Bridging the energy efficiency gap on campus – Investment appraisal and organisational procedures

Bridging the energy efﬁciency gap on campus –
Investment appraisal and organisational
procedures
OERC Seminar on 22 August 2018

Ivan Diaz-Rainey

Ulrich Nissen
1

Introduction 1
2
• Large literature on energy efficiency gap
– We all leave “money on the table”
– “Barriers” to energy efficiency; biggest challenges (?) …
• Investment appraisal
• Organisational decision making
– Little on EE in the context of universities
– Universities “organized anarchies” (Cohen et al. 1972): multiple
goals, decentralised, satisficing decision making
• UoO circa $9million electricity bill
– Universities under pressure; cost savings; more from less (SSR)
etc.
– Improved confront: FINC 420 students!
– Climate change; IEA scenarios; NZ Zero Carbon Act;

Introduction 2
3
• OERC Living Lab: Energy related improvements, research outputs and
real word context for teaching
– Mark Mason and Hans Pietsch (Property Services)
– Frederik de Haan - Summer scholarship (2016/17)
– Ulrich Nissen (visitor @ A&F from Niederrhein & DAAD funding)
– Recent discussions with Andy Jenkins (PMO)
• What: How can the energy efficiency gap be continuously bridged in the
context of universities (UoO)?
• How: Three EE case studies at the University of Otago
• Contribution
– Precise definition of EE gap & EE not static
– Real energy savings ideas (from energy managers)
– From ‘barrier’ to a ‘roadmap’: solutions oriented procedures for ‘Continually Bridging
the Gap’ in “organized anarchies”:
• Investment appraisal
• Energy man. int. standards (ISO50001/50006) and
• Project and asset management best practice e.g. ‘3PM’.

Economically beneficial exploitation of the energy efficiency potential
The issue
4
Optimal
energy
efficiency of
facility or
applianceG A P
Actual
energy
efficiency of
facility or
appliance

Investigation of three energy related projects – overal
results in brief
5
Parameters: t = 20 years, i = 4%, different price rise rates, risk neglected
Project Investment Return
1. Extending district heating systems NZ$ (1,242,920) NZ$ 7,451,006
2. Energy efficiency measures for student flats (just 50
flats)
NZ$ (556,413) NZ$ 2,843,067
3. Consideration of adjacent buildings in regard to
campus development (RSF & physiotherapy)
NZ$ (380,000) NZ$ 1,175,266
Total NZ$ (2,179,333) NZ$ 11,469,340
depending on the adjustment of relevant parameters

Briding the GAP is not easy
6
G A P
Barriers to energy efficiency:
“A postulated mechanism that inhibits a decision or behaviour which appears to
be both energy efficient and economically efficient.”*
* Sorrell, S., Mallett, A. & Nye, S., 2011. Barriers to industrial energy efficiency: a literature review. pp2 and 4.
Procedures
Hidden
costs
Payback time
restrictions
Imperfect
information
Split
incentives
Access to
capital
Bounded
rationality
Idea: Development of a concept for OTAGO University to bridge the gap
based on literature study and experience from project cases.
Optimal
energy
efficiency of
facility or
appliance
Actual
energy
efficiency of
facility or
appliance
P

Energy Efﬁciency and Energy Intensity
7
Optimal
energy
efficiency of
facility or
applianceG A P
Actual
energy
efficiency of
facility or
appliance
EnergyEfficiency =
useful output
energy input
EnergyIntensity =
energy input
useful output
inverse
EnergyIntensity = 0.1
kWh energy
litre boiling water
EnergyIntensity = $0.01 per litre
EnergyEfficiency =
10l boiling water
1 kWh energy

Optimal Energy Efﬁciency
8
Optimal
energy
efficiency of
facility or
applianceG A P
Actual
energy
efficiency of
facility or
appliance
Authors* define the ”Energy Efficiency Gap” as  
the difference between actual and optimal energy efficiency.
* Such as Jaffe, A.B. & Stavins, R.N., 2003. The energy-efficiency gap. Energy policy, 22, pp.804–810, p804.
?
EnergyEfficiency =
useful output
energy input

Different kinds of energy efﬁciency optima
9
Current level
of efficiency
Technological
optimum
Economical
optimum
EnergyEfficiency =
useful output
energy input
Thermo- 
dynamic
optimum
technological
innovation
?
technological gap

Technological and economical optimum
10
Insulation costs (A)
Energy costs (B)
(∼ energy consumption)
Total costs (A+B)
asymptote
Economical optimum Technological optimum
Insulation thickness δ
Costs
Parameters of economical optimum:
Investment prices
Energy prices
According to: Kaynakli, O., 2012. A review of the economical and optimum
thermal insulation thickness for building applications. Renewable and
Sustainable Energy Reviews, 16(1), pp.415–425.

