It’s no secret that the global economy, available energy supply and the balance-sheet status of the worldwide electrical supply-chain industry are never going to return to the levels they reached at the end of the 20th century. There is no optimistic rebound coming.
In the electrical industry, adjustment to these harsh new realities, and adoption of new business models, has been the subject of discussion at countless conferences and in numerous white papers and articles.
A case in point was the annual conference of the 16-nation European Union of Electrical Wholesalers (EUEW) held in Copenhagen, Denmark, this past June. With distributors and contractors in attendance, the theme of the meeting was “energy optimization of existing buildings.”
“Since the new construction sector is currently at a virtual standstill throughout much of the world, and because of increasing energy prices and government energy mandates, it is evident that energy-efficiency renovation projects represent the strongest and most promising market for electrical wholesalers and electrical contractors today and for the foreseeable future,” said Willy Goldby, managing director of the Danish electrical wholesalers’ association and host of the convention.
But the question is how many U.S. electrical contractors have thought about this and are willing or able to make the necessary changes in their business lifestyle to treat this adverse situation as an opportunity.
“I’ve been surprised and frustrated by how slowly and reluctantly people in this industry accept change,” said Stan Lazarian, president of Electric Service & Supply Co. (ESSCO), Pasadena, Calif. “Either they don’t see the opportunities, or they just choose to keep doing business as usual in the way that’s kept them alive—up until now.”
The energy-efficiency renovation situation varies significantly depending on your location in the United States, but it could be argued that the poster state for this opportunity is California.
A considerable amount of the Los Angeles area’s energy once came from the now-shuttered San Onofre nuclear power plant. To stretch generation resources even thinner, the gas-fired Huntington Beach plant also was closed for environmental reasons. Unfortunately, local utility Southern California Edison hadn’t developed a feasible alternative strategy, according to area sources.
On top of this, a number of aggressive legislative measures have been enacted, especially Title 24 of the California Code of Regulations, which stipulates a net-zero requirement for all residential structures by 2020 and for commercial buildings by 2030. As a result, each structure has to be outfitted to produce as much or more energy than it consumes.
Fortunately, local government and the private sector have stepped up to the plate and offered some economically workable solutions.
“Financing for energy-efficient retrofits is much easier to procure than it was a few years back,” said Joe Sullivan, director of energy solutions for the International Brotherhood of Electrical Workers (IBEW), the National Electrical Contractors Association (NECA) and the Labor Management Cooperation Committee (LMCC) in Los Angeles. “Moreover, federal tax credits have made deeper retrofit projects pencil out. For example, the property-assessed clean-energy funding programs allow the borrower to ally the loan to his property tax, so it’s an assessment on the tax bill and it stays linked with the property, not the balance sheet. This changes the conversation to one in which the point is these energy measures improve your cash flow with no debt or money out of pocket.”
According to Sullivan, NECA’s Los Angeles Chapter and the IBEW local have been working together for five years to provide training programs for contractors on the new technologies involved and on regulatory issues, utility incentives and the mechanics of financing available to potential customers.
“Quite often, the customer doesn’t know what kind of money is available,” Lazarian said. “In one case, we had finally sold a project to a school that involved lighting retrofit, advanced lighting controls and an air conditioning upgrade. We were discussing available financing with them, and it turned out they were eligible for state funding. This significantly increased the scope of the work.
“There are incentives including investment tax credits and accelerated depreciation for renewable-energy installation. Also, the tax credits available to publicly owned or nonprofit businesses that don’t pay taxes can be passed on to any entity involved in the design of an energy-efficiency installation project. Unfortunately, most ECs don’t know very much about these things,” Lazarian said.
Not business as usual
For electrical contractors interested in entering the energy-efficiency renovation market, the first thing to understand is that it is an interlocking field of fire involving technology, financing, utility policy and regulatory mandates. It’s not a question of cherry picking two or three out of four. It requires total immersion and commitment.
“At ESSCO, we decided we could no longer rely solely on the kind of traditional work we’d been doing for 70 years,” Lazarian said. “We decided to go after energy-efficiency jobs that would help us through difficult times, and we did our first project in the mid ’90s. Our volume increased from one green project a year, then four to five, and this work continues to increase so that it now represents about 35 percent of our work.”
The company had done installations for solar companies earlier, so it targeted photovoltaic (PV) work at the beginning. ESSCO now handles complete installation projects on a design/build basis.
Since ESSCO had already gained some solar experience, when IBEW/NECA training was offered, the company enrolled some of its people in both PV and advanced lighting controls courses.
“There are excellent opportunities in solar, but very few solar companies do more than just PV,” Lazarian said. “As a building owner myself, I get a lot calls offering rooftop PV installations. They send me a slick presentation saying this will solve all my problems. On occasion, I call back and say I’m interested, but I’m concerned that the whole building is not sufficiently energy-efficient. Almost without exception, they say not to worry about that.”
ESSCO had discovered that, while it knew a good deal about energy-efficient renovation, it didn’t quite know how to sell it because it wasn’t the company’s business model.
“This is a different sort of sales process than customary renovation job bidding,” Lazarian said. “Traditional renovation usually involves a general contractor or architect who has come up with a plan. But, in this case, the electrical contractor presents the plan. What’s really required to break into this market is the ability to sell customers on the financial benefits of renewable-energy solutions. The problem is that we ECs are not very patient, and we think we can bid and call back the next week. But this is a slower, more deliberate process.”
Lazarian said his company’s approach is to tell the customer that ESSCO wants to resolve his or her overall energy problems. Company representatives walk the customer through his or her electric bill, suggest ways to drive demand charges down, and offer specific types of installations to make the whole building energy-efficient. It’s selling a comprehensive program, not just one component, such as PV or advanced lighting controls.
Hitting the books
Electrical contractors who have made a commitment to this market have been able to enhance their position—and their profitability—in the energy-efficient renovation project process, according to Sullivan.
“They are moving into the general contractor role and are the ones developing the project, not just bidding on it,” he said. “Given the proper training, they can walk a building with the owner, perform a preliminary audit, and develop the project. Then they coordinate all aspects, including lighting, controls, window film treatment, PV and any other appropriate measures.”
In addition, contractors should learn all about the California Advanced Lighting Controls Training Program (CALCTP), even if they are not California-based.
“ECs have been installing lighting controls for years, but often times, these systems have not achieved the projected savings,” Sullivan said. “Together, the lighting industry and utilities have supported CALCTP, a rigorous 50-hour training class on the proper installation, programming and maintenance of lighting controls. The program has been so effective that utilities have begun to stipulate that lighting control systems must be installed by a CALCTP contractor in order for the project to earn the maximum rebate/incentive.”
Additionally, the California Energy Commission adopted changes to its standards that require lighting controls and devices to be certified as properly installed and operational. The systems must be certified by an acceptance test technician who works for an acceptance test employer.
CALCTP-certified electricians and contractors can take an additional one-day class to be certified as Title 24 acceptance test technicians and acceptance test employers.
“This is a significant opportunity for our contractors and electricians who have made the effort to be the best trained in the industry at these systems,” Sullivan said.
The combination of job skills required for competing successfully in the energy-efficient renovation market are more diffuse than what electrical contractors have historically been used to, but if the will is there, the means and resources to become a participant are available.
“Make no mistake, there is a pretty hefty price to pay in terms of time, dedication and the necessary education in order to effectively get into this field,” Lazarian said. “But the opportunities it offers are considerable, and almost certainly this market will continue to grow.”