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Evaluate Opportunities to Use Alternative and Renewable Energy Sources

All PIM content was independently developed and reviewed to be vendor-, product-, and service provider-neutral.


This PIM will help building owners determine whether an alternative or renewable energy development is feasible and cost-effective for a given facility. On-site renewable energy can provide significant cost savings and can be funded through many avenues.

  • Project Talking Points

    • Building owners are realizing their social responsibility to manage their energy independence from conventional sources. Development of on-site energy sources can reduce electric and natural gas grid energy consumption, hedge against the volatility of energy prices, provide cleaner energy solutions to the building and community, and potentially reduce utility costs, freeing up money for clinical operations.
    • Several states have adopted a state Renewable Portfolio Standard (RPS). By doing so, they have obligated utility companies to provide a specific percentage of renewable energy to their customers by a certain date.


    (Click on the image to enlarge.)
    Figure 1: Incentives by region published by NCSC. Please verify that this information is current for your own analysis
    Figure 1: Incentives by region published by NCSC. Please verify that this information is current for your own analysis.

    • Take advantage of federal, state, and utility programs to supplement the capital cost of a development.
    • Rely on a third-party energy services company (ESCO) for financing if the facility owner is a not-for-profit entity or does not want to bear the risk of performance and maintenance.
    • Use alternative energy sources to hedge against the volatility of utility prices.
    • Accumulate environmental benefits such as carbon offsets and renewable energy credits.
    • Take advantage of the public relations (PR) benefits of on-site energy production by communicating the environmental and community benefits associated with it.
    • Currently, facility owners may choose to engage in on-site alternative or renewable energy developments to help reduce their utility consumption and provide cleaner energy to their facilities. At some point, federal and state policies may create strict air quality and energy reduction measures that will force facility owners to change their business as usual. By starting now, facility owners can stay ahead of the curve.
  • Triple Bottom Line Benefits

    • Cost benefits: Cost and savings can vary significantly depending on the type of alternative or renewable technology implemented and the facility energy demand. Delivering a project through a lease, power purchase agreement or buyout may provide enhanced financial benefits.
    • Environmental benefits: Environmental benefits from on-site developments include renewable energy certificate creation, carbon offset accounting, and a reduction in overall utility consumption.
    • Social benefits: These projects set an example for the community and send a message that health care is not just about treatment of illness but building a better environment. In addition, providing on-site generation can provide an additional level of reliability to a facility’s electrical infrastructure.
  • How-To

    The following outline is a sequential process for accurately identifying an appropriate on-site renewable or alternative energy development.

    1. Determine who’s on the team. Identify who will be doing the feasibility study and who will be managing project implementation.

    • Facility operators and chief engineers can confirm off-peak and peak facility demand.
    • Facility operators and chief engineers can identify locations for facility connection.
    • The team should consist of:
      • Point of contact (project manager)
      • Chief engineers
      • Facility operators
      • An authority having the power to approve the project
      • Others, such as vendor contacts, who can guide the project manager’s financial assessment

    2. Identify the facility goals. Facility goals or drivers may include the following:

    • Reduce utility costs
    • Hedge against volatility of utility rates
    • Provide a facility with a carbon offsets
    • Retain Renewable Energy Credits
    • Contribute to on-site renewable energy goal
    • “Go Green”: Many facility owners realize the PR benefit with alternative and renewable developments. These developments reflect positive change that a community should embrace. They tell a story that the company is taking a proactive approach to providing the community with cleaner solutions.

    3. Establish facility parameters. Establishing project and facility parameters requires the following activities:

    • Collect the most recent annual consumption data. This can be done with 15-minute interval data or utility bills.
    • Identify the minimum heating load (Btu/hr).
    • Identify annual electrical consumption (kWh).
    • Identify the maximum annual facility demand (kW).
    • Identify the minimum annual facility Demand (kW).

    A facility electricity load profile tends to establish a parabolic-like curve, meaning there is a higher demand for electricity from 11 a.m. to 5 p.m. (peak periods) and less consumption outside of that time range (off-peak periods). Generally, electrical demand is greater during summer months than winter months. This is typically because the demand for chilled water and cooling increases in the summer.