The energy eﬃciency gap
11
Current level
of efficiency
Technological
optimum
Economical
optimum
EnergyEfficiency =
useful output
energy input
Thermo- 
dynamic
optimum
“Energy Efﬁciency Gap”
Energy performance
improvement potential
explained with barriers
that could be expoited
economically beneficial
“Technological Gap”
“Cost Gap”
Dynamic

Continual exploration of economically energy efficiency potentials
Economically beneficial exploitation of the energy efficiency potential
Interim summary 1
12
Optimal
energy
efficiency of
facility or
appliance
G A P
Actual
energy
efficiency of
facility or
appliance
P

Bridging the energy efﬁciency gap by means of  
ISO 50006
13
Corporate
level
Segregation of Significant Energy Users (SEUs)
Determination of the energy consumption of all relevant processes
(1) Energy baseline (EnB)
value of EnPI4711 = 3,025 MWh
(2) Target value
= 2,723 MWh
(3) Current value
= 2,608 MWh
(5) Variance  
= 193 MWh (=8%)
(4) Normalised target
value = 2,415 MWh
Target: -10%
Analysis of
efficiency potential
Business case
Decision(6) Determination
of action
Bridging the
efficiency gap
Identification of all influence factors of the SEUs; thereafter
determination of appropriate EnPIs
Assignment of the EnPIs to “EnPI owners”
(7) New target initiative
EnPI4711
= 1.014
MWh
h
i run time h⎡⎣ ⎤⎦
Process level
Heating system
4711
For all “SEUs”
S

ISO 50006 case study with 7 manufacturing industry  
companies simultaneously in 2015 - 2017
14
Energy Efﬁciency Network “Energy Cost Management DIALOGUE” (2015 - 2017)
Aspect Value
Annual reduction of energy consumption 19,892,519 kWh
Total Net Present Value of approved energy efﬁciency
measures
€ 17,484,592
NZ$ 29,723,806
Kamps, Schwalmtal
FS-Karton, Neuss
Pierburg, Neuss
Schunk, Willich
Thywissen, Neuss
PMG Plange, Neuss
Cargill, Krefeld
* initiated by the German Ministry of Economy
Based on an initiative of the German Ministry for Economic affairs and Energy
Goal: establishment of 500 energy efficiency networks – each of 7 to 15 companies – throughout
Germany; 189 Networks has been initiated since 2015.

15
Energy consuming process
Interaction process
with person
Energy knowledge
Awareness
Motivation
Creativity
Time
Expectation to
be heared
1st draft of idea
1st valuation
Proposal
Valuation
Subm
ission
D
ecision
preparation
Approval
Im
plem
entation
ENERGY
EFFICIENCY
IMPROVEMENT
PREREQUISITES
Hidden costs
Payback time
restrictions
Imperfect
information
Split incentives
Access to capital
Bounded rationality
Evaluation
ROADMAP
BARRIERS
Long road from actual energy
consumption to a real energy
efficiency improvement
Right people

Core prerequisites
16
Internal procedure or
application of an
international/national
standard (available*)
(1) Exploration of  
energy cost saving
ideas
(2) Valuation of  
the ideas  
(“Business Case”)
(3) Decision
preparation,
approval and
implementation
procedure
The experience regarding the “Valuation of the ideas” corresponded very
much to the findings of an investigation that we carried out in 2012/13.
Energy management, management accounting, project management (sustainability or
environmental management as support but not as lead)

Investigation of a large number of energy related
project valuations in 2013
17

Findings
18
The majority of the samples reveal:
results not correct
utilization of inappropriate calculation methods
calculation model not transparent, therefore difficult to understand
if transparent sometimes model with errors or incomplete
utilization of costs instead of cash flows (sometimes costs are not cash flows and
vice versa)
time value of money not considered; if considered – reference interest rate
unreflected
risks not considered
missing sensitivity analysis
missing tracebility
often no interpretation of results
price rise (very important for energy project valuation) either not considered or if
considered no consideration of different price rise rates
problematic selection of valuation methods
etc.
Sources: submitted in-house calculations within companies, conversations with energy managers, calculations found in the internet,
brochures, presentations etc. published in: Nissen, U.: Energiekostenmanagement (in english: Energy Cost Management), 2014.

director management
accounting
Herold
Main ﬁnding, was, however, …
19
Proposal:
• Investment: 36.000 €
• Reduction of energy
consumption: 30%
(280.000 kWh =>
196.000 kWh)
👍
Heat recovery facility
Language of
the decision
makers
?
Very often refusal because  
proposal is incomplete
and/or not understandable.
Necessary: Correct, easy to
understand, easy to use,
transparent, retracable, and
conclusive valuation procedure
production engineer
& facility manager
Jim & Mike
… the communication problem between those that have an efficiency improvement idea
and others that prepare and make the investment decision.
Typical situation:
P
… a national or
international
standard would
be very helpful.

