Clinton Initiative Sparks Performance Contracting

June 11, 2007
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Former President Bill Clinton speaks at C-40 Large Cities Climate Summit in New York City that included involvement from HVACR manufacturers and associations.


When former President Bill Clinton stepped to a podium in New York City to convene the C-40 Large Cities Climate Summit, he was, in effect, opening the door for expanded opportunities for HVAC contractors in areas ranging from the installation of new energy-efficient equipment to major retrofits, with a special emphasis on performance contracting.

The HVAC aspect was emphasized with representation from four major industry manufacturers - Honeywell, Johnson Controls Inc., Siemens, and Trane - along with a number of industry associations. In the initial announcement about the C-40 initiative, it was reported that all four companies will conduct energy audits, perform building retrofits, and guarantee the energy savings of the retrofit projects. The guaranteeing of savings is the basic premise of performance contracting.

The Mechanical Contractors Association of America (MCAA) announced that it had signed a Memorandum of Understanding with the Clinton Climate Initiative of the William J. Clinton Foundation to provide technical assistance for the development and implementation of the Energy Efficiency Building Retrofit Program announced in New York. MCAA President David J. Kruse joined former President Bill Clinton, Mayor of New York Michael R. Bloomberg, and Mayor of London Ken Livingstone for the announcement of the landmark Energy Efficiency Building Retrofit Program, designed to reduce energy consumption in existing buildings and reduce greenhouse gas emissions. Under the Memorandum of Understanding, MCAA will lend its expertise and experience to the Clinton Climate Initiative as it endeavors to provide large cities with world-class technical assistance on an array of actions that cities might implement to lower greenhouse gas emissions.

“MCAA views our work with the Clinton Climate Initiative as a great opportunity to show the world what mechanical contractors can do to help solve one of the most pressing issues of our time,” said MCAA President David J. Kruse.

Urban areas are responsible for approximately 75 percent of all energy use and greenhouse gas emissions in the world. Buildings account for nearly 40 percent of global greenhouse gas emissions, and in cities that percentage is even higher. In newer cities, buildings can account for 50 percent of greenhouse gas emissions and in older cities 70 percent.

The Energy Efficiency Building Retrofit Program will provide both cities and private owners access to the necessary funds to retrofit existing buildings with more energy-efficient products, typically leading to energy savings between 20-50 percent. In the United States, where the market for energy retrofits for municipal buildings has existed for 25 years, less than 1 percent of the potential market is being tapped.

The Energy Efficiency Building Retrofit Program, a project of the Clinton Climate Initiative, brings together the world’s four largest energy service companies (ESCOs) with five of the world’s largest banks to retrofit buildings; initially in 16 of the world’s largest cities. The banking partners have committed to arrange $1 billion in financing each for a total of $5 billion for this program, more than doubling the current market for building retrofits. The financing will be repaid from the energy savings that the retrofit projects will achieve.

The energy service companies will compete to do audits of municipal and large private buildings in participating cities and identify opportunities to make them more energy efficient. They will also guarantee the energy savings that will come from the retrofit projects that they manage. Other ESCOs, contractors, manufacturers, and suppliers will participate as the retrofits move forward.

Amidst all the rhetoric and speech making, there was one underlying point: The firepower of a Clinton-backed initiative means potential widespread attention and capital. And if concerns raised can at least in part be addressed by HVAC contractors, the money could well be there to do the installs and retrofits. There was speculation within the industry that the initiative could quintuple the size of the market for such concepts as performance contracting in which costs are covered based upon anticipated savings.

The C-40 Summit relates to a number of larger cities whose mayors are endorsing the project. Initial participating cities in the United States and Canada are Chicago, Houston, New York, and Toronto.

The overall initiative was established last year “to make a difference in the fight against climate change in practical and measurable ways,” according to the original announcement from the William J. Clinton Foundation.

The more recent C-40 Summit, taking place last month, focused on “reducing energy consumption in existing buildings by providing design guidance and tools to reach energy efficiency targets.”

“The businesses, banks, and cities partnering with my foundation are addressing the issue of global warming because it’s the right thing to do,” Clinton said, “and because it’s good for their bottom line. They’re going to save money, make money, create jobs, and have a tremendous collective impact on climate change all at once.”

