And Verify?

“You cannot manage what you do not measure” -Jack Welch, CEO of General

Electric

When firms invest in energy efficiency, their executives naturally want to know how much they have saved and how long their savings will last. The determination of energy savings requires both accurate measurement and replicable methodology, known as a measurement and verification protocol. The long-term success of energy and water management projects is often hampered by the inability of project partners to agree on an accurate, successful M&V Plan. This M&V Protocol discusses procedures that, when implemented, help buyers, sellers and financiers of energy and water projects to agree on an M&V Plan and quantify savings from Energy Conservation Measure (ECM).

Simply put, the purpose of the IPMVP is to increase investment in energy efficiency and renewable energy. The IPMVP does so in at least six ways:

Increase energy savings

Accurate determination of savings gives facility owners and managers valuable feedback on the operation of their facility, allowing them to adjust facility management to deliver higher levels of energy savings, greater persistence of savings and reduced variability of savings. A growing body of data shows that better measurement and verification results in significantly higher levels of savings, greater persistence of savings over time and lower variability of savings (Kats et al. 1997 and 1999, Haberl et al. 1996). Logically this makes sense, since real time measurement at multiple measurement points provides a strong diagnostic tool for building managers that allows them to better understand, monitor and adjust energy systems to increase and maintain savings. This finding is consistent with the experience of the US Federal Energy Management Programs and reflects the very extensive long term metering work done at the Texas A&M University Loan Star program (Claridge et al. 1996). Greater persistence and lower variability, in turn, can form the technical basis for rewarding energy efficiency projects which employ superior M&V techniques for determining energy savings.

Reduce cost of financing of projects

In early 1994, our financial advisors expressed concern that existing protocols (and those under development) created a patchwork of inconsistent and sometimes unreliable efficiency installation and measurement practices. This situation reduced reliability and performance of efficiency investments, increased project transaction costs, and prevented the development of new forms of lower cost financing. IPMVP is a response to this situation, providing guidance on risk management information helpful in structuring project financing contracts.

By providing greater and more reliable savings and a common approach to determining savings, widespread adoption of this Protocol has already made efficiency investments more reliable and profitable, and has fostered the development of new types of lower cost financing. By more clearly defining project M&V and defining generally accepted M&V methods, this Protocol provides lending institutions confidence in the credible assessment of savings and measurement of performance. This assessment and measurement then becomes the security which backs financing. If a sufficient level of confidence can be achieved, the door may be opened to “off-balance-sheet financing” where project debt does not appear on the credit line of the host facility – historically a major hurdle to energy efficiency project implementation.

The IPMVP is an important part of the credit equation for most lenders since it provides an established and independent mechanism to determine energy savings. For example, the US Department of Energy’s Office of Energy Efficiency and Renewable Energy, in partnership with Virginia’s Commonwealth Competition Council and New Jersey-based M/A Structured Finance Corp. has developed a pilot program for a $50 million pooled financing program for energy efficiency projects for K-12 schools and publicly owned colleges and universities. The goal of the program is to provide an off-balance sheet and procurement-friendly method of financing these projects for the public sector. The guidelines in the IPMVP have allowed participating financial institutions to lend on the basis of the energy savings, an important consideration in an off-balance sheet financing.The IPMVP provides the confidence and standardization to allow these institutions to fund upgrades based on future pooled energy savings, with borrowing “off-balance sheet” for the academic institutions.

Encourage better project engineering

Since good M&V practices are intimately related to good design of retrofit projects, IPMVP’s direction on M&V practice encourages the good design of energy management projects. Good M&V design, and ongoing monitoring of performance will help in the creation of projects that work effectively for owners and users of the spaces or processes affected. Good energy management methods help reduce maintenance problems in facilities allowing them to run efficiently. Among the improvements that may be noted by complete engineering design of ECMs is an improvement in indoor air quality in occupied space.

Help demonstrate and capture the value of reduced emissions

from energy efficiency and renewable energy investments.

Emissions reduced by efficiency projects include CO2, the primary greenhouse gas (causing global warming), SO2, NOx and mercury. The failure to include the costs/benefits of these emissions has distorted price and market signals, and has resulted in a misallocation of energy investments and prevented a more rational and cost-effective energy investment strategy around the world. Determining the level of reduction of pollutants requires the ability to estimate with confidence actual energy savings.

The IPMVP provides a framework for calculating energy reductions before (baseline) and after the implementation of projects. The IPMVP can help achieve and document emissions reductions from projects that reduce energy consumption and help energy efficiency investments be recognized as an emission management strategy. Such profile will also help attract funding for energy efficiency projects through the sale of documented emission credits.

Increase public understanding of energy management as a public

policy tool

By improving the credibility of energy management projects, M&V increases public acceptance of the related activities. Such public acceptance encourages investors to consider investing in energy efficiency projects or the emission credits they may create. By enhancing savings, good M&V practice also brings more attention to the public benefits provided by good energy management, such as improved community health, reduced environmental degradation, and increased employment.

