Energy efficiency projects can be inherently complex, with numerous components and activities that need to be developed and performed including baselining, savings calculation estimates, operational performance verification, and measurement and verification (M&V), among others. A well developed project needs to ensure that each component is developed by experienced professionals using well-established tools and practices, to provide the necessary components essential for a project’s successful outcome.
Operational performance verification and M&V services provide two opportunities to stabilize and enhance an energy efficiency project, as well as opportunities for unbiased and specialized evaluation of system and energy performance of an energy efficiency project by third-party providers or reviewers. While sometimes undervalued, the benefits of operational performance verification and M&V services and the specialized skills and unbiased approach afforded through the use of third-party providers need to be weighed carefully.
Walking the tightrope between budget constraints and quality assurance is a significant challenge facing energy efficiency project development efforts. Potential investors with limited technical knowledge but strong business understanding require confidence in energy efficiency project proposals, such that quality assurance becomes critical. While the ICP Large, Standard and Targeted Commercial Protocols specify procedures and requirements for a successful energy efficiency project, questions often arise during the course of these projects concerning the involvement of third-parties, both in the performance of project development services, or to review the services provided by the project development team.
While third-party involvement can help ensure that performance of tasks related to project development is directed and reviewed by professionals with skills specific to these efforts, their involvement is sometimes perceived as unnecessarily burdensome to an already involved process or constrained budget. However, weighing the importance of certain tasks, and the project’s financial success as a whole, the argument should be made that third-party involvement in an energy efficiency project of almost any size is critical to a project’s success.
Two components of any energy efficiency project that are typically undervalued in terms of their importance to the ultimate success of the project include operational performance verification and M&V. While included in most projects at some level, these tasks are often seen as sources of additional financial burden or as items that can hinder completion of a project by an inexperienced project development team. However, these two tasks present unique opportunities to not only help ensure successful execution, but to enhance the projected outcomes and provide a mechanism to help ensure savings persistence over time. Arguments for or against their value and the depth to which they need to be employed versus their cost are common to many projects. And similarly, arguments for or against the use of third parties to perform or review these activities can lead to much confusion in the industry.
Operational performance verification was born out of the inability of test, adjustment and balancers (TAB) to provide holistic assurance that a building’s systems were operating according to design intent. As a quality assurance effort, the value of operational performance verification was difficult to quantify, and as such, it was not a practice easily adopted by the industry.
Similarly, M&V was born from the performance contracting and demand side management worlds, and is typically seen as a financial burden (albeit a necessary one) to energy efficiency efforts. Often leaning heavily on stipulated savings, M&V efforts are employed with resentment by providers, who may see these efforts as an unnecessary burden and a judgment of their capabilities as an energy efficiency provider. The true value of M&V as a savings persistence tool and mechanism for performance (not just savings) evaluation and persistence is often overlooked or not well understood, and subsequently undervalued. This lack of understanding is exemplified by the fact that the M&V credit is often initially pursued but later dropped from LEED certification efforts once the cost of these services is weighed against other budget considerations.
Operational performance verification and M&V provide critical quality assurance tools that are absolutely necessary to ensure the ongoing success of any energy efficiency project. However, if these components of energy efficiency project development are recognized as integral, the following questions arise: who should provide these services and how can associated costs be managed? Does unbiased assessment of the building’s systems and energy performance mean that a third-party needs to provide these services? Can the project developer provide these services in a truly unbiased manner?
Regarding operational performance verification, a third-party performing these services should follow all of the same practices and methods that an “in-house” team would follow. Therefore, an energy efficiency project using a third party should not encounter much increase in costs or effort (beyond perhaps additional transaction costs), while enjoying the benefit of an “unbiased” approach to this effort, and further provide an additional “set of eyes” to the project and its success.
