TRANE - Fairleigh Dickinson University _FDU_

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					    Proven Strategies for Making Existing Buildings
    Energy and Operationally Efficient

    John W. Conover IV, President, Trane Commercial Americas
    At Fairleigh Dickinson University

1    WEEC: Future of Performance Contracting
About John W. Conover IV

•   Leader for the Trane commercial business in the Americas –
    14,200 employees in the U.S., Canada and Latin America
•   Been in the HVAC-R industry for 30 years
•   During tenure with Trane, played integral role in better
    understanding customer expectations and market needs such
    as the growing search for energy efficiency solutions.
•   Focus heavily on gaining innovative insights on what it takes to
    acquire, satisfy and retain customers.
•   Earned a bachelor’s of science degree in civil engineering from
    Lehigh University and is a registered professional engineer.
•   Attended the Executive Leadership Program at the Wharton
    School of Business at the University of Pennsylvania.
•   John and his wife Marsha live in New Jersey and are the proud
    parents of four children

About Ingersoll Rand

    • $17 billion diversified industrial company
    • 64,000 employees worldwide
    • More than 100 manufacturing facilities
    • Operate in every major geographic region
    • Strategic brands are #1 or #2 in their markets

                                                       About Trane
                                                       Commercial Equipment + Systems
                                                       Residential Products
                                                       Aftermarket Parts
                                                       Trane Building Services

How Ingersoll Rand Walks the Talk
about Energy Efficiency

•   Trane and Ingersoll Rand – active with the U.S. Environmental Protection Agency
     – Members of Climate Leader Program
     – Joined Smart Way Program: To reduce environmental impact of transportation activities
     – Members of the Green Chill program: Energy efficiency in the supermarket industry
•   Member of the Dow Jones North American Sustainability Index, various investing indicies
•   Established internal goals for reduction of energy use and climate change emissions
     – Energy audit program to understand energy use/strategies for reducing consumption
     – Established a Sustainability Strategy Council to further integrate Sustainability principles
       throughout our business
     – Created “green teams” in all locations to engage employees and champion reduction
     – Established national patch program with Girl Scouts of the Americas called “BTU Crew”
       to encourage girls to reduce energy use in community buildings
     – LEED certified buildings in the U.S. and Asia

Why Trane is Talking About
Energy Efficiency
    •   Trane works with leaders who take a broad view of organizational performance
    •   We offer most energy efficient systems along with energy management and optimization
        service that leverages operational savings to support business objectives
    •   1 out of every 2 buildings in the U.S. has a Trane system
    •   More LEED certified Accredited Professionals (AP) in the industry
    •   Most energy efficient large chilled water system on the market today
    •   More than 125 performance contracting projects
         – Average project in the range of $2M with 10 year contract
    •   18,722 cars taken off the highway
    •   11,323,812 gallons of gasoline saved
    •   21,843 planted mature trees
    •   68,074,062 gallons of water saved
    •   224,666,420 pounds of CO2 saved
Perfect Storm:
Factors Influencing Energy Efficiency + Building Owners Today

•   Buildings consume 1/3 of energy worldwide and
    expected to grow: Population growth,
    urbanization, developing countries
•   Energy use in buildings projected to grow
     – Up to 40% of total operating expenses of some
     – Single greatest contributor to global warming
•   Tremendous amount of energy-related policy:
     – Improve environment and reduce oil reliance
     – Stimulate the economy and create jobs
     – Reduce risk and increase business confidence

Perfect Storm:
Factors Influencing Energy Efficiency + Building Owners Today

•   Reduced operating budgets and deferred maintenance
•   New construction outlook remains weak
•   Considered to be operating in a global recessionary market
•   Businesses pinched more than ever
     – Operating costs continue to rise with intense pressure to reduce
     – Access to cash and credit more limited than ever
     – Limited appetite for capital investments without clear payback

What This Means:
For Building Owners and Business Leaders

•   More than a “nice to do” or method for being socially responsible
•   There are tangible business results directly associated with energy efficiency
     – Financial, customer satisfaction, employee productivity
     – Not to mention that it makes assets more valuable
     – And there’s a positive environmental contribution
•   As business leaders, our job is to remove obstacles to energy efficiency
     – Must be C-level owned / championed
     – Need a financially-motivated business plan
     – Don’t get caught up in the noise – there are proven strategies and
       technologies for making existing business more efficient

