Leveraging NYC Clean Heat for Renewable Energy Retrofits

The NYC Clean Heat program is one of the many examples of good intentions gone wrong, for by and large it misses the opportunity to push the city towards renewable energy. Instead, it is diverting capital to a temporary fix, leading to NYC boiler conversions to natural gas, when far better options might be available, better for the city, for the tenants and for building owners. Large numbers of C- and D-class apartment buildings, particularly in the outer boroughs, such as the Bronx, which typically are burning #6 or #4 oil would have an easy time shifting towards renewable energy instead of to natural gas (or even biodiesel).

It is true enough that natural gas is less polluting than #6 residual oil, or even #4, but from the standpoint of building preservation. However, these buildings would be generally more viable economically in the long-term by switching to renewable solutions.because renewables offer a permanent energy price hedge, and lower maintenance costs. The only way to get buildings out of the economic trap of energy price hikes is renewable energy. Probably 50-75% of buildings in this particular class are capable of making the switch.

The right use of The NYSERDA MPP

To make the transition to gas attractive the NYSERDA MPP program offers a wraparound for overall efficiency upgrades to buildings, and which is in many cases not the best option if it leads to merely making a fossil fuel system more efficient, instead of switching to a renewable alternative. The financial methodology of that program is geared to making the existing infrastructure more efficient, not to evaluating alternative solutions.

The idea should be to make the transition to economic sustainability and increased competitiveness with renewables. Only if a renewable solution is not in the cards, is the marginal reduction of CO2 and particulates emissions helpful, but again, not if it distracts us from the major goal of switching to clean energy and becoming energy independent. If the NYSERDA MPP is used to finance a conversion to natural gas, it misses its potential, as long as an alternative is possible for a particular building. Very simply, 30 years of no energy bills will beat 30% savings any time. Owners sacrifice future value of their buildings if they make the wrong choice.

Obviously, if we can make it to a renewable energy infrastructure, we are going to outperform the mere switch from oil to natural gas. Thirty years of no energy bills will always beat out a 30% energy savings, if you can do it economically. The thing to do would be to pursue an exemption from the Clean Heat conversion, and do a 30 year energy plan for the building, such that the first phase qualifies you for the NYSERDA MPP program.

MAJORING IN A MINOR

Both NYC Clean Heat and the NYSERDA MPP focus on a secondary objective first and thereby falsify capital decisions, and cause capital destruction. Naturally, in some buildings there is no renewable option, so that's bad luck. Anyone who has done any financial modeling or operations research work can tell of how bad it can be if you major in a minor, if you optimize a system for a secondary objective, not the primary one. For a building, the primary function should be the long-term Capital Asset Value of the building. The renewable energy building will be worth some 10-20% more, hands down, in 5 or 10 years, than its fossil fuel (or even biodiesel) burning twin. The exact spread will depend on energy prices, of course.

Energy Efficiency is the secondary variable that can either make a fossil fuel system more efficient (not green!) or make a renewable energy system more economical (very green). The confusion in the public dialog is that energy efficiency is misrepresented as green, which is merely a way of greenwashing fossil fuels. Energy efficiency is only green if it helps you make a renewable system economical, and in that case there is a direct compound return, because e.g. better insulation will reduce the installed capacity needed.

An alternative conversion program

Here is the outline of the renewable energy strategy:

• Make sure that phase one of your plan meets or exceeds the criteria for NYSERDA's MPP.
• Get an exemption from the Clean Heat conversion program because you are going renewable.
• Typically, the first step is to take Domestic Hot Water (DHW) off the boiler, and implement either a geothermal or a solar thermal solution, which will typically achieve a 25-50% reduction of your BTUs for heat and hot water. (Because heat is seasonal, but hot water is year-round).
• With your exemption you should get a clear agreement that for economic reasons your are doing the next step (heat) when you need a boiler replacement.
• By doing this, you have bought another 5 or 10 years of economic life for your boiler, because it'll be off-line in summer.
• At the end of the economic life of the boiler, you then can go to either a renewable or use the best fossil fuel solution available then.
• For details, see www.dabxdemandsidesolutions.com

It should be noted that the City has recently begun studying geothermal energy, which is important for this program and has already provided a powerful solution to many buildings. Also wind energy should move to the top of the agenda as more suitable designs are appearing on the market which are geared for installation on buildings.

 A long term renewable energy plan

The trap of all programs that focus on marginal efficiency improvements, such as the NYSERDA MPP, is that they focus on only ONE point in time, and ignore the long term plan for a building. The truth is that the path of energy efficiency, which is prioritized in the NYSERDA MPP, in most cases shows the quickest returns from some effiiciency gains, but if you did a 30 year CAPM analysis of your building, you would see that subsequent investments in energy efficiency face strongly diminishing returns. By comparison the renewable energy plan is more capital intensive up-front, but usually superior, because you get 30 years of (nearly) no energy bills, not merely a 30% reduction in consumption.

We should also note that if subsidized finance is used to switch buildings to natural gas, that would have otherwise been capable of switching to renewable energy, that is really an indirect subsidy of some energy company, and of the fossil fuel industry in particular.

Conclusion

The need to switch away from #6 and #4 heating oil, should be leveraged for converting to renwable energy, not natural gas, whenever it is feasible. Owners who do will see at least a 10-20% increase in building values over the next 10 years, if they follow through.

