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Minister Meets Conservation Emissaries Commercial Sector Fundamental to Provincial Strategy
May, 2008
By Barbara Carss
Energy retrofit incentives like those now available for commercial electricity customers in Toronto could soon be offered throughout the province. Senior real estate executives heard the pledge at a recent roundtable session with the Minister of Energy, Gerry Phillips, held as part of Ontario's inaugural Energy Conservation Week, May 25-31.
Minister Phillips specifically requested that the Building Owners and Managers Association (BOMA) of Greater Toronto organize the gathering that brought together executives from companies that own and/or manage more than 500 million square feet of real estate across Canada. The Minister and representatives from the Ministry of Energy and the Ontario Power Authority (OPA), including the Chief Energy Conservation Officer of Ontario, Peter Love, took the opportunity to outline policy directions and hear about some of the challenges commercial building owners and operators encounter in implementing energy efficiency measures.
Attendees were asked to talk about successful and potentially replicable conservation initiatives within their portfolios, as well as any obstacles that have frustrated their efforts. "BOMA Toronto was entrusted with this task because of Minister Phillips' and Peter Love's confidence in our role as an industry voice and innovator," explains Wayne Proulx, Director of BOMA Toronto's Conservation and Demand Management Program.
THE CHALLENGE AHEAD
Ontario's Integrated Power System Plan (IPSP) sets out goals for augmenting the power supply and cutting energy demand. Projections indicate that peak demand in Ontario could reach 29,000 megawatts (MW) within the next decade - up substantially from the current peak record of 27,005 MW set on August 1, 2006 when temperatures across the province soared to the 38( C (100( F) range. Approximately 6,400 MW of generating capacity will be lost in the same period with the scheduled shutdown of coal-fired generating plants in 2014.
By 2025, the Ontario government aims to bring an additional 7,800 MW of renewable energy capacity on line, add or replace enough nuclear generating capacity to maintain a 14,000-MW output of base electricity load for the province, and cut peak energy demand by 6,300 MW.
Phillips' opening remarks focused on what he sees as the IPSP's three underpinning goals for a reliable, affordable and environmentally sustainable power system, and the Province's need for cooperation from the commercial real estate sector, especially to attain conservation targets. "You use an awful lot of electricity in the province of Ontario so you are important to us," he observed.
For their part, roundtable participants commended the provincial government for reaching out to them. "I think the fact that you are here today listening to this group is a real step forward," Ian Stewart, the Chairman of BOMA Canada and a Vice President, Property Management, with GWL Realty Advisors, told Phillips. "I applaud you for it."
AGING STOCK A FOCUS FOR RETROFITS
Commercial electricity customers in Toronto have been some of the first beneficiaries of OPA-funded incentive programs - notably through the Conservation Demand Management (CDM) program that the BOMA Toronto has developed and is administering to support energy-saving retrofits. Approved proponents can be rebated up to 40% of the capital costs of energy saving measures based on a formula of $400 per kilowatt (kW) of peak demand reduction or 5 cents per kilowatt-hour (kWh) consumption reduction.
BOMA Toronto has committed to securing 150 MW of energy reduction from Toronto's commercial sector by the end of 2010, which would represent half of a Toronto-specific target for that time period set by the former Minister of Energy, Donna Cansfield. In the broader context, the IPSP sets a target for 2,700 MW of province-wide reduction by the decade's end to ensure all is on track to achieve 6,300 MW of conservation by 2025.
Buildings with outmoded lighting, HVAC and other mechanical/electrical systems are the obvious source of much of the envisioned energy savings. The vast majority of Ontario's commercial buildings predate the 1990s.
"It's aging stock that was never designed with energy conservation in mind," Stewart said. "We need more programs and incentives to address that. I think that's the crux of it."
Outside Toronto, real estate operators are eligible for various retrofit incentives offered through Ontario's 86 local distribution companies (LDCs), but, for companies with holdings in more than one jurisdiction, this has proved to be an inefficient piecemeal approach, requiring multiple and often redundant applications.
Stu Wanlin, Executive Vice President, Eastern Canada, with Bentall Capital, called for a comprehensive single-window program. "Our portfolio is primarily located in the 905 area," he noted. "Our property managers are reporting that many of the LDC programs are not really worth the bother."
"New development you're bringing on is easy to deal with. The biggest challenge is in the existing buildings, and the challenge for us is to try to get conservation programs that we can implement across the region and across the country," concurred Stephen Taylor, President and Chief Operating Officer of Morguard Investment Ltd.
The OPA is currently monitoring and assessing BOMA Toronto's CDM program to determine how best to dispense incentives in other areas of the province. "We wanted to start in Toronto. That's where most of the buildings are. Rather than going province-wide [immediately] we wanted to make sure we got it right first," Peter Love said.
