Opportunities Abound in Clinton Foundation’s Energy Retrofit Program

On May 16, something remarkable happened in the buildings industry. With the goal of reducing greenhouse gas emissions, the William J. Clinton Foundation announced a $5-billion financing package for energy-efficiency projects for 16 cities around the world. The Energy Efficiency Building Retrofit Program is a project by the Clinton Climate Initiative (CCI), which President Clinton launched in A...

07/01/2007


On May 16, something remarkable happened in the buildings industry. With the goal of reducing greenhouse gas emissions, the William J. Clinton Foundation announced a $5-billion financing package for energy-efficiency projects for 16 cities around the world.

The Energy Efficiency Building Retrofit Program is a project by the Clinton Climate Initiative (CCI), which President Clinton launched in August 2006 “with the mission of applying the Foundation’s business-oriented approach to the fight against climate change in practical, measurable and significant ways.”

The financing will go toward performance contracts managed by four large multinational energy-service companies (ESCOs): Honeywell, Johnson Controls, Siemens and Trane, which were selected by the Foundation because of their international diversity, experience with large portfolios of projects, and resources to bring products and services to bear. Five multinational banks (ABN AMRO, Citi, Deutsche Bank, JPMorgan Chase and UBS) will provide $1 billion each in financing to cities and private building owners to undertake these retrofits at no net cost. The Foundation selected these banks because of their international breadth and their experience financing large energy-retrofit projects.

But can such a large, international program succeed, if led by an organization that does not have experience developing and managingenergy-efficiency programs? What opportunities does the program have for engineers who make buildings more energy efficient?

Program goals

According to the Clinton Climate Initiative, “the Energy Efficiency Building Retrofit Program will result in significant and measurable reductions in energy consumption and in the heat-trapping greenhouse gas emissions that further climate change, while lowering energy bills for major cities and private building owners. Buildings account for more than half of urban greenhouse gas emissions and, in older cities such as New York and London, this figure can be more than 70%. These building retrofits can reduce energy use by 20% to 50% in existing buildings, which comprise the bulk of the building stock in cities. Thus, retrofits of existing buildings play a crucial role in helping to reduce energy use and emissions from buildings in cities.”

The time window for making the program up and running and achieving significant energy and GHG savings is 18 months from the May 16 announcement date. During this time, the Clinton Foundation estimates that the $5 billion earmark will effectively double the amount of energy-efficiency dollars available globally for these types of projects. The money and the Clinton name come at a good time—energy prices and environmental awareness are up, and a clear and sizeable signal is needed to give the business community that now is a good time for energy efficiency investments. Larry Wash, vice president services and contracting, Trane, said it well: “The CCI will establish momentum in the marketplace by providing mobilization and awareness. As a coalition of parties with common interests to fight climate change by saving energy, the program will generate results.” Clay Nesler, vice president, Global Energy and Sustainability, Johnson Controls, Inc., agrees: “The program elevates the cause among those of us who have been leading the charge for years. The CCI already has agreements with 16 of the world’s largest cities and Foundation support gives the program international credibility.”

The financing will go toward performance contracts with energy-savings guarantees by the four ESCOs, all of which have multinational experience with large-building projects and an international network of product and service providers to help them meet the capacity of work implied by the funding.

A lot of what the program is about is streamlining. Bob Dixon, sr. vice president and global head, Energy and Environmental Solutions, Siemens Building Technologies, explains, “The CCI wants to streamline the process for implementing broad energy infrastructure improvements through partnerships with 16 of the C40 cities, ESCOs and banks in accordance with existing city procurement processes. This will enable cities and the vendors to focus on project implementation—and the reduction in energy consumption and emissions— rather than the procurement process.” There also is some hope or expectation that the program will accelerate permitting and other bureaucratic processes.

CCI also announced that it and its partners will assist C40 cities with the initiation and development of programs to train local workers on the installation and maintenance of energy saving and clean energy products. The U.S. Green Building Council and the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) have agreed to help coordinate these programs and to provide technical assistance.