    Figure 2 below provides a visual description of a sample facility loading profile during the winter months (blue curve) and during the summer months (red curve). The Y-axis represents electric demand in (kW) and the X-axis represents hours (HRS) of the day in military time. The summer facility demand is greater than the winter load profile during all hours of the day. The red dotted line shows that facility peak demand occurs at roughly 14:00 (2:00 p.m.). The different shades of colors on the graph represent different electric utility rates associated with that time range, while the dollar signs in each shaded area represent the cost of the electricity relative to the other time periods. For example, summer peak hours (yellow area) happen between 11:30 a.m. and 5:30 p.m. Since all other colored areas have fewer dollar signs, this indicates that consuming electricity during summer peak hours will be the most expensive for the end user on a $/kWh and $/kW basis.

    (Click on the image to enlarge.)
    Figure 2: Representation of a facility’s summer and winter electric consumption profiles

    Figure 2: Representation of a facility’s summer and winter electric consumption profiles

    4. Identify future energy efficiency measures that will reduce your facility’s demand. This information will help avoid development of an oversized on-site renewable system. If a facility employs on-site renewable or alternative energy and sizes the capacity of the generator for the facility’s peak demand (See Figure 2 description or red dotted line) and later reduces the demand through energy efficiency measures, the on-site generator will be oversized. In this scenario, the on-site generator exceeds the demand requirements of the facility, and net metering will occur. This over-production is typically not desired, but in states with a deregulated electrical utility structure, it can be financially beneficial to have power available to sell back to the grid, especially during peak hours.

    5. Identify the facility's electric rate structure and time-of-use tariffs. Electricity tariffs have several components. For our purposes, we will focus on transmission and distribution, generation, and demand charges. These charges are bundled to create an overall average cost of electricity, $/kWh and power $/kW, during off-peak, partial peak, and peak times. Please refer to Figure 3 for a visual representation of how time-of-use rates relate to one another. Figure 3 below is an explicit representation of how off-peak, partial peak, and peak times differ in value.

    • Transmission and Distribution Charges: These are associated with the utility infrastructure that transmits the generation to your facility. This includes transformers, utility lines, utility substations, and the maintenance required to keep the system working. These charges are indicative of consumption ($/kWh).
    • Generation Charges: These are rates associated with a facility’s monthly consumption (kWh). Depending on what time the consumption occurred, different generation rates may apply. This type of structure is called time of use (TOU).
    • Demand Charges: Facilities will pay a predetermined value ($/kW) every month for their maximum demand. What does this mean? A facility can operate consistently at 50kW throughout a month, but for some number of minutes the demand jumps to 300 kW. Although the running average is far below 300kW (avg = 50kW), the utility company will charge a monthly demand for the 300kW. Minimizing these peaks is where alternative and renewable energy sources often contribute the most to reducing utility bills.


    (Click on the image to enlarge.)
    Figure 3: Utility Tariff Schedule representing Transmission, Delivery, Demand and Generation charges

    Figure 3: Utility tariff schedule representing transmission and distribution, generation, and demand charges

    (Visit Southern California Edison’s (SCE) tariff schedules for a more detailed description.)


    • Annual Average Cost of Electricity: Determining the facility's average cost of electricity will help you assess the financial feasibility of the project.

      Your annual average cost of electricity is dependent only on facility parameters. The easiest way to calculate this number is by using the following equation:

    Annual Average Cost of Electricity

    • Annual Avoided Cost of Electricity: Your annual avoided cost of electricity is dependent on the facility's on-site renewable generation system. This system will offset electricity that would otherwise come from the utility company. To calculate the avoided cost of electricity you would need to know the on-site generator’s annual generation profile. For example, solar PV will only offset electricity from roughly 7 a.m. to 5 p.m. (when the sun is shining) while a fuel cell offsets electricity on demand.

      Annual Avoided Cost of Electricity

      An on-site generator profile is shown in Figure 4. The summer and winter generation profiles are that of a 1MW PV system. The facility profiles and the PV generation profiles have been superimposed on one another to create the red and blue dotted lines. The red and blue dotted lines now represent the new facility demand profile, or the facility’s grid consumption. The area between the original facility profiles (solid lines) and the new profiles (dotted lines) represent the avoided cost of electricity that the facility will not pay to the utility company.


    (Click on the image to enlarge.)
    Figure 4: A facilities utility consumption profile representing an offset due to photovoltaic generation

    Figure 4: A facility's utility consumption profile representing an offset due to photovoltaic generation

    6. Identify the facility thermal rate structure.

    • Confirm rate structure type.
    • Most facility rate structures are fixed, meaning the facility pays one rate at any time of the day.
      Most facility rate structures are fixed.