Help national and industry organizations promote and achieve

resource efficiency and environmental objectives

The IPMVP is being widely adopted by national and regional government agencies and by industry and trade organizations to help increase investment in energy efficiency and achieve environmental and health benefits.

This Protocol:

• Provides energy efficiency project buyers, sellers and financiers a common set of terms to discuss key M&V project-related issues and establishes methods which can be used in energy performance contracts.

• Defines broad techniques for determining savings from both a “whole facility” and an individual technology.

• Applies to a variety of facilities including residential, commercial, institutional and industrial buildings, and industrial processes.

• Provides outline procedures which i) can be applied to similar projects throughout all geographic regions, and ii) are internationally accepted, impartial and reliable.

• Presents procedures, with varying levels of accuracy and cost, for measuring and/or verifying: i) baseline and project installation conditions, and ii) longterm energy savings.

• Provides a comprehensive approach to ensuring that building indoor environmental quality issues are addressed in all phases of ECM design, implementation and maintenance.

• Creates a living document that includes a set of methodologies and procedures that enable the document to evolve over time.

Audience for Protocol

The target audience for this Protocol includes:

• Facility Energy Managers

• Project Developers and/or Implementers

• ESCOs (Energy Service Companies)

• Non-Governmental Organizations (NGOs)

• Finance Firms

• Development Banks

• Consultants

• Utility Executives

• Environmental Managers

• Researchers

Energy efficiency offers the largest and most cost-effective opportunity for both
industrialized and developing nations to limit the enormous financial, health
and environmental costs associated with burning fossil fuels. Available, cost effective investments in energy and water efficiency globally are estimated to be tens of billions of dollars per year. However, the actual investment level is  far less, representing only a fraction of the existing, financially attractive opportunities for energy savings investments. In the interest of brevity, throughout this document the terms “energy” and “energy savings” represent both energy and water. Although there are differences between energy
efficiency measures and water efficiency measures, they share many common attributes and are often part of the same project.

If all cost-effective efficiency investments were made public and commercial buildings in the U.S., for example, efficiency project spending would roughly triple, and within a decade would result in savings of $20 billion per year in energy and water costs, create over 100,000 permanent new jobs and significantly cut pollution. For developing countries with rapid economic growth and surging energy consumption, energy and water efficient design offers a very cost effective way to control the exploding costs of building power and water treatment plants, while limiting the expense of future energy imports and the widespread health and environmental damages and costs that result from burning fossil fuels.

These efficiency opportunities and their inherent benefits prompted the U.S. Department of Energy in early 1994 to begin working with industry to develop a consensus approach to measuring and verifying efficiency investments in order to overcome existing barriers to efficiency. The International Performance Measurement and Verification Protocol (IPMVP, or sometimes called the MVP) was first published in 1996, and contained methodologies that were compiled by the technical committee that comprised of hundreds of industry experts, initially from the United States, Canada and Mexico.

In 1996 and 1997, twenty national organizations from a dozen countries worked together to revise, extend and publish a new version of the IPMVP in December 1997. This second version has been widely adopted internationally, and has become the standard M&V documents in countries ranging from Brazil to Romania. According to Mykola Raptsun, former Deputy Chairman of State Committee of Ukraine Energy Conservation, now President of ARENA-ECO, the Ukrainian energy efficiency center:

The IPMVP has broad application for businessmen, energy managers, law makers and educators and could become the national standard document for M&V. It has been important in helping the growth of the energy efficiency industry in Ukraine. North America’s energy service companies have adopted the IPMVP as the
industry standard approach to measurement and verification (M&V).

According to Steve Schiller, President of Schiller Associates, a leading energy
efficiency consulting firm:

[In the United States], referencing the International Performance Measurement and Verification Protocol (IPMVP) has become essentially a requirement associated with developing both individual energy efficiency performance contracting projects as well as performance contracting programs. Almost all performance-contracting firms now state that their work complies with the IPMVP Thus, in a few short years the IPMVP has become the de- facto protocol for measurement and verification of performance contracts.

Institutions such as the World Bank and International Finance Corporation (IFC) have found the Protocol beneficial and are incorporating it as a required part of new energy efficiency projects. According to Russell Sturm, Senior Projects Officer, Environmental Projects Unit, International Finance Corporation:

“In our work at the Environmental Projects Unit of the IFC, we seek investments in the emerging ESCO markets of the developing and transition economies of the world. While these markets hold promise, the challenges on the road to commercial viability are formidable. IPMVP provides the foundation necessary to build credibility for this emerging industry, helping us to establish a level of comfort among local players that is essential for broadbased acceptance in the marketplace.”

As a result of strong and widespread interest, participation in developing this third edition has expanded to include a global network of professionals from around the world and includes national organizations from 16 countries and hundreds of individual experts from more than 25 nations. The work was drafted by volunteers serving on committees composed of leading international experts in their respective fields. Overall responsibility and direction is provided by the Executive Committee, composed of a dozen international experts who share a goal of strengthening and fostering the rapid growth of the energy and water efficiency industries. Our Financial Advisory Subcommittee has helped ensure that this document is valuable to the financial community in
facilitating and enhancing efficiency investment financing.