How Can Commercial Buildings Reduce Energy Consumption?

Pexels via Pixabay

For decades, pundits have touted the importance of energy conservation to save the environment. Energy crises, raw materials costs, and lack of green initiatives have driven energy consumption, yet when raw inputs are converted into electricity, most of the potential energy is lost during the conversion process (Exhibit 1).

Exhibit More Energy is Lost Than Consumed During its Conversion to Electricity

Source: EIA

Once electricity leaves the power generating stations, another 8% to 15% of the energy is lost through heat dissipation in the power lines. To mitigate some of these losses, electricity is stepped up to higher voltages as it travels across the transmission lines (blue lines in Exhibit 2). Once the electricity gets close to the end user, a substation steps down the voltage but to a higher than needed level to account for losses as the electricity travels down the distribution lines (green lines in Exhibit 2). When the electricity makes it to the end user, the voltage is still higher than necessary leading to higher energy and operating costs for businesses. Building owners pay for this over-voltage through higher electrical bills and larger carbon footprints.

Exhibit Basic Structure of the Electric System

Source: Union of Concerned Scientists

Machines Need Range-Bound Voltages to Prevent Wear

Operating machines outside of their operating ranges reduces efficiency and increases wear. In the event of machine failure, often the biggest cost isn’t the repair of the machine itself; it can be the opportunity cost of the machine’s downtime. A machine’s best performance comes from its operation within rated voltages. High voltages can cause excessive currents as magnets become saturated, producing heat that can damage the machine.

Energy Saving Solutions

According to the Rockefeller Foundation, about $279 billion could be invested in energy efficient US residential, commercial, and institutional market retrofits. There is no singular energy efficiency solution that businesses deploy. Several factors come into play, including the: type of business, size of business, climate where the business is located, government incentives, and budget. Over time, all these solutions may get installed in building upgrades, and codes across several jurisdictions may make some upgrades mandatory.

Conservation Voltage Reduction (CVR)

CVR is the reduction of voltage in an electrical system for energy savings. CVR can be most effectively deployed in electrical environments where the voltage to the end customer is difficult to control due to aging infrastructure and layout of the distribution system. CVR drops the voltage entering a building to an optimal level for the building’s equipment to function, translating into lower electricity usage, costs, and wear. The amount of electricity saved depends upon the supplied voltage level (higher levels equal higher savings) and how much power the building’s equipment consumes.

Inefficient windows can contribute 25% of a building’s heat load in cold climates and 50% of the cooling load in warm climates. Energy efficient windows didn’t arrive until the 1980s. Buildings constructed before then typically installed single pane windows. And a 2003 US Energy Information study found that of the 2.7 million commercial buildings were constructed before the 1980s, 53% of them, at the time, had single pane windows.

Efficient Lightbulbs

US commercial buildings spend about $38 billion per year on lighting. Compact fluorescent light bulbs use about 25% of the electricity used by incandescent light bulbs to produce the same amount of illumination. Schneider Electric claims upgrading fluorescent light bulbs to light-emitting diodes can pay for itself in under 3 years and reduce energy consumption by 30%, which is significant since energy, on average, represents 5.5% of retailers’ operating costs. What businesses should consider is that lighting upgrades are not a one-time capital expenditure; energy efficient lightbulbs typically need to be refreshed every three to four years.

Ground Source Heat Pumps

Ground-source heat pumps harness the Earth’s subsurface temperature to source and sink heat into buildings (Exhibit 3). Grand View Research claims this market could grow at a 7% CAGR from 2015 through 2022. Transparency Market Research forecasts a 13.1% CAGR from 2014 to 2020, due to increased demand from China, and believes the 2020 market could be worth $130.5 billion.