Initiative for the development of a European standard
for Business Cases of Energy Related Investments”
20
International level
Supranational level
National level

Interim summary 2
21
First element
Second element

OTAGO University ISO 50001/50006 implementation
22
Test Initiative Main Initiative
(continuous)
Energy Performance Improvement
System according to 
ISO 50006 & ISO 50001
• First step: “SEU” list (20% of all energy  
consumers that cover 80% of the consumption)
• Second step: Determination of EnPIs for all SEUs
• Third step: Development and implementation of  
EPIAs and setting of targets
• etc .…
Potential energy efficiency projects
1. Extending district heating systems
2. Energy efficiency measures for student flats
(just 50 flats)
3. Consideration of adjacent buildings in regard
to campus development (RSF & physiotherapy)
1. Selection of appropriate entities
2. Determination of baselines (kWh/a, kW)
3. Development of ideas for improvement
4. Determin. of effects (kWh/a, kW, $, $/a)
5. Valuation
Waiting energy
cost saving
potentials
for being
exploited
6. Decision and Implementation

Energy Efﬁciency Barriers at OTAGO University
23
application of an
energy cost saving
ideas
the ideas  
(3) Decision
preparation, approval
and implementation
procedure & post
implementation review
Valuation similar to
the CEN VALERI
approach

Investigation of four energy related projects – overal
results*
24
Parameters: planing horizon: 20 years, i = 4%
ﬂats)
NZ$ (556,413) NZ$ 2,843,067
3. Consideration of adjacent buildings in regard to campus
development (RSF & physiotherapy)
NZ$ (380,000) NZ$ 1,175,266
Total NZ$ (2,179,333) NZ$ 11,469,340

The energy supply of several campus buildings is comparativeley costly due to the fact that their
heating sytems are electricity driven. The costs could be reduced dramatically by connecting the
following buildings to district heating that are adjacent buildings already connected:
(1) G507 Archway Building
(2) Clocktower
(3) Geology Building
(4) Marama Hall
(5) Scott/Shand House
(6) Black/Sale House
(7) H4XX smaller sites
(8) Selwyn College
(9) Centre for Innovation
(10) Information Technology Services Building
2. Energy efficiency measures for student flats (just 50 flats)
The regular renovation of student flats could be carried out in a more sophisticated way in
terms of increasing the energy efficiency of the buildings. Beyond the standard renovation
(lounge heat pump, electric bedroom heating and hot water cylinder) the following measures
would reduce the overall energy consumption: shared boiler house, radiators and centralised
systems plus incorporating onsite renewables, energy storage and efficient control.
3. Consideration of adjacent buildings in regard to campus development (RSF & physiotherapy)
The New Research Support Facility (RSF) and the physiotherapy building could
minimise their energy consumption if existing – adjacent – buildings were
considered in the planning process. The tables in the annex illustrate the details.

2. Energy efficiency measures for student
flats (of 50 flats)
26
NPV of: 2.8 million Dollars (@4% discount rate, 20 years)
EXAMPLE

A) Standard NZ solution (lounge heat pump, electric bedroom heating and hot water cylinder)
Discount rate r 4 % adjustable
Annual price rise energy epr 3 % adjustable 50 sites; 5,256 m2 floor area; 4.5 average
bedrooms; all Flat groups insulated to at
least NZBC standard including wall
insulation and double glazing windows.
Cost of renovation and insulation
excluded, as undertaken as standard
campus practice.
 
