Where do good intentions LEED again?

Mark Stetz a fellow EVO-ite gave me permission to repost his complete article that he wrote in preparation for a class he is teaching at Greenbuild.  The article already appeared at  consilienceblog.org, but I thought it would be of value to our readers as well.
The article address one of the main shortcomings of the LEED certification that I have continued to hear since I joined the energy industry.
Buildings and Energy Efficiency: Are Intentions Good Enough? by Mark Stetz, P.E., CMVP, FIGP
One of the benefits claimed for LEED-certified buildings is their reduced energy use, resource consumption, and carbon footprint relative to their peers. Designing a building to be energy-efficient, take advantage of solar energy and day lighting, use emerging technologies, and using a commissioning agent seems like a good way to lower energy and resource use. Achieving design goals requires that specialists from many different disciplines work together in a harmonious relationship, but the greatest danger to any relationship is failed expectations.
The LEED rating system scores buildings by assigning points based on land, material, water, and energy use over a building’s lifetime. One of the weaknesses of the LEED system is that points are based on design intent and not verified performance. For years, the USGBC claimed that LEED-certified buildings used less energy than the average building, although they had little supporting evidence. This claim was based solely on expectations of superior performance. Critics were quick to argue that the point- and expectation-based rating system would not result in well-designed cost-effective buildings. [1]
The USGBC – partly out of curiosity, partly in response to its critics – commissioned a study to investigate how LEED-certified buildings actually operate rather than rely on how the designers and builders think they operate. The 2008 study by Frankel and Turner [2] showed that design intentions are unfortunately often not realized. Of the 552 LEED-certified buildings in existence at the time, only 121 had utility data available for review. Of those 121 buildings, 40% did not meet their energy target and more than 20% had energy use intensities greater than code requirements! While debate continues over the validity of the statistical and evaluation methods used, the report suggests that over half of the buildings met or exceeded expectations. But for a program that emphasizes energy efficiency as one of its key attributes, how is it that 20% of these buildings did not even perform up to code?
For conventional buildings, code-compliance is based on design intent rather than post-occupancy verification. Since the Frankel & Turner study did not evaluate individual non-LEED buildings, it is not possible to show how many conventional buildings live up to their design intent. Additional analysis of the same buildings conducted by National Research Council Canada [3] reached similar conclusions, with the good news that on average, LEED buildings do save energy but that individual buildings may not. But no one occupies the average building any more than they have the average 2.3 children.
In an attempt to address some of the weaknesses with LEED 2.2, LEED 3.0 – released April 2009 – further emphasizes designing for and achieving energy reductions. The point system has been revamped to make it align more with the USGBC’s goals of energy and carbon reductions. Energy efficiency (EA-1) can now earn a building up to 19 points and the Measurement &Verification credit (EA-5) – which validates energy use - is now worth 3 points. To enable additional post-evaluation research, USGBC will require post-occupancy access to the water and energy bills, access that needs to be maintained even if the building changes owners. Although some critics have suggested that certification be revoked if an individual building ever fails to live up to its claims [4], the USGBC has not yet taken that draconian step.
Lessons learned from studying existing buildings – LEED and non-LEED alike – support the continued integration and cooperation of disciplines when designing, constructing, and commissioning buildings so that they work as a system rather than a collection of parts. They also show that performance monitoring during the life of the building is equally important. Only 25% of LEED-certified buildings apply for and receive the M&V Credit EA-5 [5], possibly because there are easier and cheaper ways of earning points. Unfortunately, receiving the M&V credit only requires writing an M&V plan; there is no requirement that it be implemented. The expectation that someone will carry out the M&V plan will continue to be a weakness with the LEED system.
Benefits of building performance monitoring include not just cost control and the ability to claim carbon emissions, but also feedback for the designers and operators to apply to their next project. Building simulation models may appear reliable because they are done on a computer, but many building characteristics are unknown and unknowable, so assumptions are used instead. For example, a building may be designed as a 9 to 5 office building but the tenants actually operate 24/7. The resultant energy use will be significantly greater than originally estimated, but with no real verification, it would appear that the building is less efficient than intended. In this case, the assumed occupant behavior does not match reality. Only by verifying the actual energy use and comparing it to the models can assumptions and building performance can be validated.
If LEED-certified buildings are to live up to their expectations, performance cannot be based on design intent. Hope is not a plan. The goals of energy, cost, water, and carbon reductions need to be demonstrated in practice if the LEED program is to maintain credibility. The new LEED 3.0 requirements are a step in the right direction; the rest is up to those who design, build, commission, and occupy buildings. 
About the author
Mark Stetz, P.E. CMVP, FIGP, is the Principal of Stetz Consulting LLC and an energy engineer specializing in building performance verification and energy audits. He will be teaching Building Performance Verification at Greenbuild in 2009 and Measurement & Verification at the ASHRAE Winter Meeting in 2010. Mark is also on the Advisory Board of the Institute of Green Professionals.
1. LEED Scores Early Successes but Faces Big Challenges
E Source Technical Brief ER-04-3
Platts Research & Consulting 2004
2. Energy Performance of LEED® for New Construction Buildings
Cathy Turner, Cathy; Frankel, Mark
New Buildings Institute May 2008
http://www.usgbc.org/Docs/Archive/General/Docs3930.pdf
3. Do LEED-certified buildings save energy? Yes, but...
Newsham, G.R.; Mancini, S.; Birt, B.
National Research Council Canada
NRCC-51142 August 2009
http://www.sciencedirect.com/science/article/pii/S0378778809000693
4. A Better Way to Rate Green Buildings
Henry Gifford 2009
http://www.EnergySavingScience.com
5. Personal communication with Brendan Owens, USGBC 2009.
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Nathan Shetterley (nathan.shetterley@gmail.com)
EVO Director of New Media

McKinsey Describes IPMVP as Foundational

In a July 2009 wide ranging report, the global consulting firm McKinsey & Company provided analysis of the barriers to energy efficiency in the USA, on page 107 in the printed report, it identifies the need to achieve “appropriate” evaluation, measurement and verification (EM&V). Interestingly it wisely notes that: “providing a ‘perfect’ EM&V system is not possible; instead, a ‘sufficient’ EM&V system” is needed.
The report further describes that ‘sufficient’ EM&V should be:
a) consistent (internally consistent and stable over time);
b) simple in design (to balance value against complexity and cost); and
c) involve both measurement of energy consumption and review of activities undertaken.

