This year, we’ve seen a surge in businesses looking to become more energy efficient. We ascertain this is due to the increase in electric prices from New England utilities and the increasing popularity of the program. We have been preaching the benefits of the energy efficiency program for years, but many business owners are still unclear about how the utility incentive program works. The purpose of this blog post is to help business owners better understand the efficiency programs, how energy and savings are measured, and to help the decision making process for whether upgrading to more energy efficient equipment is right for your business.
EFFICIENCY PROGRAMS
New England has one of the best energy efficiency programs in the United States. Utility companies, such as National Grid, Eversource, Unitil, and others offer incentives to help their customers upgrade to more energy efficient measures. Energy efficiency vendors, such as Prism, are reaching out to utility customers to help them take advantage of these funds.
Like with all things, the utility companies have a budget for these programs, and they try to be smart with their investments. To assure they actually save customers energy, they look to vendors like Prism to assess each customer’s needs on an individual basis. In doing so, we can properly evaluate how a utility customer may finance an energy efficiency project.
INCENTIVE PROGRAM
The incentive program varies by each utility and state. For utilities we work with, this is dependent on different regulations and oversight by the Massachusetts Department of Public Utilities (DPU) and the New Hampshire Public Utilities Commission. Each state has a different budget for the energy efficiency program with different energy savings goals, which is partially determines how incentives are allotted. In essence, Massachusetts and New Hampshire utility customers can obtain incentives up to 70% and 50%, respectively.
MEASURING ENERGY (UTILITY vs. CUSTOMER)
Utilities measure energy in terms of Demand (kW) and Kilowatt Hours (kWh). A customer’s demand is the amount of kilowatts that the utility needs to have available for that customer at any given moment. Kilowatt hours, which is the total energy used in a given month, is equal to 1,000 watts used per hour.
For example, if a building has 30 bulbs that use 60W each, the demand would be 1.8 kW.
- (30 x 60W)/1000 = 1.8 kW.
If lights were kept on for 160 hours a month, they would consume 288 kWh.
- 1.8 kW x 160 hrs = 288 kWh.
Current electric rates in the New England area are roughly $0.15/kWh for commercial customers, meaning these lights would cost your business about $43.20 to run each month.
- 288 kWh x $0.15/kWh = $43.20
MEASURING ENERGY SAVINGS
As discussed earlier, utilities want to be smart with their efficiency investments. Each utility has a different measurement for approving efficiency projects.
$/kWh Method
The simplest method is for the utility to set a maximum for how much they want to pay per kWh saved. A common value for New England utilities is $0.40/kWh. In this method, if a particular project saves 1,000 kWh annually, the utility will pay up to $400 for this project.
- $0.40 x 1,000 kWh = $400.
Depending on the incentive program—which varies by each utility (50%, 70%, etc.)—if the calculated incentive is less than the maximum $/kWh amount, the utility will pay the lesser of the two. For example, if the above project yields a total cost of $500 and the incentive is 70%, the utility will only pay $350, which is less than the $400 maximum for this project.
- $500 x 70% = $350.
If the calculated incentive is more than the maximum $/kWh allows, the utility may either pay a lower incentive percent or reject the project. For example, if the above project yields a total cost of $1,000 and the incentive is 50%, the utility will only pay $400 instead of $500. Other utilities may deem this project inefficient and will require a revision.
Lifetime kWh Method
A more complicated, yet effective, process for approving efficiency investments is by setting a maximum value for the utility’s incentive, divided by Lifetime kWh saved. This calculation involves multiplying the annual kWh savings by the estimated life of the new measure, which averages about 13 years. A common cutoff value for these methods is $0.03/Lifetime kWh.
For example, if a particular project saves 1,000 kWh annually, the utility would expect to pay $390.
- 1000 kWh x 13 yrs x $0.03 = $390.
Unlike the previous method, however, programs using this system will not offer reduced incentives and will instead return the project for revisions until it passes the Cost/Benefit Test, as described above.
FINAL THOUGHTS
Each utility’s program will use a variation of these methods, but each has the same objective: to protect the utility’s and their customers investments. These approval processes should be considered when applying for an energy efficiency program. It’s best to consult with an energy efficiency vendor who will help maximize your kWh savings, incentive, and return on investment. Understanding these will help better clarify why some measures will be recommended for upgrades as opposed to others. Please visit some of the variances and variables in suggesting energy efficient replacements in our previous installment.