Alternatively, operational performance verification services provided in-house can and should be effective, if accountability is maintained. The project development team, typically having a financial or reputational stake in the realization and persistence of energy savings, should be motivated to provide a thorough effort. In the context of supporting an energy efficiency project, operational performance verification efforts are not necessarily as comprehensive as what is required in new construction commissioning practices. And this is acceptable. In the context of an energy efficiency project, operational performance verification is targeted at optimizing system performance as it relates to energy efficiency, while still ensuring occupant comfort, two factors that if not addressed would not only compromise the fundamental purpose of the building and its systems, but eventually undermine system operation and energy performance.
M&V services performed by a third-party provide another avenue for professionals without a stake in the results to analyze and assess the performance of an energy efficiency project. Unlike operational performance verification services however, M&V services performed by a third-party can increase the cost of a project compared to when these services are performed by members of the project development team. While the M&V approach and implementation of the M&V plan should be consistent whether performed in house or by a third party, other costs may be incurred based on the M&V agent’s need to understand the savings calculations performed (or energy models used), as well as access to these calculations or the energy models or modeling team. Even in a review capacity, these items can present additional costs associated with the third-party’s involvement, as this level of understanding with respect to the savings calculations (or energy models) still needs to be established. These additional costs, while typically not substantial, need to be evaluated and weighed against the total energy savings projected by the project.
But the fact remains that M&V provides the only quantitative assessment of a project’s success. And as the risks regarding finances and reputations grow, so too does the pressure on realizing results. Subsequently the potential for biased assessment becomes a factor, because reputations and finances are at stake.
While in house operational performance verification efforts should not provide a conflict of interests since maximizing energy savings is in the project developer’s best interest (since their reputations and finances may both be at stake), in most cases, at a minimum, third-party providers should be employed to provide review of the M&V process, if not the M&V activities in their entirety. While this will mean additional cost, these third-party services will help enhance the successful outcome of any energy efficiency project, and must be fairly weighed against the overall value of the M&V effort, not just as a measuring stick, but as a critical component to the overall quality assurance process.
The costs associated with M&V and third-party involvement or review are often an issue, partly at least because the potential added benefits of these services are not always recognized or realized. Like operational performance verification, M&V services provide additional benefits that are not always immediately quantifiable. This includes performance evaluation (complementing OM&M services), quantifying at a more detailed level the true effects of control strategies and operational failures, and their impact on energy savings and system performance. Information that can not only be used to continuously optimize system performance, but can also inform future efforts when taken into consideration for similar measures or project types. Results that can help direct the industry and celebrate success, or provide caution for roads with high costs that lead to nowhere.
Third-Party Quality Assurance and the ICP Protocols
Once a project has been completely engineered, there is also a role for a third-party to evaluate the overall package to ensure compliance with the ICP protocols, and qualify the project as an Investor Ready Energy Efficiency Project.
After a project has been engineered in compliance with an Energy Performance Protocol and signed off by a supervising Professional Engineer (PE), it then may be evaluated either by potential investors or a non conflicted third party to qualify and assess the overall package as investment quality. This QA protocol is designed as a guideline to ensure consistency and enable investors to have increased confidence in projects that they are underwriting through a standardized third party review process.
The ICP Quality Assurance Protocol is designed to standardize the evaluation criteria and methodology. This protocol for standardized evaluation can be applied either through a central authority such as a public program, by distributed third parties such as a qualified independent engineering firm, or by individual investors, and will result in projects that investors can be confident conform to an ICP Energy Performance Protocol and have consistent and reliable engineering to back them up.
As the energy efficiency finance market matures, the requirements for third-party involvement will become more stringent and pervasive to support broader markets of investors and the eventual securitization of energy efficiency projects and cash flows as a unique asset class.
Operational performance verification and M&V services provide two opportunities to stabilize and enhance an energy efficiency project, as well as opportunities for unbiased and specialized evaluation of system and energy performance of an energy efficiency project by third-party providers or reviewers. While sometimes undervalued, the benefits of operational performance verification and M&V services and the specialized skills and unbiased approach afforded through the use of third-party providers need to be weighed carefully.
