No Free Lunch

23 03 2010

A few years ago, I took my beloved Acura to the tire store for new tires.  As I was sitting on their crappy molded plastic chairs at a Formica table working away on my laptop, a cheesy 20-something sales guy approached me and asked if I would like a free alignment.  “I don’t have a problem.”  “But it’s free.  No obligation”, he goes on.  “Ah what heck, go ahead.”  He returned a few minutes later as I’m hammering away on my laptop and he says my wheels should be aligned because…whatever.  I put on a scrunchy-face look and decide that even if it’s off a little bit and they can make it perfect…ok, go ahead.

On my way out of town that evening I immediately noticed the “A” on my steering wheel is now leaning left about 1 or 2 degrees maybe.  Now I’ve seen wheels that are out of alignment, the steering wheel may shimmy, and the tires get burned off in an expected pattern, but I have NEVER driven a car that is “crabbing” down the road.  I reached over to the glove compartment, pulled out the receipt for the phone number.  I called the 20 something snaky peon and blistered him so bad, I had to roll down the windows to prevent the dashboard from melting.  They took something that was perfectly fine as far as I knew and screwed it up and charged me seventy bucks for the pleasure.  I was a complete idiot to fall for the “free alignment” anyway.  I returned and they made it right, this time getting my approval of every setting.  Funny how that works.  It still cost me time, which I don’t have, and plenty of angst.

The moral of the story, of course, is beware of free services.  I don’t even like most free software and some free news sites because of the hassle, the advertising, lack of decent content, the garbage that may come with it and the “spam” lists they may put me on.  Just give me something that works well, provides value and leave me alone.  I’m perfectly content paying for it.

Which brings me to the “investment grade” energy study of large commercial or industrial facilities.  Investment grade means it is accurate enough to guarantee savings if that’s what the client wants.  Of course the guarantee isn’t free, but that’s a topic for another day.  I count five types of study funding.

  • The low-ball study.  The consultant offers a low-ball study cost that will be made up on the much more expensive design phase of the energy efficiency project.  Essentially, they do energy consulting to get what they really want: design and even more lucrative construction management.  They may not know a low-cost, high return-on-investment (ROI) opportunity if it shot them in the kneecap, but it doesn’t matter, they just want to design equipment and system replacements.  They can spot those babies for sure.
  • The “free” study with the contract that says you customer have to move forward with high ROI (defined ahead of time) measures, or else pay for the study, which will be a million dollars – as in performance contracting.  The company doing the study does the implementation with profit on the implementation cost.  Look, a study may really cost 20% to 50% of one year’s energy savings from cost-effective measures.  Implementation may cost 500% to 1,000% the first year’s energy savings.  Now how easy is it to stuff the project with about 5 times the real study cost, plus other markup built into the cost of implementation?  Heck the study cost doesn’t even matter.  Third party verification of savings is absolutely required.  This can work fine, but many end users have been burned badly, making performance contracting a pariah in some circles – more on this in another rant.  Does this outfit want to provide the best value for your investment or sell you all the equipment they can to fit within your payback criteria?
  • The open tell-all study.  The client pays an independent consultant to do the study with everything on the table.  We are typically in this scenario and have a hard time competing with the above David Copperfields for the study.  We may have the same profit margin as the performance contractor, but their sale is 10x or even 50x our sale.
  • The cheap and crappy audit.  Somebody who’s done 1,400 studies offers to provide an investment grade study for half the price of everyone else.  How do you suppose they’ve done 1,400 studies?  You just have to be a good cost estimator to deliver these crumby studies.  Costs come in with precise bald face numbers.  Energy savings?  Not so clear.  Cost effective measures may be scattered all over the place AFTER they are done as well.  Refer to the kneecap shooting above.
  • The cheap high level audit.  We do many of these too, and we go overboard, as much as possible to explain to the customer that this will NOT, is not, and was not investment grade material.  It provides plus-or-minus-50%, hand-grenade results to assess potential.  Some measures with a worst possible real ROI that is less than 2 years may go right to implementation, but probably more than half need further investment grade analysis, unless the customer just wants to roll the dice.

There is no free breakfast here.  Our long-term clients know this because the cost of cheap can be very expensive, or intolerable, and they know it.

written by Jeffrey L. Ihnen, P.E., LEED AP

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Tax Deduction Pennies

21 10 2009

Recently, we received our umpteenth “request for proposal” (RFP) to provide the engineering required to capture the elusive $1.80 tax deduction on new or remodeled buildings.  We spend a lot of time, money and effort to drive business through our doors but I’m not sure I want to see another one of these.

Like the rest of the universally incomprehensible tax code, the engineering piece of this is relatively complex.  If we did this all the time, it wouldn’t be a problem.  But it seems we get the next RFP just as the rules are overwritten in my long-term memory banks.  What do we compare to?  Does this apply to both retrofit and new construction?  Does retrofit compare to new construction baselines or actual pre-project conditions?  How do these partial incentives for HVAC, envelope, and lighting work?  How do the two lighting approaches work?  What suffices for demonstration of percent savings?  Half day – gone.

To do the engineering right, which is the only way we do things, it takes a lot of energy modeling time and expense (with the exception of the isolated lighting calculation).  Also, consider:

  • It is impossible to save anywhere near 16.7%[1] with envelope measures , relative to energy code, so you’re left with 50% total building savings.  As a side note for COMMERCIAL buildings, in many if not most situations, it is not cost effective to save energy by adding insulation, and you can save some but not much with enhanced glazing.
  • We need to save 50% of the total building consumption with HVAC and lighting, but on average per benchmark data, HVAC and lighting only account for 67% of building operating energy cost.  See where I’m going with this?  Your combined HVAC and lighting savings need to be 75% more efficient than baseline!  There’s a reason LEED has about 50% set as the threshold to capture all possible energy points!  You have to use a genius designer, perhaps have deep pockets, plus all the stars have to align for a “lucky” baseline system to have a shot at 50% savings[2].

Conclusions:

  • Only the lighting power density approach for a $0.60 per square foot deduction is worth pursuing.
  • The threshold for the rest needs to be reduced, to perhaps 30% savings, which is still impressive and also certainly not something one can achieve without trying.

[1] End users can get partial deductions for (1) envelope, (2) HVAC, and (3) lighting, by saving 16.7% of the total for any of the three.  This 16.7% is one third of 50%..

[2] We are actually shooting for all 10 LEED 2.2 points on one project, but “only” 42% savings are needed for that.

written by Jeffrey L. Ihnen, P.E., LEED AP