If you do a proper 30-year energy plan for your building, with a good understanding of the engineering interdependencies, two things will become clear:

• if your building is suitable, a good renewable energy solution will beat out mere "efficiency" of a fossil fuel solution.
• And, number two, you can use some of the programs that now exist to help secure financing for your conversion.

NYC Clean Heat provides the motivation, and the NYSERDA MPP can be used on behalf of a conversion to renewable energy.

NYSERDA MPP is a financial trap for property owners

Energy efficiency on a carbon spewing pig is like Green Paint

The venerable NYSERDA MPP, the Multi Family Performance Program is an investment trap for building owners, and the reasons are simple. It is designed for the benefit of energy providers, not building owners. To put it differently, it is a customer retention program for your energy companies. It is designed to incentivize owners to do what's good for their energy providers, instead of what's good for their buildings. Apparently by and large building owners are happily walking into the trap for all of energy punditry applauds energy efficiency without realizing that it is creating the next energy crisis, not preventing it. Everyone seems to assume that saving resources is always a virtue, and more savings adds up to better economic performance. But nobody checks the math, apparently.

Historically, never mind the good intentions, the NYSERDA MPP program, and all of NYSERDA has been born from the "accepted" macro-economic obfuscation, which passes for "policy advice" or even wisdom, that on the margin the investment in energy efficiency offers the highest returns for incremental energy investment for our society. This seems to be true, even obvious, but it's a case of figures lie and liars figure. The simple fact is that if you make a system more efficient, you prolong its life, and you extend its usefulness. So if the system was a fossil-fuel-based energy system to begin with, what better idea than to get your customers to invest in making themselves more efficient customers, using their money, not yours. One of the incentives will be subsidized financing. Subsidized by who? By the utilities through a levy on their customers.

NYSERDA MPP serves utilities not building owners

In short, it should be no surprise that the NYSERDA MPP program, good intentions aside, operates chiefly for the benefit of the shareholders in energy companies, and is to the detriment of buildings and building values. The reason this is so, is that its primary focus again is on energy efficiency, not on green energy at the building level. And the methodologies of the MPP program are focusing on getting owners to do what is marginally beneficial to the grid with an incentive system of subsidies and cheap financing.

Nyserda MPP negotiates owners into a corner

The unstated, but implicit, assumption is that energy efficiency is additive, and somehow will result in energy independence, and better economic performance. It is not, in fact it is an investment sinkhole for any building that would have been capable of switching to renewable energy. And in the multifamily sector in NYC 50-80% of buildings are. The reason this is so is that INITIALLY energy savings always offers good payback, but there is no effective follow-on investment, so the owners of buildings are painting themselves in a corner from an investment point of view, because of diminishing returns. Any subsequent investment in efficiency is facing an increasing hurdle of diminishing returns, because the basis for the savings is constantly reducing, and ultimately hits a limit, which may be say 35%, and even if it's 40 to 50%, eventually there's no place to go. In short, like with any investment, you have to wonder about the exit strategy. There is none. The next energy price hike will simply wipe out the savings of 15-25% that are typical of these programs, and the owners of the buildings are back to square one.

NYSERDA MPP can be Useful be useful in conjunction with green energy

The smart way of using the NYSERDA MPP program, or other incentive programs, are to do your own economic analysis first, and then figure out how to leverage the incentives. Do not let the utility company or their agents drive your program! The only sane way to approach these decisions are to take a comprehensive look at energy in your building and to set up a 30-year analytical model on a CAPM basis with the base case being your existing fossil fuel driven energy model, with incremental spending on energy efficiency, and the alternative case or cases being to switch to green energy, generated IN your building.

What you are likely to find is that if you achieve the same say 25% improvement in energy by self-generating it, and using energy efficiency secondarily to beef up your investment, you will have superior returns. For, on a 30 year basis, you will see that the 25% efficiency investment is likely to be wiped out within five years by energy price hikes, whereas the green energy investment has permanently eliminated the energy cost of 25% of your BTU load, and you have a follow-on strategy to add more renewable energy generation at the building level. Wind turbines for buildings are now becoming a serious option. Solar PV is improving all the time, but Solar Thermal is usually the best option. On a larger, utility level, there was just a study that PJM stands to save $7bn/year with windpower, all the while people are complaining that we have no grid parity???

Time shows green energy superior to energy efficiency

The fundamental, if unintentional, deception of the NYSERDA MPP lies in the fact that it focuses on a single point in time: now. It sets people up to evaluate technologies on the basis of marginal contribution to the cause of efficiency, which digs you deeper and deeper into the hole of dependence on energy by subscription. Once you do a 30 year model, the payoff of green energy becomes obvious, because you are permanently wiping out a portion of your energy bill, and it's value goes up with every energy price hike. This is why you should do the 30 year model first, and figure out later how you can leverage incentives. NYC's Clean Heat program leverages building owners into the NYSERDA MPP program, in order to get financing for switching to natural gas. In the vast majority of cases, making that switch simply lops 10% or more from the future value of the building compared to the green energy alternative, if there was one.

Conclusion

Energy efficiency is NOT additive, but shows diminishing returns. Green energy produces compound returns, the NYSERDA MPP tool can be used right, but most often it suffers from focusing on the wrong objectives, and impairs building values.