Incentive programs test patience

Waiting game for applicants, blame game for administrators
Thursday, June 27, 2013
By Barbara Carss

Paybacks figure twice in publicly sponsored incentive programs. Perhaps most obviously, prospective recipients factor the external source of funds into their capital budgets and projections to determine if a contemplated investment makes business sense. However, benefactors have their own agendas in making the funds available and need to achieve an outcome they’ve deemed worthy of the expenditure.

Differing priorities can lead to clashing cultures – as the evidence suggests in conservation and demand management (CDM) programs overseen by the Ontario Power Authority (OPA). Delays in the rollout of many of the programs have now necessitated a one-year extension to what was originally intended as a four-year program to end Dec. 31, 2014.

“We can see the logic for all of the OPA’s questions and requirements but these requirements make the process complex,” says Doug Webber, national green building practice leader with engineering consulting firm, Halsall Associates. “It’s not an easy process to go through.”

In December 2012, Ontario’s environmental commissioner, Gord Miller, who is tasked with monitoring energy conservation efforts, issued a somewhat critical progress report on 2011 accomplishments. Based on the first-year results, he calculated that a similar rate of incremental gains over the next three years would just meet the province-wide aggregate energy savings goal of 6,000 Gigawatt-hours (GWh) but would fall about 33 per cent short of the target for 1,330 Megawatts (MW) of peak demand reduction.

In the same month, Ontario’s then Energy Minister, Chris Bentley, readjusted the deadline to Dec. 31, 2015.

“A one-year time extension for the availability of such funding would add stability and enhance continuity to the conservation activities now being undertaken by the OPA and distributors,” he noted in his instructions to the OPA’s CEO, Colin Andersen.

The Ontario government has not provided extra funding for the programs; it has merely allowed more time for applicants to tap into the existing dollars – or, more accurately, more time for approval bodies to clear the glut of applications.

Prolonged approval processes have been one of the most significant impediments for program participants since the rules are clear that applicants will be declared ineligible if they begin projects before official approval has been granted. This can delay or derail projects that owners/managers have selected for capital upgrade programs in their building, allowing other projects to get bumped ahead in the queue or simply replace energy management initiatives altogether.

“It just takes a long, long time to get the approvals,” says Keith Major, senior vice-president of property management with Bentall Kennedy (Canada) LP. “In many cases, we end up just shelving the project if we can’t get the approval quickly enough for it to happen in the budget year. It’s very disappointing.”

Structure and rationale
A range of programs are offered for various sectors of electricity customers. These are of the OPA’s design but administered through the province’s 76 utilities, known as local distribution companies or LDCs, which also carry the responsibility for meeting assigned targets for cumulative energy savings and peak demand reduction.

Commercial, institutional and multi-residential owners and/or managers are eligible for programs that offer support for energy audits, energy management expertise, retrofit measures and/or high-performance new construction. The latter two programs provide applicants with a prescriptive path, in which they receive fixed incentives for specific items, and an engineered or custom-designed approach, in which they must prove the effectiveness of their proposed plans.

The incentive structure for engineered or custom projects also differs. With retrofit projects, non-lighting projects (including lighting controls) are eligible for either $800 per kilowatt (kW) of demand savings or 10 cents per kilowatt-hour (kWh) of electricity savings in the first year after project completion, whichever is greater. Incentives for lighting projects are half that amount: $400 per kW of demand savings or five cents per kWh of first-year electricity savings.

The energy audit incentive, covering up to 50 per cent of costs, is generally seen as the logical starting point in any building where an audit hasn’t previously been conducted.

“We see quite a bit of uptake of that incentive and I think that’s the one that has the most impact on decision-making,” says Halsall’s Webber. “It’s the entry point into understanding what the opportunities are in your building.”

Yet, he suggests the incentive structure might be undermining some of the best opportunities to promote lower cost measures and operational procedures. Instead, business rationale encourages owners to use incentives for higher cost items in order to maximize their returns.

“The incentive is capped at half the implementation cost. It might make more sense for the value of the incentive to be some combination of the implementation cost and the return on investment,” says Webber. “We’re funding things with higher costs and reasonable paybacks rather than funding the effort it takes to identify the cheapest things that deliver the most savings.”

From the funder’s perspective, however, the goal of incentive programs is to induce investment that is unlikely to occur otherwise. Theoretically, owners/managers should already be pursuing low-cost initiatives on their own because it makes economic sense to do so – a theory that nevertheless depends on the best-case scenario for decision-making.

“I still see saving opportunities that surprise me in buildings that we take over just because they are things that we have already done five or six years ago in the rest of our portfolio, ” says Bentall Kennedy’s Major.

Meanwhile, public sector managers accountable to taxpayers can realize other kinds of benefits from the programs.

“It lends credence to our business case even when it doesn’t substantially change the financials,” says Michael Lithgow, manager of corporate energy services in the Greater Toronto Area’s York Region. “If we can say we’ve secured ‘x’ dollars in grants, that’s a helpful, good news story.”

Success and exasperation
In 2011, incentives were conveyed for 103 energy audits, nearly 2,950 retrofit projects and 10 high-performance new construction projects. LDCs have not yet submitted their mandated reports for 2012 to the Ontario Energy Board, so it will be later in 2013 before province-wide tallies of last year’s results are available.

Owners/managers with buildings throughout Ontario remain well placed to provide anecdotal accounts of their experiences and to compare program administration in various jurisdictions.

“We’ve used the prescriptive measures successfully – such as lamping or variable speed drives – where there is a fixed price for a fixed measure. We’ve also used the incentives for high-performance new construction a number of times, quite successfully, and incentives for energy audits,” reports Bentall Kennedy’s Major. “The approval process for the prescriptive approach isn’t too bad: you fill out the forms; you check the boxes. Where we have really experienced some delays is around the engineering method and we have really struggled with a couple of LDCs in particular.”

The 2011 launch of province-wide CDM programs subsumed two existing Toronto-based initiatives that the Building Owners and Managers Association (BOMA) administered for office, retail and small industrial properties and the City of Toronto administered for institutional and multi-residential properties, as well as some LDC-sponsored incentives in other centres. Property owners in other parts of the province generally looked optimistically on the extension of what had been successful, often envied Toronto pilot programs, but those programs haven’t necessarily been easily replicated.

“From our perspective, there was pretty good continuity in Toronto, but other LDCs didn’t have the advantage of having a system and audience in place they could just step into,” says Major. “We took full advantage of the BOMA CDM program in Toronto and we still continue to take advantage of Toronto Hydro’s successor program. Our view of the Toronto Hydro program and the people who administer it is quite favourable. They have done a good job of promoting it and making it fairly easy to use. Our experience has not been as favourable with some of the other LDCs.”

The environmental commissioner’s 2011 progress report details the somewhat tortuous inter-agency dealings of the OPA, the LDCs and the Ontario Energy Board, along with a decided degree of finger-pointing from LDCs. Ultimately, though, delegation of blame matters little to applicants awaiting approval to proceed with their projects.

Miller’s voice is just one of many calling for a more streamlined process and urging all players to begin planning for what happens after this round of programs comes to an end.

“The slow start in 2011 shows the negative impact on conservation that an uncertain transition can have,” says the environmental commissioner.

“They’ve all contributed to the delays and indecision,” concurs Bob Bach, vice-chair (energy) of the Ontario Building Code conservation advisory committee. “The array of programs is important but consistency is equally important. When you end a program and it’s not immediately replaced with another program, the market forgets.”

Barbara Carss is editor-in-chief of Canadian Property Management and Building Strategies & Sustainability magazines.

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