IPMVP is described as a “shared foundation for EM&V” which “might provide the consistent methodology upon which energy efficiency program managers can build.”
From the report:

As California's efforts to improve energy efficiency have show, even in a state that has taken a relatively aggressive approach to capturing energy efficiency, the issues surrounding attribution can be complex. Detailed EM&V programs that cause a slowdown in the pursuit of energy efficiency are unlikely to merit their expense. Fore example, in some California programs, discussions of attribution sought to resolve differences of $70 million in incentives, of a total program spend of $2.1 billion - with benefits that exceed $4 billion. A detailed EM&V program that risks disruption the pursuit of energy efficiency is unlikely to deliver savings equal to the opportunity cost. For example, slowing the capture of the $4 billion in benefits by four months decreases their present value by $70 million.
The International Performance Measurement and Verification Protocol (IPMVP) provides a basis for analyzing project-level savings from energy efficiency measures. Though the IPMVP primarily address project savings in commercial and industrial sectors, it could provide the basis for broader measurement of energy efficiency programs. Development of this protocol has been supported by the Department of Energy and provides the basis for measurement in federal Energy Services Performance Contracts. A shared foundation for EM&V of this sort might provide the consistent methodology upon which energy efficiency programs managers can build.

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Nathan Shetterley (nathan.shetterley@gmail.com)
EVO Director of New Media

A triple play for energy efficiency

I’ve been spending most of my time in Chicago as of late, and it’s a bit of a baseball town, so you’ll have to excuse the reference.

I saw this in my inbox today from smartmeters.com:   Chicago association describes office building smart grid.

FTA: 

The Building Owners and Managers Association (BOMA) of Chicago has plans to develop the nation’s first smart grid program specifically for an office building.  The group filed an official application for 50 percent matching funds worth $92.7 million from the US Department of Energy (DOE).  The total cost of the project has been estimated at $185.4 million.
The program will implement smart grid technology throughout more than 260 commercial buildings in the downtown Chicago area.  The association represents more than 80 percent of the building space in the central business district – buildings that account for an estimated gigawatts of energy during times of peak demand.

Now I don’t know if they are going to get credit for the energy efficiency or just the demand response, but in all cases it’s big win for the ESCO industry who with the correct use of building automation can now energy the (virtual) generation market as partners with their clients.

I’d love to hear from anyone who has experience providing virtual generation independently from a utility.

If this works as I understand energy efficiency can save/make money by:  reducing utility costs, reducing carbon emissions, and selling the shedded load back to the grid as a virtual source of energy.  Plus they are getting grant money to do it, does that make it a grand slam?

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Nathan Shetterley (nathan.shetterley@gmail.com)
EVO Director of New Media

EVO Insights Episode 3 with Thomas Dreessen

Episode 3 of EVO Insights is an interview that I've wanted to do for a long time. Earlier this week globe trotter Thomas Dreessen and I got to chat about the recently released IEEFP (the International Energy Efficiency Financing Protocol). This is a protocol that has been in the works for a long time and I got to learn a little about its history and about Thomas' hopes for it.

Click here  to listen to the show right in your browser or click here to download the episode.

Episode 3 Transcription

Nathan: Welcome to EVO Insights, episode three. Today we will get a chance to hear from Thomas 
Dreessen and learn a little bit more about IEEFP, the newly released International Energy Efficiency Financing Protocol from EVO. We’ll learn a little bit about its history, how it got started and what we are hoping the effects will be around the globe. Hope that you enjoy and remember to check in and give us any feedback that you have at evo-blog.com or evo-world.org. Thanks a lot.

Nathan: Hey everybody. Today we have Thomas Dreessen with us who was one of the main people behind the International Energy Efficiency Financing Protocol, the new protocol that was published by EVO this year. Tom how are you doing? Where are you at this morning?

Tom: I’m outside of the US, down in the Caribbean, trying to relax a little bit in the middle of me closing a big energy efficiency equity fund in China which I anticipate closing in the next 60 days.

Nathan: Oh great, so even in the Caribbean working in China [laughs] the world has gotten small.

Tom: Correct.

Nathan: Thomas, tell us a little bit about how you got started in energy efficiency and how you ended up at EVO.

Tom: I’m one of the founding ESCO members in the U.S. I formed an energy services company back in the early 1980’s when the U.S. industry was just getting started and I came from a financial background. As you may know, the ESCO business model is set up to where the ESCO puts up all of the capital. It goes in the large buildings and industrial sites and puts up all of the capital, has to arrange all the capital and get paid from savings so it’s a very capital intensive process to raise the capital on an on-going basis to implement the business model. I got started in that back in the early 80’s and ended up forming ten ESCO’s in ten different countries and developed projects in 24 countries. When I was doing this, I was the CEO and the financial guy structuring all of the project plans. It became clear to me that the only real cost effective way to fund energy efficiency projects was to bring in and try to get the local banks engaged in providing funding. Otherwise the cost to capital was just way too high to do it on a totally equity basis. Based on that, I started back in the early 2000’s trying to come up with a mechanism of how to bring the local banks into the funding and financing of energy efficiency projects. It became clear to me when I went into all of these different countries that there were common methodologies, common ways for efficiency projects to be evaluated and to be funded. It was also clear to me that the banks had essentially had very little knowledge or capacity on how to evaluate and how to look at finding projects which is really what was the foundation for me to really initiate the idea of an international energy efficiency financial protocol. I did this back in July 2004. The U.N. foundation’s energy future collation sponsored a state quarter workshop in D.C. which represented a broad group of experts in energy efficiency finance and the primary focus was to discuss the barriers to increase use of funds for energy efficiency projects. I threw out this idea of an energy efficiency international financing protocol and they agreed that the local banks clearly lacked guidance and expertise in order to lend money to it and this was a good program, if you will, to start setting up around the world. That was the actual genesis of the IEEFP.

