More utilities and local governments are creating and implementing incentive programs to get buildings to be more energy efficient. Energy infrastructure is aging and expensive to replace. There is concern in many large cities that during a peak demand period, such as a hot summer afternoon, needed electricity will not be able to be provided throughout a utility zone, affecting citizenry, businesses, and quality of life. It is not only in the utility’s interest, but in the government’s, as well, to encourage energy efficiency, so that a peak demand can be met. One way to incentivize the procurement and usage of energy-saving technologies and strategies is to reduce its cost. More and more entities offer rebates for the implementation of certain technologies, which otherwise may be costly. Of course, if public money is going to be given out, it must be accounted for; it must go to owners who actually upgraded their buildings for energy efficiency. This can lead to significant bureaucracy, which itself is costly and takes away from the pool of money available to incentivize. Therefore, the simplicity of an incentive program is very important, as well.

With this in mind, there are two major philosophies used to design incentive programs for those to become more energy efficient, prescriptive vs. performance. Each has certain advantages to different groups of people.

Prescriptive energy incentive programs try to minimize bureaucracy, be simple for the building owner and manager, and emphasize installing the technology. A typical prescriptive program allows the participant to purchase and install the technology and reap the rewards fairly quickly, irrespective of the final results (energy savings). Prescriptive incentives typically pay out a certain percentage of the upfront cost of a technology so that the user can plan the expenditure and what it will get back.

For example, a New Jersey prescriptive lighting program pays the building owner a certain cost per LED light. It may be $5 per tube for replacement of tube fluorescents with LED tubes, $15 per fixture for replacement of high bay lumineres with LEDs, $15 per fixture for task lights, $100 per fixture for stairwell lights, etc. The building owner simply counts the number of lights that are replaced with the LED equivalents, multiplies by the incentive factors, and now can determine what the simple payback is. Once the lights are demonstrated to be installed, the calculations can be confirmed and the incentive check issued.

In a prescriptive program, it does not matter precisely how many watts the new LED lights are or the wattage of the lights being replaced. The effectiveness of the exercise (total kWh or KW load reduced) is not important for this incentive program. A prescriptive energy efficiency program is a reward for installing improved technology.

The other type of energy incentive program is performance, basing financial incentives on the achieved energy reduction of the strategies. For each light replaced by an LED, the before and after wattages of the lights must be computed and, together with the estimated usage (hours per year) of each group of lights, the total kWh or kW reduction is computed. The rebate tied to the reduction in electricity usage and demand is what a performance incentive program is all about. Such programs give the building owner a certain money (typically $0.10 per kWh or $1.00 per therm reduced or peak kW reduced). This is used for lighting incentive programs, as wattages can be compared.

However, for other technologies, it is more difficult to determine accurate gains and performance. For example, if one upgrades HVAC equipment to something more modern and efficient, the exact energy savings cannot be predicted because it depends on the outside weather which differs from year to year. One may get a huge reduction in kWh from one year to the next. However, it may be due at least in part to a milder summer in the year the technology is installed, as much as the efficiency improvement. One way to get around this is to have a performance incentive program use computer energy modeling holding the weather as a constant to predict energy usage with old and new equipment conditioning the indoor air.

Performance incentives, therefore, require a lot more information before the incentive is issued compared to prescriptive. This means more time spent on the computer and more labor hours that needs to get paid for before the incentive is earned. However, the effort will likely result in a document that reports what the energy reduction due to the new equipment is likely to be. And utilities and governments often wish to provide rebates based on the actual degree of efficiency or usage reduced achieved as opposed to merely upgrading technology which may not be that effective to demonstrate significant energy usage reduction.

CCES can help manage the energy incentive programs in your area and advise you on which ones are more relevant and profitable to your business at whatever stage you are at. We can do the testing, complete the incentive paperwork and answer questions of the regulators. Contact us today at 914-584-6720 or karell@CCESworld.com.