 
HVAC: Heating, Ventilation and Air
Conditioning
DHW: Domestic hot water
CPD: congestion period demand
Annual price rise not energy pr 2 % adjustable
Actual specific energy gas N.N. adjustable
Actual specific energy electricity 0.13 $/kWh adjustable
Actual specific energy HVAC and DHW 0.09 $/kWh
Surcharge for CPD 205 $/kW
Number of periods to be considered [years] 20 adjustable
Total kWh/a input, thereof: 869,850 kWh
Energy for HVAC and DHW 664,500 kWh
Energy for cooking, lighting, appliances 205,350 kWh
Combined CPD [KW] for HVAC&DHW 300 kW
Lifetime of each relevant component of solution 6 Years
Air quality Low-medium
Total annual combined CO2-e 150.8 ton
Onsite renewable generation 0 %
Cash Flows Base values
End of operating period t
0 1 2 3 4 5
Considered periods (1 = yes)
1 1 1 1 1 1
Outpayments
Investment NZ$ 542,500 NZ$ (542,500)
Annual OPEX (except energy) NZ$ 43,000 NZ$ (43,860) NZ$ (44,737) NZ$ (45,632) NZ$ (46,545) NZ$ (47,475)
Energy for HVAC and DHW 664,500 kWh NZ$ (61,599) NZ$ (63,447) NZ$ (65,351) NZ$ (67,311) NZ$ (69,330)
Energy for cooking, lighting, appliances 205,350 kWh NZ$ (27,496) NZ$ (28,321) NZ$ (29,171) NZ$ (30,046) NZ$ (30,947)
Combined CPD [KW] for HVAC&DHW 300 kW NZ$ (63,345) NZ$ (65,245) NZ$ (67,203) NZ$ (69,219) NZ$ (71,295)
Returns
Results
Total NZ$ (542,500) NZ$ (196,301) NZ$ (201,751) NZ$ (207,356) NZ$ (213,120) NZ$ (219,049)
Present values (PV) NZ$ (542,500) NZ$ (188,750) NZ$ (186,530) NZ$ (184,339) NZ$ (182,176) NZ$ (180,042)
Net Present Value (NPV) NZ$ (5,221,927)

D) Solution designed for Dunedin
Discount rate r 4 % adjustable
Annual price rise energy epr 3 % adjustable Beyond the standard renovation the
following measures would reduce the
overall energy consumption: radiators and
centralised heating & hot water systems
plus incorporating onsite renewables,
energy storage and efficient control. 
 
HVAC: Heating, Ventilation and Air Conditioning
DHW: Domestic hot water
CPD: congestion period demand
Annual price rise not energy pr 2 % adjustable
Actual specific energy gas N.N. adjustable
Actual specific energy electricity 0.13 $/kWh adjustable
Actual specific energy HVAC and DHW 0.07 $/kWh
Surcharge for CPD 205 $/kW
Number of periods to be considered [years] 20 adjustable
Total kWh/a input, thereof: 458,400 kWh
Energy for HVAC and DHW 236,650 kWh
Energy for cooking, lighting, appliances 221,750 kWh
Combined CPD [KW] for HVAC&DHW 3 kW
Lifetime of each relevant component of solution 20 Years
Air quality High
Total annual combined CO2-e 63.97 ton
Onsite renewable generation 51 %
Cash Flows Base values
End of operating period t
0 1 2 3 4 5
Considered periods (1 = yes)
1 1 1 1 1 1
Outpayments
Investment NZ$ 1,098,913 NZ$ (1,098,913)
Annual OPEX (except energy) NZ$ 27,250 NZ$ (27,795) NZ$ (28,351) NZ$ (28,918) NZ$ (29,496) NZ$ (30,086)
Energy for HVAC and DHW 236,650 kWh NZ$ (17,062) NZ$ (17,574) NZ$ (18,102) NZ$ (18,645) NZ$ (19,204)
Energy for cooking, lighting, appliances 221,750 kWh NZ$ (29,692) NZ$ (30,583) NZ$ (31,501) NZ$ (32,446) NZ$ (33,419)
Combined CPD [KW] for HVAC&DHW 3 kW NZ$ (633) NZ$ (652) NZ$ (672) NZ$ (692) NZ$ (713)
Returns
Results
Total NZ$ (1,098,913) NZ$ (75,183) NZ$ (77,161) NZ$ (79,192) NZ$ (81,279) NZ$ (83,422)
Present values (PV) NZ$ (1,098,913) NZ$ (72,292) NZ$ (71,339) NZ$ (70,401) NZ$ (69,477) NZ$ (68,567)
Net Present Value (NPV) NZ$ (2,378,860)

Energy efﬁciency measures for student ﬂats – options
29
Calculation results (NVP = the value of all payments over a period of 20 years together; for 50
sites, 5,256 m2 floor area, 4.5 average bedrooms)
Version Net Present Value
NPV improvement
compared with
standard version
Air quality
Total annual
combined
CO2e
CO2e
improvement
Onsite
renewable
generation
A) Standard NZ solution;
lounge heat pump, electric
bedroom heating and hot
water cylinder
NZ$ (5,221,927)
Low-
medium
151 t/a 0 %
D) Solution designed for
Dunedin; incorporating onsite
renewables, energy storage
and efficient control
NZ$ (2,378,860) NZ$ 2,843,067 High 64 t/a -87 t/a 51 %