The CCI program is outlined as:

  1. CCI works directly with a city to establish the program in accordance with the city’s procurement processes.

  2. The city pulls together multi-building portfolios of projects that will likely have an energy-saving potential attractive to financiers. Portfolios may include a diversity of building types, or the same type (such as schools); there also could be private buildings in the mix, as well. It’s up to the cities. But single buildings, even large ones, probably wouldn’t be enough to attract a CCI project.

  3. The city issues a request-for-proposal (RFP) to a pre-qualified list of ESCOs, who compete to be the prime contractor. Not every ESCO will be deep in every C40 city.

  4. After the prime is selected, the company performs energy audits and engineering assessments for savings opportunities, and proposals are developed and solicited for financing.

  5. The measures are then implemented with integrated measurement and verification processes and equipment, and

  6. The tracking and reporting phases commence for the length of the performance contract, during which savings are tabulated and the loans are repaid from savings.

Cities and the CCI

The Energy Efficiency Building Retrofit Program will address the energy and climate-change goals of 40 of the world’s largest cities, with an initial roll-out to 16 selected cities that have agreed to participate: Bangkok, Thailand; Berlin; Chicago; Houston; Johannesburg, South Africa; Karachi, Pakistan; London; Melbourne, Australia; Mexico City; Mumbai, India; New York; Rome; Sao Paulo, Brazil; Seoul, South Korea; Tokyo; and Toronto. (See opposite page). A promising sign of the program’s capability to grow is that, according to Nesler, inquiries from second-tier cities are already coming in.

While the international scope of the program is attractive, it also presents challenges. Retrofit programs are less common in the EU and Japan than in the United States, and such programs hardly exist in the rest of the world, according to the Clinton Foundation. As for the business model of performance contracting, Nesler adds, “the performance contracting model is not well known outside of North America. Consequently, is going to be a lot of education on how to implement large-scale improvement projects using performance contracting.”

Banks, bucks and buildings

While some cities already are doing building retrofit work, these are typically small in scale compared to what the CCI has in store. Even in the United States, where a market and infrastructure for energy efficiency retrofits has existed for 25 years, less than 1% of the potential market for municipal buildings is being tapped, the CCI estimates. That 1%, however, represents a fairly large market that is, in turn, dwarfed by its potential. According to a report authored jointly by the National Association of Energy Service Companies (NAESCO) and Lawrence Berkeley National Laboratory

According to the CCI, it will work with the five banks and energy-efficiency finance specialist Hannon Armstrong to “develop effective mechanisms to deploy the $5 billion in capital globally.” The banks are participating because the energy savings are guaranteed, so the loans are low-risk. By getting in early, banks will establish a significant share of a market they speculate will grow over the long term. Cities and building owners will pay back the loans, plus interest, with the energy savings generated by the reduced energy costsresulting from the building retrofits. If the savings fall short, the ESCOs will make up the difference, if they are deemed liable.

CCI also estimates that typical payback periods will vary significantly and can range from 3 years to 4 years for smaller projects to 7 years to 10 years for larger projects. According to Mike Taylor, vice president of Americas Marketing, Honeywell Building Solutions, one of the benefits the CCI brings is the ability to finance larger projects that have longer paybacks, so the blended payback of short-term and long-term paybacks achieves the overall financial goal. “Payback periods will vary among the cities, but will be consistent with U.S. federal government, so 10 years in length could be acceptable. This acceptance will allow quick-return lighting retrofits blend with harder to get HVAC retrofits, such as chiller replacements, with longer paybacks. The intent is to provide the optimum program for sustainability,” Taylor says. Nesler adds, “This isn’t just buying an armful of compact-fluorescent lights, this looking at a portfolio of measures that offer more significant, longer-term improvements.”

