Energy Efficiency

208 Pages·2009·3.08 MB·English

by  Leslie A. Solmes (eds.)

Energy Efficiency
Leslie A. Solmes
Energy Efficiency
Real Time Energy Infrastructure Investment
and Risk Management
Leslie A. Solmes
LAS & Associaties
30 Harbor Cove Way
Mill Valley, CA 94941
USA
For David
Contents
Introduction ..................................................................................................... 1
1 Mystery ................................................................................................. 1
2 Intent ..................................................................................................... 1
3 Book Structure ...................................................................................... 3
Part I Setting the Stage
1 The Most Reliable Energy at the Lowest Unit Cost ............................... 7
1.1 A Beginning – 1978 ........................................................................... 7
1.2 Energy Principles ............................................................................... 8
1.2.1 The Second Law of Thermodynamics ................................... 8
1.2.2 Resource Scarcity ................................................................... 9
1.2.3 Integrated Energy Supply Systems ........................................ 10
1.3 The 1978 National Energy Policy ...................................................... 11
1.4 Our Goal Is… ..................................................................................... 11
2 The Opportunity ....................................................................................... 13
2.1 Aged Infrastructure ............................................................................ 13
2.2 Information Technology ..................................................................... 15
2.3 Opposing Business Goals .................................................................. 16
2.4 Uncertainty ......................................................................................... 16
2.5 The Age Advantage ........................................................................... 17
3 Energy Supply Systems ............................................................................ 19
3.1 Components of Traditional Energy Supply Systems ......................... 19
3.2 Definition of Energy Supply Systems and Ownership ...................... 21
3.2.1 Electricity System .................................................................. 21
3.2.2 Customer Systems .................................................................. 23
3.3 Decentralization ................................................................................. 25
3.4 Efficient Electrical Infrastructure Development ................................ 25
3.5 Discouraging Supply-Side Efficiency ................................................ 26
3.6 The High Costs of Peak Demand ....................................................... 27
3.7 Back to the Future .............................................................................. 29
vii
viii Contents
4 Funding Problems ..................................................................................... 31
4.1 Piecemeal Approach .......................................................................... 31
4.2 No Money! ......................................................................................... 32
4.3 Financial Burden or Investment Opportunity .................................... 33
4.4 Summary ............................................................................................ 34
Part II A Different Way of Doing Business
5 Energy Supply Investment Planning Methodology ............................... 37
5.1 Trust and Collaboration ..................................................................... 37
5.2 Basic Business Planning .................................................................... 39
5.3 Where to Start the Planning Process .................................................. 40
5.4 Building Blocks ................................................................................. 40
5.5 OA Methodology ............................................................................... 41
5.6 The Baseline – Steps 1 and 2 ............................................................. 42
5.6.1 General Facility Description .................................................. 42
5.6.2 Business Goals ....................................................................... 43
5.6.3 Facility Budget ....................................................................... 44
5.6.4 Growth and Escalation Rates ................................................. 45
5.6.5 Tax Information...................................................................... 46
5.7 Step 2 – Baseline Energy Use, Costs, and Equipment ....................... 47
5.7.1 Baseline Energy Usage, Demand, and Costs ......................... 48
5.7.2 Equipment Specifications and O&M Costs ........................... 51
5.8 The Baseline Results .......................................................................... 55
5.8.1 What Will Happen If No Investments Are Made
in the Facility? ........................................................................ 56
6 The Real Investment Opportunity ........................................................... 59
6.1 Case Studies ....................................................................................... 59
6.1.1 Navy Utilities Privatization .................................................... 59
6.1.2 The University of Maryland, College Park
Funding Goal ......................................................................... 61
6.2 Step 3 – Energy Supply System Technical Proposal ......................... 63
6.2.1 Demand-Side Energy Efficiency Measures
and Adjusted Baseline ............................................................ 63
6.2.2 Production and Distribution System Solutions ...................... 65
6.2.3 Illinois State University Investment Scope ............................ 66
6.3 Step 4 – Project Financing, Ownership and Implementation
Options ............................................................................................... 66
6.3.1 Construction Information ....................................................... 67
6.3.2 Long Term Debt ..................................................................... 67
6.3.3 Long Term Debt Payment ...................................................... 68
6.3.4 Depreciation ........................................................................... 69
6.4 Step 5 – The Energy Infrastructure System Investment
Plan Reports ....................................................................................... 69
Contents ix
6.4.1 Executive Summary ............................................................... 69
6.4.2 Proforma and Operational Calculations
(Solmes 2008) ........................................................................ 72
6.5 Energy Supplier Opportunity – The University of Iowa .................... 73
6.5.1 Customer and Energy Supplier Benefits ................................ 80
7 A “Living” Business Plan ......................................................................... 81
7.1 Information and Communication ....................................................... 81
7.2 Web-Based Financial Modeling Software ......................................... 83
7.3 Energy Information and Management System
Business and Functional Goals .......................................................... 84
7.4 Information Cost Control ................................................................... 87
7.5 The Bigger Picture ............................................................................. 89
7.6 Integration with the Local Utility ...................................................... 89
7.7 Summary ............................................................................................ 90
8 Profits from Value-Added ........................................................................ 93
8.1 Change ............................................................................................... 93
8.2 The University of Southern California ............................................... 94
8.2.1 The Energy Investor’s Proposal ............................................. 94
8.2.2 Lowest Cost Investment Strategy ........................................... 94
8.2.3 Lower Implementation and Capital Costs .............................. 97
8.2.4 Reduced Business Risk .......................................................... 98
8.2.5 Improved Financial Control and Reporting ........................... 98
