Navigant Research Blog

Variable Refrigerant Systems Set to Grow in 2015

— January 14, 2015

This could be a watershed year for variable refrigerant flow (VRF) systems in the United States.  Although it has constituted only a small fraction of the overall heating, ventilation, and air conditioning (HVAC) market since its U.S. debut in 2003, the technology continues to gain traction.  The VRF approach varies from traditional commercial chilled water or rooftop unit systems because it uses refrigerant to transfer heat in a building.  The first advantage of this system is that the pipes are smaller.  Because the refrigerant changes phase, less of it is needed to transfer a set amount of heat when compared to chilled water.  VRF systems are also more efficient, since VRF compressors are inverter-driven and can operate at variable speeds.  As a result, they are much more efficient in part-load conditions than the compressors in chillers or rooftop units.

Competitive Landscape

Companies in the U.S. HVAC industry appear to be positioning themselves for a growing 2015 VRF market.  Johnson Controls, for instance, announced in 2014 a joint venture with Hitachi to incorporate Hitachi’s VRF and inverter technology in Johnson Controls’ U.S. solutions portfolio.  But the deal may not be completed until the first half of 2015.  Also in 2014, Samsung Electronics America, Inc. agreed to acquire Quietside Corp., the North American distributor for Samsung’s HVAC products since 1997.  The move marks Samsung’s focus on building the U.S. market for ductless and VRF products.  Meanwhile, Trane further expanded its portfolio of VRF products through the addition of a water-source VRF system.

Competition Ahead

VRF systems are more efficient than conventional HVAC systems and have promising U.S. market potential for 2015.  But they may ultimately not be the best means of increasing efficiency and comfort.  Indeed, geothermal heat pumps (examined in detail in Navigant Research’s Geothermal Heat Pumps report) may be more efficient than VRF.

During the 2008 renovation of its headquarters, ASHRAE established the building as a living lab to evaluate new technologies.  A portion of the project included installing a VRF system in part of the building and a geothermal heat pump in another part of the building.  The results of a 2-year study of energy consumption indicate that the geothermal heat pump was more efficient than even the VRF system.  Moreover, geothermal heat pumps are more similar to conventional systems than VRF systems are.  They don’t entail the same changes in required installation skills, system design, and architecture.

Though a study of a single building in a single climate zone may not be rigorous enough to provide substantial conclusions, it certainly indicates that competing technologies, including both VRF and geothermal heat pumps, have a bright future.

 

Hospitals Seek Energy Care

— January 8, 2015

In December, Boston’s Green Ribbon Commission (GRC) Healthcare Working Group published an energy profile of 22 million SF of metro Boston hospitals between 2011 and 2013.  The report found that, as a result of energy efficiency and conservation measures, Boston hospitals have reduced energy use by 6% while expanding facility square footage.  The study utilized over 18,000 energy and greenhouse gas records based on U.S.  Environmental Protection Agency (EPA) Portfolio Manager data.

One important output of the study is an energy database, the first of its kind in the nation.  The database contains data tracking of different hospital and healthcare system progress toward greenhouse gas reduction goals.  The goals, laid out by the GRC, are a sectorwide 25% reduction in greenhouse gas emissions by 2020 and 80% by 2050.  Hospitals are the second-highest user of energy among all building types in terms of energy intensity, and healthcare organizations spend nearly $8.8 billion annually on energy.  In other words, efforts to reduce energy consumption across the healthcare system will pay outsized benefits.

In Wisconsin, Gundersen Health System recently achieved energy independence, producing more energy than it consumes.  The system, which includes hospitals, medical clinics, nursing homes, and additional health facilities, set a goal 6 years ago to reduce energy consumption and increase renewables production.  Achieving energy independence exceeds the initial goal, and Gundersen has also reported annual savings of approximately $2 million, as well as energy efficiency improvements of more than 40%.

Federal Programs

In the last few months of 2014, several federal initiatives and studies dealing with energy in hospitals and the healthcare sector were announced.

In October, the U.S.  Department of Energy announced $9 million to encourage investment in energy reduction technologies for deployment in commercial buildings, including hospitals.  This announcement supports the Obama administration’s effort to double energy productivity by 2030 and reduce overall carbon emissions in commercial buildings.

In mid-December, the White House released a report with guidelines to help the healthcare sector become more resilient in the face of climate change and already-high operations costs. The average hospital spends approximately $675,000 on annual energy costs, according to the 2003 Commercial Building Energy Consumption Survey (CBECS).  The CBECS data showed that hospitals greater than 200,000 SF  consumed 4.3% of the total commercial sector energy used in 2003, but accounted for less than 2% of all commercial floor space.  The White House report outlines specific technologies that can help healthcare systems, including combined heat and power and fuel cells.