Walking the tightrope between budget constraints and quality assurance is a significant challenge facing energy efficiency project development efforts. Potential investors with limited technical knowledge but strong business understanding require confidence in energy efficiency project proposals, such that quality assurance becomes critical. While the ICP Large, Standard and Targeted Commercial Protocols specify procedures and requirements for a successful energy efficiency project, questions often arise during the course of these projects concerning the involvement of third-parties, both in the performance of project development services, or to review the services provided by the project development team.
While third-party involvement can help ensure that performance of tasks related to project development is directed and reviewed by professionals with skills specific to these efforts, their involvement is sometimes perceived as unnecessarily burdensome to an already involved process or constrained budget. However, weighing the importance of certain tasks, and the project’s financial success as a whole, the argument should be made that third-party involvement in an energy efficiency project of almost any size is critical to a project’s success.
Two components of any energy efficiency project that are typically undervalued in terms of their importance to the ultimate success of the project include operational performance verification and M&V. While included in most projects at some level, these tasks are often seen as sources of additional financial burden or as items that can hinder completion of a project by an inexperienced project development team. However, these two tasks present unique opportunities to not only help ensure successful execution, but to enhance the projected outcomes and provide a mechanism to help ensure savings persistence over time. Arguments for or against their value and the depth to which they need to be employed versus their cost are common to many projects. And similarly, arguments for or against the use of third parties to perform or review these activities can lead to much confusion in the industry.
Operational performance verification was born out of the inability of test, adjustment and balancers (TAB) to provide holistic assurance that a building’s systems were operating according to design intent. As a quality assurance effort, the value of operational performance verification was difficult to quantify, and as such, it was not a practice easily adopted by the industry.
Similarly, M&V was born from the performance contracting and demand side management worlds, and is typically seen as a financial burden (albeit a necessary one) to energy efficiency efforts. Often leaning heavily on stipulated savings, M&V efforts are employed with resentment by providers, who may see these efforts as an unnecessary burden and a judgment of their capabilities as an energy efficiency provider. The true value of M&V as a savings persistence tool and mechanism for performance (not just savings) evaluation and persistence is often overlooked or not well understood, and subsequently undervalued. This lack of understanding is exemplified by the fact that the M&V credit is often initially pursued but later dropped from LEED certification efforts once the cost of these services is weighed against other budget considerations.
Operational performance verification and M&V provide critical quality assurance tools that are absolutely necessary to ensure the ongoing success of any energy efficiency project. However, if these components of energy efficiency project development are recognized as integral, the following questions arise: who should provide these services and how can associated costs be managed? Does unbiased assessment of the building’s systems and energy performance mean that a third-party needs to provide these services? Can the project developer provide these services in a truly unbiased manner?
Regarding operational performance verification, a third-party performing these services should follow all of the same practices and methods that an “in-house” team would follow. Therefore, an energy efficiency project using a third party should not encounter much increase in costs or effort (beyond perhaps additional transaction costs), while enjoying the benefit of an “unbiased” approach to this effort, and further provide an additional “set of eyes” to the project and its success.
Alternatively, operational performance verification services provided in-house can and should be effective, if accountability is maintained. The project development team, typically having a financial or reputational stake in the realization and persistence of energy savings, should be motivated to provide a thorough effort. In the context of supporting an energy efficiency project, operational performance verification efforts are not necessarily as comprehensive as what is required in new construction commissioning practices. And this is acceptable. In the context of an energy efficiency project, operational performance verification is targeted at optimizing system performance as it relates to energy efficiency, while still ensuring occupant comfort, two factors that if not addressed would not only compromise the fundamental purpose of the building and its systems, but eventually undermine system operation and energy performance.
M&V services performed by a third-party provide another avenue for professionals without a stake in the results to analyze and assess the performance of an energy efficiency project. Unlike operational performance verification services however, M&V services performed by a third-party can increase the cost of a project compared to when these services are performed by members of the project development team. While the M&V approach and implementation of the M&V plan should be consistent whether performed in house or by a third party, other costs may be incurred based on the M&V agent’s need to understand the savings calculations performed (or energy models used), as well as access to these calculations or the energy models or modeling team. Even in a review capacity, these items can present additional costs associated with the third-party’s involvement, as this level of understanding with respect to the savings calculations (or energy models) still needs to be established. These additional costs, while typically not substantial, need to be evaluated and weighed against the total energy savings projected by the project.