    7. Identify incentives and rebates.

    • Pursue rebates and incentives and check with local incentive programs for specific project requirements.

      Do you have resources to share on the rebates and incentives available in your area? Let us know by using the comment field below!

    • Incentives and rebates influence project feasibility. The majority of renewable and alternative technologies are at a premium compared to the energy we receive from utility companies. There are several federal, state and local programs that have helped these technologies become more cost competitive in the current market.
    • It will benefit the project manager to have a good understanding of the incentives available and the provisions to the incentive program. Most programs offer a capacity cap that may dictate the size of a system.
    • Verify that funds are still available in rebate programs. The significant demand on energy incentives means funds are often depleted before a program ends.

    8. Identify the resources available. Each geographic location has a more optimum technological solution depending on weather patterns. For example, it does not make sense to place a wind turbine in a location that does not have frequent prevailing winds, and Central Valley California is a desirable place for solar PV because the sun shines 90+% of daylight hours there. Additional studies may be needed if the distributed generator’s resources are unknown. Local codes and regulations that may impact permitting or the potential for net-metering should be evaluated for each proposed technology.

    9. Identify the project costs. Table 1 lists six common renewable and alternative energies that can be integrated into commercial applications. The table serves as a summary of key components (i.e., Resource, Physical Footprint, etc.) for each energy type to help a project manager short-list technologies that can accommodate facility and organization needs.

    • Solar PV panels are commonly used because they are a familiar technology industry and relatively low cost ($3.50 to $5.50/Watt). Monocrystalline and polycrystalline panels are typically 15-18% efficient and generate DC electricity, which can be converted to AC via an inverter. Amorphous panels are typically 6-12% efficient, but may offer better payback than crystalline panels. Furthermore, cloudier environments may see greater solar production from amorphous panels.
    • Solar thermal panels can be used if a facility has a steady domestic hot water demand. Water from the facility is routed through these panels to create hot water or low-pressure steam. The panels can be 70-80% efficient at converting the sun’s energy.
    • Fuel cells can be either combined heat and power or electric only. Several types of stationary fuel cells ae available on the commercial market, and their efficiencies and module capacities range significantly. Electric-only fuel cells can be upwards of 55% efficient (compared with 32% efficient for the electric utility grid). Combined heat and power fuel cells can be upwards of 75% efficient. Fuel cells may use natural gas or hydrogen depending on the type of fuel cell. The technology chosen depends on the facility's needs.
    • Wind systems range from micro wind turbines that sit above the parapet of a roof to large-scale megaWatt systems that need a large amount of real estate and complimentary jurisdictional regulations. Because of unpredictable wind patterns and the lack of availability of thorough wind studies, this technology tends to be more difficult to implement for commercial/building integrated applications.
    • Cogeneration systems generate AC electricity and use the facility’s hot water demands as a heat sink for a generator. These systems can be internal combustion engines or turbines, which have different operational, maintenance, and cost variances. Cogeneration efficiencies tend to be upwards of 75%. These systems are best suited for large campuses due to the cost and maintenance associated with them.
    • Waste-to-energy technologies process facility waste and convert it into a usable fuel source that can potentially be used to generate electricity. For these systems to be effective, a minimum threshold of waste volume (varies based on technology and manufacturer) must be available for processing. Be sure to examine applicable air emissions regulations to determine feasibility.
    • Please note that geothermal heat pumps are not included here but can be a good option for small facilities with available land. Ground source or water source (using a lake or pond) heat pumps are also worth investigation.


    Table 1: Renewable and Alternative Technologies Matrix
    Table 1: Renewable and alternative technologies matrix