8.2.6 Financing Strategy ................................................................. 99
8.2.7 Supplier Profits ...................................................................... 100
8.2.8 What Happened at USC ......................................................... 100
8.3 The University of New Mexico .......................................................... 100
8.3.1 The Problems ......................................................................... 100
8.3.2 Manifestations of UNM’s Problems ...................................... 101
8.3.3 A Gold Mine of Opportunity ................................................. 102
8.3.4 Addendum – Public Service of New
Mexico (PNM) ....................................................................... 102
8.4 Utility Investment Incentives ............................................................. 103
8.4.1 Calpine – Opportunity Missed? ............................................. 103
8.4.2 The First Rule of Financing ................................................... 103
8.4.3 A Cascade of Load Reduction and Elimination
of Spikes ................................................................................. 104
8.4.4 Maximizing Supplier and Customer Energy
Supply Systems ...................................................................... 104
8.5 Information Technology – Again!...................................................... 105
8.6 How Do Electricity Suppliers Make Money? .................................... 105
8.7 Summary ............................................................................................ 106
x Contents
Part III Fear of the Unknown
9 Risk Assessment ...................................................................................... 109
9.1 Investment Plan Assumptions ........................................................ 109
9.2 Areas of Risk .................................................................................. 110
9.3 Risk Mitigation .............................................................................. 110
9.3.1 Project Revenues .............................................................. 111
9.3.2 EPC Contracts .................................................................. 111
9.3.3 Operations and Maintenance Contracts ........................... 112
9.3.4 Primary Fuel Costs ........................................................... 113
9.3.5 Supplemental, Maintenance, and Standby Power ............ 113
9.3.6 Financing Costs and Off-Balance Sheet .......................... 113
9.3.7 Environmental Permitting ................................................ 114
9.3.8 The Uncertainty of Policies and Regulations ................... 114
9.4 Sensitivity Analysis........................................................................ 115
9.5 The Importance of Timely Information and Communication ........ 116
9.6 Request for Proposal ...................................................................... 118
10 Energy Service Companies ..................................................................... 121
10.1 Demand-Side .................................................................................. 122
10.2 Supply-Side .................................................................................... 123
10.3 Barriers to Implementation ............................................................ 123
10.3.1 Market Inertia ................................................................... 123
10.3.2 Transaction Complexity ................................................... 124
10.3.3 Changing Horses Mid-Stream .......................................... 124
10.3.4 Communication of Financial Parameters ......................... 124
10.3.5 Limited Staffing and Technology ..................................... 125
10.3.6 The Importance of Applied Training ............................... 125
10.4 Data Collection – A Policy Priority ............................................... 126
10.5 Progress .......................................................................................... 127
10.5.1 CHP – EPA Partnership ................................................... 127
10.5.2 International District Energy Association ........................ 127
10.6 Implementation .............................................................................. 128
10.6.1 One Step at a Time ........................................................... 128
10.6.2 Levels of Granularity ....................................................... 129
10.6.3 Comparing Investment Options ....................................... 130
11 Performance-Based Investment Financing ........................................... 133
11.1 Rebuild America ............................................................................ 133
11.2 Energy Performance Metrics ......................................................... 134
11.3 Project Financing ........................................................................... 136
11.4 University of California, Santa Barbara (UCSB) ........................... 137
11.5 The Serious Cost of Unreliable Infrastructure ............................... 138
11.6 The Maryland Economic Development Corporation ..................... 138
11.7 The World Bank ............................................................................. 139
Contents xi
11.8 Guidebooks .................................................................................... 140
11.9 Better Than the Stock Market ........................................................ 141
11.9.1 National Rural Utilities Cooperative
Finance Corporation ......................................................... 142
11.9.2 FARECal .......................................................................... 142
12 The Advancement of Energy Efficiency ................................................ 145
12.1 Status of Electricity Supply Systems ............................................. 146
12.1.1 The Electric Power Research Institute ............................. 146
12.1.2 Other Points of View ........................................................ 147
12.2 Barriers and Incentives ................................................................... 148
12.2.1 Implementation of Public Utilities
Regulatory Policy Act (PURPA) ...................................... 148
12.2.2 EPA CHP Partnership ...................................................... 150
12.2.3 2005 Energy Policy Act ................................................... 150
12.2.4 Standard Interconnection Agreements
and Procedures for Small Generators .............................. 151
12.2.5 The Energy Independence and Security
Act of 2007 ...................................................................... 151
12.3 What Will Be the Cost of Electricity? ........................................... 152
12.3.1 National Energy Policy Initiative Expert
Group Report ................................................................... 153
12.3.2 The Potential Benefits of Distributed
Generation (DG) and Rate-Related Issues
That May Impede Its Expansion ...................................... 156
12.3.3 US Clean Heat and Energy Association
(USCHPA) ....................................................................... 157
12.4 The Electric Utilities ...................................................................... 157
12.5 Answer – Opportunity Assessment and Opassess ......................... 159
12.6 The Value of Emissions Reductions, Waste Disposal,
and Subsidies ................................................................................. 161
13 Leadership ............................................................................................... 163
13.1 Combining Casten and Friedman ................................................... 163
13.2 Work Flow Software and Internet Application .............................. 164
13.3 Fundamental Currency of Capital Markets .................................... 166
14 Commitment to Resource Efficiency ..................................................... 169
14.1 Energy Efficiency ........................................................................... 170
14.2 Energy Infrastructure ..................................................................... 171
14.3 Investment ...................................................................................... 171
14.3.1 Comparing Options .......................................................... 171
14.3.2 Who Pays? ....................................................................... 172
14.4 Real Time ....................................................................................... 172
14.5 Risk Management .......................................................................... 173