Nathan: Sounds like a great match with EVO. I know one of the more complicated things, working in kind of the ESCO and measuring and verification world myself, is trying to explain how you can evaluate the value of an energy efficiency project where basically you are selling a reduction in usage of a service. It’s not exactly the most straight forward analysis. Going through IPMVP, I think that it was a great way to get people to understand the value that want to do a project, but wanting to do it and convincing a banker to do it are totally different things. How did you end up with EVO? I know that the…

Tom: Well, one of the gentlemen on the Energy Futures Coalition was Henri-Claude Bailly who was on the board of EVO at the time. Of course at the time the name was not EVO but IPMVP, Inc. prior to it changing the name and he was a board member. I suggested to him that this might be a good extension of IPMVP because it's a protocol and it's really geared toward establishing common methodologies and terminologies for bankers to use today with projects. He agreed and suggested I join the board, which I did. That goes back maybe five six years ago, I guess in that range, in that timeline. That's how I got to the board and the idea of the IEFP being an extension of IPMVP. That's the timing and how it came into fruition.

Nathan: That great, and then after that it must have been a long time in coming. This started a number of years ago. How did things move forward? What happened?

Tom: In addition to this protocol, one of the key elements of it was a conclusion I came up with because I saw it and many people agreed. That conclusion is that there are already a number of documents, materials, and other tools that are active in the marketplace but they are disseminated in a fragmented basis. One of the key objectives of this IEEFP was to create some sort of repository to collect in one place all these common methodologies, documents, and materials to eliminate replication of them being developed in multiple markets. We use that as a basis and the development of an IEEFP in a couple of markets. Actually, I put together on behalf of EVO, a proposal to APEC, the Asian Pacific Energy, I believe it's Energy, Coalition and got some initial seed funding to develop it in 2 of their APEC member countries, which were Thailand and Mexico. The outcome of that was that we developed some Best practices for ports. I formed 2 local teams who did Best practices reports on what is going on currently in those 2 countries related to banks, financing, energy efficiency projects. Also developing a business plan for developing a financing protocol, which the ultimate thing ended up being an absolute training program for local banks that could be put within one of their nonprofit, or one of their governmental agencies, and could be used as a training program in a cost effective way to train bankers and create capacity on how to evaluate and finance energy efficiency projects. So we developed those 2 business plans and then I had to go out and try to get funding for both of those countries, and I was only successful in really getting funding for Mexico. I got funding from a couple of sources. One of them was the U.K. Global Opportunity Fund. It provided substantial funding for us to complete the IEEFP bank training program in Mexico. That's what we did. We actually conducted and created that training program. We had a pilot and 2 training sessions and trained some 6 or 7 financial institutions, some seventeen to twenty people. It was extremely well received. Now we're trying to find a home for it. An agency within Mexico that will use that, promote it, and use it to train under EVO’s agents, trained new bank officers and it's geared toward the lending officers. It's not a program geared toward presidents, or high levels. It's a grass roots training program going through case studies and really detailed explanations of the various technologies in how projects are used to generate new cash flow for their end use host. That's really what the IEEFP is geared toward. It's geared toward how savings are generated and how savings can be used as new credit capacity for the host owners as a basis for repaying the loans. That's been one of the biggest gaps in the marketplace, energy efficiency projects really have no hard asset value. You replace a chiller or a boiler, the residual value is virtually nothing on the hardware or equipment that's installed, because you have lots of costs in replacing the old system. Then again, if anybody knows what is the value of a used value once it's installed in a building, you know it's very little. The real true asset value in an energy efficiency project is the cash flow stream. So, the ultimate goal of the IEEFP is to get bankers to acknowledge and recognize that cash flow stream, and have it start to become the basis for them financing the project as opposed to their traditional methodology which would have it all collateral based. That's a huge barrier for them being able to provide any financing to energy efficiency projects.

Nathan: In general, in New Mexico obviously, you've had some success. Around the world,iIs that something that bankers are able to take up and shift their traditional way of thinking and looking at capital, and look at this more cash flow based system. Have you had any resistance?

Tom: I think everybody's interested. The bankers are generally very interested because of the focus now. Green energy and energy efficiency, as most people know, is now being counted as the major solution for CO2 reductions. So, it's become a real environmentally friendly and hot item en vogue energy efficiency. So, the bankers are generally very receptive to it.

Nathan: McKinsey just released a report yesterday; I think they said America could save 1.2 trillion 
dollars before 2020. But, the capital investment needed was 500 billion dollars if I'm quoting right. I'd have to go back and check. An enormous amount of capital up font, but really a very positive deal overall for the country if we were to start investing in energy efficiency. We talked about replacing a boiler or replacing equipment. A lot of this, the harder parts to grasp is the usage habits of individuals. A lot of this affects residential factors, as well as the C&I sector. How have you seen the reaction to bankers to that where, "At least if I put in the chiller I can say this is definitely using this much less energy"? But, if it's saying, "I'm going to go in and do a training program and get people to reduce their usage", do they buy into that?

Tom: No. I think you're getting way ahead. We've got to crawl first before you can start running. You have to be running before you can take that leap of faith. That requires behavioral changes which is unpredictable as we all know in human beings. It's very unpredictable. I think that's quite difficult for them to be able to expect any behavioral changes and that those are going to be sustained over time. You have employee changes. Things change all the time. What we're trying to do is reduce it to it's most simplest methodology or program, and that is to put in reliable technologies that are known to reduce energy. We've got to get bankers to first accept that and say, "OK. We don't need behavior changes. There's no variable other than the equipment just operating as intended in it's proven technology". We can warranty it with manufacturers. So, we're really trying to get them to crawl first, and accept the non-risk related savings like putting in a light bulb. Everybody knows you take out a 100 watt fixture, you put in a 20 watt fixture, you're going to save electricity. There's no question. The only question is how much, and therein lays the relationship of the IEFP to the IPMVP using core methodologies. That's what the IPMVP, as most people may know, it gives you more options on how to measure [inaudible] savings. But, it gives you those options to be used in an IPMVP plant to be developed by the engineering community. So, it's very much a technical protocol. So, what IEMP does, it takes that information requires an MVP that complies with IVMVP that will then take those savings and equate them to dollar savings, and methodologies and calculations that are included in a loan document or a financing document. Therefore, the host agrees to pay based on that methodology. So, it takes the very beginning of the IPMVP Efficiency Valucation Organization option for technical under the plans and pulls it all the way through the market place to a financial calculation of the savings being provided that can be used as collateral for a loan.