30
application of an
energy cost saving
ideas
the ideas  
(3) Decision
and implementation
procedure & post
the CEN VALERI
approach
Only internal
procedures possible.
Drafting best possible;
thereafter alignment
with existing
procedures

Categorise Understand
Prioritise
Balance
Plan
Resource
Management
Organisational
Governance
Stakeholder
Engagement
Risk
Management
Financial
Management
Benefits
Management
Management
Control
Organisational
Energy
Broadly
Concurrent
Broadly
Sequential
1. Evaluate 2. Envision 3. Execute 4. Embed
Benefits
Realisation
Concept
Identify Define Plan Manage the Tranches
Pre-Project Initiation
Planning Execution
Transition
Programme
Project
3PM Initiative Lifecycle
WATERFALL DELIVERY
Stage Gates and/or Health Checks as agreed
AGILE DELIVERY
Sprint 0
Planning
Sprint 0
Execution
Sprint 0
Transition
Sprint 1
Planning
Sprint 1
Execution
Sprint 2
Transition
Sprint 2
Planning
Sprint 2
Execution
Sprint 2
Transition
University of Otago 3PM Methodology – Full 3PM Model
Produced by the University PMO
Approved by the Chief Operating Officer
1 June 2018
Portfolio
Programme Management: Programme Change, Status Reporting, Financial management, Risk management, Issue management, Resource management, Benefits management, Stakeholder engagement,
Communication & Change management, Lessons Learned, Quality & Assurance, Organisational governance, Management control
Project Management: Status Reporting, Financial management, Risk management, Issue management, Resource management, Benefits management, Communication & Change management,
Project Change, Lessons Learned
BAU /
Operations
Project Management – Energy Management
alignment
31
Streamlined “submission to decision
procedure” (draft)
“After identification of a significant energy cost reduction potential (NPV
presumably > $500,000; CAPEX > $250,000) …
1. the energy department evaluates the proposal according
to the internal energy valuation standard
“xxx” (reference person: xxx) and project significance as
part of wider energy strategies.
2. The relevant financial valuation adjustment parameters
are being supplied by … (department & person).
3. The valuation results are being submitted to …
(department & person).
4. If the evaluation of the proposal is considered feasible, the
way of financing the project shall be checked by …
(department & person).
5. The final decision should be made not later that ? days
after submission provided that no questions have to be
clarified (otherwise ? days after the last clarification). A
rejection of a proposal shall be explained.
6. If the proposal was accepted and the way of financing the
project has been clarified, the proposer initiates the
implementation by setting up a detailed project plan
including costs and determining a project manager.
7. If there isn’t a significant (?%) variance between the initial
cost estimates and the detailed project plan costs, the
project shall finally be accepted and initiated hereafter,
otherwise a new valuation have to be prepared.
8. One year after completion the project manager submits an
overview of the project outcome to … (department &
person) and compares the results with the values of the
proposal.”

OTAGO University ISO 50001/50006 implementation
32
Test Initiative Main Initiative
(continuous)
Energy Management System
according to 50006 plus ISO 50001
First step: “SEU” list (20% of all energy
consumers that cover 80% of the consumption)
Second step: Determination of EnPIs for all SEUs
Third step: Development and implementation of
EPIAs and setting of targets
…
Potential energy efficiency projects
2. Energy efficiency measures for student flats
(just 50 flats)
3. Consideration of adjacent buildings in regard
to campus development (RSF & physiotherapy)
1. Selection of appropriate entities
2. Determination of baselines (kWh/a, kW)
3. Development of ideas for improvement
4. Determin. of effects (kWh/a, kW, $, $/a)
5. Valuation
Waiting energy
cost saving
potentials
for being
exploited
5. Decision and Implementation

33
application of an
energy cost saving
ideas
the ideas  
(3) Decision
and implementation
procedure & post
the CEN VALERI
approach
Only internal
procedures possible.
Drafting best possible;
thereafter alignment
with existing
procedures
Coordinations and adjustments with
OTAGO Uni project management
are necessary and intended.
Energy management, management accounting, project management (not sustainability
or environmental management as lead)

Investigation of three energy related projects – overal
results in brief
34
Parameters: t = 20 years, i = 4%, diﬀerent price rise rates, risk neglected
ﬂats)
NZ$ (556,413) NZ$ 2,843,067
3. Consideration of adjacent buildings in regard to
campus development (RSF & physiotherapy)
NZ$ (380,000) NZ$ 1,175,266
Total NZ$ (2,179,333) NZ$ 11,469,340
depending on the adjustment of relevant parameters

Thank you very much for your attention!
35

Bridging the energy efficiency gap on campus – Investment appraisal and organisational procedures

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