Adapting the Utility DSM Model to Incentivize Efficient HVAC Systems
By John L. Sheff, Danfoss North America
Last year, in an article in Electric Light & Power Executive Digest, I argued that, as LED opportunities become scarcer, variable frequency drives (VFDs) are a good candidate to help utility demand side management (DSM) programs hit their energy efficiency targets. As I explained in that article, however, energy efficiency program managers must adapt their DSM models to distribute rebates as efficiently as they did with LEDs.
VFDs are just one component of larger commercial HVAC systems that include pumps, valves, chillers and boilers. End users are, of course, free to purchase the most energy efficient products, the least or somewhere in between. For utilities to incentivize the installation of the most energy efficient systems, they must understand the different technologies, how each component impacts the others and how they’re brought to market and financed. What follows is a brief guide on how to positively impact these systems.
“- Target Variable Speed Technology. Variable speed technology matches energy use to real-time demand. This technology, mostly in the form of VFDs, can be applied to motors on HVAC supply fans and pumps, chiller compressors and boiler controls. Even reducing motor speed slightly can produce immense energy savings because mechanical motors obey the physics of Affinity Laws, in which reducing motor speed cuts energy consumption exponentially. Reducing speed by 20 percent, for example, can cut power consumption up to 50 percent.
“- Take a Systems Approach. The components in a hydronic HVAC system are not isolated. Utilities must acknowledge and incentivize all the equipment in the system, even those that may not save energy by themselves, but dramatically increase the efficiency of the entire system. Pressure independent control valves, or PICVs, are an example of such a product. They’re installed at the system’s terminal units, usually air handlers or fan coils, and limit the maximum flow into those units, controlling temperature and balancing the entire system. Controlling the temperature at the terminal units allows the system to increase supply temperatures at partial loads without compromising comfort. In this scenario, even an increase to the cooling set point of 1 C can be achieved without affecting comfort, but it will reduce energy use in the entire system by up to 18 percent.
“- Engage Technology Manufacturers and Their Sales Channels. Utility DSM programs have had success incentivizing LEDs because they effectively engaged with the lighting sales channels. Working directly with lighting manufacturers and distributers, they established upstream and midstream programs to buy down the cost of energy efficient products at the point of sale, shielding contractors and consumers from the backend rebate process. Unfortunately, commercial HVAC systems do not naturally lend themselves to such an elegant model.
The manufacturers of HVAC system components typically do not have teams of sales people calling on contractors and end users. Rather, they have regional sales managers who manage manufacturers’ representatives in each market. It’s these reps who exclusively market brands and products directly to contractors and facilities managers. They’re the ones with the relationships and insights into current and future projects. The rep landscape, however, can seem daunting because each brand has different representation, and a brand may have various products with competing reps in the same market. In addition, while mechanical reps probably have most of these products, controls reps, who cater to systems integrators, may sell VFDs and PICVs.
Despite this rocky terrain, there are opportunities for utilities. First, they must identify the handful of major players with the highest quality brands, paying special attention to those reps with active service departments because these groups regularly call on facilities managers. Second, DSM program managers must educate these reps about the available financial incentives and the process for collecting rebates so they can use those rebates in the marketing efforts. Some reps may even go so far as to incorporate prescriptive rebates into the price of the equipment, effectively creating a midstream model. Third, they can develop an open communication channel so that reps can make utilities aware of new products and project opportunities.
“- Integrate With Emerging Financing Models. Increasingly, contractors and end users are taking advantage of alternative models to finance their energy efficiency projects. “As-a-service” models that offer no capital costs, simpler contracts and include service and maintenance are becoming more relevant. This type of financing may be offered by the contractor, the manufacturer, a third-party financier or by the utility itself. In any event, DSM programs should work to incorporate their incentives into the financing. Rebates can be used to reduce monthly payments or act as a kind of “cash back” incentive for end users.
“- Offer Rebates for Replacement VFDs. Few utility DSM programs provide rebates for replacement VFDs. (Xcel Energy’s program is the only one of which I’m aware.) The thinking goes that they can’t count the energy saved toward their goals because the baseline was set using a VFD. This logic, however, is flawed. Just as with lighting, an energy-hogging product can do the same job as an energy-saving one. Motors on standard HVAC applications—supply fans, pumps, cooling towers, etc.—can operate perfectly well, albeit at full capacity, without a VFD. If the end user took advantage of a utility rebate to offset the initial cost of that VFD, that end user is less likely to replace it if the motor is functional without it and the rebate is no longer available. In practice, this occurs often and the utility risks losing the kWh savings it bought with the original rebate.
In addition, offering rebates for replacement equipment can significantly smooth the prescriptive rebate process, eliminating painful bureaucratic friction and increasing rebate usage. Contractors don’t need to create savings models for each installation and utility engineers don’t need to review each application to confirm projected savings. They can simply treat each prescriptive rebate as they would one for an LED in which the savings are well-established. In addition, because reps no longer have to determine if every single VFD they sell for standard HVAC applications is destined for a new installation, they can easily incorporate rebates into their marketing and pricing models.
It is possible for utilities to more effectively incentivize the installation of highly efficient HVAC systems. In fact, they need to take a few lessons from their successful LED programs. Focus on the right technology, engage with the sales channel and pay for replacement equipment. Following these steps can help change the way HVAC systems are installed and for the better. | PGI
John Sheff is business development manager at Danfoss. Danfoss is a member of the MEETS Accelerator Coalition, a group of companies, utilities and regulators focused on investment in energy efficiency projects.