Nathan: Now I’m not a financier but I would, you know, looking at what I know about IPMVP and there’s definitely kind of, if you take out all the compartmental pieces, all of the behavioral pieces, and you ‘re really just replacing technology, it basically removes all of the risk from your M &V plan. If you, how does, how do bankers look at this and compare the risk of a general ESCO project versus any other opportunity where they may have to invest capital? Is it more or less risky? How…

Tom: Well, I mean, that’s a great question because it’s ironic the fact is that despite replacing a more efficient chiller, or an old, inefficient chiller with a more efficient, despite that being virtually of no risk it actually is perceived as having much greater risk. And, and the problem is, in most industrial sites and private companies, energy efficiency project has two major barriers. One is competing with existing capital requirements for their core business. And, and that’s probably, the primary one, but the second one is that energy efficiency projects are pretty much deemed as infrastructure projects. And so there’s two, there’s two, that’s, those are the two main barriers and the first one is quite difficult to overcome, which is why we’re trying to get the IEEFP because, energy efficiency projects, even the most productive ones have typically a three to four year simple payback. And a lot of industrial sites, have a hurdle rate of no greater than one to two years. And the, and, what’s, what’s really kind of crazy about that is, those returns that they’re comparing energy projects have tremendous risk in them. For instance, they’re looking at comparing putting in a whole new production line of new equipment that’s going to get them this whole new market share. So the payback might be three months. But there’s all kinds of risks associated with that on a core business investment. They’ve got to go out and get all this new product, they’ve got to make all these new sales; they’ve got to get it, sell it at the price that they say they’re gonna, the profits have to be there as they think they can sell the product. It’s laid with a tremendous amount of risk to get that return as opposed to putting in a chiller with a simple three year payback where you’re going to go with a 1.2KW per ton, you’re moving it down to a .5, you know they’re going to run the facility—there’s no question about the risk. But the fact is they’re looking at it purely on a, on a, they don’t really give it equal weighting on the risk factor because they don’t understand the energy efficiency. So it’s... it’s kind of an ironic question, you know, the, energy efficiency has far less risk, but it’s being compared on a, on a return basis to other projects that have tremendous risk. But it’s in their core business. So they don’t perceive that as being a risk item.

Tom: On the infrastructure… go ahead…

Nathan: Is that just a general lack of kind of the understanding of energy efficiency or what causes that kind of…

Tom: Yes.

Nathan: …comparison. Yeah?

Tom: Yes, I do. Yes. Yes it is. It’s a combination of that and it’s also a com-, and also it… includes the, what I consider the, the infra-, which is part of the infrastructure barrier as well. And it’s really funny, there’s, there’s an agency, I don’t want to put the name out in public and, and they did a lot, they installed, it was, it’s an extension of the Mexican utility and they installed a lot of motors as part of a program that they funded from the utility. And they just simply would give these motors to the, a lot of industrial, small motors, small, medium sized enterprises, they gave them the motors and they’re far more efficient, and then they would add the cost of that motor to their utility bill and get repaid over four years, let’s say three to four years. Well what they did, then they went out and did audits, and, to determine what was the real savings being achieved from this program and they found that a substantial number of them had never been installed. The motors…

Nathan: Huh.

Tom: Yet, yet the customers were paying this additional utility bill. No problem. No problem. They just continued to pay it. And so they went and asked these customers, why are you doing this? You realize you’re paying more, you’re not getting the savings that would be, supposedly that you were gonna get from the utility, reduced utility bill that were gonna pay for what your, what we added to your utility bill. And they said, well why would we replace this motor? I mean this, the old one works perfectly fine. Why would we replace it? We’ve, we’re putting it on the shelf, it’s a replacement motor. We’ll, we’ll put that one in when the old one breaks down.

Nathan: Hm. Tom: So I think it, that says a couple things, I think. It, it, and I think it adequately reflects how energy efficiency projects in general, or the equipment that’s installed related to energy efficiency is viewed. As an infrastructure item.

Tom: …fix it if it ain’t broke? Why would we replace this good motor, it works fine. Why would we do that?

Nathan: Yeah. What about some other experiences in this training programs? Were there some successes in Mexico? How did that end up?

Tom: Well actually it ended up generating lots of interest by the bankers. We had two substantial banks, international banks, that are operating there who now want to finance projects from savings. In fact, we now have one of them who I’m working with now who got a grant through the renewable energy efficiency partnership. I developed a project that’s going to utilize some guarantees provided by one of the development banks down there because one of the gaps in the marketplace still is their willingness to accept the savings. Even though we you IPMVP, they still want to – they still will have some hesitancy to accept the savings as a method for collateral. So what I did was, I created a guaranteed, a savings guarantee insurance product by one of the development banks in Mexico and that guarantee product, we’re in the middle of that being provided. Once that’s done, there’s several other banks that are now very interested in creating a whole other energy efficiency department to fund projects and the goal will be to have the savings guarantee to really be used to guarantee for the savings to be paid to the banks. And we’ll use IPMVP and IEEFP as a methodology for evaluating those projects. So yeah, there’s tremendous interest but again there is still hesitancy on the bank’s part to just take a leap of faith and to begin accepting savings as a form of repayment. That’s the goal of IFP but it’s going to be a long haul and that which is our long term goal is to do this on a grass roots level in multiple levels, to develop this bank training program to build the capacity of the banks because that’s the only way to really overcome these barriers. I believe at the end you as consumers, you’ve got that infrastructure. The example I gave on the motors, you know this investment in energy efficiency utilities is very small, it’s a very small scale and it’s “back-of-mind”, it’s kind of the last item that an industrial customer would ever consider doing. So in order to really get wide-spread implementation, you’ve got to create a funding mechanism that does not impact their credit capacity and does not create any type of on-going operating requirements from them. It’s got to be really simple; just make it to where it’s basically invisible if you really want them to implement. And it’s got to be cost-effective, which is where the local banks come in. You can’t use equity capital at 20-22% to fund these projects because the CFOs of these industrial customers especially, which is where there’s huge opportunities in the international market, they’re looking at comparing whatever financing rates to banking rates. That’s the one thing they can do and they’re not going to allow you to put in projects or they’re not going to pay someone to put in projects that are getting 20-25%. They’d rather not do it themselves than allow that criticism of having someone come in and do that. So we need to get the local banks engaged to provide cost effective financing that is not going to be – that they will accept the savings as a form of payment so it does not impact the credit capacity of the host end user consumers.

