Guest Post by David Callan, Julia Ingersoll, Dr. Isaac Shkop and Azi Feifel

A major snowstorm in Texas. Low interest rates. Office vacancies and new competition to lure tenants. A surge in capital investments. An increasing supply of renewable energy.

Balancing energy supply and demand is nothing new for building owners and operators. What is new are the opportunities it presents for energy savings, driven by today’s market volatility.

The best energy supply-side strategies are based on risk mitigation. Understanding energy markets and deregulation allows your energy management team to make the right financial moves at the right time. Engineering your building’s energy demand profile allows you to optimize or reduce usage by making consumption as predictable and controllable as possible.

True savings comes from the synergy of the two.

The supply side: Leveraging long term energy procurement strategies reduces costs

How does a volatile energy market affect your building? When purchasing energy for future use, there’s no guarantee you’re getting the best deal when you sign a long-term contract. What may look like a smart purchase contract now could cost you as much as 25% more based on market volatility.

Instead, go target shooting for your energy buys. Having diversity in any investment makes sense when you consider your energy procurement portfolio. With the right strategy you can find the sweet spot between your risk tolerance, budget, building usage and ownership.

How long will you hold onto the property? If you’re planning to flip the building, purchasing energy now for the next five years, isn’t a strategy. If a long-term hold, every point added to the net operating income (NOI) in every quarter is critical.

The demand side: Leveraging energy engineering to reduce costs

The cornerstone of energy engineering has always been to reduce the energy cost and the carbon footprint of building systems by rooting out waste and optimizing what’s left. The unspoken truth in the energy markets is that sellers just want to sell you more energy.  But that doesn’t mean you have to buy it or use as much as you do today. 

Total building energy usage can be curbed by improving your building envelope, optimizing lighting, improving heating/cooling efficiency and reducing occupant plug loads. The trick, of course, is to accomplish these goals with a great return on investment (ROI). Many engineers and contractors really don’t understand the supply side when they evaluate proposals. Relying on a team that knows both supply and demand side energy management will help you achieve the ROI you seek. 

Finding the sweet spot: 4 use cases for the interplay between energy supply and demand

Synergy between energy supply and demand is possible when building owners/operators approach their facility or portfolio of facilities with a long-term outlook. As mentioned previously, greater ROI is realized by combining supply and demand strategies over time.

With a long-term outlook, the synergy between energy supply and demand has the potential to deliver significant value to your facility — and reduce risk. Here are four ways the interplay between energy supply and demand can play out in your building: 

CapEx, OpEx coverage. Total energy cost will be determined by usage, but also by demand placed on the larger grid system at critical times of the day and year. Annual and month-to-month usage and demand load profiles can vary significantly. Your energy procurement strategy needs to change in order to reflect building MEP infrastructure changes.

When you decide to replace aging building infrastructure with modern and more energy efficient equipment, your total energy consumption is reduced significantly. The relationship between electricity and natural gas usage may also change dramatically. An MEP redesign must incorporate usage and demand changes to ensure that the improvements are sound for the present and the near future.

Similarly, update energy needs based on knowledge of upcoming capital projects. With that critical information, your energy procurement team can recommend an appropriate hedging strategy years in advance. 

Demand/peak curtailment and management. Demand or peak curtailment allows buildings to reduce energy consumption during peak hours, ensuring the grid has sufficient capacity plus a safety margin for the entire region. Think: Turning off unneeded electrical loads on a hot August day.

Utilities will pay heavy energy users to curtail certain functions on their properties that effectively reduce grid demand at peak times. Depending on the consumption volume, this could earn a facility tens of thousands of dollars.

During the curtailment time, your facility will, of course, need to curtail the agreed upon loads, or utilize another source of energy, typically from your own storage. Whether engaging battery power, thermal energy storage or chilled water, a building could essentially engage in micro, co- or tri-generation.

Demand/peak curtailment can be a lucrative strategy for large energy users, but only when it matches the building or portfolio’s energy procurement strategy. Smart capital projects, matched with demand management, will ultimately reduce operating expenses and boost property NOI.

Federal, local and state government rebates. Incentives and rebates like tax discounts, green energy incentives in the forms of grants, low interest loans and permit/zone free reductions, can be a great way to finance your building’s quest for energy efficiency. In fact, U.S. electric utilities spend more than $3.6 billion on energy efficiency customer incentives annually, or an average of $24 per customer, according to the U.S. Energy Information Administration (EIA)’s survey of electric power sales, revenue and energy efficiency.

Popular chiller rebate programs will often exceed the chiller purchase price. Similarly, solar incentives in the form of rebates, tax benefits and/or performance-based incentives and can reduce equipment costs anywhere from 26 to 50 percent.

Other rebates will subtract the infrastructure investment directly from the building’s real estate taxes. In this case, the investment is tied to the facility, not its ownership. To qualify for the maximum $1.80-per-square-foot federal tax deduction, the building’s overall energy systems must be at least 50% more efficient than the ASHRAE standard, which varies depending on the year of project completion. Many of these projects assume specific pay-back periods. A smart energy procurement strategy can reduce that period, determine the most cost effective projects and the best incentive program to be used. 

Customized energy procurement. Review of a building’s infrastructure, capacity and energy usage patterns will determine the right energy procurement strategy. When should off-peak or on-peak energy be purchased? Should it be purchased together or separately? When, what components, how much and for how long to hedge are issues confronting every end-user. A strategy that carefully considers all these factors can achieve superior results.

Take, for example, a LEED-certified building owner’s specification of electric car chargers for their parking lot. The most cost-efficient way to determine how much energy is needed for electric car chargers is to determine daily hours of use and associated load. Ideally, the building will only procure the necessary energy for charger use. When done correctly, energy procurement can save time, energy and reduce your building’s bottom line.

Looking ahead: Market-specific synchronization is the key to right-sizing energy supply and demand   

As the economy opens up post-pandemic and renewable energy costs continue to decline as much as 16% while capacity simultaneously rises, smart facility owners and operators will take a more comprehensive approach to energy supply, demand, procurement and the role sustainable design plays in it all. 

In many cases, energy supply and demand will be market specific. Understanding the interplay between these two forces will be critical to getting it right and reducing costs simultaneously.

David P. Callan, PE, CEM, LEED AP, HBDP, QCxP is President and CEO of Callan Consulting Engineers

Julia Ingersoll, PE is Associate Principal and Senior Mechanical Engineer at Callan Consulting Engineers

Isaac Shkop, PhD is the CEO of Prospect Resources, Inc.

Azi Feifel, MBA is a veteran of the hydronics industry and also an adjunct professor of economics and finance at Touro College