An Energy Cost Pyramid: Cost Effective Ways to Reduce Energy Cost and Consumption

By Erika Schnitzer, Managing Editor

Strategies for reducing energy consumption can be considered by thinking of a pyramid, explains Darien Crimmin, vice president of energy and sustainability at Boston-based Winn Development, which has developed over 13,000 units.

The foundation, he says, would be the most low-tech solutions with proven paybacks that are readily available; these include insulation, air-sealing, and lighting and water efficiency upgrades. The payback for such items tends to be between six months to three years.

Adjusting the temperature of the water coming out of the pipes is perhaps one of the easiest and least expensive ways to reduce energy costs, points out Jim Kenneally, vice president, marketing and sales operations at American Utility Management (AUM). In fact, he says, for every 10 degrees the hot water heater is turned down, a property can save 4 percent to 5 percent in heating costs. And if the water needs to be warmer, simply insulating the pipes can do the trick.

Another option is to install micro-cogeneration units for hot water, says Andrew Padian, vice president for energy initiatives at Community Preservation Corp. (CPC), who heard this suggestion from a developer with whom he once worked. “[He] put a little electric power plant in the basement; it generates half the lighting load in the building, and [he] pulls waste heat off it and makes hot water from it.

“This is a guy that I had to bring kicking and screaming into the energy efficiency world 15 years ago,” Padian adds. “Once an owner dips his toe in, he goes swimming pretty fast because it’s cash.”

Replacing lighting with more efficient varieties can also significantly reduce energy costs—and maintenance time, as the more-efficient lighting also has a longer lifespan. Although the up-front cost of a CFL or LED bulb is higher than an incandescent bulb, the former can cut energy usage by 75 percent to 80 percent, notes Kenneally.

Other new products are emerging in the market, including dimmer switches and motion sensors, which are particularly useful for fire stairs. Such products reduce the light by 75 percent in the stairwells when no one is using them; Padian notes that this trend is also starting to be seen in hallways.

Other low-cost ways to reduce energy spend, says Kenneally, concern preventative maintenance, such as regularly replacing and/or cleaning filters on air conditioners and ensuring the duct-work on the building’s HVAC is clean and leak-free, which, he adds, can reduce the energy spend by 20 percent.

As you work your way up this “pyramid,” there are opportunities with more costly investments, including upgrading HVAC units, converting to condensing boilers and focusing on building automation systems.

Crimmin points to the cost-effectiveness of integrating green capital equipment into already-planned renovations. “It makes sense to do a lifecycle analysis and review what the standard proposed solution is and the lifecycle cost related to that, compared to an alternative, more energy-efficient solution,” he says.

“The up-front cost might be a little higher, but the long-term lifecycle cost of that decision typically greatly outweighs the standard option,” Crimmin adds. He suggests integrating opportunities into normal capital upgrades. “Figure out what additional investment might be needed to make it a green option,” he advises.

Some financial institutions are taking a closer look at green as well. CPC, for example, has a Green Financing Initiative for multifamily owners, which is expected to retrofit thousands of units over the next three years. As part of this program, CPC performs an energy benchmark. Additionally, Fannie Mae and HUD’s FHA recently launched Green Refinance Plus, a program that will allow owners of affordable housing to refinance into new mortgages that include funding for energy- and water-saving upgrades.

“We are financing energy efficiency, not assuming that we’ll reduce energy costs. We do what we think is smart,” Padian notes, adding, “I think we’ll see we got pretty good savings and that that cash flow went into the owner’s pocket. … That’s the kind of green that everybody likes.”

Returning to the pyramid, its top consists of what Crimmin calls “the sexy, high-tech, typically very expensive, options.” These include such things as geothermal and solar thermal technologies, as well as real-time energy monitoring and remote-controlled platforms that allow you to track the performance of different pieces of equipment over time, a technology that can be incredibly valuable—but also costly.

Meanwhile, while solar panels are one of the more expensive energy upgrades, Winn Development is looking at “solar-ready” opportunities to make it easier to invest in solar in the future.

“The cost to do it while the building is under construction and all the walls are opened up is significantly less than the cost to do it at some later time,” he adds. “For a minimal investment now, you open up more opportunities in the future.

“In the past five years, we’ve seen solar prices come down,” he adds. “The competitiveness and the supply chain is bringing down the price of the products, so in that sense it almost makes sense to hold off and see how the market evolves.”

Of course, educating residents about what they can do to reduce their energy costs is also key, points out Kenneally. “It’s one thing for a property manager or owner to do all these things, but the fact of the matter is they have little to no control of energy usage in the unit.”

Kenneally suggests offering residents conservation tips in a monthly newsletter. These include items such as suggesting residents use washers and dryers at night; as he points out, when  the dryer is run in the middle of the day, it makes the air conditioning work harder, translating to higher expenses.

Measure it

Winn has been very focused on metrics, says Crimmin, who differentiates between benchmarking and baselining by explaining that the former is important in order to isolate which properties in a portfolio are the best candidates for upgrades.

“Every [commercial] building owner knows all of their costs per square foot,” says Padian. “In multifamily, nobody knows their costs and usage per square foot,” he adds; owners should “organize, categorize and total both how much they use and how much it costs for everything that they pay for.”

Once this is done, he says, they will discover which buildings use the most resources per square foot. “In similar buildings in the same town, you see anomalies of a factor of three to one, and that’s crazy. You have to find out which buildings are using the most—both cost and consumption … You have to look at it every month and then you have to compare the buildings in New York to the buildings in Cleveland and the buildings in Arizona,” adds Padian. “You need to find out why you are using more water in each building [for example]. It’s not location; it’s not age of the building; it’s not population of the building. The biggest waste in every building … is management.”

And, Crimmin adds, baselining can, within a given property, compare a typical year’s worth of usage within a specific time frame to another time frame after a certain efficiency upgrade has been undertaken, enabling an owner/operator to verify that the upgrade is, in fact, doing what it is supposed to be doing.

“The more information we have as far as what projects really work, and what the actual savings are, as compared to modeled or forecasted energy savings, the better we’ll be at forecasting and investing in future projects,” he says.

But, adds Kenneally, “it’s not one big thing that would make you drastically [more] energy-efficient.” He adds, “The bottom line is … it comes down to a bunch of simple things rather than one major bullet in terms of reducing your energy spend.”