August 2004 will mark the first anniversary of a power outage that impacted millions of homes and businesses from upstate Vermont to New York City, New Jersey, Pennsylvania, Ohio, and upper Michigan. The disruption even crossed the border, causing blackouts in Toronto and Ontario. Standard & Poor's estimates economic losses from the blackout in the Northeast and Midwest at approximately $6 billion. It's not just a matter of lights going out. Outages like this can lead to power-quality disturbances, and these disturbances put resources, public health and safety, and national security at risk.

The blackout was due in part to an aging infrastructure and increasing demands. The national electric grid is underinvested in both maintenance and development of electric delivery technologies. The nation spends $247 billion on electricity a year, and the total asset value of the grid is estimated at $800 billion.

New Technology Creates New Energy Demands
The grid is reaching the limit of its ability to meet the nation's electricity needs. Some factors impacting the operation of the grid include aging equipment, transmission bottlenecks, deregulation and regulatory change, and jurisdictional issues.

But consumer demand, by far, puts more pressure on the grid than anything else. Each day, more than 10,000 power plants deliver electricity via miles of high-voltage electric transmission lines to more than 130 million customers. The move to the digital information age creates an increasing need for reliable electricity. The increased demand comes as the nation's electromechanical grid is aging. The result is regional blackouts.

Because today's infrastructure is more than 25 years old, it behooves companies and institutions to lower demands to the grid. Ideally one could move to distributed-energy resources (DER). A variety of small, modular power-generating technologies, DERs can be combined with energy management and storage systems and used to improve the operation of the electricity-delivery system.

Moving to DERs
Implementing DERs can be as simple as installing a small electricity generator to provide backup power. DERs can evolve into generating, storing, and managing energy systems. Systems range in size and capacity from a few kilowatts to 50 MW. Supply- and demand-side technologies easily are located near or exactly where energy is needed.

It's not always easy to move into DERs. Not all businesses can jump right into generating and storing power. Sometimes the first step is to modify existing programs. This can mean either updating or retrofitting current facilities, and almost any energy-conservation program will cover costs and provide savings. Federal, state, and private programs can help you get started.

Illinois Establishes Energy-Conservation Program
One such program was initiated by the State of Illinois in 1995. Governor Jim Edgar saw the need for energy conservation and centered the program around guaranteed savings and performance-based contracts. The Illinois Department of Commerce and Economic Opportunity (formerly the Department of Commerce and Community Affairs) managed the initiative. Illinois statutes cover energy-performance contracts for colleges and universities. The payback duration for the energy services company (ESCo) projects (performance contracts having guaranteed energy savings) is up to 10 years.

Eastern Illinois University (EIU) was among the first to use the energy-conservation program. "Energy conservation has been a focus at Eastern Illinois University for the past 10 years,” says Gary Reed, P.E., acting director of facilities. The EIU campus, on 325 ac. in Charleston, houses 70 buildings, which cover a total of 3 million ft.² Because a large percentage of campus building stock at EIU dates from the mid-1960s, there are considerable deferred-maintenance backlogs, and these backlogs seemed like barriers to the project.

"It was clear that this campus had a lot of potential to improve utilities-use profiles,” notes Reed. "Little had been done in the area of conservation primarily because of the lack of utility-conservation incentive programs.” One reason for the lack of incentive, according to Reed, was that favorable energy-rate pricing from the supplying utilities did not encourage finding new ways to conserve energy.

Shrinking Budgets Means Stretching Resources
Reed says that with shrinking appropriations for the Operations and Maintenance Division and with increasing competition from other state-supported needs, major projects to improve the operations infrastructure appeared out of reach. "An alternative and creative method to finance deferred-maintenance projects was desperately needed,” he says.

"Energy-conservation initiatives at the EIU campus are supported by a combination of in-house small projects funded from a small, recurring, base operating budget for energy conservation, and larger, more aggressive projects are funded via bond issues and paid back through [ESCos].”

Project Engineer David J. Evers, P.E., C.E.M., of Honeywell Energy Services agrees with Reed. "The right approach to meeting any facility's energy and utility needs must begin with a focus on energy consumption. Honeywell was the main contractor, acted as the general contractor, and set up financing.

"Too often facility managers look for ways to produce, procure, or otherwise satisfy their energy needs at a lower cost without regard for the energy that is being wasted in their inefficient buildings, systems, and equipment,” observes Evers. "The more prudent and environmentally responsible approach is to first reduce energy consumption as aggressively as possible and then determine the most cost-effective method to serve that reduced energy load profile.”