Why A C-Level Imperative
For Building Owners and Business Leaders


ENERGY CONSERVATION                                ENERGY EFFICIENCY
• Using less energy, without necessarily           • Using less energy and achieving more output
  increasing the output                                   – Rightsizing / replacing infrastructure
    – Fewer truck runs to / from warehouse                – Process / product improvement
    – Turning off unused equipment on                     – Less environmental impact in the
      weekends / off-hours                                  supply chain
    – Modifying behaviors and practices                   – Often higher initial cost, but better life
    – Low hanging fruit / low first cost / fast             cycle payback (need to understand the
      payback projects                                      financials)
    – “Holding the Gains” – depends on                    – Holding the gains – depends on
      culture                                               automatic controls and monitoring

                    The Value of Efficiency: Reduce production losses, spoilage,
                    downtime while increasing good will and customer impact

                                            Alliance to Save Energy: Strategic Industrial Energy Efficiency
Getting Started: A Financially-Motivated Business Case

 Making the Case for Energy Efficiency

 Critical question: Is your building overhead or an asset?

     Owners who view their buildings as assets link the physical
     environment to business outcomes – customer and employee
     satisfaction, productivity, operating expense reduction, among
     others. These buildings can be “high performance” and tie to the
     mission, values and results of a business

     • Value to people the building serves (environment, comfort, safety)
     • Value to customers and community (competence, environmental
     • Value to the bottom line (cost savings, avoidance, ROIC)

  Making the Case for Energy Efficiency

Critical question: What are your                Public                    Private
driving factors for change?             Improve Infrastructure       Stay Competitive
                                                                     (Attract Tenants,
• Every building, project and                                       Customers, Talent)
  customer is different – making each    Reduce Maintenance        Reduce Maintenance
  project unique                                Costs                     Costs
• Modeling begins with                  Reduce Operating Costs    Reduce Operating Costs
                                        Optimize Capital Budget   Optimize Capital Budget
       – Why project was initiated
                                            Improve Indoor            Improve Indoor
       – Goals and objectives           Environment (Comfort &    Environment (Comfort &
       – Appetite for risk              Occupant Performance)     Occupant Performance)
                                        Be Socially Responsible      Add Asset Value

Making the Case for Energy Efficiency

 Critical question: How will you fund your project?

         Goal to Remain Budget Neutral                   Three budget categories
          Capital Contribution
                                                         • Energy budget
     future planned monies allocated                     • Operating expense budget
     today to broaden project impact
                                       Energy Budget
                                                         • Capital improvement budget
  money for
                                                         Potential for more robust projects
planned to be                                            • Evaluate benefits beyond payback
completed in                                Energy
  the future                              Savings from
                                          Conservation   • Energy projects reduce operating
   Operating Savings      Operating                         and capital improvement budgets
 non energy savings from   Budget
conservation measures and
  maintenance practices

    Making the Case for Energy Efficiency

     Critical question: How will you fund your project?

                                                                                                                   Goal to Remain Budget Neutral

         Goal: Allocate potential savings from operating budgets                                   Capital Contribution - future

         and avoidance from capital budgets to fund project:
                                                                                                    planned monies allocated
                                                                                                    today to broaden project
                                                                                                                                                   Energy Budget

          – Operating budgets should reflect the funding of the
                                                                      Capital Budget - money for
                                                                        projects planned to be
                                                                       completed in the future

            debt service for the project with offsets to energy and         Operating Savings - non
                                                                              energy savings from
                                                                                                                                                              Energy Savings from
                                                                                                                                                             Conservation Measures

            maintenance budgets.
                                                                          conservation measures and
                                                                                                                            Operating Budget
                                                                             maintenance practices

          – Capital budgets should also reflect the funding of
            debt service...this is the amount of capital avoided as
            a result of the project.
          – Projects that take a comprehensive approach create a
            consistent funding expectation and help mitigate
            unexpected spikes in funding requirements.

    Making the Case for Energy Efficiency

     Critical question: How will your project be delivered?
                                                        Performance criteria examples
•        Though capital remains the same,
                                                        • Reliability (uptime, # of unplanned
         performance can be guaranteed by
                                                        • Efficiency (kW/Ton, mcf/BTU, etc.)
          • Providers compensated based upon
             success in achieving goals                 • Operating status (state of readiness,
          • Contracts typically stipulate how
             incentives will be paid out for elevated   • Field conditions (clean towers,
             performance or penalties assessed for        condensers, air intake)
             missed targets.                            • Output (BTUs, cooling tons, cfm, gpm)
                                                        • Capacity (peak output matched to load)
                                                        • Quality (power quality, load factors, IAQ)
                                                        • Rate of economic return (sustained energy
The Aberdeen Group, February 2007                         efficiency)

