Cost Avoidance limitations

Over 35 years of experience has shown Utility Management's level of functionality is sufficient for 95% of corporate and institutional users who need a tool to estimate/approximate Cost Avoidance but who lack the time, expertise or inclination to delve deeper into the complexities of energy savings measurement and verification (M&V).

Those who desire more exacting engineering computations are typically either:

• Energy services companies that need more precise Cost Avoidance calculations.
• Facility/mechanical engineers in complex facilities (hospitals, industrial plants, research buildings) and need to adjust for independent variables other than the weather.

If you require these advanced features, you should consider a different M&V methodology.

1. Automatically adjust for production (and other time-series ‘channel data’ such as production, occupancy, sales volume, etc.).
   
   Adjusting for multiple independent variables (weather plus production, for example) can be problematic because many more data points are needed for statistically acceptable regression analysis, so monthly utility bills are seldom sufficient. This means that daily consumption and production data are needed, and most organizations don’t have a good handle on historic baseline data of this type.
   
2. Calculate Cost Avoidance using rate schedules rather than average unit price or marginal unit price. 

Admittedly, the average and marginal unit price methods available in Utility Management are limited when the rate is complex (such as time-of-use) or when the demand reduction is very different in magnitude than the consumption reduction. The problems with using a rate schedule to calculate Cost Avoidance include: (1) most users balk at the tasks of creating and maintaining unique and complex rate schedules, (2) complex rates often involve cost determinants that require special treatment outside the scope of Utility Management (such as power factor, time-of-use, hourly pricing, demand reduction incentives/penalties and reactive demand.)

A simpler Utility Management supported method is to use a Special Adjustment to set a specific user-designed unit cost that you have determined is more appropriate than the calculated average unit cost for the current bill.

When is enough enough?

The International Performance Measurement and Verification Protocol (IPMVP) (and by extension ISO 50015) says any additional M&V effort should be balanced by additional savings. In other words, is an additional $10,000 cost of more sophisticated M&V balanced by more than $10,000 of added benefit to the project?

When do you have enough M&V?

In the case of average unit cost versus detailed rate schedule, consider the complexity you encounter with rate schedules.

• A three-tier TOU rate acts like three separate rates on three separate meters. M&V requires separate tracking of use, demand, and cost for the three TOU periods. Is this data available for the baseline year?
• Separate weather adjustments are required for each TOU period, plus weather adjustments for demand. Weather adjustments for demand are complex and require more data than degree days provide.

M&V complexity and cost have now become increasingly complex and costly compared to the cost of the AUC-based M&V.

The vast majority of organizations lack the M&V expertise, resources or desire to pursue this expensive approach, preferring the Utility Management method of making spot special adjustments when appropriate.