Bang for the buck: deep-energy retrofit approach

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Comment by Richard Scott Mills on January 11, 2013 at 8:52am

Igor 

Your links go to 2010 pre retrofit estimates. The RMI link is one year post retrofit actual cost, savings and ROI. Please check it out and respond.

Comment by Igor Zhadanovsky on January 11, 2013 at 8:42am

reply to Richard Scott Mills:

Empire State Building retrofit cost was 500 millions, out of which 120 millions  spent on energy efficiency (mostly windows and lights replacement). http://www.crainsnewyork.com/article/20100303/REAL_ESTATE/100309950

I'm puzzled - is it 13.2 millions (your reference to RMI) or 120 millions spent on energy efficiency which produced 2.4millions in energy savings - from http://newswatch.nationalgeographic.com/2012/05/31/empire-state-bui...

Please, note that projected 3.8 millions turned into 2.4 millions.

Comment by Richard Scott Mills on January 11, 2013 at 8:08am

Ted

Please check your math.

The Empire State Building retrofit started when the owner faced a $17 million upgrade on their HVAC system by using it as an opportunity to rehab the whole building, adding to the health of the building and the tenants. They added a whole building make over at a first cost savings of $3.8 million ($17 million minus $13.2 million) plus $3.8 million yearly savings on energy. The window retrofit was only 10% of cost. The majority of cost went to energy, day-lighting and fresh air management systems.

From The RMI website:

A case study from RMI's: Performance by Integrated Design. "The Empire State Building is a leading example of a breakthrough process to retrofit large commercial buildings during M&O rehabilitation for environmental sustainability. The $13.2 million dollar project will reduce its energy consumption by 35 to 40 percent while saving $3.8 million annually in energy costs. Three year payback! For more info and a short video by the owner go to: http://www.rmi.org/HPB+Empire+State+Building

Comment by tedkidd on January 11, 2013 at 7:46am

Igor, again you provide an example of the stupidity of payback analysis.  Incremental cost analysis between your $25,000 and your $100,000 project, and understanding where to draw the line on diminishing returns, has GREAT value!  

Payback can't represent THAT either.  

Nor does it represent residual value, depreciation, etc.  

And finally, it does a great disservice to the EE industry to imply payback is any kind of reasonable tool for decision making because people who don't understand these things will tend to deify this incredibly simplistic metric.  If you tell homeowners this is a smart decision making tool, some will believe you.   

People make improvements to homes based upon affordability.  Leveraging energy savings to increase job size is good for everyone.  "Payback" orients towards cherry picking, which is absolutely the wrong orientation. Projects without comprehensive design have a high tendency to fail.  While these failures make my successes look better, that doesn't overcome the harm they cause our industry.

Yes, some people like apples and some like oranges.  Are you really going to decide which to buy using simple payback analysis?   

I'm starting to think none of what I'm saying makes any sense to you.  Is this perspective helpful to anyone else or should I stop wasting my breath? 

Comment by Igor Zhadanovsky on January 11, 2013 at 7:04am

Ted,

again, compare your options and choose what fits best your budget and comfort level. 

Some people like oranges, other like apples. There is a price for each  ... 

Similar with deep retrofit projects:

You can spend $100K on complete house insulation project, drop your heating cost by 70% and save $2100/year. Or spend $15K on heating system retrofit, another $10K on very basic insulation drop heating cost by 50%  and save $1500. Payback periods are 48 years and 20 years, correspondingly.

Please, note that this is very general scenario because payback period for heating system retrofit alone is below 10 years (see examples in my blog)

Thanks

Comment by tedkidd on January 11, 2013 at 6:05am

Igor, I was an Economics Major in college. It was unfair of me to bait you, but the heated driveway a great example of why payback is a spherical cow. (pardon crappy iPad autocorrect)

It is comparing apple to oranges and calling them both pears.

It confuses costs, benefits, and completely disregards value. You wouldn't say the home with the heated driveway has the same value as the one without? Or that there is no intangible benefits to not having to salt?

It improperly implies value where there is none and doesn't recognize it where it exists, that is not a good way to make smart decisions.

Comment by Igor Zhadanovsky on January 11, 2013 at 5:36am

Reply to tedkidd comments:

I think simple payback is, well, simple.  It doesn't represent anything meaningful.  I have trouble understanding values it represents, and I think most people do.  

Simple payback method is a tool to compare the economics behind different solution to the same problem.

For example, the home owner can spend $4000 on a heated driveway (http://www.homeadvisor.com/article.show.Heated-Driveway.11202.html) or $200-300/year on snow removal service.  The home owner should make decisions based on heated driveway cost, warranty, expected heating bills, added value to house cost, reliability (what happen if electricity is lost?), etc. Not rocket science even for the  least sophisticated  homeowners ...

The same story with deep energy retrofits - compare your options and choose what fits best your budget and comfort level. .

Comment by tedkidd on January 10, 2013 at 7:14pm

I think simple payback is, well, simple.  It doesn't represent anything meaningful.  I have trouble understanding values it represents, and I think most people do.  

Have you ever met anybody who's opinion you value that makes decisions based upon "simple payback"?  I typically find it's something the least sophisticated homeowners, ironically most often those with nary two shekels to rub together, default to.  

These GED Mensa members always reference returns only folks like Buffet have proven they are capable of.  These people can never show me "investments" they have made providing those returns. 

I think, at lease when it comes to residential EE, smart homeowners don't expect "payback" on improvements.  They expect improvements to cost money.  What they truly want is to know WHAT IS IT GOING TO COST?  

And they really like the idea of improvements with leverage.  So if they can get improvements that cost $200 a month at a net cost of $100 a month, and solve a bunch of qualitative problems, that's a strong win. 

Comment by Igor Zhadanovsky on January 10, 2013 at 6:48pm

reply to Richard Scott Mills comments:

Empire State Building retrofit cost was 500 millions, out of which 120 millions  spent on energy efficiency (mostly windows and lights replacement). http://www.crainsnewyork.com/article/20100303/REAL_ESTATE/100309950

Measurements show that the Empire State Building is currently exceeding its year one energy-efficiency guarantee by five percent, creating savings of $2.4 million. These results are important as they establish a successful, commercial real estate model for reducing costs, maximizing return on investment, increasing real estate value, and protecting the environment. - from http://newswatch.nationalgeographic.com/2012/05/31/empire-state-bui...

pay back period  = 120 mln / 2.4 mln = 50 years 

What exactly is proven in ESB retrofit?

Comment by Igor Zhadanovsky on January 10, 2013 at 4:15pm

Thanks for correction, - savings calculations through MMBtu is more reasonable when fuel type was changed. Should be 67% savings. And pay back period should be recalculated based on  MMBtu cost. Something like this.  

  (610,774/(9580 - 3294)*143,476))*1.5 = 1.016 if building is heated by #6 fuel oil

  (610,774/(9580 - 3294)*13,897))*1.5 = 10.94 if building heated by natural gas

where 

143.476  = 137450/9580  ($/MMBtu #6 fuel oil) 

13.897 = 45,776/3,924  ($/MMBtu natural gas)

I'm surprised how expensive is #6 fuel oil compared to natural gas, fuel switch alone will make a big difference.

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