Making the Case for Energy Efficiency
Critical question: What changes can be made based upon financial
     Quick Return (0-3 yr payback)           Intermediate (3-8 yr payback)               Long-term
     Retrofit lighting                       Install new building automation             Replace high efficiency
                                             system                                      equipment (major systems
     Update existing building                Improve HVAC systems (CV to                 Building envelope
     automation systems                      VAV)                                        improvements
     Conduct retro/re-                       Implement water conservation                Apply renewable technologies
     Make behavioral changes (Turn           Use fans and motors (VFDs, high             Apply on site/distributive
     lights off, program systems)            efficiency change outs)                     power generation
     Explore utility procurement             Apply load shifting technology              Implement comprehensive
     options                                 (ice storage)                               maintenance and repair

       • Purpose of the building determines the investment strategy
       • If a lifecycle return / financial approach is taken, owners can enjoy the benefits of everything listed on
         the chart = significant energy, operating, environmental and business benefits
Making the Case for Energy Efficiency
Breaking a myth: We need to wait for new technology or need
emerging technology to improve energy efficiency
     Proven technologies available for all buildings types meeting various payback requirements
     •   Large commercial/industrial buildings            •   Multiple buildings/ campus/ industrial
     •   Generate chilled water for cooling               •   Higher overall system efficiency
     •   Reduce energy consumption by half                •   Beautify city outlook

     ENERGY RECOVERY                                      GEOTHERMAL HEAT PUMP SYSTEM
     •   Less energy to cool fresh air brought into the   •   Residential and commercial buildings
         building in summer
                                                          •   Pump energy from underground
     •   Less energy to pre-heat cold fresh air from
         outside in winter                                •   Enjoy energy saving all seasons
     •   Free energy to provide hot water                 THERMAL STORAGE SYSTEMS
     INDOOR AIR QUALITY                                   •   Large city with high peak demand
     •   Proper ventilation with minimum energy           •   Shift demand from daytime to night
     •   Temperature and humidity control                 •   Reduce blackout during hot summer

17   •   Filtration options ensure good IAQ
  Making the Case for Energy Efficiency

   Critical question: What costs need to be considered when financially
   modeling an energy project?

                                     Visible Costs        Total cost of ownership approach
                                                          • All of these factors need to be
                                                            addressed at some point

                     Energy Costs      Engineering        • Modeling the building as a long-term
       CFC Issues                       Charges             asset
   Equipment            Costs            Construction        – Offers greater financial transparency
   Shutdown                             Change Orders
     Costs             Legal Costs                           – Will ultimately save energy and
  Security Costs
                      Start-up       Indoor Air Quality        operating dollars throughout the life
 Being Green          Delays                                   of the asset
    Costs                          Fire Protection
Hidden Costs

Making the Case for Energy Efficiency

 Critical question: How do owners ensure ongoing performance of
 energy projects?

     Proactive maintenance strategy                   • Return on investment: 10 times
     • Ensure that desired outcomes as assured        • Reduction in maintenance costs: 25% to 30%
       throughout the life of the asset               • Elimination of breakdowns: 70% to 75%
     • Deliver an agreement that is cost-beneficial   • Reduction in downtime: 35% to 45%
       to Trane customers and provides value-         • Increase in production: 20% to 25%.
       driven service                                                       --- FEMP Guide, page 5.4

     • Doing so will avoid capital, energy and
       repair costs

Making the Case for Energy Efficiency

 Breaking a myth: Maintenance is more than just “break / fix” – being
 proactive is a conscious strategy

Making the Case for Energy Efficiency

 Critical question: What is the financial model (example)?

                                                                 Construction Customer
                                                                               Pro Forma
                                                                              Cash Purchase
                                                                                                                           Yes           Yes          14-Apr-09
                                                                                                                               Yes          Yes
                                      0               1             2               3            4                5             6            7
                                    Year 0          Year 1        Year 2          Year 3       Year 4           Year 5        Year 6       Year 7        Totals
     Energy Savings - Gas          300,000         600,000       630,000         661,500      694,575          729,304       765,769      804,057      5,185,205
     Energy Savings - Electric     125,000         250,000       260,000         270,400      281,216          292,465       304,163      316,330      2,099,574
     Operational Savings                           300,000       309,000         318,270      327,818          337,653       347,782      358,216      2,298,739
     Capital Cost Avoidance                                      250,000                                                                                250,000    250,000
     Utility Rebate                                500,000                                                                                              500,000    500,000
     Total Annual Savings          425,000        1,650,000     1,449,000       1,250,170     1,303,609        1,359,421    1,417,714     1,478,603   10,333,517

