Change is coming

Many Americans associate debates around energy with attempts to introduce clean and renewable fuels on a large scale. Regulations and control of energy—in terms of production, distribution, consumption, conservation and security—garnered intense interest far earlier than the last decades.

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Coal formed the foundation of American industrialization in the 19th century. Between 1850 and 1900, coal’s consumption in America rose from 10 percent to 70 percent. After opening the world’s first hydroelectric power plant on the Fox River in Appleton, Wisconsin, in 1882, hydropower also grew into a major player.

Initially, its contribution to electrical generation in the U.S. grew from 40 percent during the early 1900s, to nearly 75 percent in some regions by the 1940s. Hydroelectricity has since retracted significantly in its contribution to U.S. energy, as has coal, though coal still plays a major role. Petroleum now stands as the major source for American energy consumption with a roughly 37 percent market share.

Oil was developed as an affordable source of energy during the mid-to-late 19th century with the aid of successful businessmen such as John D. Rockefeller. Rockefeller, however, ignited the ire of many, including leaders such as Teddy Roosevelt, and government intervention was quickly sought to break up the alleged monopolistic tendencies of Standard Oil.

Further government regulation and promotion of energy sources was encouraged under Franklin Roosevelt during the days of the Great Depression. Declaring that America was “most certainly backward in the use of electricity,” FDR specifically promoted the use of electrical energy by signing a bill that sought to bring electricity into the homes of many rural farmers. While suppressing private industry’s abilities to electrify the country, FDR had the federal government take much of the lead in electrification.

Seven years later, after focused governmental attention on energy policy (including the creation of organizations like the Rural Electrification Administration and the Tennessee Valley Authority), America was using more electricity per capita than any other nation, and FDR began urging conservation: “Our energy resources are not inexhaustible, yet we are permitting waste in their use and production. In some instances, to achieve apparent economies today, future generations will be forced to carry the burden of unnecessarily high costs and to substitute inferior fuels for particular purposes.” He would not be the last president to advocate against energy gluttony.

With the end of World War II, President Truman, albeit acknowledging its potential for destruction, considered the development of nuclear power “more revolutionary than the invention of the wheel, the use of metals, or the steam or internal combustion engine.” Congress subsequently passed the Atomic Energy Act, a law that sought to use atomic energy to “improve” the public welfare, increase the standard of living, and strengthen free competition in private enterprise.” But distrust in the safety of nuclear energy has thus far prevented it from comprising a large chunk of American energy consumption.

The energy crises of the 1970s prompted leaders such as President Jimmy Carter to argue that America was “running out of gas and oil,” and to urge a policy of “strict conservation” and the implementation of “renewable energy sources.” Energy policy now predominantly focused on protecting the environment, reigning in energy use, and making alternative energy options viable—goals in which the newly-created Department of Energy would seek to play a vital role.

Reagan criticized Carter’s approach, claiming that America was an “energy-rich” nation that needed to focus on producing more of it rather than taxing and regulating it. Bush, Sr., too, sought to increase domestic energy production, although more for security reasons. This was particularly true of “environmentally-sound and cleaner fuels like ethanol, methanol, electricity, propane, natural gas, and cleaner gasoline.”

But for the subsequent administrations of Bill Clinton, George W. Bush, and Barack Obama, increasing public concerns over the many costs of fossil fuels, environmental impacts of energy production (particularly global warming), limitations on the use of fossil fuels, and the quest for clean, renewable energy have become essential to American domestic energy policy.

Today, such discussions center on our dependence on oil, the disappearance of fossil fuels, means of fighting global warming such as the Kyoto Protocol and cap-and-trade, ways to facilitate transitions toward alternative sources of energy such as ethanol, wind, and solar, special interest maneuverings, and logistical challenges in creating and enforcing cohesive policies across multiple government agencies.

Debates also focus on the costs and benefits of taxpayer-funded subsidies for various forms of energy. According to the Energy Information Administration, subsidies more than doubled from $8.2 billion in 1999 to $16.6 billion in 2007. “Tax expenditures have more than tripled since 1999, rising from $3.2 billion that year to more than $10.4 billion in 2007.” The main beneficiaries of these subsidies have been renewables, refined (i.e. clean) coal, natural gas, and oil.

