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.
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.
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.
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.