The M Files

Distinguishing between the Energy Siblings: Use and Cost

by on Feb.06, 2013, under Construction Services & Building Design, Energy Services, Mechanical Contracting

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I have an older sister. When my friends meet her for the first time they smile in amusement at our similarities. That always makes me scratch my head, because all I see are differences. Just like many siblings, we’re related in blood, appearance, and mannerisms, yet pretty distinct as individuals.

The same is true with energy use and energy cost. They’re sort of like siblings—inextricably related, yet distinct. Outsiders to the energy family generally only perceive the similarities, and might ask how the two could be distinct. Even I used to think that when it comes to energy; the less you consume the lower your bills. Isn’t that true?

The truth is actually, “No.” Or, spoken like a true engineer, “It depends.”

Proof is contained in the two charts below. In them we graphically illustrate energy and cost results from 46 buildings recently completed under McClure Company energy services contracts. The first chart illustrates Energy Use Intensity (EUI)* before (blue) and after (red) project completion. Don’t worry about reading the numbers from the chart. Just notice that the red bars have a nice descending slope to the right. The smaller the bar, the more energy efficient the building, and the less BTUs of energy it consumes. The buildings are sorted by energy efficiency with those to the left of the chart using more energy than the buildings to the right of the chart.

Energy Use Intensity (EUI)

The second chart illustrates energy costs in terms of the dollars spent on energy per square foot of building in a year. We call that metric Energy Cost Index (ECI). Again the chart shows ECI before the project (blue) and after the project (red). Note the apparent random order of those bars—no descending curve.

Energy Cost Index (ECI)

What might be surprising is that the buildings in the second chart (ECI) are sorted in precisely the same order as in the first (EUI). The post-project energy costs appear to be unrelated to energy use.

How can this be?

It all boils down to the relative cost of fuel (see the third chart for the relative cost of fuel in dollars per million BTU). A highly energy efficient building burning a relatively expensive fuel might cost more to operate than a moderately efficient building burning a relatively cheap fuel. Let me share two clarifying examples.

Cost of Fuel

The first involves converting an existing building from oil heating to geothermal heat pump heating and cooling. Geothermal heat pumps make efficient use of electricity for heating. In this building, we were able to reduce the EUI from 81.6 before the project to 44.7 after the project, representing a dramatic 45% improvement in energy efficiency. Their energy cost savings were also dramatic, reducing their bills from $2.04 to $1.37 per square foot annually—a 33% cost savings.

So, a 45% reduction in raw energy use only translated to a 33% savings in cost. Why? Because, as expensive as fuel oil is, it is still less expensive per BTU than electricity (see the chart). While both energy use and cost savings were excellent and the customer is very pleased, energy cost savings didn’t track exactly with energy use savings.

The second example illustrates a polar opposite scenario.

Another client previously burned about 550,000 gallons of fuel oil every year. We negotiated an agreement with the natural gas supplier to extend a line to their facility, allowing them to switch from burning oil to natural gas. The project resulted in an almost negligible improvement in energy efficiency (EUI), yet the client’s energy bills dropped by more than 50%—representing $1,100,000 per year!

The distinction between saving energy versus cost is often overlooked but of critical importance. When our clients say, “We want to save energy,” we’ve learned that what they really mean is that they want to reduce their energy bills and, sure, be more energy efficient while they’re at it. Understanding the economics of energy is as important as the engineering.

Should building owners simply be searching for the lowest cost fuel? Well, it depends. Stay tuned for another example.

*EUI units are BTU or thousands of BTU per square foot of building area per year. I’ve written previously about how EUI should become part of the building industry vernacular.

**Basis of cost of fuel chart: Electricity = $0.11/kWh, Oil = $3.00/gallon, Natural Gas = $0.85/therm, Coal = $160/ton, Wood Chips = $35/ton.

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  • Igor Zhadanovsky

    Dan,
    it will be great if you’ll provide more information on each of project about heating system type/fuel before and after project completion.

  • Lyndonthan

    It is sometimes short sighted to make ROI king of all mechanical decisions for a number of reasons.  Look at where ROI has gotten us in terms of global warming and a host of other problems.  This article is an illustration of how our accounting practices can easily miss the boat when we don’t include environmental or other impacts in our reckoning.  On the other hand, it also tells us that saving energy is a game with many players.

  • Igor Zhadanovsky

    Thanks for an excellent article. The data
    clearly show that exergetic efficiency should be considered instead of
    energetic efficiency. Energy efficiency use First Law of Thermodynamics without
    considering the value of energy. 

    Exergeitic efficiency take into account the
    quality of energy (ability to produce usefull work) based on Second Law of
    Thermodynamics. Exergy/cost ratio  for each energy source
    can explain observed discrepancies between projected and
    received results. 

     

  • Bob Bieder

    When discussing energy efficiency we should really talk in terms of ROI (Return On Investment). Frequently the 90% efficient equipment gives a greater ROI than the 93-95% or better equipment. Cost of the equipment versus payback is what the owners are really asking when they talk about efficiency. If you cant get your investment back in 5 or less years look elsewhere.

  • Mike Bernasconi

    Very true and very simply put.

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