Speaking at the Energy Information Administration’s 2013 Energy Conference in Washington, D.C., Energy Secretary Ernest Moniz suggested that while many think the energy system is resistant to change, he believes a lot has changed over the last ten years. His goals include:

  1. Boost energy efficiency
  2. More alternative fuels, less reliance on one kind of fuel
  3. Achieve electrification of the transportation sector
  4. Figure out how to tackle climate change from a policy standpoint
  5. Achieve net zero carbon emissions
  6. Ensure on-cost and on-schedule nuclear construction
  7. Pilot small modular nuclear reactors
  8. Push energy storage
  9. Improve emergency response
  10. Achieve post-competitive collaboration in private and public sectors
Obama’s climate action plan:

With the objective of reducing carbon emissions and mitigating climate change, the President recently announced a comprehensive plan to solve for these issues. It will:

Cut carbon pollution in America. The Obama Administration is putting in place tough new rules to cut carbon pollution and move our economy toward American-made clean energy sources. The plan:

  • Directs the EPA to work closely with states, industry and other stakeholders to establish carbon pollution standards for both new and existing power plants
  • Makes up to $8 billion in loan guarantee authority available for advanced fossil energy and efficiency projects to support investments in innovative technologies
  • Directs DOI to permit enough renewables project—like wind and solar—on public lands by 2020 to power more than 6 million homes; designates the first-ever hydropower project for priority permitting; and sets a new goal to install 100 megawatts of renewables on federally-assisted housing by 2020 while maintaining the commitment to deploy renewables on military installations
  • Expands the President’s Better Building Challenge, focusing on helping commercial, industrial, and multifamily buildings cut waste and become at least 20 percent more energy efficient by 2020
  • Seeks to reduce carbon pollution by at least 3 billion metric tons by 2030—more than half of the annual carbon pollution from the U.S. energy sector—through efficiency standards for appliances and federal buildings
  • Commits to partnering with industry and stakeholders to develop fuel economy standards for heavy-duty vehicles
  • Leverages new opportunities to reduce hydrofluorocarbons; directs agencies to develop a comprehensive methane strategy
In order to prepare the U.S. for the impacts of climate change, the plan:
  • Directs agencies to support local climate-resilient investment by removing barriers or counter-productive policies and modernizing programs; and establishes a short-term task force of state, local, and tribal officials to advise on key actions the Federal government can take to help strengthen communities on the ground
  • Pilots strategies in the Hurricane Sandy-affected region to strengthen communities against future extreme weather and other climate impacts; update flood-risk reduction standards for all federally funded projects
  • Launches an effort to create sustainable and resilient hospitals through a public-private partnership with the healthcare industry
  • Maintains agricultural productivity by delivering tailored, science-based knowledge to farmers, ranchers, and landowners; and helps communities prepare for drought and wildfire by launching a National Drought Resilience Partnership and by expanding and prioritizing forest and rangeland-restoration efforts to make areas less vulnerable to catastrophic fire
  • Provides climate preparedness tools and information needed by state, local, and private-sector leaders through a centralized “toolkit” and a new Climate Data Initiative
Lead international efforts to address global climate change. The plan:
  • Commits to expand major new and existing international initiatives, including bilateral initiatives with China, India, and other major emitting countries
  • Leads global sector public financing toward cleaner energy by calling for the end of U.S. government support for public financing of new coal-fired powers plants overseas, except for the most efficient coal technology available in the world’s poorest countries, or facilities deploying carbon capture and sequestration technologies
  • Strengthens global resilience to climate change by expanding government and local community planning and response capacities
Obama: reduce building energy use

President Obama notes: “Energy efficiency upgrades bring significant cost savings, but up-front costs act as a barrier to more widespread investment.” To help overcome this problem, the Federal Housing Administration will convene lenders and other stakeholders at a roundtable to identify options for factoring energy efficiency into the mortgage underwriting and appraisal process for homes.

Portfolio Manager Upgrade

In July the EPA released a complete upgrade for its popular Portfolio Manager tool. This tool, currently in use by more than 40,000 owners and operators to measure, track, assess, and report on the energy and water performance of more than 250,000 commercial buildings, will deliver a new interface, streamlined functionality, and improved usability. By 2014, the EPA will also add a multifamily rating system.

Rating the energy efficiency of a building is a complex and nonstandard process. It involves ranking a structure’s energy consumption patterns alongside a peer group, normalizing for factors like local climate and occupancy. Methodologies of assessing energy efficiency can take multiple forms. Although terminologies vary, ratings for the built environment typically fall into two categories:

Asset ratings involve an energy-use simulation to compare the projected efficiency of a building based on architectural and systems characteristics. Simulating a building’s energy performance is also a nonstandard process that varies by location. Methodologies use an energy model run on complex software. Others include energy audits, whereby engineers perform on-site testing to estimate performance. LEEDS is a good example, but focuses on new development.

