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Negawatts and Megawatts - When Less Makes Money

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Note: Many statements contained in this piece are the result of an in-person interview between the author (Melissa C. Lott) and Chevron Energy Solutions’s President, Jim Davis in the fall of 2011.

In the future, the world will demand more energy than it does today. While the exact amount might be disputed, with a global population expected to hit 9 (perhaps even 10) billion people by 2050, it is easy to see that the world’s demand for resources – including energy – will almost certainly increase. How society chooses to supply these megawatts of additional energy demand will have many impacts on the long-term sustainability of the world’s energy systems. And, the best way to supply the megawatts that society demands could be to not supply them at all.

In the heart of San Francisco, on the 18th floor of 345 California Street lives a division of the second-largest energy company in the United States (ExxonMobil currently holds the top spot). Its parent company is one of the world’s largest producers and suppliers of oil and gas, but in this division more energy isn’t better – instead, less makes money. With its focus on energy efficiency (negawatts) before generation, Chevron Energy Solutions has found ways to successfully reduce the energy and environmental footprint of not only its parent company’s worldwide buildings, facilities and processes, but also government and public-sector facilities around the nation. And, since its creation in 2000, this company has demonstrated how energy efficiency can be a winning and profitable business model.

Over the past 11 years, Chevron Energy Solutions has completed hundreds of projects that represent billions of dollars in energy savings. As a result, the company has helped to eliminate millions of metric tons of greenhouse gas emissions and saved the country millions of gallons of water - all the while raking in a solid profit for Chevron shareholders. Examples of these projects can be found around the country.

One such project was completed in Colorado in 2009. Here, at the state’s Capital Complex facilities in Denver, Chevron Energy Solutions engineered and installed energy efficiency improvements including building envelope and lighting retrofits, energy management systems, and HVAC system upgrades on 20 of the state’s government buildings. These retrofits, combined with the ground source heating and cooling at the Governor’s mansion and a more than 100-kW in solar PV installations, led to an overall reduction of the state’s energy demand for these buildings more than 30%. Since their installation, these upgrades have been responsible for reducing the state’s carbon dioxide emissions by more than 8,000 metric tons per year. Perhaps even more impressive, this project turned historic landmarks that were constructed in the late 1800s and early 1900s into some of the most energy efficient buildings in the nation (five are now LEED certified).

 

Photo: Night Shot of Colorado's Capital Complex

Very different examples of Chevron Energy Solution’s projects can be found in California and Maryland, where a greater portion of the final design was dedicated to clean energy generation. At California’s Pierce College, Chevron Energy Solutions effectively combined generation and efficiency by not only installing a 360-kilowatt (kW) cogeneration system, but also including waste heat recovery for use in heating the college’s outdoor pool. At Maryland’s Fort Detrick, reliability and resource use efficiency were the focus in a design was prepared for a new Central Utility Plant (CUP). This facility now provides efficient high reliability electricity, steam, and chilled water to facilities owned by the Army, Department of Homeland Security (DHS), and the National Institutes of Health (NIH).

Photo: Inside of Fort Detrick's Central Utility Plant (CUP) in Maryland

In total, Chevron Energy Solutions has completed hundreds of projects for customers around the United States. But, its biggest customer is its parent company – since 2000, the Energy Solutions division has delivered over $430 million in savings to its parent company through efficiency measure and clean generation technologies at its facilities around the world. And, with each project, this small division living within an oil giant has demonstrated the power of negawatts versus megawatts.

Negawatts refer to units of energy demand that are removed using energy efficiency. In the United States, negawatts represent some of the cheapest and most abundant sources of energy currently available. In the 2009 report by McKinsey and Company on “unlocking energy efficiency in the United States,” it was estimated that the US economy could shed non-transportation energy consumption by 23% by 2020, representing more than $1.2 trillion in savings for $520 billion in upfront investments. But, according to this report, the ability of the nation to achieve these savings will only be possible if it can overcome some significant barriers. In particular, the US is in need of an integrated strategy that:

  1. Recognizes energy efficiency as an important energy resource
  2. Formulates and launches a portfolio of proven, piloted, and emerging energy efficiency technologies and strategies
  3. Identifies ways to provide the capital necessary to fund energy efficiency projects
  4. Forges alignment between utilities, regulators, government agencies, manufacturers, and energy consumers
  5. Fosters innovation in the development and deployment of next-generation energy-efficiency technologies to ensure ongoing gains

This strategy would undoubtedly help to pave the road for widespread energy efficiency in the United States. And, over time, this strategy could prove to be a winner for more sustainable energy systems design. But, in the private sector, an oil giant has shown that, while a federal energy efficiency strategy could be widely beneficial, reducing the nation’s energy use can already be profitable.

At Chevron Energy Solutions, President Jim Davis and his team of just over 300 employees (about one-third are degreed engineers) see energy efficiency as one of the sharpest and strongest tools in our toolbox in meeting future energy needs. And, in using energy efficiency before implementing clean generation technologies, this energy services company shows the economic argument for first reducing demand. To understand how Chevron Energy Solutions has shown the power of economic energy efficiency projects in the United States, let’s look at their work in terms of the 2009 recommendations from McKinsey & Company.

1. Recognize energy efficiency as an important energy resource

Chevron Energy Solutions is built upon a business plan developed by its President long before he joined the ranks of the oil and gas giant. In this plan, Mr. Davis looked at energy customers in a holistic manner, from both a supply and demand perspective. Utilizing his business and commodity trading background and experience working in the middle of the deregulation of natural gas wellhead prices in the late 1980s, Mr. Davis took his understanding of how demand impacts a company’s bottom line and turned it into a successful business that focuses on efficiency first – and generation second.

