How will we pay for it?
What retrofit projects should be implemented?
Who should do the work?
These are the key questions most building owners ask when embarking on a retrofit project. Yet many overlook what may make or break its success: timing.
In most cases, building owners consider a large capital investment generally for reliability, comfort or functionality—not to save energy. In doing so, they are overlooking the prime time to do an energy efficiency retrofit.
Energy efficiency measures are almost universally less cost-effective when done as stand-alone projects. However, when the principles of “integrated design” and “piggybacking” are applied to major capital investments in a building, energy efficiency measures can become highly profitable.
Integrated Design and the Empire State Building
A year after RMI and our partners completed an award-winning retrofit design of the Empire State Building, the $550 million capital upgrade program is now underway.
Overall, the complete energy efficiency program will generate $4.4 million in annual energy cost savings, and cut the building’s energy use by nearly 40 percent, all with an incremental payback of just over three years.
A major portion of the project is to retrofit every one of the building’s approximately 6,500 double-hung windows in order to quadruple their energy performance. Only 10 years old, the windows will be removed, converted into “super insulating glass units” in a special on-site assembly area on a vacant floor of the building, and re-hung.
This project will generate $410,000 a year in energy savings at a total capital cost of $4.5 million and an incremental capital cost of $4 million (since $500,000 was already budgeted for window sealing and isolated replacements). This stand-alone project has a simple payback of just less than 10 years.
However, to characterize the economics of this particular window retrofit project as having a “9.8-year payback” is overly conservative.
Because the window retrofit roughly halves solar heat gain, it reduces the building’s peak cooling load by 440 tons. The team was thus able to recommend the renovation and reduction of the existing chiller plant, at a capital cost of $5.1 million, rather than replacing and expanding it for $22.4 million.
The $17.1 million avoided capital cost for the chiller plant can’t however be entirely attributed to the window project because other projects also contributed to the total cooling load reduction of one-third. But the simple energy-cost payback metric of 9.8 years for the window project understates the significant cost benefits.
This design solution clearly leverages “integrated design.” By considering the impact of and investing in the windows, the capital cost of the chiller plant is significantly reduced. Had these projects been analyzed in isolation, the synergies would have been ignored and the building owner would have spent significantly more money to save less energy.
Bypassing Cream Skimming through Piggybacking
As a result of integrated design, the innovative approach to upgrading the windows at the Empire State Building is cost-effective, thus bypassing the usual result of “cream-skimming.” Cream-skimming occurs when a retrofit project is done in such a way that it leaves part (often most) of the available energy savings economically unattainable for a long time—if not permanently.
For example, replacing only central plant equipment without looking at load reduction measures can leave between 10 percent and 30 percent of the available energy cost reductions (as well as capital cost reductions) unrealized.
Moreover, future load reductions must be considered as stand-alone projects without capacity savings, so they likely won’t be cost-effective and thus won’t be implemented later.
Only because of the innovative problem solving of the design team and the ability to coordinate with the chiller plant upgrade did the window retrofit project get implemented this way. In most cases however, the “retrofit fix” is cost-prohibitive, is never completed and those incremental savings are left untapped (e.g. savings are cream-skimmed).
Ideally, building owners would coordinate energy-efficiency projects with major system or equipment replacement.
In this scenario, energy-efficiency projects can be “piggybacked” on planned projects. Here, only the incremental or additional spending for energy efficiency must be justified by energy efficiency cost savings.
When a project is done solely for energy efficiency reasons, the energy cost savings need to justify the total investment—which is often less attractive. Because much of the cost is absorbed in the transaction and planned project costs, spending just a bit more to save a lot more in energy costs can often make sense. Together, integrated design and piggybacking is a powerful combination.
Timing is Critical
Clearly, timing is a critical element for building owners wanting to implement cost-effective, deep energy efficiency retrofits that save dramatic amounts of energy (50 percent to 70 percent).
The greatest energy savings with the best economics result from projects where multiple pieces of equipment are replaced at the same time at the end of their useful life, and where the project is synergistic (both from a capital cost and from an energy perspective).
Thus, regardless of the age of a building, owners or building managers should create a long-term equipment replacement schedule to try to align energy efficiency investments with each other and with end-of-life equipment replacements.
Caroline Fluhrer is a senior consultant with RMI's built environment practice. Rebecca Cole is RMI's online editor.
--Published June 2010