The Selection Process Begins
"EIU had shown early interest in this concept,” says Reed, "and was chosen to be the representative higher-education facility for participation in the program.”
Reed explains the intensive selection process: "First, a very detailed, competitive selection process was launched, starting with issuance of a [request for proposal]. The responding ESCos were required to submit a preliminary scope of work and a potential energy-payback model based on a mini-audit.”

Responses were reviewed, and firms were short-listed. The short-listed firms were invited to present their results to a selection committee, and the committee then chose the final ESCo. From here, EIU negotiated a contract for an investment-grade energy audit. At the completion of the audit, a project scope was agreed on, recalls Reed.

Then funding was arranged through a bond issue, and a construction contract was written with the successful ESCo. Based on the process refined during the pilot initiative, enabling legislation was signed into law, allowing for performance-based projects for all Illinois colleges and universities. Since then, the second and third phases of energy-performance contracts have been executed by EIU.

"Through the performance contracts, $17 million in needed upgrades were made leveraged through utilities cost-savings associated with those improvements,” says Reed. "These improvements reduced the estimated deferred maintenance by approximately $14 million.”

Other major factors emerged during the discovery process, notes Reed. "We found that major improvements can be leveraged over long payback periods through energy savings. We also found many unseen savings potentials through the investment-grade energy audit process. And we discovered paid-from-savings contracts are not well understood in some circles.

"We also found that projects only work if there is support at the top and a champion below. Most of all, we discovered that this process is a good, alternative way to fund needed improvements outside the normal fiscal process.”

There Are Some Risks
"There is risk in sustaining performance of energy-savings initiatives,” warns Reed. "A guaranteed-savings project puts most of the risk of project performance outside the university. Costs associated with mitigation of the performance risk are worth the investment.”

Reed says funding of guaranteed energy-performance contracts is "off [of the] balance sheet” since payback is contained within the utilities budget and guaranteed by the ESCo. "This approach reduces the need for the institution to compete for scarce dollars to make reductions in deferred maintenance. Many of the energy-conservation measures greatly improve occupant comfort while saving energy dollars. This is an intangible benefit, which is hard to quantify.

"Our institutional priorities have changed recently following a major failure in our steam plant, which threatens to eliminate our use of low-cost Illinois coal,” continues Reed. "The university is aggressively pursuing replacement of our aged steam plant. The new proposed plant will use Illinois coal as the base fuel. It will include electrical-generation capability, allowing EIU to stand independent of the electric grid. The new plant will employ available clean-coal technology and reduce permitted pollutants in spite of doubling the university's consumption of Illinois coal.”

"Over the last eight years, Eastern Illinois University has been reducing energy consumption,” adds Evers. "Energy consumption on campus has been reduced dramatically as the result of three guaranteed-savings performance contracts and several other in-house projects, and efforts still continue at seeking ways to make [EIU's] buildings and systems more efficient.”

ESCo Estimates a 3.7 Million–Kilowatt-Hour Savings per Year
ESCo Energy Investments LLC in Rolling Meadows, IL, conducted the lighting portion of the upgrade. "We estimate a savings of 3.7 million kilowatt-hours per year,” says Timothy McKenna, president of the company. Thirty university buildings had lighting upgrade work, encompassing more than 1.5 million ft.2 Upgrades were done in dormitories, classrooms, dining halls, laboratories, offices, gymnasiums, and other public spaces. Although all work was done while school was in session, Energy Investments worked to upgrade classrooms and public spaces at night and residential facilities after 9 a.m.

McKenna sees the project as threefold. The first objective of the project was to save energy. The second objective was to increase light levels. And the third objective was to improve the quality of light. "EIU would also benefit,” he says, "by standardizing the outdated lighting resident throughout the campus and simplifying future maintenance and inventory requirements.

"We did a formal audit of the facility to look at areas of older lighting technologies and areas that were lacking ample light levels. Then we designed retrofits and replacements based on IES-recommended light levels and use of space.”

Improved Lighting Equals Reduced Energy Consumption
"One of the major factors that emerged during the discovery process,” notes McKenna, "was that light levels and quality could be improved in certain areas while still reducing energy consumption.”

According to Susan Bloom, manager of public relations at Advance Transformer Company in Somerset, NJ, Honeywell was the larger service provider and subcontractor. Honeywell's association pulled Advance Transformer Company into the job.