Opportunities for engineers

The program expects to provide sufficient momentum that ESCOs will have to increase their size to meet capacity, and in some cases, deal with resource challenges. If you want to work as an engineer for one of the four pre-qualified ESCOs, now might be a good time to apply. Beyond that, even before the ESCOs are stimulated to grow, there could be opportunities for consulting-engineering firms, energy modelers, and commissioning providers to participate as subcontractors to ESCOs on CCI projects. “Great demand creates great opportunity to develop relationships to satisfy the demand,” Taylor says. “If the goals of the CCI program are to be met, then we (Honeywell) will team with outside firms as necessary to get the job done.”

According to Nesler, “Depending on scale, projects could attract a wide variety of both internal and external resources for engineering, analysis and implementation.

“For complex projects we (Trane) will partner with consulting engineers to do the detailed energy conservation measures on scoping and planning the implementation at the site,” Wash says. “We also have an approved list of energy engineers around the United States for detailed design, modeling, etc. Additionally, these types of projects have 12-month sell cycles, so we can provide insight among our relationships into future projects. Resources aren’t a challenge—they’re an opportunity.”

Verification and persistence of savings

As energy engineers and building owners are well aware, just because a retrofit has taken place and is operating as expected, entropy happens. Controls are reprogrammed, sometimes incorrectly. Energy-efficient equipment is energy efficient only if it is maintained well and fixed when it breaks down. And all of this assumes things were installed and activated correctly to begin with (and sometimes equipment isn’t installed at all). There has to be a robust measurement and verification process as part of the program for commissioning the retrofits and setting up the tracking and reporting as the core of the performance-contract administration. The persistence measures have to be built in so energy and environmental benefits reliably accrue over time. Persistence measures include proper documentation, operator training, and scheduled maintenance.

According to the ESCOs, the CCI program has adopted the The International Performance Measurement and Verification Protocol (IPMVP), developed by a consortium of government, private companies, and not-for-profit organizations, provides a wide range of measurement and verification (M&V) alternatives, including stipulation based on engineering calculations, metering, and using the results of a short-term test to calibrate computer models. The standard provides flexibility as well as standardization, which is especially useful for performance contracts that span years.

Wash is not concerned: “The M&V process is well established. If, for example, shifts are added at a plant or activities are modified, we can point-monitor the energy conservation measures themselves, if necessary.” To help owners and ESCOs have compatible understandings of ESCO performance, reports can be provided to clients via the Internet at weekly, monthly or whatever interval the client wants for clear visibility and tracking of savings, Wash says. Nesler made a good point while discussing international projects, “[In addition to M&V] we’ll be focusing on developing relationships with owners to ensure the savings sustain beyond the time period of the contract.”

The Energy Efficiency Building Retrofit Program stands to make a $5 billion wallop on energy consumption and greenhouse gas emissions. Dixon summarizes: “The CCI Program is financially feasible, revenue neutral and well suited to overcoming the hurdles of cash-strapped public and private entities that would not have access to the capital resources to accomplish the retrofits and upgrades proposed by the program.” Along the way, it would increase the number of people, including engineers, owners, and financiers, involved with energy-retrofit projects. Perhaps the CCI program and its ripple effects will establish the momentum needed to make a significant dent in the energy consumption of nearly 5 million non-residential buildings in the United States, and in other countries, too. This is a program worth watching and supporting.




ESCO Leaders Interviewed

Bob Dixon , sr. vice president and global head, Energy and Environmental Solutions, Siemens Building Technologies, Buffalo Grove, Ill. He is responsible for directing all corporate activities for Siemens Building Technologies in Energy and Environmental and Solutions, including supply and demand-side management, performance contracting, financial services, program implementation, environmental initiatives and ongoing customer support globally.

Clay Nesler , vice president, Global Energy and Sustainability, Johnson Controls, Inc. In this role, he leads a global team responsible for energy and environmental strategy, marketing, programs and communications.

Mike Taylor , vice president of Americas Marketing, Honeywell Building Solutions, Golden Valley, Minn. A 25-year veteran of Honeywell in various capacities, Taylor manages strategy, marketing, product management and training for service offerings to the commercial buildings industry in North and South America.

Larry Wash , vice president Services and Contracting, Trane , Piscataway, N.J. Formerly with Xerox Corp., Wash leads and manages the Americas Services and Contracting business, which delivers integrated heating, ventilation and air conditioning (HVAC) solutions to Trane customers.

