[Part 1] Energy Savings: Commodity Procurement

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In the current economic climate, hotels and conference centers find themselves searching for new ways to reduce operating expenses more than ever before. The hospitality industry, like any other commercial enterprise, is driven largely by operating margins.

According to a recent EnergyStar report, hotels in the United States spend close to $4 billion on energy each year. Given that energy costs will only continue to increase, reducing energy expenditures has become a viable way to reduce overall expenses.

Hospitality properties can decrease energy expenditures in three different ways:

  1. By engaging in commodity procurement  measures to reduce the cost of electricity
  2. By increasing energy efficiency to reduce energy usage
  3. By encouraging the development of sustainable day-to-day behaviors

We’re going to go tackle these energy saving ideas in this three part series. Here is the first part:

Commodity Procurement: Pay Less

In several parts of the country, consumers have the ability to purchase energy from independent marketers. This process is referred to as commodity procurement.

Off-Peak Energy Usage

Power marketers encourage customers to reduce their usage in response to market prices. If customers consume energy at off-peak times, electric companies may reward them for off-peak usage with lower energy rates.

Because users pay higher rates during the day and lower rates in the evening, hospitality managers can arrange to do activities that require large amounts of energy in the evening, such as running laundry equipment.  Because of the lower energy rates, hotels will see a direct benefit in the form of lower utility bills without the need to reduce usage. For many large commercial energy users, such as hospitality properties, receiving incentives or rebates is the first step to a balanced energy management plan.

Demand Response: Earn Compensation for “Negative Energy”

The management of electricity consumption in response to supply conditions is referred to as demand response. In most cases, demand response is targeted at reducing peak demand to balance electricity production and consumption. An imbalance means the energy company must run peak power plants, generate extra emissions, and charge higher prices for electricity.

One aspect of demand response is load shedding. Power plants may not always meet the need of “peak demand,” the greatest amount of electricity required by all utility customers within a given region.  In effort to reduce the electric demand on power grids at critical periods, hotels can shed load for power aggregators by drastically reducing energy consumption.

The energy that a property would have consumed but did not becomes “negative energy,” or negawatts, which aggregators like Comverge or EnerNOC can sell back to the power company. The load-shed process involves turning down or off certain appliances. For example, thermostats may be adjusted to lower or higher temperatures to use less energy when heating or cooling.

Load shed can be done in two ways:

  1. Manually, by adjusting thermostats in unsold rooms, or
  2. Remotely, by utilizing an energy management system, which can shed load for all unoccupied rooms to maximize “negative energy” without compromising guest comfort.

Though load shed is available only in certain regions, it may be an attractive savings option for hospitality properties, as buildings that can shed a certain amount of energy for aggregators on command may earn a lower utility rate by doing so.

“Paying less” has positive financial and environmental effects. Commodity procurement through power marketers and engaging in demand response programs allow participants to reap the benefits of decreased energy costs while also eliminating the need for the construction of new power plants.

Gerrit Reinders is executive vice president for Sales & Marketing at Telkonet. For more information, e-mail Gerrit or follow Telkonet on Twitter @Telkonet.

6 comments

  1. Does not seem like Telkonet has a large demand for their product. They sell only a few hundred thousand dollars a year when the demand is in the billions.

    1. Jonh – our biggest challenge is making people aware of the fact we exist.  We do a whole lot more than a few hundred thousand dollars – in fact as a company we have consistently sold well over $10-million in sales per year.   

      Here are some statistics that often surprise people.  Did you know that only about 25% of the hotels in the USA have energy management systems?  Did you know that a typical hotel only has people in the room about 30% of the time?  That’s around 7 hours out of 24.

      So without an energy management system – or a well managed program where housekeeping or maintenance turn off energy consuming equipment in the room – then energy is being consumed in a room that’s not even occupied.  Telkonet’s technologies controls the energy consuming loads during those periods – typically yielding 20-40% energy savings and paying for itself in 1-3 years depending on utility rates.  For areas in the country where incentives are offered to implement energy efficiency products, the paybacks are often reduced significantly – sometimes measured in months.

      Help us spread the word.

  2. Gerrit: I have been led to believe that this application has not taken off as anticipated due to the overall economy. Is this the sole reason? If not, what other reason(s) are there for a company not to take
    advantage of saving themselves money.

    This is perplexing to me. Why wouldn’t this application be accepted by a number of more companies; quickly? What’s holding up the show?

    Thanks for your response.

    Trent

    1. Trent – I suspect there are lots of reasons for a less than optimal market adoption for energy efficient technologies.  Yes, the economy certainly has an impact in a few different ways.  Since implementing energy efficient technologies typically does require a capital outlay, it competes for funds with other investment options.  In an uncertain economic environment some property owners defer these investments and others have a hard time getting the financing to pay for the capital outlay.  Operating lease options are not easy to get anymore either.

      Personally, I wish utilities, the public service commissions who regulate them and the government would collaborate and offer backstop guarantees for loans used to pay for energy efficiency upgrades.  Regardless of the credit worthiness of the property owner, the energy savings persist so long as the property is utliized – which decreases operating costs, consequently improving Net Operating Income and thus the valuation of the property. 

      Wouldn’t it be nice if the utility would pay for the install and set-up a payment plan through the utility bill to pay for the improvements – out of the savings they generate?  Structure it so that the utility keeps bills at current levels and when the improvements are paid for (including interest charges), the savings revert back to the property owner.

      At Telkonet we have installed well over 200,000 rooms with our energy management technology since 1999, so our technology is well proven.  Yet, it seems most of our customers are from Missouri (their license plate logo is: “The Show Me State”)  because they invariably feel the need to trial our technology in their property for a period of 1-6 months – rather than trusting the results of other properties.  The results always come back generating 20-40% savings (sometimes even more).  I always wonder: why do we have to keep installing it to demonstrate it, when it’s been proven over and over again.  I guess people have been burned by unscrupulous providers who make outlandish claims and consequently are very skeptical. 

      I wish we could make energy efficiency sexy -make it the IN thing to do, make it popular.  The EnergyStar program aims to do that.  I think it should become a national mandate that if you want to own a building, you have to use the EnergyStar benchmarking tool and report the energy effectiveness score at the entrance of the building – shaming those with poor results and rewarding those with stellar results.

    1. Bmac – thanks for your post.  I think residential energy management is absolutely  the next frontier.  Here at Telkonet we don’t currently market to individual residential customers (we do large condominium type properties with centrally paid utilities) but we definitely see the convergence of technology allowing active energy management at the doorstep of the residential consumer. 

      For example, with products we have available now, we could integrate our occupancy based energy management system with larger energy consuming systems in a home and offer sizable energy savings for homes that have intermittent occupancy.  This of course is very common for families with parents who both work.  There’s often no good reason to have large energy consuming systems like pool heaters, air conditioners, water heaters, appliances, even plug-loads such as TVs and cable boxes which are parasitic loads (aka phantom or vampire energy loads) to be ON all the time.  We can simply control them with existing technology today – the property owner could access the system via the web and remotely make changes or be alerted of problems.

      Part of the reason it’s not prevalent yet is cost but thats changing rapidly and the communications technology for the in-home network is becoming increasingly cost effective.

      Stay tuned – the ‘home area network’ is going to be here soon.

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