In 2004, the Ottawa Hospital got an offer too good to pass up. If it retrofitted energy systems at its three hospital sites (Civic, General and Riverside), it would guarantee a six-figure return on investment every year for the next 15 years.
The deal - known as performance-based contracting - came from Honeywell International Inc., which completed the $17'-million retrofit in August that promises to deliver $2.7 million in energy savings annually, at current prices, over the contract's 15-year term. It was the first of its kind in Canada.
Net savings after debt repayment are projected at about $1 million annually, which will go to improving patient care, says Cameron Love, the hospital's vice-president of facilities planning and support services.
"Updating an institution's energy systems is a decision based on risk management. Knowing Honeywell's reputation, this was about as risk free a deal as you can get," Love says. "If we don't see the savings, they cut us a cheque."
|Ashley Fraser, Business Edge|
|Ottawa Hospital vice-president Cameron Love tours the retrofitting project under way at the hospital's Civic site.|
Retrofitting buildings to high energy efficiency is not new in Canada, but since 1998 when Natural Resources Canada started offering financial incentives through its office of energy efficiency (OEE), business has exploded.
Sector growth for Honeywell is up 25 per cent in 2005 and now accounts for about $200 million in Canada alone, says Luis Rodrigues, general manager for energy solutions for Honeywell Canada.
Competitors such as Siemens, Johnson Controls and Direct Energy are experiencing similar growth.
While Honeywell's guarantee does not apply to contracts under $250,000, the Ottawa Hospital project - which updated monitoring equipment as well as 73,000 fluorescent light ballasts and heating, ventilation, air-conditioning (HVAC) and other systems - shows a new business model for energy savings is rapidly evolving.
"Scarcity of resources today has created a trend toward projects with a longer-term payback. If you just pick the low-hanging fruit, like more efficient lighting, then you're not addressing deferred maintenance issues," Rodrigues says.
"The goal is holistic, to cut consumption while improving (a building's) environment. That we guarantee this demonstrates, I think, that the market is ready to take energy matters seriously," he says.
At the OEE, subsidies for retrofits are funneled through the energy innovators initiative and its two offspring, the commercial building incentive program and the industrial building incentive program.
Marie Lyne Tremblay, deputy director of OEE's buildings division, believes her role is to create a new business model for energy consumption.
"Of course (retrofitting) is about asset management and comfort for those who use the facilities, but we're trying to help show that the payback (period) can be short enough to increase the value of the building while cutting greenhouse gas emissions," she says. "The result we're looking for is to change the energy-consumption market by giving examples of a competitive edge."
The OEE subsidies come in two forms.
The first is funding for pre-project planning and audits, with the amount determined by current consumption - $1 per gigajoule to a maximum $25,000. (One gigajoule equals 281 kilowatt hours.) The second is for actual upgrading - subsidies are based on $7.50 per gigajoule that can be saved, to a maximum $250,000 per project and $500,000 per client.
The Ottawa Hospital actually received just more than $735,000 because it is a multi-facility client. Its annual projected energy reduction is just more than 184,000 gigajoules, or about 11,000 tonnes of greenhouse gas emissions. The hospital also received an $80,000 grant from Enbridge Gas Distribution as part of the company's natural gas conservation program.
Six hundred studies and 300 retrofits have been subsidized since 1998 at a cost of $47.7 million. According to the OEE, retrofits covered 4,800 buildings and saved 8.9-million gigajoules of energy, for an average annual reduction of about 20 per cent per structure. Most have been public buildings.
"Since 2001, the uptake has been huge. If it was any bigger, we'd have a big crew burning out here. At least we're achieving the purpose of the programs," Tremblay says, adding that that the industrial sector has barely touched available subsidies.
"Even if (retrofits) make good business sense, they have to compare favourably to other investments. Public institutions know they'll be around for a long time. Industrial factories are, perhaps, not so sure, so we don't see too many proposals from them," Tremblay says.
One exception is Toronto-based Atlas Cold Storage.
Since 1999, the company has spent just more than $6 million to upgrade climate and control systems throughout its 107,000 sq. m main facilities.
The result has been annual energy savings of 52,000 gigajoules worth more than $865,000.
But most retrofit adopters are institutions, such as health-care facilities and school districts, as well as commercial operations that are looking to cut overhead.
The Calgary Co-operative Association grocery chain started with a six-store pilot project in 2003 and has watched its energy costs drop dramatically for three straight years, says the co-op's energy committee chairman, Rod Peterson.
"The catalyst to jump into the program like we did came in 2002 with the deregulation of electricity in Alberta. Our costs tripled over a short period and we knew we had to make energy-use reduction a priority. This year we're seeing a direct correlation between savings and our (retrofit) implementation program," Peterson says.
(The Calgary-based co-op has more than 3,700 employees, 396,000 members and annual sales of about $750 million. It operates 20 retail shopping centres, 22 gas bars, 12 liquor stores and 12 travel offices in Calgary, Airdrie and Strathmore.)
The co-op retrofitted seven stores in 2004 and five more this year, updating lighting, glass door freezers and compressor systems. Total investment has been about $2 million, including $180,000 in OEE subsidies. The co-op has now reached $800,000 in annual savings over 2003 levels.
The results have spurred the co-op to plan a complete mechanical upgrade - including boilers, HVAC units and control systems - at a store due for renovation, with commensurate energy savings expected immediately.
Not everyone is enamoured of retrofit programs, however.
Vancouver-based Hollyburn Properties has saved hundreds of thousands of dollars and cut energy consumption by about 25 per cent by installing upgraded lighting, appliances and elevator controls in its residential apartments in British Columbia and Ontario.
But Hollyburn CEO Paul Sander says those results have come mostly through regular refurbishment. "Installing modern equipment during core maintenance gives you these kinds of (energy-use) reductions anyways. I've watched so many government programs come and go, and too often they're driven by product manufacturers."
"Still, I'm glad that (OEE's) programs are starting to set good standards to follow. We've seen actual savings starting to come out of them," he says.
(Mike Levin can be reached at firstname.lastname@example.org)