     Installation Costs            5,000,000                                                                                                          5,000,000
     Maintenance Costs                              25,000        65,000          66,950       68,959           71,027        73,158       75,353      445,447
     Central Plant Operations                       75,000        78,750          82,688       86,822           91,163        95,721      100,507      610,651
     Total Annual Costs            5,000,000       100,000       143,750         149,638      155,780          162,190       168,879      175,860     6,056,097

     Annual Net Cash Flow         (4,575,000)     1,550,000     1,305,250       1,100,533     1,147,829        1,197,231    1,248,835     1,302,743   4,277,420

     Cumulative Cash Flow         (4,575,000)     (3,025,000)   (1,719,750)      (619,218)    528,611          1,725,842    2,974,677     4,277,420
                                  (4,575,000)     1,550,000     1,305,250       1,100,533     1,147,829      1,197,231       1,248,835    1,302,743
                                  (4,575,000)     (3,025,000)   (1,719,750)     (619,218)      528,611       1,725,842       2,974,677    4,277,420
                                                     1.00          1.00            1.00          0.54           0.00            0.00         0.00
     Assumptions                 Net Cash Flow                  4,277,420                     Financing Institution:       Fleet

                                 NPV @ 15%                       664,840                      Amount Financed:             4,000,000

                                 Payback Period                 3.5 Years                     Interest Rate:               8.50%

Making the Case for Energy Efficiency

 Critical question: What is the financial model (example)?

     Model offers comprehensive view
     • Driving factors, funding and budget allocations, capital expenses, total cost of
       ownership and financial return
     • Analyzes cash flow over project life

     Model incorporates more ECMs
     • If owner considers only energy savings in financial decision
          – Project would yield a 11.7 year payback
     • If owner considers energy, operating cost, maintenance and asset replacement
       cost savings over the life of the project
          – Project yields a 3 year payback and it generates positive cash flow

    Making the Case for Energy Efficiency

       Critical statement: Different payback, same return on investment

                                                                                  •   Return calculations dependent on benefits
                               Return on Investment
                                                                                      received beyond initial payback
             $1,000 Invest, 30% Savings, 16.7% IRR
                                                                                  •   Guaranteed returns support analysis
             $10,000 Invest, 20% Savings, 16.9% IRR                                   beyond simple payback calculations and
$350,000     $100,000 Invest, 16% Savings, 17.0% IRR
                                                                                      provide financial basis for long term
                                                                $1,000 Invest
                                                                                      investment in sustainability

                                                                $10,000 Invest
                                                                $100,000 Invest
                                                                                  •   Simple payback calculations help assess risk
                                                                                  •   Guaranteed savings minimize risk of
                                                                                      evaluating longer term projects

           1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

 How To Get Started: And Hold the Gains

Make efficiency a c-level imperative
Create a shared vision and create a mindset of “high performance
     buildings” rather than “overhead”

Make the business case to understand appetite for risk, payback and
     realistic measures / actions that can be taken

Make decisions and initiate your project
Integrate energy efficiency into business strategies, build
     employee engagement

Measure progress to ensure continuous improvement
     Proving the Model:
     Case Examples of Large Energy Projects

Energy Project Makes Manufacturing
Facility More Competitive
     • Campus-style 102.200-sq-meter (1,1 million-sq-ft) heavy industrial
         manufacturing plant
     • Aging infrastructure with low energy efficiency and reliability and high
         operating and maintenance costs
          – Dramatic downturn in product sales
          – While experiencing 70+% increase in energy costs
     • Corporate goal of 15% reduction in energy cost by 2013

     • Factors driving improvements:
        – Need to stay competitive
        – Reduce maintenance and operating costs
        – Add asset value
Energy Project Makes Manufacturing
Facility More Competitive
     Identifying investment benefits:
         1. Assessment                                    2. ECM Selection                      3. Payback
         Analyzed HVAC systems, compressed                 Lighting retrofits, building
         air and lighting for efficiency, capacity                                             Selected ECMs offer
                                                           automation upgrades and hot         quick return
         and effective operating and                       water boiler
         maintenance practices. Evaluated
         remote monitoring application potential.
                                                     $2.1 million project investment in new
                                                     air compressors, hot water boiler,
                                                     lighting retrofit and remote monitoring

     •       Two-year payback with projected $1.13 million in annual energy savings +
             $275,000 in annual labor cost reduction
     •       Energy reduction of 11.5 MKWH equivalent to CO2 emissions from 11 tanker
     •       On track to achieve mandated 15% reduction by 2013
     •       Safer, more reliable and more energy-efficient plant operations
Infrastructure Improvements
Generate Increased Production
• Single-story 32.500 square-meter (350.000 square-foot) manufacturing
    facility with 1,100 employees
• Needed stable ambient environment for optimized consumer product
• Outdated, unreliable infrastructure systems
• Factors driving improvements:
   – Need to stay competitive, improve indoor environment
• Guaranteed performance of the upgraded system for one year, offering
  on-call maintenance support if ambient conditions were not met
• Assurance of improved performance and plant reliability, with available
  on-call support, convinced management to complete the upgrades