Nathan: It seems like the insurance product, that can kind of give a little bit of reassurance –

Tom: Assurance, yeah.

Nathan: Assurance – is a really great idea. How do you see the economic climate that we see now affecting this? I know that you’ve been working on this for the past four or five years – even longer. Is that derailed or has it brought about new opportunity.

Tom: It derailed it for about 6-9 months because the development bank that was going to provide that guarantee product in Mexico actually almost a year now, had others problems they had to deal with to prop up their local banks and so they were unwilling to take on any new product like this until they got it sorted out. But we now are back on track and they are now looking to provide it. It did impact it, it delayed fairly substantially. In one year we had hoped to have that, the demonstration projects, in place by now but it’s still in its stages.

Nathan: And kind of the uptick in green and energy efficiency and a lot of things that at least here in the US, we’re using to reinvent ourselves and I can imagine that only has grown the opportunity for these types of financial products and also energy efficiency products.

Tom: Well, in theory it has but the fact is, I don’t see a lot of them out there. I see a lot of money being put in subsidies and other programs but I’m not very close to it. So I’m giving you a very uninformed opinion. I’ve not devoted the time because my focus is in China and Mexico and I’ve not spent much time at all. But my impression is that the program has not seen a lot of them that are going into absolute projects and are subsidizing that effort. As opposed to creating programs like this, which I believe are sustainable using the local banks, lenders, creating capacity. As opposed to funding one-off projects that once the funding stops, the project implementation stops.

Nathan: Right. Two last questions Tom. How do you see, I guess, a lot of what I heard about the IEEFP is local financing institutes but mostly outside of the US, China, Mexico. I know that in other things that I’ve seen these types of movements in Africa. Is there any application for the IEEFP in the western world or is it already kind of taken – there is the Johnson Control’s and the big ESCOs that you helped start or at least the business model back 10, 15 years ago. Do you see an interaction or kind of an advantage for the western world too or is it mostly in kind of more…in countries like Mexico…

Tom: Developing countries, is that what you’re…? Yeah, I mean I think it definitely applies in the US but the problem [laughs] the huge barrio to doing such a program in the US as opposed to Mexico or China is the fragmentation of the various states and all the regulatory authorities. You have 50 states, it’s not like in Mexico, they’ve got one development bank that does it for all the banks in Mexico. It doesn’t have to go across state lines and it doesn’t have to go across provincial law and everything else. It can be offered to all entities. And in China that’s especially true. In Thailand, where they have national banks, national policies, national programs that can be top-down implemented. And that’s not the case in the US at all. It would be very difficult. Plus you have competing consulting firms that would view this as a competition. It’s just in the market so huge. It would be a major effort to try to implement. But to answer your fundamental question “Could it be useful in the US?” heavens yes. No doubt about it. No doubt about it.

Nathan: Great, that’s a really interesting way of looking at it with the division of states. I know working in utilities that a lot of things are delivered by working with regulatory conditions or organizations. They’re not even on the same page.

Tom: Not even close. And the utilities would be the ideal place to aggregate. It’s all about being able to aggregate. You know what I’m saying? Aggregate projects, aggregate programs, whatever. And the US is very difficult. Utilities would be the ideal place to have a sort of savings guarantee type of program but the problem with that is – as you know – that makes it even more fragmented. Each utility has its own approved regulatory program within each regulatory agency within the US, within each state. It just multiplies the fragmentation of trying to get a uniform protocol to use to evaluate that everybody has. Everybody wants to put their stamp on it and it’s in the thousands.

Nathan: So one last thing I guess. Where do you see this going? One of the things that I always think about and never really can answer the question how to do it is if you can, in a far-fetched world, even take residency energy efficiency projects and aggregate them up, that’s where you get this numbers like in McKinsey’s report from earlier this week. You know, the trillions of dollars in savings. But you have to be able to kind of package all of these different projects under one umbrella and that helps you mitigate risk and guarantee your savings later on. Do you see creating these types of programs? I guess, where would you like to see this thing? It sounds like it has been a labor for you in the last 10 years, so where do you see it going in the next 10?

Tom: Well I’m going to spend my time in the commercial sector just because the scales are already there. I think you have to have an agent to be able to do it on the residential side.

Tom: …where there’s big opportunities because of small nature of each transaction. It’s just small, small, small. It even makes it far more difficult. I think you need to have – I think the ultimate solution is the utilities for the residential because you’re talking about the investment of maybe a thousand dollars and it’s going to save $200 dollars every year for a house – maybe double that, triple that, whatever. It’s so tiny. And the administrative costs alone to calculate the savings and just collect the savings would exceed the annual savings probably. So you have to have some mechanism, some administrative agent that is already there providing this billing and that’s obviously the utilities. So I think that’s the ultimate cost effective solution. I mean my whole focus is on providing commercially viable, sustainable solutions, not on one-off subsidized solutions because when the subsidies go, the programs stop. It’s that simple. And so I think you need to find a solution that’s commercially viable that can be done if incentives are aligned in the right place for the people who implement those programs.

Nathan: Well Tom, thank you so much. Everyone knows they can find IPM VP and also IEEFP, the International Energy Efficiency Financing Protocol at EVO-world.org. And Tom, if people want to find you on the internet, do you have a home there that we can give out?

Tom: Yes. They can send me an email if they want at tkd@epscc.com is the best place to reach me. And I’ll try to get back to you in a timely manner. I travel around. I’ll be spending the next year in China, but email works quite well there.

Nathan: Yeah and people give 24 hours then you know no matter where you are in the globe at least you had a day to look at it.

Tom: That’s right. Yeah, I’m ahead of you. I’ll be 12 hours ahead of you in the US so that’s correct.

Nathan: Well Tom, thank you so much, I really appreciate your insight and your hard work in these last few years. Maybe we’ll get you in here once you move forward and do some things in China. We’ll get you back and talk about that as well.

Tom: Alright Nathan, thank you very much.

Nathan: Thank you very much, have a great day. Tom: Bye-bye.

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Nathan Shetterley (nathan.shetterley@gmail.com)
EVO New Media Director

EVO Insights Episode 2 with Steve Kromer

For episode 2 of EVO Insights I had a chance to catch up with Steve Kromer and learn a bit more about the Alliance to Save Energy and the recent EE Global conference in Paris, France.

