Proposed incentives for building owners/managers operating in more than one of Ontario’s 70+ electricity utility jurisdictions may not be as lucrative as other existing conservation and demand management (CDM) programs. The recently released draft plan for a performance-based method of calculating energy savings generally earns praise for its intent, but stakeholders asked to provide feedback have challenged some of the details, including the suggested incentive rate of $0.04 per kilowatt-hour (kWh) of measured savings for a maximum of four years.
“Economically, it would be disadvantageous to pursue the P4P (pay-for-performance) program,” maintains Andrew Pride, an energy management consultant and former vice president of conservation at the now defunct Ontario Power Authority. “I would recommend a minimum of 5 cents/kWh over four years or to extend the 4 cents to a five-year term.”
The proposed program arises from the Minister of Energy’s directive to the Independent Electricity System Operator (IESO) earlier this year, in which he called for a centrally administered CDM program targeting commercial, multi-residential and institutional portfolios with buildings located in various regions of the province. The IESO was instructed to consult with local distribution companies (LDCs) to develop a pay-for-performance (P4P) program that could be ready for launch in the fall of 2016.
In part, it’s an effort to streamline the logistics of Ontario’s Conservation First Framework — which designates LDCs as the delivery agents of CDM programs and holds them responsible for attaining specified consumption reduction targets — for portfolio owners/managers who may have to deal with multiple LDCs. In addition, the P4P model moves beyond the current emphasis on replacing energy-consuming equipment and devices to a whole-building approach that involves a mix of retrofit measures, operational adjustments and outreach to building occupants.
“Operational savings incentives are an important evolution of CDM that has up to this point been missing as an offering. Conceptually, this is a positive development with great opportunity across some, if not all, sectors,” observes Joe Bilé, manager of CDM program delivery with Toronto Hydro and co-chair of a broader working group of LDCs developing CDM programs.
“Retrofit-based energy conservation measures alone cannot deliver optimized energy savings in buildings. There needs to be mechanisms to address and motivate a behavioural component, and performance-based programs account for this,” concurs Bala Gnanam, director of sustainable building operations and strategic partnerships with the Building Owners and Managers Association (BOMA) of Greater Toronto. “A whole-building based program would also drive innovation and persistence of savings from the installed energy conservation measures and management best practices.”
Pay-for-performance rules
As envisioned in the draft program design the IESO released in mid-July, payouts will be calculated by comparing buildings’ actual metered electricity consumption against baseline energy modelling conducted prior to the program’s start. Participating customers would be required to enroll at least two buildings located in different LDC jurisdictions and commit to achieving annual energy savings of at least 5 per cent for a minimum two-year period.
Buildings signed up for the P4P program would be ineligible for most other CDM incentives LDCs offer, with the exception of funding for energy audits and/or energy managers. However, LDCs will be able to count savings achieved within their territories toward their own mandated targets.
Hourly meter data, at minimum, will be required for all enrolled buildings. Ideally, the IESO would also prefer buildings with initial annual electricity consumption of at least 2 million kWh, but states it may allow for groupings of smaller buildings that equal that total.
Although designed as a four-year program, there will be leeway to opt out after two years. In all cases, the IESO’s accredited third-party technical reviewer must confirm 12 months of participants’ savings data before they can receive their payout for each year.
Program designers are now considering the comments they’ve solicited on the draft plan, including submissions from BOMA Toronto, the LDCs’ working group and consultants to the real estate industry. The proposed incentive rate and prohibition on P4P participants tapping into other incentives draw almost unanimous criticism, while respondents typically favour the flexibility to aggregate buildings to reach required consumption thresholds and agree that buildings should also be benchmarked through Natural Resources Canada’s Energy Star Portfolio Manager program.
Pride’s recommended 5 cents/kWh incentive rate is actually the lowball among submitted suggestions, with others calling for a minimum of 6 cents/kWh, or a frontloaded or back-loaded incremental scale with rates from 4 cents to 8 cents/kWh over a five-year term. These arguments are based on what would effectively be competing offers from LDCs under the SaveOnEnergy banner — such as $0.20 per kWh of savings from process and systems upgrades — and the higher risk P4P participants would have to take since their payout would first be contingent on achieving 5 per cent savings.
If forced to choose just one program stream, as the proposed P4P rules contemplate, energy management specialists speculate that many customers will opt for the retrofit incentives they already know.
“Instead of an either-or with the current list of LDCs’ offers, why not allow both?” asks Geoff Lupton, director of energy, fleet and traffic for the city of Hamilton and a member of the IESO’s 18-member Stakeholder Advisory Committee, representing Ontario municipalities. “The strategy might be to calculate the incentive given to a particular measure and subtract part or all of it from the pay-for-performance funding.”
More collaboration and openness urged
Bilé cautions against “different rules, promoted by a different organization and with minimal interface with LDCs” that could create confusion. From the LDCs’ perspective, they provide a logical platform for coordinating CDM incentives for portfolios because they often already have relationships with prospective P4P participants through key account managers.
“It would enable the LDCs to continue with their strong momentum in promoting retrofit and other programs. In fact, customers who believe their savings are actually higher than the LDC will credit can prove it and be rewarded through the P4P program,” Pride adds. “The programs can be complementary.”
Yet, the promise of streamlined centralized administration is appealing to prospective applicants.
“A complaint that is normally levied against the current SaveOnEnergy program, from many landlords and energy services providers who assist or act on behalf of landlords, is that some LDCs do not respond to inquiries in a timely manner, and in some cases, don’t respond at all. This must change,” Gnanam asserts. “It is hoped that a centralized program for multi-distributor consumers would make it easier for landlords and service providers to follow up on the status of their applications, payments and other inquiries related to their projects.”
Relatively few organizations from the broader public sector will qualify for the program since they rarely own buildings in more than one LDC’s jurisdiction. Universities with campuses throughout the province, health care networks that straddle municipal borders and some regional governments operating non-profit housing and long-term care facilities in lower-tier municipalities served by different LDCs are among the exceptions, but the wider exclusion of Ontario’s cities disappoints Lupton.
“I’m a fan of the pay-for-performance concept. If done right, it should allow for more comprehensive measures and controls,” he says. “The goal is to achieve kWh reduction, so the fewer the rules and the higher the participation levels, the better the results.”
The IESO is scheduled to respond to comments by early September.
Barbara Carss is editor-in-chief of Canadian Property Management.
