My last two columns introduced the first two pillars of the electrical contractor’s energy services business: conservation and efficiency. This column discusses the third pillar: energy production, which involves helping the customer reduce its recurring utility energy expenses. It could also involve reducing peak demand and improving the building’s energy supply reliability by installing an energy-production system on-site. The installation of energy-production systems on the customer’s building or property is referred to as distributed generation (DG) and can include photovoltaics (PV), fuel cell, wind turbine, microturbine, and other emerging DG technologies. The installation of energy-production systems for residential, commercial and institutional customers is a growing market for the electrical contractor (EC) due to advancing DG technology, increasing utility energy prices, reduced DG system manufacturing costs, and evolving government regulations and incentives.
First things first
Installing a renewable-energy system, such as a PV array, is a visible way your customers can show their environmental awareness and demonstrate their dedication to sustainability to their customers, employees and the public. However, your customers should first focus on reducing their energy use through conservation measures and improved energy efficiency because these aspects typically require a smaller upfront investment and have a quicker payback than installing a DG system. In addition, completing energy conservation and efficiency projects first will result in the DG system that has a bigger effect on facility operations by offsetting a bigger percentage of the facility’s energy use. Therefore, the EC should recommend an energy audit of the facility to identify potential energy-conservation and efficiency projects in addition to the planned energy-production system.
DG market services
The foundation for an EC’s success in the emerging DG market is effective and efficient project management, procurement and field installation. These are the same core competencies that have made electrical contractors successful in their other market segments. While necessary, these three core competencies will not guarantee success in the existing building retrofit market, which has the greatest potential for the EC in terms of revenue and profit. Customers in the existing building retrofit market often look for a one-stop shop that can provide assistance with planning, design, financing, project management, procurement and field installation. These additional services can be provided by the electrical contractor itself or through arrangements with outside individuals and firms.
Most common DG market barrier
The most common barrier for customers considering the installation of a DG system for an existing building is the initial cost. When asked to provide a proposal for a DG system, most electrical contractors do an excellent job of developing a preliminary design and pricing the system. But the EC must stop assuming the customer is able to finance the project and knows how to analyze the proposed DG system’s return on investment (ROI). Unfortunately, most customers don’t know the financing options available to them, don’t understand the government and utility incentives that they may qualify for to reduce their initial investment, and aren’t able to perform a comprehensive economic analysis of the proposed DG system. As a result, the owner only sees the electrical contractor’s proposed price, and sticker shock sets in. Without additional information, the customer discards the DG project in favor of other core investment opportunities with which it is more comfortable. This is unfortunate because, not only have the time and resources invested by the EC in preparing the proposal been lost, but the customer may also be passing up an investment in a DG system that is less risky and has a better ROI than competing core business investment opportunities.
The EC can help the owner get past sticker shock. The EC can explain the DG system acquisition options and accurately analyze the ROI. Acquisition options look beyond traditional internal customer financing and borrowing and consider financing options unique to the planned DG technology, available utility and government financing programs, government loan guarantees that reduce lender risk and interest rates, leasing options, power purchase agreements, and other options. Reducing sticker shock also involves showing the customer how federal and state tax credits and depreciation allowances, utility and government grants, and other programs can significantly reduce the initial cost of the DG system and drastically improve ROI. Furthermore, showing the owner how utility rate schedule provisions—such as net metering, demand management, feed-in tariffs where available, renewable energy credits and other ongoing incentives—can further improve the economics of the DG system beyond just the savings from utility-supplied energy that is supplanted by the DG-produced energy.
This article is the result of a research project, “Energy Roadmap: Electrical Contractor’s Guide for Expanding Into the Emerging Energy Market,” sponsored by ELECTRI International, Inc. (EI). Thanks to EI for its support.
GLAVINICH is director of Architectural Engineering & Construction Programs and an associate professor in the Department of Civil, Environmental and Architectural Engineering at the University of Kansas. He can be reached at 785.864.3435 and firstname.lastname@example.org.