Carbon reduction legislation and ESG goals require organizations to reduce greenhouse gas (GHG) emissions from their building operations, but many soon discover that costs for electrifying existing buildings add up quickly. Replacing gas systems with electric ones can require significant and costly building modifications. The result can be excessive capital costs, and high operational costs as well. To increase adoption, electrifying gas systems must be cost-effective. So, what do you do to lower electrification costs from capital and operational expenses when electrifying your facility?
Existing Building Electrification Capital Cost Drivers
First, it’s important to understand the source of many capital costs for electrification retrofits. If you just look at the cost of a heat pump compared to a boiler, the price premium may not look particularly large. However, converting gas heating systems to electric can often require numerous other alterations to your building’s systems, including:
- Structural upgrades to support increased equipment weight and size.
- Mechanical upgrades to accommodate lower heating temperatures (heat pumps only like providing 120-140F water under most conditions, while gas systems can easily and reliably provide 180F water).
- Electrical upgrades to accommodate increased electric loads.
- Controls improvements due to more complex operational requirements.
These costs can quickly balloon an electrification project’s budget, and are not always evident upon initial project scoping. It is important to consider these potential project requirements from the very beginning, to avoid de-railing your project partway through design.
Existing Building Electrification Operational Cost Drivers
In many parts of the United States and throughout the world, electricity costs significantly more than gas for each unit of energy purchased. This can make converting gas system to electric a scary proposition! Thankfully, a well-designed electric heating system can achieve efficiencies that are 3-4X (or more!) better than gas heating. As a result, these systems can be cost neutral or even generate savings on monthly utility bills compared to gas-fired systems.
On the other hand, a poorly-designed electric heating system is inefficient and can send your heating energy costs skyrocketing. These less-efficient systems will generally rely heavily on electric resistance heating instead of heat pumps, or may operate at high heating hot water temperatures that are outside of the range of a heat pump’s efficient operating range.
Tips to Lower Electrification Costs
So you may ask yourself, what do I do to lower electrification costs and still achieve my goals? What does a financially-viable electrification project look like given these hurdles? Here are some key steps that I recommend all of my clients consider during project planning and development to keep both capital costs and operational costs in-line.
1. Plan ahead to replace aging equipment
- More often than not, replacement of HVAC equipment is reactionary. A boiler is replaced when it fails, and when it fails, it needs to be replaced ASAP! Unfortunately, this type of urgency makes electrification difficult and expensive.
- Heat pumps and other electric heating equipment are in demand right now, so lead times are long, and any of the myriad upgrades I described above have the potential to delay a project.
- So, you need to plan ahead and prepare your infrastructure for electric heating systems in advance.
- This helps reduce overall project costs. If you’re ready to install an electric heat pump alternative when your boiler is at the end of its life, then you avoid the costs you would have incurred to install that new gas boiler when your current one fails. Those avoided costs can improve a project’s bottom line.
2. Know your loads!
- What is your building’s peak heating load? When does this peak occur? How often am I operating near my peak loads?
- If you don’t know the answer to any of these questions, you could end up shelling out A LOT more money for an electrification project than needed. The likely result is that you will oversize your systems. This results not only in higher equipment costs, but may trigger many of the costly electrical and structural upgrades I mentioned previously, and result in poor operational efficiency.
- If you have the metering instrumentation in place to evaluate your building’s loads, then I recommend ensuring those devices are functioning properly and recording information throughout the year so that a qualified engineer can review the data and make informed design decisions.
- If you don’t have the metering in place, then installing the necessary metering and trending can be a key first step with up-front costs that can save huge dollars in construction costs down the line.
3. Retro-Commission your building before electrification planning
- Preparing your building for electric systems doesn’t have to be a cost drain. Sometimes it can pay strong dividends!
- Prior to any boiler or heating equipment, pursue a full retro-commissioning (RCx) effort of the existing HVAC systems. RCx helps in many ways:
- RCx usually uncovers inefficient operations in building HVAC systems that are relatively cheap to fix, and can yield highly cost-effective energy savings. Improvements to scheduling, set point control, and following proper temperature and pressure set point reset algorithms such as those outlined in ASHRAE Guideline 36, can add up to significant savings. These on-bill savings could then be re-purposed to help fund future electrification efforts.
- A good RCx project will study the building loads from the metering devices, and identify any potential controls methods to help smooth out those peak demands and help reduce the peak capacity needed from the system.
- A comprehensive RCx project will also review how the heating and cooling loads vary throughout the building, and which HVAC zones particularly struggle to meet their loads. This information can be invaluable when installing electric heating equipment that may not be able to achieve the same hot water temperatures as the existing gas boiler. Targeting heating coil upgrades to these few ‘critical zones’ could allow the entire system to operate at a lower temperature, without incurring the expense of upgrading every single heating coil throughout the building. In a large VAV-reheat system typical in California, there could be hundreds of these hot water coils, and the expense to upgrade them all to operate at lower temperatures is immense!