 

The Trouble with Trying to Reduce Residential Energy Consumption

— January 5, 2015

A recent story in The Wall Street Journal (subscription required) reminds us of the difficulty in trying to reduce energy consumption.  The story, by Jo Craven McGinty, notes that after 3 decades of effort aimed at lowering residential energy use in the United States, the overall level of consumption is still about the same, about 10 quadrillion BTUs per year.

Taking a deeper look, however, there is some positive news in the data.  While overall consumption is nearly unchanged, the average energy consumption per household has decreased, dropping to about 90 million BTUs a year in 2009 (latest year available) from about 114 million BTUs in 1980.

So, what is going on? Several things: newer homes tend to be larger than older ones.  And though they have more efficient envelopes and systems (double-pane windows, improved insulation, and efficient heating-cooling systems), it takes more energy to heat larger spaces, and the proliferation of devices in homes has required more energy use.  We now plug in more TVs, computers, DVRs, mobile phones, and second refrigerators.

The Efficiency Paradox

While our homes are more efficient, this is offset by an increase in energy consumption, a phenomenon called the rebound effect, or the Jevons Paradox, which holds that an increase in efficient use of a resource, like energy, can result in greater use and reduce the benefit.   This is not a hard and fast rule, and it is often debated among economists.  Nonetheless, there is a propensity toward squandering some efficiency gains once realized.  For example, when gas prices drop significantly, the cost per mile is lower, and people are more inclined to drive further or faster.

As McGinty points out, Americans receive mixed messages, being hectored to conserve energy while also being constantly invited to buy new gadgets and appliances that require energy.  This is evident in the U.S. Energy Information Administration data showing how consumption by type has changed.  In 1993, appliances, lighting, and electronics accounted for 24% of home consumption, which rose in 2009 to 34.6%.  Space heating was 53% of home energy consumption in 1993 and decreased to 41.5% in 2009.

Annual Residential Energy Consumption by End Use, U.S.: 2009

                               (Source: U.S. Energy Information Administration)

Helping to reduce residential consumption lies at the heart of home energy management systems and represents a key goal of utility energy efficiency programs.  No one is suggesting these efforts should stop just because the net result can seem frustratingly ineffective, or merely incremental.  But, as noted in Navigant Research’s report, Home Energy Management, one of the inhibitors to wider adoption is the uncertainty around net benefits.  Some argue that one way to avoid the rebound effect would be a tax to keep the cost of energy use the same.  But that would be a hard sell.

 

Commercial Real Estate Holders Realize the Value of Energy Management

— December 23, 2014

Conventional wisdom states that the split incentive of tenant-occupied commercial buildings undercuts the benefits of energy efficiency and smart building development.  Those tides are shifting, though, and major commercial real estate (CRE) firms are doubling down on investment and promoting the value of strategic energy management.  In the last few months, major CRE firms have announced new strategies and corporate perspectives that highlight the promising future for smart commercial buildings.

America Realty Advisors has discussed a new sustainability strategy for its $6 billion commercial real estate portfolio in a recent article in National Real Estate Investor.  The first steps include benchmarking energy and water use and conducting targeted energy audits at under-performing facilities.  CRE firms are seeing that smart, efficient buildings translate to stronger bottom lines.  American Realty Advisors’ managing director Jay Butterfield explained in the article: “We have seen that firms successfully reducing a property’s energy usage by 30% may realize increases of up to 5% in both net operating income and asset value.”

Making a Stand

JLL has also taken its stance on energy efficiency and sustainability to the front lines, promoting its IntelliCommand energy management system as a service offering and taking a stand on climate change.  In a recent editorial supporting the U.S. Environmental Protection Agency’s (EPA’s) Clean Power Plan, JLL’s Dan Probst explained, “Our energy efficiency initiatives have helped our commercial real estate clients reduce their greenhouse gas emissions by 12 million metric tons while saving them $2.5 billion in energy costs over the past seven years.”

The benefits of strategic energy management go beyond the CRE giants and their flagship Class A buildings.  Two recent examples demonstrate the economic impacts of energy efficiency upgrades in Class B buildings.  In Houston, a 24-story office building and historic landmark went through significant upgrades in 2011, including the installation of a building energy management system, and Hines (the real estate management company that manages the building) is touting the benefits.  Hines sees this kind of strategic energy management focus helping lower capitalization rate, generate operations and maintenance (O&M) savings, and stay competitive.

Too Big to Ignore

Meanwhile, according to The New York Times, the benefits of energy efficiency in Class B buildings are too big to dismiss.  The energy and sustainability benefits of Class B upgrades in New York are underscored by the added benefit of helping building owners prepare for the energy reductions targets for 2020, under the bundle of laws supporting the PlaNYC climate change agenda.

The mounting risks of climate change, rising demand for sustainable workplaces, and maturing market of smart building technologies are combining to spark momentum in CRE strategic energy management investments.  These CRE early adopters are laying the groundwork for the growing penetration of smart building investments in commercial buildings.

 

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