Whitepaper: 09.26.2014

Bringing Renewable and Alternative Energy to Facilities

— Scott Canada, Sr. Vice President, Renewable Energy

by Scott Canada, McCarthy Director of Renewable Energy LEED AP BD+C

Increasing electrical power costs, combined with government incentives and cost reductions in natural gas and renewable energy, have spurred an increased focus on renewable and onsite generation within the engineering, architecture, construction and facility management industries. Changing environmental regulations, subsidies, falling equipment prices and the current economic constraints are key drivers in the investigation into the viability of renewable or onsite gas generating sources for an owner. As natural gas prices drop and legislation pushes up the costs to operate coal-based power, no longer is the renewable and onsite distributed generation discussion limited to a select list of leading-edge trendsetters. Mainstream acceptance and viability is now established, and projects are considered in greater circles beyond the traditional large utility providers and industrial owners. Municipalities, hospitals, universities, government and corporate clients, are all seeking new and better ways to power their facilities and drive down costs. 

2014 Annual Energy Outlook Report
Through improving economics, the U.S. Energy Information Administration (EIA) Annual Energy Outlook 2014 report released in April 2014 indicates a growth in availability and use of renewables and onsite distributed generation. This increase is driven by competitive costs and legislative changes at the federal, state and municipal levels. Currently, 29 states and the District of Columbia have Renewable Portfolio Standards (RPS), which mandate renewable energy requirements and goals, including allowable technologies, penalties for noncompliance and/or policy on credit trading as means to meet targets. As an example, the state of Maine has established an aggressive target for its RPS of 40% by 2017 inclusive of renewables, combined heat and power (CHP) and fuel cell generation. Overall, EIA predicts the energy use from renewables will increase in future years — from 9% in 2012 to 12% of the total energy mix by 2040 as indicated in the graphic below. 

EIA also indicates a majority of the future energy growth will be met with natural gas and renewables. As demonstrated in Figure MT-31 from the Annual Energy Outlook 2014, capacity additions to meet demand and replace outdated facilities are primarily from natural gas and renewables for the foreseeable future. Both of these sources are well suited for onsite generation.

New Terminology for Owners
The increased acceptance and interest is creating a new tier of providers and terminology to deliver energy. Many owners have the need for energy but lack the expertise or up-front capital funding to competitively procure and manage the growing realm of technologies available. Partners can be found to audit facility needs and provide flexible options to provide less costly and more sustainable energy sources that align with an owner’s business model and needs. In response, McCarthy recently hosted and moderated a compelling panel discussion in Kansas City. The panel of industry leaders, including Gary Lee with Universal Asset Management, Mike Larson with DTE Energy Services and Abinash Tiwari of Constellation, spoke to the assembled crowd of owners, architects and engineers. 

At one end of the spectrum, Design Build Own Operate Maintain (DBOOM) contracts take the full power generation asset off a client’s liability and limits their exposure to an agreed upon rate of power generation for its facilities. This can be in a new-build scenario or renovation/retrofit of an existing asset. Another contracting vehicle in use is a Power Purchase Agreements (PPA), where the asset owner provides power at a price per kWh delivered. These contracts generally span 20 to 25 years. A traditional Engineer, Procure, Construct (EPC) contract can also be utilized to source the energy when an owner wants to own and operate the asset. 

When considering renewable energy and onsite generation, it is common that multiple power sources may be needed to fully power a campus. For example, solar and wind technologies are heavily dependent on an uncontrollable condition — the weather; while a biomass technology is dependent on a given amount and quality of fuel. 

With growth in the renewable and alternative space, more and more of the risk items can now be insured so as to minimize potential impacts. For instance, when the project must provide a guaranteed amount of cost savings and/or energy reduction, as is the case in an Energy Savings Performance Contract (ESPC), an Energy Savings Insurance policy can be purchased by either the client or the Energy Savings Company (ESCO). For the technology itself, Equipment Breakdown Insurance can be purchased to protect the risk of equipment failure and assist in defraying the costs of breaks, fixes and service interruption. Finally, as new equipment and technology is created, warranties can be obtained by the producers to protect the consumer. This Extended Warranty Insurance has helped grow the adoption of new and relatively untested technology, minimizing some of the risk of adoption. In any case, project teams need to discuss and consider the cost and availability of coverage to determine what additional insurance may be beneficial.

Navigating the world of renewable and alternative energy can be a potentially daunting task. There are many partners and mechanisms from which an owner can select and source power. It is important to be aware of the options, current state mandates and the regulations in your geography and industry that could make or break a renewable or alternative energy project.

About the Author
Scott Canada, LEED AP BD+C, is Director of Renewable Energy for McCarthy Building Companies, Inc. He has worked in the solar industry for more than 15 years. Scott holds a bachelor of science in chemical engineering from Texas Tech University and a master of science in construction management from Arizona State University. He is also a Certified Energy Manager through the Association of Energy Engineers. Scott can be reached at bcanada@mccarthy.com.

sign up to receive insights

Sign up to receive McCarthy Insights