4. Leverage thermal storage to meet peak loads
- One key to minimizing project costs is to keep the equipment size as small as possible. Heating equipment is almost always sized for peak load conditions, which typically only happen when your building starts its morning warm-up cycle, and may only truly peak on the one or two coldest days of the year.
- Sizing electric heating systems to this peak demand can not only result in high first costs, but can result in poor operational performance as well.
- To resolve this, consider thermal storage for any boiler-to-heat pump retrofit. Storage allows heat pumps to operate at a lower, more consistent load throughout the day, and store up excess thermal energy. This energy can then be deployed during the morning warm-up peak period when loads are especially high.
- This approach helps on many fronts:
- Thermal storage has lower up-front costs than the equivalent capacity of heat pump heating.
- Storage can reduce your heat pump sizing to a point that may reduce or prevent the need for costly electric and structural infrastructure improvements.
- Thermal storage can reduce operational costs and carbon intensity as well by discharging heat in the morning when electricity costs are high and renewable energy isn’t available, and operating the heat pumps to recharge the storage system during the middle of the day when their efficiency is higher, and electricity prices are lower. Note that this strategy aligns with time-of-use utility rates. Your rates may vary, and you should tailor your strategy to your electric utility’s rate structure.
5. Recover heat to maximize efficiency
- Heat recovery deserves a post on its own, but the short version is that any time you have an available source of waste heat, you should consider using it. That waste heat should meet one or both of the following criteria:
- The heat source is warmer than the outside air temperature during your primary heating hours.
- Extracting heat from the heat source (cooling it) provides useful work to another system.
- In particular, when electrifying boilers that are part of a central chiller and boiler plant, heat recovery systems can be extremely cost-effective as they meet both of the categories above.
- Heat can be extracted from chilled water that is in the 50-60F temperature range, or if your system is water-cooled, from the condenser water in the 75-85F range. In either case, those temperatures are at or above the typical outdoor air temperatures when significant heating is required.
- Transferring heat from the chilled water system to the hot water system can reduce the load on your chillers and/or cooling towers, resulting in electric savings through ‘free cooling.’ Depending on the cooling and heating load profiles (know your loads, remember!), the resulting cooling savings can significantly offset the added heating load.
- Efficient heat recovery plants can easily achieve a 3-4x improvement in efficiency compared to gas heating systems, often pushing into the 5-6x improvement range that can lead to some serious on-bill energy cost savings for decades to come.
6. Perform a life cycle cost analysis
When analyzing electrification project feasibility always insist on a Life Cycle Cost Analysis (LCCA). Simple payback worked when things were simple, like pulling out T12 fluorescent lamps and screwing in T8s. Electrification is complex, and almost always a long-term investment. That type of investment deserves a more complex financial analysis.
A LCCA should account for the cost burdens and benefits your new systems will provide over the full 15-20 year life of the equipment. When factoring in the steady increase of electric and gas prices, monetary incentives, tax benefits, and low/no interest financing, the rate of return for a well-designed electrification project starts to look at lot less scary, and a lot more lucrative for both your bottom line, and the planet.
7. Take advantage of available funding
Last but certainly not least, you can improve project payback with available financial tools and funding to reduce or refund first-costs. Make sure to account for these financials in your project’s LCCA, as they can sometimes make all the difference in ensuring that go/no-go decision is a go. Like heat recovery, this category deserves a post of its own, as there are myriad existing, new, and upcoming funding sources available for electrification projects, such as the following.
- Federal Tax Credits. The Inflation Reduction Act of 2022 significantly expanded the tax credits available for certain electrification projects, with credits reaching as high as 30% of the project cost for qualifying projects! Depending on your tax status, these credits can have a huge impact on the bottom line for your project. Keep in mind, many of these credits expire as soon as 2025, so start planning now if you want to take advantage!
- State Tax Credits. Many states offer tax incentives as well. Ask your tax professional or check out your resident state tax agency website.
- Utility Incentive Programs. Many utilities offer programs which provide incentives and/or technical support to offset project costs. Your utility account representative can be a valuable source of savings opportunities.
- Utility On-Bill Financing Programs. Many utilities offer 0% loans through on-bill financing for some projects. Loan payments align with your monthly energy savings, o your bill doesn’t increase and avoid out of pocket expenses. Reach out to your account representative for more information.
Electrifying existing buildings is complex, and project costs can quickly add up. Keeping these tips in mind you can lower electrification costs while maximizing your energy savings and ROI as well as meet your sustainability goals. If you need help getting started with your electrification project or any of the recommended steps, please contact us anytime.