Infrastructure Improvements
Generate Increased Production

Identifying investment benefits:
 1. Assessment                              2. ECM Selection                          3. Payback
Analyzed chiller and air handling systems   High-efficiency chiller systems with
and the pneumatic building automation       variable flow water pumps, upgraded air   Quick return: BAS
system (BAS) for reliability, efficiency,   handling systems and centralized BAS --
                                                                                      Solid return: Chiller and air
capacity and performance                                                              handling systems
                                            $8 million system upgrade

 • Customer able to more effectively compete
        – Increased production in improved environment
        – Maintained near-perfect system performance
        – Completed needed adjustments within hours
        – Project finished on time and on budget with minimal production
Five Star Hotel Increases
Comfort and Efficiency

 • Five-star Le Meridian Hotel on three-acre complex
 • High operating expenses and service costs
 • Outdated systems lacking centralized control
 • Noise levels compromising guest and employee comfort and
     government regulations
 • Factors driving improvements: increase competitiveness, reduce
   operating costs, add asset value
 • Identifying investment benefits:

 1. Assessment                          2. ECM Selection            3. Payback
      Evaluated efficiency, capacity,   New chiller systems and a   Selected ECMs offer
      noise, safety and maintenance     centralized (BAS)           solid return

Five Star Hotel Increases
Comfort and Efficiency

  • $375K project with reduction of operating costs, increasing reliability
    with a 3.5 year payback – included systems and remote monitoring

  • Significant reliability increase and 30% improvement in chiller plant
    energy efficiency
  • BAS achieved additional 6-8% energy savings
  • Project completed in tight timeframe with minimal guest
  • Ongoing maintenance contract reduced service costs 30%
  • Noise level reduction of 40% improved guest and employee comfort
    and brought systems to code
Hotel Hosts Upgrades for Increased
• 20-story hotel with 518 guest rooms, casino and meeting and exhibition
• Frequent breakdowns, reduced efficiency and high operating costs from
  outdated systems
• Difficult-to-access plant room and decentralized system control
• Infrastructure systems generating noise complaints from guests

• Factors driving improvements:
     – Increase competitiveness
     – Reduce operating costs
     – Increase asset value
     – Environmental responsibility in compliance with 2010 mandate
Hotel Hosts Upgrades for Increased
Identifying investment benefits:
      1. Assessment                          2. EMC Selection                       3. Payback
      Evaluated central plant comfort       High-efficiency chiller systems with   Selected ECMs offer
      systems for performance, energy       variable flow water pumps to reduce    medium timed return
      consumption, operational              energy use and a centralized BAS
      efficiencies and maintenance access
                                            Delivered $2 million integrated
                                            systems solution with projected
Results:                                    six year payback

• 15% improvement in overall building energy efficiency (30% system
• Significantly reduced carbon emissions to meet 2010 mandates
• Increased comfort by reducing system noise by 25dbA
• Reduced system breakdowns to near zero (reduction in maintenance
• Completed project off-season without disrupting hotel operations
Municipality Conserves Resources,
Increases Comfort
 •    Master-planned city of 36,000 residents
 •    Aging infrastructure, high energy consumption and mechanical system
      and comfort issues in city buildings
 •    Factors driving improvements: Improve infrastructure, reduce operating
      costs, improve comfort, be environmentally and socially responsible
 •    Identifying investment benefits:

 1. Assessment                       2. ECM Selection                             3. Payback
 Analyzed HVAC and lighting       High-efficiency HVAC, lighting,           Medium return: Water, lighting,
 efficiency, and capacity and     water saving fixtures, BAS,               building envelope and insulation
 effectiveness of maintenance     building envelope and insulation
 practices                                                                  Life cycle return: BAS and HVAC
                                $1.3 million performance contracting with
                                11.5 year payback including annual
                                savings of $120,000 based on today’s
34                              utility rates
Municipality Conserves Resources,
Increases Comfort

• No capital funding increase to make significant physical
• Project guaranteed energy savings of 877,266 kWh per year,
  equivalent to recycling 215 tonnes of waste
• First full year following renovations showed 10% energy savings
  above predicted savings
• Project has also saved 18,448 therms of natural gas and 1.2
  million gallons of water
• Comfort and maintenance issues resolved

 Bottom Line Business Case


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