Click here to  listen to the show right in your browser or click here to download the episode.

Episode 2 Transcription

Nathan: Welcome to EVO Insights Episode 2. I'm Nathan Shetterley, and today we'll listen in on an update from Steve Kromer on how the Alliance to Save Energy and EVO are spreading the word about M&V and IPMVP earlier this summer.

Nathan: Today we have with us Steve Kromer, who was recently at the EE Global Conference in Paris. Steve, how about you give a little introduction about yourself, and who you are, and why you were in Paris, and then we'll go from there.

Steve: Yeah hi Nathan, I'm Steve, Steve Kromer, and I'm in Berkeley, California now. Last week I was in Paris at EE Global. Alliance to Save Energy has recently - they hosted the show there in Paris, and they've begun to emphasize more the evaluation measurement and verification aspect of energy efficiency and along with tracking national efforts in the US to standardize EM&V, they're looking at standardizing international EM&V. And so they hosted a workshop on Monday, and I got to present a couple different times, some on the history of IPMVP, and recent conditions in California.

Nathan: Great. And who was at this EE Global conference besides yourself kind of representing IPMVP? What kind of people were there?

Steve: So John Cowan also presented at the workshop on Monday. We had a board meeting on Thursday, so along the way just about every board member was somewhere around there, I think. In particular, Alain Streicher and Satish Kumar came in later in the day to the workshop.

Nathan: And without giving your whole conference, when you touched on the history of IPMVP, can you give us a little synopsis of what we all missed, staying over here in the States or wherever our listeners may be, but not in Paris?

Steve: Well, I guess to a lot of people in this workshop, I guess totally there was probably 50 people towards the end. It seemed like over the course of the day, most of the day long, it filled up. And I guess maybe half the people had heard about IPMVP before, or I don't know, I'm guessing. And there's been a lot of effort in the EU in the last ten years to do similar work on M&V protocols and evaluation protocols under a whole different political structure. But our old friend Paolo Bertoldi was there, and others who have been familiar with IPMVP all along. And I think - I was particularly encouraged by the fact that there seemed to be a consensus that EVO in particular could be an organization to help move things ahead generally, and that IPMVP was still a good starting framework from which to build around to do a more evaluation-type work and standardized evaluation work.

Nathan: And how was the reception on that? I know that from my personal experience in Canada, working in Quebec, starting with IPMVP and translating it was kind of the first step. And then - I don't know if the Parisians are going to be able to read the Quebecois French, they kind of make fun of us for that - but besides that, that was a really good first step to moving towards getting kind of a regional protocol out there. How did you feel the response in Paris?

Steve: Well, in particular - not so much at the workshop, though I'm not remembering exactly how much of this was discussed there - we met with our new board member from Schneider Electric, Patrick Jullian, and we got a full dose of the recent events in the last year or two of how they've been working to introduce IPMVP in French in France. And particularly for the back story and politics around forming a club, and getting general agreement to support one protocol, and then picking IPMVP, and then doing a translation. Now having a plan to using… …to help circulate it and promote it across the country with the same purpose we've done it all along - just finding one standard way of doing this kind of business. So I think that was really encouraging, that in France they've written their own version, or, translated a version that they can use.

Nathan: Great. Were there any other conferences that stuck out in your mind? Did you get a chance to participate at all, or were you just kind of giving the conferences?

Steve: Well, the workshop on Monday, and then Tuesday, Wednesday were the- I guess I would say somewhat the normal set of conference topics and discussions. And this, to my mind, or to my knowledge, was the first major United States-based conference in France. Certainly it's the first EE Global - Alliance to Save Energy/EE Global. So um there were quite a few Americans, quite a few old faces from around… …and other places. There was a lot of good discussion, generally of course around the stimulus bill and US based policy as well as a lot of discussion of European issues so I think to that degree it was successful and people are still, to some degree, trying to crack the same problems they have all along about finance and programmatic structure. But now with a lot more emphasis from stimulus funds across the US and stimulus funds in Europe.

Nathan: From just the information you gathered there is Europe and I guess the rest of world following the US’s lead in trying to rejuvenate the economy via energy efficiency and clean energy or is it kind of, did you get that impression at all?

Steve: Well, I think the, I’m not any expect I don’t think so but for many years they’ve had EE goals and they’ve had national goals and they’ve been to some degree ahead of us on a policy basis and they’re much more amenable to regulation generally, the population. There’s been a more tight regulatory environment and they’ve been trying to work out the details of each member state would actually account for its savings and what the overall framework and structure of EU directives was going to be. The US of course has not taken a big policy lead on it with the exception of states like California and now more recently large emphasis from the federal government so I think the federal government stimulus bill particularly directed towards efficiency dwarfs anything in Europe right now. Again the federal government here is so much stronger, there’s not really an EU, strong EU federal government so to speak.

Nathan: That’s interesting. I was just glancing at our stats and for a number of visits France has 

actually up there as one of the…

Steve: I think it’s third.

Nathan: Yeah, it looks like Thailand passed it so it’s fourth in number of visits over the last year so we’ve had you know a thousand individual people visiting the site from time to time over the last year. That’s a tenth of the States, we have over ten thousand here but still pretty high up there, so I think it’s a good place for…

Steve: Yeah, we’re definitely trying to work out with France and more details on training and corporative training and I think they’ve, and for a lot of political reasons they definitely want to be aligned with us and yet still go their own way, which is fine. For what it’s worth I think, I’ll call it officially third because Thailand, probably a lot of those hits are coming from our own website. [laughs]

Nathan: Fair enough. [laughs]

Steve: I actually recorded that, made that famous statement to them, and I think in the room, they are number three. I also mentioned that we do have 144 countries over the last year and now we`re up to about a hundred every month, even in the last few months the variety has gone up, or the range has gone up. The message is getting out there, I think that`s become more compelling to everybody that we are now just truly international and there’s no, we don’t have to really say that anymore because it speaks for itself. You can see our statistics.

Nathan: Especially with all the translation that happens because it’s important to remember you know when Quebec and France view versions of that, you know, that also opens it up to Morocco, and the rest of the world that speaks French so, you know, with French and English. Do you know, what other language do we have?

