leaky homes and using blower door tests to find the leaks, sealing ducts in attics, garages and crawl spaces so that air is vented to the outside, and replacing inefficient heating systems. Measures that work to save electrical energy are: fixing hot water leaks, replacing old refrigerators, replacing lighting with fluorescents, and removing/unplugging all “phantom” users (appliances and equipment that have clocks or lights that are on all the time). Measures that don’t really save that much are: replacing windows, weather stripping and caulking, floor insulation (worthless over basements but can save if over crawl spaces), heating system tune-ups and basement duct sealing (only do if basement is the hottest room in the house or if depressurization is a problem).
The key is to prioritize retrofit measures in the following order:
1. Find and fix any health, safety, IAQ and structural problems (such as mold, moisture, rot, combustion spillage, etc.)
2. Take a systematic approach – don’t do things that will create other problems.
3. Do the cost effective items with big energy saving impacts before items that won’t save much.