What Carbon-Cutting Projects Pay for Themselves if Your Electricity Costs Only a Nickel?

January 7, 2011

By Wendell Brase, Vice Chancellor, University of California, Irvine and Chair, University of California Climate Solutions Steering Group

(This article appears in the January, 2011 issue of The ACUPCC Implementer)

Wendell Brase

Is your institution lagging compared to colleges and universities you read about when it comes to aggressive energy-saving or renewable energy projects?  (Such projects represent a major fraction of most climate action plans.)  If your energy mix derives primarily from coal or hydro, don’t blame your chief financial officer, who is probably under governing board pressure to maintain fiscal stability despite unprecedented economic conditions.  Suppose that your electricity costs 5 cents per kilowatt-hour (kWh) and the governing board expects all energy project investments to at least break even.  What can you do?

By contrast, if your electricity costs were nominally 10 cents/kWh and your state has an incentive program that subsidizes energy-retrofit projects, you would probably be installing daylight sensors, “smart lab” controls, constant-volume to variable-volume conversions, “smart” lighting controls and fixtures, and refrigerator and freezer replacements.  But what if your energy cost is 5 cents/kWh and you do not have an incentive rebate program to help underwrite energy projects?

There are energy-retrofit projects that can pay for themselves – that is, yield annual savings that cover borrowing costs – even with 5 cent/kWh electricity.  But first, make certain your assumed energy cost is the time-weighted, marginalcost – not your average cost per kWh.  That is, suppose your institution’s energy bill reflects a 12-month average cost of 5 cents/kWh, but energy-retrofit projects will accrue savings based on the last megawatt-hour purchased.  This latter figure may be closer to 6 or even 7 cents per kWh when time-of-use and demand changes are factored in for the marginal increment that will not be procured due to realized energy savings.

Here is a list of energy-retrofit projects that will usually be cost-effective, recovering their own cost, at an electric cost of 6-7 cents/kWh:

  • Re-lamping the entire campus with 25 watt low-mercury fluorescents and .77 ballast factor electronic ballasts.
  • Extending laboratory exhaust stacks and reducing discharge airspeeds where bypass dampers are mostly open.
  • Installing bi-level induction fixtures in parking structures.
  • Energy audits of data centers.
  • Installing occupancy sensors for spaces generally containing more than about 8 lamps (or fewer if 24×7 savings).
  • Recommissioning buildings with high air-changes.
  • Regulating fresh air intake via real-time CO2 sensing in return-air buildings where occupancy varies widely.
  • Retrofitting multiple-stack lab buildings with plenum exhaust, variable-speed fans, and “smart” controls to minimize exhaust airspeeds under safe conditions.
  • Reducing airchanges and fanspeeds in laboratories and other buildings with unnecessarily high airchanges.
  • Installing occupancy sensor-based HVAC night setbacks in laboratories.
  • Installing occupancy sensor control of HVAC package units.
  • Plus, all of the sustainability measures and actions listed in my last column:

Some ACUPCC institutions have made a decision to avoid spending energy-retrofit funds on measures that can addressed by improved energy-conservation behavior, thus preserving capital for investment in energy-saving measures that cannot be addressed behaviorally – i.e., no office occupancy sensors, laboratory fume hood sash closers, or Energy Star water coolers.

Another major factor may soon make 6-7 cent/kWh electric power equivalent to 8 cents/kWh in your cost/benefit evaluation of energy-saving projects.  In December, a public offering established an initial market price for California cap-and-trade carbon at $11.30/MT, against the backdrop of regulations newly released by the California Air Resources Board (CARB).  This means that with California’s average grid mix of 400 MT per million kWh, the price of California’s electricity can be expected to ratchet up by 0.5 cents/kWh when carbon emissions allowances are factored in.  And no one expects the price of carbon to hover between $11-12 for long.  As carbon prices approach $40/MT – the policy cap envisioned in CARB models – the price impact will reach 1.6 cents/kWh.  Moreover, rate increases stemming from carbon offsets may be overshadowed by much larger increases as utilities increase mandated renewable percentages in California and other states.

When carbon costs impact your institution the cost increment may be greater if your current energy mix is coal-intensive, or less if your state’s average carbon intensity is less than that of California (e.g., high percentage hydro).  And if your institution elects, as a matter of policy, to pay for carbon sooner rather than later by procuring offsets or RECs, your breakeven analysis for potential energy-saving projects will shift, accordingly.

In summary, your “five cent power” may be closer to a time-averaged, marginal cost of 6 or 7 cents/kWh, and if your state or your institution elects to address the cost of carbon, and your current energy mix is carbon-intensive, you could be using 8-9 cents per kWh in your cost/benefit evaluation of energy-retrofit projects before long.  This means that colleges and universities currently incurring low energy costs will find it cost-effective to pursue much deeper energy-efficiency.  In the meantime, take a good look at the types of projects cited earlier that are likely to pay for themselves even before we face the cost of carbon.