Steve: The next big one was just Porchagese, we got up a couple of weeks ago, and there was a big bump one day from Brazil and Portugal and I was wondering why that was and it turned out we just posted a Porchagese translation. The other one’s Poland and I think, probably through John Cowan and his World Bank connections, they’re working on other languages, I’m not sure, but I think those are the big four; English, French, Porchagese and Polish. Chinese of course we’re working on too, Mandarin.

Nathan: Mandarin, right. For anyone that wants to get more information, the EE Global website is eeglobalforum.org. Do you know if there are any recordings of what was going on or it is one of those “have to be there in person to experience it” type deals?

Steve: I believe you had to be there in person to experience it. I actually did take a few voice notes on my phone and a couple of times I was thinking about this blog, how if I was just a little more prepared I have been almost live blogging some stuff. It wasn’t without some, you know, I think controversy or at least some emotional moments in the workshops where people were voicing opinions about where the future is for EM&V. I think as much as it came out positive that EVO has more than likely to continue to play and a further leadership role than now. There are still some questions as to how to manage the upcoming huge demand, whether it’s US stimulus bill, the energy legislate in the US, the global energy efficiency push or the state utility programs that are just blossoming all over. So big demand for me M&V. Some concerns over the costs, the start up costs to get some of these efforts going.

Nathan: And for anyone that would like to find out more information about EVO, our website is evo-world.org. If you want to follow more timely updates, a few time a week we’re updating information on your blog at evo-blog.com or ipmvp.blogspot.com. Besides that where are you going to be next Steve?

Steve: Looks like we’re working with the NRDC in China and Beijing office. They have an energy center, they’re calling it, with experts in economics and technical experts doing M&V. We’re really looking forward to continue to push for standardized M&V across China both for M&V with our partner SGS, our affiliate there, and also with the state, federal and provincial governments there, NRDC and the provincial governments. We’re hoping to work with NRDC more directly there. I’m looking forward to going back to Beijing and pushing for China to adapt some standard protocol.

Nathan: Great we’ll have to check in with you after that.

Steve: That’ll be great.

Nathan: Alright, thank you. Steve: I’ll give a call from there.

Nathan: That’d be wondering if we could sync up our times well enough.

Steve: Right.

Nathan: Thank you very much Steve. Thanks for joining us. You can find this posted on our blog evo-blog.com . Thanks a lot for listening everybody.

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Nathan Shetterley (nathan.shetterley@gmail.com)EVO New Media Director

EVO Insights Episode 1 with Pierre Langlois

I got a chance to speak with Pierre Langlois at the end of last year and decided to use it as the 1st of a few pilot episodes of our new EVO Insights podcast show. If you're interested in the role of measurement and verification and energy efficiency in the future of the Kyoto Protocol I really recommend it. We used Skype, and there are a couple places were we cut out, but over all very interesting and informative.

Click here to listen to the show right in your browser or click here to download the episode.

Episode 1 Transcription:

Nathan: Welcome to the first ever episode of EVO Insights. I’m Nathan Shetterley, I’ll be your host. EVO Insights is a concept we’ve been kicking around on the web committee for a while now and we’re hoping it’ll be your chance to get to know some of the key players at the Efficiency Valuation Organization and see what they’ve been up to lately. We want it to be your show, not ours, so please give us your feedback at evo-blog.com or evo-world.org. Toady we’ll hear a phone interview that I had with Pierre Langlois in late 2008 where we’ll get to talk about the Kyoto protocol, what’s coming in the future and how IPMVP and EVO can play a role. I hope you’ll enjoy.

Today I’m with Pierre Langlois from Econoler International and also Vice Chair of EVO and we’re going to be talking a little bit about Kyoto and energy efficiency and how IPMVP falls into all that. So, how you doing today Pierre?

Pierre: Well, pretty good.

Nathan: How are things in Quebec, how’s the weather up there?

Pierre: Err, well, pretty cold and chilly. Winter is coming up so I guess in a few days we’ll start to see snow.

Nathan: Well hopefully in the States we’ll have a couple more weeks before we see that. Pierre, I wanted to talk a little bit today about energy efficiency in Kyoto. For the person who’s just out there and knows Kyoto, they know it’s about reducing carbon and I think most people would think energy efficiency is part of that, but how does that really work with Kyoto and energy efficiency? Is it the same thing as sort of a clean energy project, or how would that work?

Pierre: Yeah, well, (gap where unclear over phone), would be then both for renewable energy and other types of projects and the focus would be done for energy efficiency. Unfortunately, as of today, if you look at the CDM small scale board in the UNFCCC essentially there’s less than 2% of the projects that are focusing on energy efficiency and even a very small portion of those 2% are related to demand side energy efficiency, most of it is related to supply side energy efficiency. So energy efficiency in the production sites, essentially the one using coal, and one of the main reasons for that, well there’s a couple of areas that are related to that, so, technically, the problem financing could be applicable for energy efficiency but in reality it’s pretty complicated and we can go into the details of the areas to use in problem financing to benefit energy efficiency projects.

Nathan: Yeah, so going directly into that, for the energy efficiency projects that we have now, and I just sort of read over some of the Kyoto protocol today, it was one of the main things. Going into that I guess the first thing was the financial barrier. Why would there be a financial barrier on energy efficiency projects versus a clean energy project? You know, the money’s being put there, it’s the same money, so what’s the problem there?

Pierre: Well, you get to one of the… …two issues really… …energy efficiency really there are… …and the transaction costs to be able to get a carbon financing deal out of an energy efficiency project is still quite high and the process is quite complicated. So why it prevents quite small scale projects to be integrated into the CDM mechanics and the GI mechanics. As an example, a typical energy efficiency project in an industry might be one hundred thousand dollars and the potential carbon credits that could be obtained out of a project like that might be something between five and fifteen thousand dollars. For example, then just for that small amount of money the cost to deal up a project, use the methodology, present it to the UNFCCC board, get it approved and then the transaction being made and then you still have to do measurement and verification of savings would prevent the use of such mechanism because of these transaction costs. That’s one of the barriers, instead of either the money not being able to reach the end user, it’s basically the transaction cost that’s too high. So that’s one of the couple of barriers that we can find. The other one might be related to measurement in verification itself, that’s probably a topic that you want to address. Measurement and verification finance efficiency projects might be quite specific to the type of project we're using. So, the 
UNFCCC and the CDM Board, essentially, they want to work with the pre-developed methodologies where you use a methodology over and over again over a similar project. A very good example would be a wind power project. Whether you do it in India or you do it in Morocco, and you have a 1 megawatt or a 20 megawatt, basically, the measurement aspect of it would remain quite pretty much the same. If you have a energy-efficiency project, then, obviously, it might… …actually, be different from one project to the other even though you use the same technology. The baseline issue and the way to measure these savings maybe different. That’s how the protocol works, is you develop a basic methodology and use it over and over again. For energy efficiency, it's very costly to develop one methodology and it's difficult to use it over and over again because of the specificity of the project. So, because of that, basically, the project has been very difficult to develop. The only ones that have been developed are usually pretty big projects in pretty big industrial sites. The size of the project makes sense, at least, for transaction cost point of view, and as well for the development of specific... …plan that would be approved by the Board of UNFCCC and then be put in place.

