K.R. Grosskopf, Ph.D. M.E. Rinker, Sr. School of Building Construction University of Florida

Introduction The U.S. represents roughly 5% of the world’s population, yet, 23% of its fossil fuel consumption 1/3 of all energy in the U.S. is consumed within the built environment, and more than 1/3 of this energy is used by the commercial business sector Half of all commercial energy is used by lighting and HVAC Commercial buildings in the U.S. number more than 4,859,000 and occupy more than 6.7 billion square meters of floor area The average U.S. commercial building consumes 577kWh/m 2 /yr

The U.S. represents roughly 5% of the world’s population, yet, 23% of its fossil fuel consumption

1/3 of all energy in the U.S. is consumed within the built environment, and more than 1/3 of this energy is used by the commercial business sector

Half of all commercial energy is used by lighting and HVAC

Commercial buildings in the U.S. number more than 4,859,000 and occupy more than 6.7 billion square meters of floor area

The average U.S. commercial building consumes 577kWh/m 2 /yr

Market Barriers Energy Suppliers Reduce costly peak load generation, capacity expansion and wholesale power purchasing while maintaining (or increasing) sales revenue Reduce peak energy demand (kW) while maintaining (or increasing) energy consumption (kWh) Most ECMs contribute much more toward reduction in kWh than kW ECM investment incentives in U.S. have steadily declined since peak in early 1990’s

Energy Suppliers

Reduce costly peak load generation, capacity expansion and wholesale power purchasing while maintaining (or increasing) sales revenue

Reduce peak energy demand (kW) while maintaining (or increasing) energy consumption (kWh)

Most ECMs contribute much more toward reduction in kWh than kW

ECM investment incentives in U.S. have steadily declined since peak in early 1990’s

Market Barriers Energy Consumers Reduce operating costs and improve production efficiency More than half of U.S. commercial buildings are lease space; tenants pay their own energy costs High tenant turnover; average lease <5 years Little or no incentive for either building owner or tenant to invest in ECMs

Energy Consumers

Reduce operating costs and improve production efficiency

More than half of U.S. commercial buildings are lease space; tenants pay their own energy costs

High tenant turnover; average lease <5 years

Little or no incentive for either building owner or tenant to invest in ECMs

Rate Absorption Approach Absorb cost of utility provided ECM incentives (e.g. rebates) by increasing energy rates ‘Adopters’ become more energy efficient; realize net reduction in energy costs in spite of higher rates Non-adopters realize significant increase in energy costs; become significantly less competitive Utility reduces the need for costly peak load generation, capacity expansion and wholesale power purchasing ‘Win-win’ maximizes energy use reduction and carbon offset

Absorb cost of utility provided ECM incentives (e.g. rebates) by increasing energy rates

‘Adopters’ become more energy efficient; realize net reduction in energy costs in spite of higher rates

Non-adopters realize significant increase in energy costs; become significantly less competitive

Utility reduces the need for costly peak load generation, capacity expansion and wholesale power purchasing

‘Win-win’ maximizes energy use reduction and carbon offset

Case Study Small-to-medium sized U.S. city of approximately 200,000 residents 610MW utility 4,700 businesses with 13,827 commercial utility accounts

Small-to-medium sized U.S. city of approximately 200,000 residents

610MW utility

4,700 businesses with 13,827 commercial utility accounts

Case Study Methodology Merge energy use data from 1994-2006 with building property tax data to determine average energy use intensity (kWh/m 2 /yr) of commercial market and submarkets Determine average added ‘first’ cost and ‘payback’ of high efficiency lighting and HVAC upgrades Determine conservation program costs First cost rebate (15% - 65%) Market adoption (5%-25%) Administrative costs Lost sales revenue

Methodology

Merge energy use data from 1994-2006 with building property tax data to determine average energy use intensity (kWh/m 2 /yr) of commercial market and submarkets

Determine average added ‘first’ cost and ‘payback’ of high efficiency lighting and HVAC upgrades

Determine conservation program costs

First cost rebate (15% - 65%)

Market adoption (5%-25%)

Administrative costs

Lost sales revenue

Case Study Methodology Determine conservation program benefits Avoided supply costs Determine net present value (NPV) of program costs and benefits n = 15 years (average life of upgrades) i = 8.75% (utilities’ weighted average cost of capital) Determine increase in commercial energy rates necessary for utility to remain cost neutral Determine energy use and carbon footprint reduction

Methodology

Determine conservation program benefits

Avoided supply costs

Determine net present value (NPV) of program costs and benefits

n = 15 years (average life of upgrades)

i = 8.75% (utilities’ weighted average cost of capital)

Determine increase in commercial energy rates necessary for utility to remain cost neutral

Determine energy use and carbon footprint reduction

Conclusions If a 15% rebate on a high performance lighting and HVAC upgrade stimulates 5% of the business market to adopt, the case study utility would have to increase energy rates $US 0.006/kWh to remain cost neutral, assuming the cost of the rebates are repaid in the first year. In spite of higher energy costs, ‘adopters’ save an average of 14% on annual energy costs; non-adopters realize a 7% energy cost increase.

If a 15% rebate on a high performance lighting and HVAC upgrade stimulates 5% of the business market to adopt, the case study utility would have to increase energy rates $US 0.006/kWh to remain cost neutral, assuming the cost of the rebates are repaid in the first year.

In spite of higher energy costs, ‘adopters’ save an average of 14% on annual energy costs; non-adopters realize a 7% energy cost increase.

Conclusions If a 35% rebate on a high performance lighting and HVAC upgrade stimulates 15% of the business market to adopt, the case study utility would have to increase energy rates $US 0.021/kWh to remain cost neutral. ‘Adopters’ are cost neutral; non-adopters realize a 20% energy cost increase. For all levels of rebate and market adoption, annual energy costs for non-adopters is approximately 20% higher than adopters, making them less competitive.

If a 35% rebate on a high performance lighting and HVAC upgrade stimulates 15% of the business market to adopt, the case study utility would have to increase energy rates $US 0.021/kWh to remain cost neutral.

‘Adopters’ are cost neutral; non-adopters realize a 20% energy cost increase.

For all levels of rebate and market adoption, annual energy costs for non-adopters is approximately 20% higher than adopters, making them less competitive.

Further Research What level of rebate will stimulate what level of market adoption?

What level of rebate will stimulate what level of market adoption?