Operational ratings have great reporting ability for multifamily operators. It uses real utility data to compare a building’s energy consumption to similar buildings (an operational rating.) Software is used for these ratings such as the EPA’s Portfolio Manager, which determines relative energy efficiency for free using a year’s worth of energy consumption data.

Building Owners and Managers Association (BOMA) supports voluntary benchmarking, at least annually, using the Portfolio Manager or other similar programs. BOMA opposes mandates for energy benchmarking, disclosure and labeling.

The organization recognizes that many states and municipalities are implementing mandatory benchmarking and disclosure. In recognition of such, BOMA supports the creation of a national model building energy performance program, based on the Portfolio Manager to avoid a patchwork of regulations. It supports the creation of a model that is easy to use and understand, and promotes knowledge of building energy performance without hindering real estate transactions.

As part of any such program, utilities must be required to provide whole-building benchmarking data to building owners and managers, with disclosure limited to parties directly involved in a sale, lease or financing transaction.

BOMA also supports increased funding for the Energy Information Administration (EIA) to enhance their research and depth of data for Energy Star. With increased federal funding,Energy Star may provide more robust data to expand its 1 to 100 rating system to all commercial property types.

There has been a major shift away from mandatory regulations. These encourage environmental improvement, but do not compel it.

Solutions continue to evolve through private financing, bank loans, GSE and government mortgages, and tax credits. There will be more creative financing, market-based financing (PACE), energy service agreements, on-bill financing, tax-increment financing, and energy performance contracts.

At present, only Boston and Seattle require benchmarking the energy performance of a building, and require data on energy consumption. Multifamily operators must have access to whole building data in order to accurately benchmark. However, wholebuilding data is often difficult to obtain. The barriers can include:

  • Separate meters: Building owners cannot access meters in buildings where tenants are billed directly without tenant authorization
  • Manual data collection: Securing authorization from tenants to release data, or collecting it monthly from individual tenants, can be time-intensive and procedurally difficult
  • Utility data policies: Many utilities have rigorous privacy policies governing the direct release of customer data to third parties

Along with BOMA, the Real Estate Roundtable, IMT and the U.S. Green Building Council, recently launched a coalition to promote better access to whole-building energy consumption data.

The Data Access and Transparency Alliance (DATA) works with utilities, regulators, and policymakers to improve accessibility; to advance policies and programs with this objective; and to inform government agencies, members of Congress, utilities, and utility commissions about best practices. With DATA’s support, the National Association of Regulatory Utility Commissioners (NARUC) adopted a resolution in 2011 calling on state regulators to facilitate better access for building owners to whole-building energy consumption data.

It is important to protect customer privacy while providing building owners the data they need to benchmark and make their buildings more efficient. A variety of strategies including data aggregation can be used to accomplish this goal.

But another barrier occurs when property leases are not structured to accommodate.

  • Gross leases: residents have no incentive to save energy in their leased space because energy expenses are paid by the owner
  • Net leases: building owners have no incentive to invest in efficiency for their building because the operating expenses are passed through to residents (who receive all the energy cost savings). Energy costs may also be allocated based on resident square footage, which does not always accurately reflect actual energy usage.

Green leases (also known as energy-aligned leases, high-performance leases, or energy-efficient leases) align the financial and energy incentives of building owners and residents so they can work together to save money, conserve resources, and ensure the efficient operation of buildings.

Conclusion

Using the Boy Scout motto, we best “be prepared”, for the future is upon us. Here’s a fast check list of must haves:

  • Move all properties to EPA Portfolio, not just those in regulated jurisdictions
  • Develop a portfolio/property energy plan using ISO 50001
  • Shift strategy to energy management plus expense management and recovery
  • Update meter descriptions and building characteristics

Energy management is more than saving money—it is about understanding processes and energy patterns on properties, setting realistic goals and monitoring progress, and protecting natural resources while leveraging alternative ones. Adopting a portfolio-wide commitment to best energy practices is one way that portfolios can meet today’s cost-cutting and long-term energy efficiency goals.

A formal energy management program helps document, understand and improve energy usage. In 2011, the International Portfolio for Standardization (ISO) released ISO 50001—Energy Management Systems (EnMS). This voluntary standard serves as a model to elevate energy management and conservation efforts by embedding awareness, best practices and increased value to your assets. With broad applicability across economic sectors, it is estimated that the standard could influence up to 60 percent of the world’s energy use.

Author: Michael Radice