Nathan: So, from a very layman’s perspective, I look at that… …knowing about IPMVP, as we already have that, is that something that they're looking at? One of the advantages of IBM BP is that it's flexible enough to go with any energy efficiency project out there and still have a comparable and reliable result. Is that something that they would accept, or is that too wide open for them? Do they want something more specific?

Pierre: Well, that’s a pretty good question. EVO has been trying to address that issue with the different stakeholders we're working on that topic, UNFCCC being one of them, World Bank and Carbon Finance Group within the World Bank has been another one. We're trying to push for the adoption of IPMVP as the protocol of reference. So, they can say if something is complying with IPMVP, then it could be acceptable. The problem is, at the UNFCCC… …that they have not approved such a generic protocol so far. They, basically, work on a very, very specific type of protocol that is applicable for one technology, for example. IBM BP is not specific enough. It could be specific enough if we were going to develop a specific plan for a project. But, IPMVP as itself is generic, and that’s the beauty of it in once sense that it can be applicable for any type of project. But, on the other hand, it's too broad to be able to be approved on the way that UNFCCC is working today. But, on the other hand, there's no real other way to do it as if you try to develop on protocol per project. Like we said, that the size of the project and the transaction cost involved in it, then it's likely that that protocol will never be good enough to enable energy efficiency projects to flourish under it. So, it's kind of an adaptation that the people working under the Carbon Financing… …would have to change their views if they want to attract more energy efficiency projects into their portfolio. EVO is working on it and trying to be… …to help them understand the specificity of energy efficiency project as it in general. All the… …use IPMVP as a reference to limit these barriers for the development of projects.

Nathan: What are the different outcomes that could of this? I mean, obviously, one of the consequences would be if they don’t adopt it, then they’ll just not have energy efficiency projects or have such a low rate as they do right now. But, if they were to adopt this, what do you think the impact would be?

Pierre: Well, if they were going to adopt it then, I guess, the capacity from stakeholders to develop such a project would be increased quite a lot. It would be easier to use that protocol and train people on the protocol so they can be able to develop plans for their own project, and not try to be as specific as to develop a new plan all the time. So, it would definitely enable the stakeholders to look at energy efficiency in Carbon Financing as something that could go together it’s not the case today. But even though that would happen, there would still be the barrier of the size of the project.

One of the ways to address that is probably through bundling and a lot of the stakeholders within the market are thinking about this bundling opportunity. Unfortunately it's not something that's easy to do because as you try to bundle projects they are not all the same so they don't use all the same technologies, they're unfortunately not likely to start at the same date and end on the same date. So bundling, conceptually, would make things easier in practice, it's almost never been done because it's too complicated to implement. So a lot of us are working on this issue to try to find the best way to bundle projects to make them sizeable enough to be able to benefit from carbon financing. So the M&V and IPMVP is one of the answers but it's not the only answer to that big problematic that we have right now around the world.

Nathan: That sounds good, it sounds like it's promising but still have the challenges ahead. Looking back over the last few years with Kyoto being ratified by almost everybody and hopefully here with Obama coming in, the United States will be jumping on that ship as well. What do you think that the big success is and maybe some of the failures or some of the weak points of Kyoto have been?

Pierre: Well like I said, one of the weak points is not being able to include energy efficiency in the activities they started, but we have to realize that Kyoto is basically the first step out of a long long road and a lot of the people in the market are really looking at post-Kyoto and the next phase after 2012 and trying to figure out a way to improve on it. And improving on it is certainly not going to be to complexify it more. It's going to be to simplify it more and try to find a way to reduce the transaction costs to be able to have carbon financing being efficient for all kinds of projects including energy efficiency. So a lot of the stakeholders in the market are thinking out ways to introduce energy efficiency within that market starting from 2012 because I think everybody kind of dropped the idea that we will be able to scale up the energy efficiency portfolio before 2012 under the actual Kyoto mechanics. There's probably some other mechanisms out there that will enter the market that are trying to address that as well, but there's going to be a way after 2012, especially with the U.S. coming on board and hopefully Canada one day, to basically find a way to include energy efficiency in this. Because everybody recognizes that that's where it will basically come from. A lot of the carbon emission reduction around the world will have to come from efficiency. Renewable energy is a great way to reduce carbon emission, but still it's more costly and it probably takes a longer time to be able to implement. So I think pretty much everybody recognizes that, and then we just have to develop the mechanism to enable the activity to join that market.

Nathan: What do you think the chances of it working out in 2012 are there? It gives us awhile to brainstorm and come up with ideas, but do you think it's something we can hit that deadline or do you think it'll go to the next rewrite?

Pierre: No, I think it's going to make it by 2012. Everybody is focusing on making the post Kyoto concept or agreement work and everybody thinks of energy efficiency. So there will be a way. Is it going to be the best way? Likely not. It's going to be improved over time, but there's going to be significant improvement as the U.S. coming in to make energy efficiency part of that new round of carbon emission reduction. And it's certainly going to be a big thing in the U.S. and around the world. So I'm pretty optimistic but what's going to happen, I guess no one knows today.

Nathan: Alright, well thank you very much Pierre and thank you for your insights.

Pierre: Well, it's been my pleasure and hoping EVO is going to be able to collaborate through that big initiative.

Nathan: Excellent. Alright, have a great day and I'm sure sometime in the future we'll be talking again with you soon.

Pierre: Alright, thank you very much.

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Nathan Shetterley (nathan.shetterley@gmail.com)
EVO New Media Director