The C40 Cities

The C40 is an association of large cities that have pledged to accelerate their efforts to reduce greenhouse gas emissions and to provide global leadership in this arena. CCI serves as the exclusive implementing partner to the C40. Based on figures published at a website ranking the world’s Top 100 cities, the C40 cities amass a total population of 336, 331,000 people. Five of the C40 are in the United States, three of which are in the initial 16 (New York, Chicago and Houston). The initial 16 cities that the CCI is targeting comprise 165, 355,000 people, or 45% of the C40 total population.

The C40 Large Cities Climate Leadership Group

Rank

City, Country

Population

1. Source for populations and Top 100 rankings:
* One of the 16 initial cities selected for initial deployment of the CCI retrofit program
+ Not ranked in Top 100 Cities website
(#) Ranking on en.wikipedia.com of top U.S. cities by population within city limit according to U.S. Census Bureau 2006 %%MDASSML%% 2007,

1

*Tokyo, Japan

28,025,000

2

*Mexico City, Mexico

18,131,000

3

*Mumbai, India

18,042,000

4

*Sao Paulo, Brazil

17,711,000

5

*New York City, USA (1)

16,626,000

6

Shanghai, China

14,173,000

7

Lagos, Nigeria

13,488,000

8

Los Angeles, USA (2)

13,129,000

10

Buenos Aires, Argentina

12,431,000

11

*Seoul, South Korea

12,215,000

12

Beijing, China

12,033,000

13

*Karachi, Pakistan

11,774,000

14

Delhi, India

11,680,000

15

Dhaka, Bangladesh

10,979,000

16

Manila, Philippines

10,818,000

17

Cairo, Egypt

10,772,000

19

Rio de Janeiro, Brazil

10,556,000

21

Jakarta, Indonesia

9,815,000

22

Paris, France

9,638,000

23

Istanbul, Turkey

9,413,000

Rank

City, Country

Population

24

Moscow, Russian Federation

9,299,000

25

*London, United Kingdom

7,640,000

26

Lima, Peru

7,443,000

28

*Bangkok, Thailand

7,221,000

29

*Chicago, USA (3)

6,945,000

30

Bogotá, Columbia

6,834,000

35

Hong Kong, China

6,097,000

49

*Toronto, Canada

4,657,000

52

Philadelphia, USA (6)

4,398,000

58

Madrid, Spain

4,072,000

62

*Houston, USA (4)

3,918,000

71

Hanoi, Vietnam

3,678,000

72

Sydney, Australia

3,665,000

85

*Berlin, Germany

3,337,000

+

*Johannesburg, South Africa

3,225,812

90

*Melbourne, Australia

3,188,000

93

Caracas , Venezuela

3,153,000

94

Addis Abeba , Ethiopia

3,112,000

+

Warsaw, Poland

3,000,000

+

*Rome, Italy

2,700,000

Fun with Numbers

The Commercial Buildings Energy Consumption Survey (CBECS), a survey performed by the U.S. Dept. of Energy’s Energy Information Administration every four years, estimates that there were nearly 4.9 million commercial buildings and more than 71.6 billion sq. ft. of commercial floor space in the United States in 2003. If every building hypothetically received $25,000 (or 0.0000349 cents per sq. ft.), in energy conservation measures the retrofit market would be approximately $122.5 billion. For more information on CBECS, including the 2007 survey, visit

What’s the IPMVP?

The International Performance Monitoring & Retrofit Verification Protocol (IPMVP) is a three-volume series of documents disseminated by a non-profit firm, Electronic Valuation Organization (EVO). According to the EVO website, “the IPMVP is typically cited as good practice in numerous government and utility energy efficiency programs and emission trading regimes around the world, and as the basis for U.S. federal, state and utility M&V protocols. In 2006, the IPMVP was adopted by California as the foundation for M&V plans for the state’s $2 billion investment in energy efficiency.” IPMVP documents can be downloaded from the EVO Website at



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