If you ask Mr. Davis why Chevron Energy Solutions prioritizes energy efficiency, his answer is clear – his company thinks in terms of decades, not quarters and it recognizes the fact that energy efficiency is not only the cheapest resource available but also one of the most abundant. He does not think that there is much sense in putting solar panels all over a building with an inefficient building envelope or overblown lighting designs. And he will show you, through your pick of the company’s hundreds of projects, how efficiency before generation led to a better outcome for the facility’s occupants.

2. Formulate and launch an integrated portfolio of proven, piloted, and emerging energy efficiency technologies and strategies

In each of its projects, Chevron Energy Solutions is technology agnostic. Since it acts almost exclusively as a general contractor in outside projects (most of the actual construction is contracted out) and it does not directly supply the building materials or technologies that it installs, the company’s engineers focus on what technology will work best, not which is “in-house.” In this evaluation process, each of the technologies that the company implements is evaluated and tested before it is used on large projects, often through demonstrations on Chevron’s own facility sites. Over the past decade, the company has used technologies from solar thermal and PV to fuel cells, and less sexy options like more efficient pumps and motors for water supply systems and simplified lighting design. The company is constantly evaluating new technologies to meet the demands of changing work environments and project requirements.

3. Identify ways to provide the capital necessary to fund energy efficiency projects

Simple –

  • Step 1: Identify available rebates and grant programs applicable to the project.
  • Step 2: Determine the amount of internal funding that is already available (for example, existing bond funds)
  • Step 3: Find financing - Prepare a Request for Proposals and send this request to financial institutions for bids.

Each step is completed with the help of the Chevron Energy Solutions finance staff. Granted, this work is not altruistic – the company makes money when a project is executed successfully.

4. Forge alignment between utilities, regulators, government agencies, manufacturers, and energy consumers

Unlike many Energy Service Companies (ESCOs), Chevron Energy Solutions’s external projects are almost exclusively in the public sector and federal markets. According to President Jim Davis, this decision was made because these organizations typically do not have the budgets and internal staff to handle sweeping efficiency overhauls.

Photo: Chicago area classroom

For example, in a K-12 school district, staff members might be dedicated to identifying ways to build new classrooms or successfully teach the same number of children with fewer resources. But, it is rare to find staff assigned to identifying energy conservation and efficiency opportunities. Interestingly, by reducing utility bills, new classroom facilities could be easier to fund. As a part of Chevron Energy Solutions’s work, the company focuses on how to provide a comprehensive plan for these organizations. For example, the company can help to find ways to pay for replacing leaking roofs on your classrooms through energy efficiency savings.

5. Foster innovation in the development and deployment of next-generation energy-efficiency technologies to ensure ongoing gains

Chevron Energy Solutions often meets with venture capital (VC) firms to discuss potential up-and-coming technologies that it might be able to test on its facilities to establish if it might be a good fit for future project. While it does not directly invest in any of these companies, its sister company – Chevron Technology Ventures – does. And, even when Chevron has no hand in the capital behind new technology ventures, the company tries to be active in the design process for potentially beneficial technologies. According to President Jim Davis, his company prefers to be involved in the design processes early on, to help them foster their progress in a way that will increase the likelihood that Chevron Energy Solutions could use the technology in future projects.

Now, Chevron Energy Solutions is not an altruistic company whose sole aim is to help reduce society’s energy use and environmental impact. It is a business that’s first priority is to make a profit for Chevron’s shareholders. The results of this can be seen in the fact that Chevron Energy Solutions has chosen to focus primarily on the electricity side of the energy industry, effectively skirting many potential opportunities for reducing energy consumption.

In the electricity world, Chevron has relatively little to lose. Granted, a reduction in electricity demand in the US could result in less demand for natural gas or oil because both are used as electricity generation fuels. But, with natural gas sitting at $4 (per MMBtu) and oil only supplying 3% of the total annual generation in the US, the potential impacts are much smaller than if Chevron Energy Solutions focused on transportation efficiency.

So, when Chevron Energy Solutions designs proposals for its external customers that will reduce a building’s energy demand, their project is unlikely to lead to significant negative impacts on their parent company’s bottom line. By making this choice, Chevron Energy Solutions has been able to avoid internal turf wars. The company has also left many opportunities open for other businesses that might focus on energy efficiency strategies that directly reduce energy demand related to transportation sector activities.

Internally, the story is a bit different but the result is the same. At many Chevron facilities, the oil and gas that is produced on site is used directly to meet the energy needs in the facility. According to President Jim Davis, there is a strong motivation to reduce the amount of product consumed on site. Because, for every unit of oil or gas that is consumed instead of being shipped, Chevron has lost a piece of merchandise that could be sold.

Since it was founded in 2000, Chevron Energy Solutions has experienced an average growth rate of 20% per year. Perhaps the main message that this gives us is that an integrated strategy for pursuing energy efficiency can pay off. And, that the best unit of energy is often the one you do not have to supply at all.

Photo Credit:

  1. Photo of Colorado Capital Complex at night by Chevron and used with their permission.
  2. Photo from inside Fort Detrick’s Central Utility Plant (CUP) by Chevron and used with their permission
  3. Photo of classroom in Chicago area school by Chicago 2016 Photos and used under this Creative Commons License.

The views expressed are those of the author and are not necessarily those of Scientific American.

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