    10. Analyze cash flows using a life cycle cost tool (see the one linked below).

    • Cash flows vary greatly depending on the following parameters:
      • Utility Escalation (%): Utility escalations are the rates at which electric and gas tariffs increase year after year for a term. The term is the life of the system. Generally, utility companies do not provide forecasts due to the complicated nature and motivators of the U.S. utility market. However, past data is usually made available through local utility company’s websites or through the U.S. EIA (Energy Information Agency).
      • Installed Cost ($/kW): Installation costs will vary depending on technology and the local market. A renewable and alternative technologies matrix has been provided in Table 1. The ranges shown are based on a sample of common product costs. For technologies with a significant range, research may be needed to evaluate the product cost locally.
      • System Size (kW): System size describes the standalone size of the system excluding any derating from inverters or inefficiencies.
      • Annual Generation (kWh): Annual generation will depend on the reliability, geographic resources, efficiency and uptime of the technology.
      • Federal, State, and Local Incentives and RECs: These incentives can be based on a lump sum ($), performance- based ($/kWh), or capacity-based ($/kW).
      • System Cost ($): System cost is a bundled installation and product cost.
      • Avoided Cost or Average Cost: Avoided cost is the offset cost the facility will incur if using an on-site distributive generator. With time-of-use rates, the avoided cost of a generator can be a complicated calculation. A time-of-use analysis should be done by an expert. For a high-level analysis, average cost is recommended.
      • System Degradation, Operation, and Maintenance Costs and Escalation: Over the term or life of the system, performance degradation and operations and maintenance costs will occur. If you are looking at a specific vendor and technology, a vendor representative will be able to provide you with general numbers.
      • Discount Rate: The discount rate reflects the time value of money. The discount rate can also reflect the rate of return the lump sum of capital would receive if used elsewhere.
    • Life Cycle Cost Analysis Cash Flows Spreadsheet
      This spreadsheet can be used to find the high-level cash flows for a project. Typically, this analysis should be done before you receive bids from vendors as the information calculated will help you vet vendor proposals and make their analysis easier to understand.

    11. Using the information gathered and analyzed, select the best option for your facility.

  • Tools

  • Case Studies

    Do you have any case studies to add? Contact us or comment below to let us know!

  • Regulations, Codes and Standards, Policies

    • DSIRE Renewable Portfolio Standard Policies for the United States
    • California Law
      • SB2(1X) – RPS Goal of 33% Renewables by 2020
      • SB1368 – Limits long-term investment in coal generation plants
      • AB 32 – Obligates California Air Resources Board to bring California greenhouse gas emission levels to 1990 levels in 2020
      • SB32 - Obligates the California PUC to standardize feed-in-tariff contracts and rates for renewable generators

    Do you have resources on the codes and regulations in your region? Contact us or let us know using the comment field below.

  • Cross References: LEED

    LEED for Existing Buildings: Operations + Maintenance

    • Energy & Atmosphere Prerequisite 2: Minimum Energy Efficiency Performance
    • Energy & Atmosphere Credit 1: Optimize Energy Efficiency Performance
    • Energy & Atmosphere Credit 4: On-site and Off-site Renewable Energy

    LEED for Healthcare: New Construction and Major Renovations

    • Energy & Atmosphere Prerequisite 2: Minimum Energy Efficiency Performance
    • Energy & Atmosphere Credit 1: Optimize Energy Efficiency Performance
    • Energy & Atmosphere Credit 2: On-site Renewable Energy

    Green Guide for Health Care Operations Section

    • Facilities Management Prerequisite 2: Minimum Building Energy Efficiency Performance
    • Facilities Management Credit 1: Optimize Energy Efficiency Performance
    • Facilities Management Credit 7: On-site and Off-site Renewable Energy
  • PIM Synergies

    • Establish a baseline for current energy consumption.
    • Pursue rebates and incentives.
    • Implement combined heat and power systems.
    • Install solar photovoltaic systems.
    • Install on-site wind generation.
    • Install waste-to-energy systems.
    • Evaluate energy use using energy modeling or analysis.
    • Install fuel cells.
  • Education Resources

    Energy U IconEnergy University Course(s)

    Energy Rate Structures I: Concepts and Unit Pricing
    Understanding the forms of energy used at a facility, and the rate structure for each, is key to understanding energy costs and implementing an energy efficiency program. By understanding what you are paying for energy, and how the rate structure controls your bill, you can adopt different strategies for reducing your energy costs. You may even be able to move to a different rate structure that is more cost-effective for your facility. In this course, we will focus primarily on gas and electricity concepts and unit pricing.

  • More Resources

  • PIM Descriptors

    Energy, Supply Chain

    Level: Advanced

    Category List:

    • ENERGY
    • Renewable power sources
    • Supply Strategies

    PIM Attributes:

    Improvement Type:

    • Alternative Sources
    • Energy


    • Engineering/Facilities Management
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