Posted on 3/12/2014 2:47 PM by Jerry Schmits

LED bulbEvery year, thousands of commercial building owners make capital investments to improve lighting system efficiencies across their asset portfolios. One of our building manager clients was considering exactly this kind of change, replacing an existing metal halide lighting system with a high-efficiency lighting system.

What the building manager didn’t know was that some of the lighting investment, would have qualified for a monetary recovery due to the newest trend in facility management: the energy capacity auction.

Similar to the concept of net-metering—the process that allows companies to sell excess electric generation from cogeneration plants, solar arrays, and so on—the energy capacity auction allows customers that create permanent demand reduction to bundle their conserved kilowatts and sell them to open market buyers.

Due to the rising cost of power generation and an ever-increasing consumer demand for electricity, utility companies initially created demand-response incentive programs to encourage efficient energy consumption, but the notion of curtailing energy consumption during a demand-response event kept many potential benefactor companies from participating.

Yet individualized curtailment alone was not a sustainable solution to growing energy demands, so regulators and utility executives created incentives for consumers to implement highly-efficient electrical and mechanical systems. Since PJM Interconnection, a regional transmission organization (RTO), has some of the highest retail electricity rates in the country, it was the RTO most likely to benefit by offering such a rebate program. Currently, PJM is the only RTO conducting an energy capacity auction that recognizes permanent load reduction in the same capacity as excess generation.

The decision to invest in energy efficiency often arises due to increasing competition among owners to have the most energy efficient building and rising corporate pressures to reduce operating expenses. Since these types of projects can be costly, building owners and operators should study key factors in the operation of building and mechanical systems to determine what options provide the most favorable ROI and Net Present Value (NPV). Building owners can then use those metrics to gain approvals for spending critical capital. When considering the financial models for an investment in energy efficiency, make sure to include the expected utility rebates associated with replacing existing equipment with the most cost-effective options.

“A lighting retrofit project highlights the PJM energy capacity auction at its best,” says Steve Moritz, president of Encentiv Energy, an energy efficiency program management. “Our customers have not only reduced operating expenses associated with energy consumption and demand, but they took advantage of the available incentives.” 

While any quantifiable reduction in electrical or mechanical system loads might qualify, the amount of monetary recovery will vary based on several factors, including the average cost of power for utilities in the project’s territory and the type of system being upgraded. To see if your energy efficiency project qualifies, contact a local energy management professional.

Jerry Schmits is the director of energy solutions at Kohrs Lonnemann Heil Engineers.