Bacon's Rebellion

Democracy Thrives in Sunlight

Conservation Capitalism

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by

James A. Bacon
in

Hannon Armstrong

, an Annapolis, Md., a financier of private-sector energy conservation initiatives, is teaming up with Virginia Tech to invest $500 million in energy-saving upgrades at 100 or more properties across the Washington, D.C., area. Virginia Tech will oversee, study and advise the efforts, reports David A. Fahrenthold with the Washington Post.

The ambition of the Energy Efficiency Partnership of Greater Washington is to reduce each building’s electricity use by 20 to 50 percent through the installation of energy-efficient light bulbs, insulated windows, cooling systems and the like. That should generate enough savings to generate a positive return on investment for Hannon Armstrong and a risk-free reduction in energy expenses for the property owner.

In theory, property owners could make the investment themselves, but they often find the up-front costs can be prohibitive. Hannon Armstrong has developed non-standard financial packages — capital and operating leases, synthetic leases, and leveraged leases — that can structure the investments to make them more attractive.

There are humongous energy savings to be derived from retrofitting Virginia’s existing building stock. And projects like this are just scratching the surface. Just wait until Hannon Armstrong, or a competitor, figures out how to pool the energy demand and financial resources of large complexes of buildings to support cogeneration plants and other highly efficient energy-generating techniques.

As I have long argued, the quickest path to a green future is through the private sector. Unleashing the creativity of entrepreneurs like Jeffrey Eckel, CEO of Hannon Armstrong, will conserve far more BTUs than any government enactment of arbitrary rules and regulations. Dominion, are you paying attention? Just wait until Eckel, or someone like him, starts retrofitting Northern Virginia’s server farms with energy-efficient systems.

Are we still sure we need to build that high-voltage transmission line through Virginia’s northern piedmont?

(Hat tip to Ed Risse. I came across this article while editing his column for Monday’s e-zine edition. Even though it’s a week old, it was too good to pass up.)

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11 responses to “Conservation Capitalism”

  1. Jim Bacon Avatar
    Jim Bacon

    In his column to be published Monday, Ed Risse will explore the energy conservation issue in greater detail, making the connections to multiple buildings and human settlement patterns. I’m deferring discussion of that topic so as not to steal his thunder.

  2. Groveton Avatar
    Groveton

    Beautiful.

    A Virginia university working directly with private enterprise to help solve a problem affecting society without any governmental funding.

    This story could only have been better if:

    1. Tech would have beaten Boston College
    2. The state government was doing the same thing

  3. Larry Gross Avatar
    Larry Gross

    3. – Dominion Resources announces a similar partnership for Virginia.

  4. Michael Ryan Avatar
    Michael Ryan

    Let’s see, they’re going to spend $500 million dollars to upgrade 100 properties, so the average cost is $5 million per building. They expect to save 20% to 50% on the electricity use.

    Thus to be cost effective, it means they anticipated each building would save from $10 to $25 million dollars on electricity. (Over what period? 20 years? 50? 100?)

    How will they get these savings?

    These might be as small as new power-saving compact fluorescent light bulbs or as big as a new cooling system or better-insulated windows.

    I don’t know about you, but I have never worked in a building where much of our light came from incandescent bulbs. And, if you had all of these windows, you wouldn’t need so many lights, would you? DOE says half the office electricity use goes for lighting. I’d be amazed if they could cut this by more than 10%.

    Something like 25% of usage (see the link) goes to run our computers. No mention of decreasing that.

    22% goes to cooling and ventilation? How much of that do you think new windows, or a new cooling plant, are going to cut out?

    It just doesn’t add up. There is no way for this to work as stated. These same changes might cut residential energy use 20-50%, but only because so many of our homes are older, poorly built and insulated, incandescent lighted, and cooled by window A/Cs.

  5. Larry Gross Avatar
    Larry Gross

    …average cost is $5 million per building”

    yes.. this is a .. sobering number.. makes one wonder what a typical business electric bill looks like.