Mayors of major cities meet with former President Bill Clinton at the C-40 Large Cities Climate Summit.

ASHRAE PARTICIPATION

The formal announcement said, “The U.S. Green Building Council (USGBC) and the American Society for Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) have agreed to help coordinate training programs in participating cities.”

“ASHRAE is in the best position to provide immediate support to the cities seeking guidance through the Clinton Climate Initiative due to our 30-year involvement in design guidance for energy conservation for both new and existing buildings,” according to ASHRAE President Terry Townsend.

He did note that most guidance developed over the years for the HVACR industry has focused on new construction “that represents only 2 percent of the building stock in the U.S.

“We must broaden our focus to include existing buildings, which accounts for the other 98 percent,” he said, in noting one reason for the affiliation with the C-40 project.

Townsend said ASHRAE is working to provide energy guidance on existing buildings through its Advanced Energy Design Guide Series, developed with the Illuminating Engineering Society of North America and the USGBC with participation of Building Owners and Managers Association (BOMA) and the U.S. General Service Administration.

The guidelines “will show building owners how they can initially reduce their energy consumption by 30 percent,” Townsend said, noting the information is tentatively scheduled to be available in fall 2008.

From left, New York City Mayor Michael Bloomberg, former President Bill Clinton, and London Mayor Ken Livingstone at the C-40 Large Cities Climate Summit.

MANUFACTURERS

A Honeywell official said his company became involved because “buildings are a major global consumer of energy.

“Honeywell will work with the participating cities to identify and implement conservation opportunities in their facilities,” said Joe Puishys, president of Honeywell Building Solutions. “Working together, we can help cities cut their energy costs, create more efficienct facilities and reduce their environmental impact.”

One aspect of the Honeywell participation of special interest to HVACR contractors is the retrofit program. “The quickest route to a lean utility bill and fewer greenhouse gas emissions is to use less energy,” said Puishys. “Honeywell finds the right mix of building retrofits and upgrades to help customers trim their consumption.

“The improvements are typically funded through energy performance contracts which guarantee savings. As a result, these programs don’t impact budgets or require additional taxpayer dollars.”

As explained by Mike Taylor, vice president of Americas marketing for Honeywell Building Solutions, performance contracts are based on anticipated savings. The energy services company (ESCO) implements a variety of conservation measures as part of a retrofit project the end user finances. The savings, guaranteed by the ESCO, are used to pay back the loan over a specific number of years, after which the end user realizes the full savings for the remainder of the life of the new equipment.

“This is outcome-based rather than operational-based,” he said. “There are specific savings and operational performance guarantees. Because the guarantees come from the ESCO, it manages the entire project and pays installing contractors.”

For its part, Johnson Controls will use the initiative “as a platform for educating developers, owners, and managers of large facilities on ways to reduce greenhouse gas emissions and make their facilities part of a more comfortable, safe, sustainable, and efficient world,” said David Myers, president of Johnson Controls building efficiency business.

It was noted that urban areas are responsible for approximately 75 percent of all energy use and greenhouse gas emissions in the world, according to CCI. According to the International Energy Agency, the building sector accounts for about 30-40 percent of global energy use. Considerable energy is consumed, the IEA said, by buildings’ daily operations such as heating, lighting, cooling and ventilation.

“Energy-efficient solutions for both old and new buildings could significantly reduce CO2 emissions and improve overall air quality,” Myers said.

He noted that several of the 40 cities in the CCI have Johnson Controls facilities including those that are already in line with directives from the initiative. For example, Johnson Controls noted HVAC work at the Les Miroirs, an office building in Paris. “The energy-efficient HVAC and control systems enabled Les Miroirs to fully control temperature and air quality with guaranteed annual energy savings worth more than $272,000 over seven years.”

For its part, Trane said it would “provide innovative self-funded energy upgrades (performance contracts) that deliver significant energy and operating costs reductions.” Fred Poses, chairman and chief executive officer of American Standard Companies Inc. said, “A Trane energy upgrade takes a comprehensive approach to building energy use including heating, ventilation, and air conditioning systems and services, lighting, roofing materials, renewable energy, and other opportunities.”

Publication date: 06/11/2007

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