But the fact remains that M&V provides the only quantitative assessment of a project’s success. And as the risks regarding finances and reputations grow, so too does the pressure on realizing results. Subsequently the potential for biased assessment becomes a factor, because reputations and finances are at stake.
While in house operational performance verification efforts should not provide a conflict of interests since maximizing energy savings is in the project developer’s best interest (since their reputations and finances may both be at stake), in most cases, at a minimum, third-party providers should be employed to provide review of the M&V process, if not the M&V activities in their entirety. While this will mean additional cost, these third-party services will help enhance the successful outcome of any energy efficiency project, and must be fairly weighed against the overall value of the M&V effort, not just as a measuring stick, but as a critical component to the overall quality assurance process.
The costs associated with M&V and third-party involvement or review are often an issue, partly at least because the potential added benefits of these services are not always recognized or realized. Like operational performance verification, M&V services provide additional benefits that are not always immediately quantifiable. This includes performance evaluation (complementing OM&M services), quantifying at a more detailed level the true effects of control strategies and operational failures, and their impact on energy savings and system performance. Information that can not only be used to continuously optimize system performance, but can also inform future efforts when taken into consideration for similar measures or project types. Results that can help direct the industry and celebrate success, or provide caution for roads with high costs that lead to nowhere.
Third-Party Quality Assurance and the ICP Protocols
Once a project has been completely engineered, there is also a role for a third-party to evaluate the overall package to ensure compliance with the ICP protocols, and qualify the project as an Investor Ready Energy Efficiency Project.
After a project has been engineered in compliance with an Energy Performance Protocol and signed off by a supervising Professional Engineer (PE), it then may be evaluated either by potential investors or a non conflicted third party to qualify and assess the overall package as investment quality. This QA protocol is designed as a guideline to ensure consistency and enable investors to have increased confidence in projects that they are underwriting through a standardized third party review process.
The ICP Quality Assurance Protocol is designed to standardize the evaluation criteria and methodology. This protocol for standardized evaluation can be applied either through a central authority such as a public program, by distributed third parties such as a qualified independent engineering firm, or by individual investors, and will result in projects that investors can be confident conform to an ICP Energy Performance Protocol and have consistent and reliable engineering to back them up.
As the energy efficiency finance market matures, the requirements for third-party involvement will become more stringent and pervasive to support broader markets of investors and the eventual securitization of energy efficiency projects and cash flows as a unique asset class.
Tracy Phillips - Investor Confidence Project Technical Lead
Tracy is a Certified Energy Manager who holds an MS in Physics from Stevens Institute of Technology, in Hoboken, New Jersey. He has worked as an energy consultant for over 16 years. His areas of expertise include investment-grade energy audits, building performance analysis and diagnostics, and measurement and verification. Tracy manages and provides energy consulting services for a host of project types, including development and analysis services related to energy efficiency projects, commissioning, re- and retrocommissioning, LEED certification support services, energy modeling and measurement and verification. He currently serves as a member of the IPMVP technical advisory committee, as well as his local town’s Sustainable Energy Committee.
Tracy is a Certified Energy Manager who holds an MS in Physics from Stevens Institute of Technology, in Hoboken, New Jersey. He has worked as an energy consultant for over 16 years. His areas of expertise include investment-grade energy audits, building performance analysis and diagnostics, and measurement and verification. Tracy manages and provides energy consulting services for a host of project types, including development and analysis services related to energy efficiency projects, commissioning, re- and retrocommissioning, LEED certification support services, energy modeling and measurement and verification. He currently serves as a member of the IPMVP technical advisory committee, as well as his local town’s Sustainable Energy Committee.
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