    But I’m wondering what this means:

    “The idea behind the programs is that saving energy is still far cheaper than making it from such renewable sources as wind and solar power.”

    so are they comparing the reduction in conventionally-generated power useage or are they doing some kind of study with regard to what it would cost to provide power with solar/wind but using energy efficiencies to keep the increase cost as low a possible?

    One would think.. that existing businesses would make a simple calculation (for either existing or new structures) of how much their bills are .. and what the ROI would be for various options to reduce their power useage.

    For instance, I notice that GE advertises a new locmotive that is said to offer as a major benefit, the saving of 5% on fuel useage – over 30 years.

    Isn’t this the type of thing that most businesses do anyhow since all expenses affect their bottom line?

  6. Anonymous Avatar
    Anonymous

    If Armstrong can pull this off, good for him.

    The reason owners don’t do this themselves is two fold. As Bacon points out the, up-front costs are high, and this is the problem Armstrong tries to adress through creative financing.

    In addition, business owners have to consider whether some other investment won’t add more to their bottom line. Since they most likely know more about their business than they do abour energy management engineering, they have a built in bias.

    Armstrong’s plans may work for large buildings, but when it comes to individual homes, the process gets a lot harder because the many individual tasks are harder to manage and conduct profitably, and the transaction costs for many small loans is higher.

    That is not to say that the energy losses are not just as great, just that reducing them is more expensive.

    RH

  7. Anonymous Avatar
    Anonymous

    Though this is a nice idea it’s still a drop in the bucket compared to what could and should be done. Even if you have energy savings in one area the corresponding drop in energy prices will increase usage elsewhere. I just don’t see how you can do it in the private sector without a dirty energy tax or cap system from the government.

    As RH states most businesses and home-owners don’t have much expertise in energy management and it’s not easy to make large capital decisions on a sales pitch. Otherwise we’d all own expensive vacuums to save on carpet cleaning and replacement. Even simple things like replacing windows or heating systems on old homes are rarely done and these ideas have been around for years and everyone knows about them.

    We are still very much in an early adopter stage of green technology. The best place to try is in new buildings and homes since it’s easier to build the costs into the mortgage and they are done by building experts who can realize economies of scale. Those who buy new already pay a premium for getting a new property so they would be in the best position to absorb the additional expenses.

    ZS

  8. Groveton Avatar
    Groveton

    From “Energy Doom and Gloom Groveton:

    Web site:

    http://www.eia.doe.gov/cneaf/electricity/epm/table5_6_a.html

    Reference (Excel Spreadsheet – .xls) at bottom of cited web page:

    Current and Historical Monthly Retail Sales, Revenues and Average Revenue per Kilowatthour by State and by Sector (Form EIA-826)

    From the referneced spreadsheet (cost per KWHr for electricity in Virginia for commercial users):

    1/1990…………..$.0449
    1/1995…………..$.0427
    1/2000…………..$.0539
    1/2005…………..$.0446

    Not a bad looking 15 years. However, also from the same reference:

    7/2007…………..$.0643

    How can it be worth $500M over 5 years to improve the energy efficiency of 100 buildings?

    By extrapolating the 2005 to 2007 costs over the next 5 years.

    Also, in fairness, companies routinely exaggerate the amount they are spending when it comes to investments in the future.

  9. Larry Gross Avatar
    Larry Gross

    anytime I see the phrase “creative financing”.. I conjur up visions of plaid sportcoat types at the race track…

  10. Anonymous Avatar
    Anonymous

    Don’t knock it. In its earl days Federal Express was about to go under, and it was saved by a last ditch, desperation trip to Las Vegas.

  11. Larry Gross Avatar
    Larry Gross

    Sounds like our legislators screwed up.

    we did’t really need transportation authorities after all… we just needed to make it legal for VDOT to head out to Vegas to solve the funding problems.

    🙂

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