"The outcome of the project was the widespread replacement of outdated T12 fluorescent lamps and magnetic ballasts with more than 10,000 REL-series Instant Start electronic fluorescent ballasts from Advance Transformer Company,” says Bloom. "The ballasts drive more than 26,000 32-watt T8 lamps from Philips Lighting Company. EIU was also outfitted with nearly 1,000 new lighting fixtures, more than 300 occupancy sensors, and more than 200 LED exit signs. These changes support energy usage and cost reductions and also help promote an optimal lighting configuration.”

Bloom estimated the cost of the lighting upgrade at $1 million–$1.1 million. When the project was completed in August 2002, the school's annual energy consumption dropped by more than 3.7 million kWh. The school also reduced its energy costs by an estimated $250,000–$300,000/yr. Based on the cost of the lighting upgrade, this will result in a payback period of three to four years and a return on investment to EIU in the 25–35% range.

The Savings Add Up
Reed could not have been more pleased with the project or the results. (The results have been guaranteed to the school for 10 years through a performance contract.) EIU was named by the National Safe Energy Communication Council as one of 22 Illinois businesses, organizations, and institutions saving more than $10 million annually by using energy more efficiently.

"Based on the sheer economics of the project, pursuing an upgrade of this nature was a no-brainer for Eastern Illinois University,” says Reed. "The upgrade reduces our deferred-maintenance needs, and the savings generated by the project assure us the funds to support future repairs, allowing the university to reallocate resources to other priorities. Upgrades like these represent great opportunities for public higher-education facilities like ours, which have to compete for limited funds.”

McKenna sums up the EIU project by saying it provided energy savings to the university, improved lighting quality and light levels throughout the campus, and provided maintenance savings. These are good outcomes for any project.

"Achieving success in a project as diverse and challenging as this one required a close working relationship with the EIU staff and a clear understanding of the needs of the students and faculty,” says McKenna. "The benefits of the project to EIU—significant energy- and cost-savings, enhanced lighting, and simplified maintenance for years to come—are in themselves the reward.”

The First Step Toward DERs
EIU's project of retrofit, upgrade, and conservation is a good example of a first step toward becoming self-sufficient and eventually developing into a DER program. The lighting upgrade project took less than a year, starting in October 2001 and concluding in August 2002.

DER devices provide local control of electricity delivery and consumption. The devices enable more efficient utilization of waste heat in combined heat and power (CHP) applications. The utilization boosts efficiency and lowers emissions. CHP systems provide electricity, hot water, heating, cooling, refrigeration, and humidity control.

Businesses and institutions usually own a small-scale, onsite power generator, or they might have a generator owned and operated by a third party. Even if the generator doesn't provide 100% of the energy needs, it can be used in conjunction with a distributed-energy storage device or a connection to the local grid for backup power.

DERs support the central-station power plant model of electricity generation, transmission, and distribution. While the central generating plant continues to provide most of the power to the grid, the DERs meet the peak demands of local customers. Computerized control systems, operating over telephone lines, make it possible to generate electricity as needed.
In grid-connected applications, DERs involve using small electricity generators throughout the distribution grid to augment electricity supplied by a large, central-station power plant. Energy-storage devices and load-reduction measures also are used in combination with generators.

The growth of DERs is similar to that of computer systems. Once we relied on mainframe computers; now we have PCs with the processing power of those mainframes. Just as the smaller size and lower cost of computers have enabled individuals to buy and run their own computing power, the same trend in power-generating technologies enables individual businesses and residential consumers to purchase and run their own electrical power systems.

Assessing an Aging Central Plant
"Now, as the focus shifts to the needs of its aging central plant, EIU can assess its options and make sound decisions with the confidence that it is acting as environmentally conscious and fiscally responsible stewards of both taxpayers' dollars and our world's natural resources,” says Evers.

Benefits of DERs, the core strategy in reengineering the nation's energy-generation and delivery systems, are lower overall energy use, reduced peak-demand charges, greater power reliability, and reduced emissions. Of the $4,990,400 budgeted for EIU (in fiscal year 2004), $4,217,100 is budgeted for upgrade of electrical distribution systems.

DERs can increase system reliability, reduce transmission losses, and closely match capacity increases to demand growth. "Constrained budgets, aging infrastructure, and inadequate funding for deferred maintenance replacements are drivers,” says Reed. "A lack of understanding and support from above are among the constraints.”

With savings nearing a quarter of a million dollars, EIU has learned that maybe just changing your light bulbs could save you more than you thought possible—and could leave some with thoughts of new DERs.

MARSHA DECLUE is a St. Louis, MO–based correspondent for several business journals.

DE - Jan/Feb 2004