Exhibit Ground-Source Heat Pump Operation

Source: EPA

HVAC

Heating, Ventilation and Air Conditioning (HVAC) is one of the largest energy sinks across vertical markets. There are several options for businesses to reduce their HVAC costs. These range from installing energy efficient systems to replacing air filters regularly. Businesses can also seal ducts to prevent air from seeping out of the system. Simple things like keeping doors closed, instead of open to let cold air out on a hot day to attract customers, are easily implemented. Regular maintenance and installing programmable thermostats are also energy saving options.

In 2015, Navigant Research wrote that the commercial HVAC market had been weak for six years, due to the financial crisis. Navigant believes that stringent regulatory environments would drive the global commercial HVAC market to $47.5 billion by 2024, up from $22.8 billion in 2015.

Energy Efficient Motors

Commercial buildings use motors to drive HVAC systems, water pumps, and elevators, and other applications. Motors wear over time and can be repaired, but typically this results in less efficient operation. Efficiency is defined as the ratio of mechanical output power over electrical input power. The difference between efficiency and 1 is heat loss. And certain motors are designed with high quality materials to reduce these losses and output more mechanical power per unit of electrical input. The table to the right shows dynamics of choosing three different efficiency motors. The tradeoff for energy efficiency motors are typically a higher capital expenditure and payback period, offset by annual power savings and reduced wear.

Conclusion

Commercial buildings have several energy reduction options. One technology that they’re starting to adopt is CVR systems that reduce distribution line voltages connected to buildings.

To read the full report, please visit SophicCapital.com.

Disclaimers

The information and recommendations made available here through our emails, newsletters, website, press releases, collectively considered as (“Material”) by Sophic Capital Inc. (“Sophic” or “Company”) is for informational purposes only and shall not be used or construed as an offer to sell or be used as a solicitation of an offer to buy any services or securities. You hereby acknowledge that any reliance upon any Materials shall be at your sole risk. In particular, none of the information provided in our monthly newsletter and emails or any other Material should be viewed as an invite, and/or induce or encourage any person to make any kind of investment decision. The recommendations and information provided in our Material are not tailored to the needs of particular persons and may not be appropriate for you depending on your financial position or investment goals or needs. You should apply your own judgment in making any use of the information provided in the Company’s Material, especially as the basis for any investment decisions. Securities or other investments referred to in the Materials may not be suitable for you and you should not make any kind of investment decision in relation to them without first obtaining independent investment advice from a qualified and registered investment advisor. You further agree that neither Sophic, its employees, affiliates consultants, and/or clients will be liable for any losses or liabilities that may be occasioned as a result of the information provided in any of the Company’s Material. By accessing Sophic’s website and signing up to receive the Company’s monthly newsletter or any other Material, you accept and agree to be bound by and comply with the terms and conditions set out herein. If you do not accept and agree to the terms, you should not use the Company’s website or accept the terms and conditions associated to the newsletter signup. Sophic is not registered as an adviser under the securities legislation of any jurisdiction of Canada and provides Material on behalf of its clients pursuant to an exemption from the registration requirements that is available in respect of generic advice. In no event will Sophic be responsible or liable to you or any other party for any damages of any kind arising out of or relating to the use of, misuse of and/or inability to use the Company’s website or Material. The information is directed only at persons resident in Canada. The Company’s Material or the information provided in the Material shall not in any form constitute as an offer or solicitation to anyone in the United States of America or any jurisdiction where such offer or solicitation is not authorized or to any person to whom it is unlawful to make such a solicitation. If you choose to access Sophic’s website and/or have signed up to receive the Company’s monthly newsletter or any other Material, you acknowledge that the information in the Material is intended for use by persons resident in Canada only. Sophic is not an investment advisory, and Material provided by Sophic shall not be used to make investment decisions. Information provided in the Company’s Material is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. Sophic and/or its principals and employees may have positions in the stocks mentioned in the Company’s Material, and may trade in the stocks mentioned in the Material. Do not consider buying or selling any stock without conducting your own due diligence and/or without obtaining independent investment advice from a qualified and registered investment advisor.