"The Toronto directive [for 300 MW of additional conservation] was a major initiative and we needed to move on it quickly," added Taki Eliadis, the Director of Commercial and Institutional Programs with the OPA. "We are actively working on a mechanism to expand the program to the 905 regions and Ontario-wide and this is the highest priority for us."
On the new construction front, OPA-funded incentives are now available for buildings that surpass the Ontario Building Code's energy performance standards. (See Property Management Report, April 2008.) These programs are coordinated through the City of Toronto's Better Buildings Partnership and by Enbridge Gas Distribution in all areas of the province outside Toronto.
FAIR PAYBACK FORMULA SOUGHT
Incentives have long been heralded as a way to accelerate the payback and improve the economic case for capital upgrades. Nevertheless, building owners, managers and occupants often have differing interests that complicate how energy savings are realized and passed through to the beneficiaries. Property managers typically seek to reduce operating costs whereas owners and/or asset managers may be looking at a building in the context of portfolio-wide strategy for returns on investment.
"Bentall is a tenant in a building that we manage and I can't get our space sub-metered," Wanlin reported. "The client [owner] is a pension fund and they see no payback in it."
In older office buildings, landlords have traditionally passed through electricity costs on a per-square-foot basis and tenants have tended to view them as a non-specified part of the overall mix of operating costs. "It's very non-scientific," acknowledged Keith Dissette, Vice President, Corporate Development, with Redcliff Realty Management Inc.
However, new technology, building controls and energy management software now give landlords and tenants the ability to monitor consumption and respond to demand management prompts. Gord Hicks, President of Brookfield LePage Johnson Controls (BLJC), gave the example of cooling controls that tenants can override if they want to maintain higher levels of cooling within their suites after regular business hours when most premises are unoccupied. Cooling loads can be specifically targeted and easily measured so that costs can be straightforwardly allocated to the users of the energy.
Sophisticated retrofit options aren't necessarily difficult to find, but a cost-effective financial formula is also imperative. "There are some big questions that arise. Who is making the investment, who is controlling the energy usage and who gets the benefit of the cost savings?" Taylor noted. "How do you structure financially to make sure the landlord is reimbursed for the investment he makes? I don't think there is an easy answer to those questions."
In rental housing, in particular, many landlords remain reluctant to implement sub-metering that would make tenants responsible for utility costs (with a corresponding rent reduction) because the current rules do not allow this to be done for sitting tenants. Landlords are looking for firmer confirmation of possible rules for sub-metering that were proposed in the Residential Tenancies Act, which has been passed by the legislature, but not yet proclaimed. The provincial government's historical propensity for regulating rents and restricting owners' ability to recoup capital investment also makes landlords wary.
"Very little has been done in terms of pushing sub-metering in the multi-family sector," Yazdi Bharucha, Chief Financial Officer with CAP REIT, told the Minister. "We need some guidance from you."
REGULATORY CHECKS AND PROMPTS
Tenants' groups have expressed concerns about any potential move to mandate sub-metering, but so, too, have advocates for the multi-residential rental and condominium sector who point to some of the structural hurdles in retrofitting older, bulk metered buildings. Phillips stressed that the government wants to avoid legislation that would cause financial hardship, even though he sees sub-metering as a good idea in principle.
"I think that tenants paying for the cost of electricity is the way to get people actually saving," he said. "I would like to see it happen, but I am told that when you do the cost-benefits analysis, in some buildings it may be tough."
Other participants urged the government to use its regulatory powers to set performance thresholds and deadlines for compliance. Hicks argued that the real estate industry had quickly adapted to the Montreal Protocol and the phase-out of CFCs and HCFCs and that it could rise to similar directives for reducing greenhouse gas emissions.
"At the outset we may experience a little bit of a bump, but I think we are an eager bunch and at least that would establish a level playing field," he suggested. "Organizations that are innovative will step up."
Lyle Scott, Director of Sustainable Communities with Minto Green Team, similarly praised Ontario Building Code changes that will come into effect for new single-family homes beginning in 2012. This sets a higher standard for energy performance across the board, but provides time for the industry to find ways - perhaps innovative new ways - to comply.
"It's essentially making an ENEGY STAR home the standard. It is also creating a level playing field," he maintained. "We have committed, internally as a company, to have all homes ENERGY STAR rated by 2009, and the reason we have done that is that we need to figure out how best to do it before 2012."
Minister Phillips endorsed this approach for stimulating the Ontario's government's envisioned culture of conservation. "It's pushing the envelope as far as we can reasonably," he said. "That becomes the level playing field and then the innovators move above it."
For more information about the Green Energy Act, see the Ontario government web site at www.mei.gov.on.ca/english/energy/gea.
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