Improving Cooling Equipment for the Small Commercial Buildings Market

Commercial buildings account for approximately 15% of total U.S. primary energy consumption. Small commercial buildings, those with floor areas of 50,000 sq.ft. or less, account for 55% of the total commercial floor area, but fully 96% of the buildings. They are estimated to account for 56% of total commercial buildings energy use (MacDonald et al. 1986). Initial and replacement equipment purchases present a unique and vitally important opportunity to increase long-term energy-efficiency in the small commercial sector. Several key factors combine to create this situation: (1) the total energy costs of customers in the small commercial sector are small in absolute terms, (2) small businesses have short payback criteria, and (3) energy use, and in particular electric use, is divided over a number of end uses and pieces of equipment, rather than being concentrated in one or two. These factors make it very difficult to identify retrofit items for this sector that meet owners' cost-effectiveness criteria. Investments in efficiency are much more cost-effective at the time of equipment purchase. However, numerous studies have found that commercial equipment purchasers tend not to purchase energy-efficient equipment even when that equipment would be cost-effective to them. In order to realize the potential benefits, more effective ways to influence equipment purchase decisions in small businesses are needed.

Heating, lighting and cooling are by far the largest commercial sector end uses. This report examines the importance of various types and sizes of cooling equipment in the small commercial market, the availability and incremental cost of efficient commercial cooling equipment, and recent developments in codes, standards and utility demand side management programs for commercial cooling.
"Unitary" cooling equipment1 accounts for about 92% of commercial cooling units sold, and about 51% of commercial cooling tonnage (cooling capacity) sold. When equipment in the 5 to 50 RT2 range is considered, which corresponds more closely with the small commercial market, unitary equipment accounts for 96% of units sold and 93% of tonnage. Thus, unitary equipment is clearly the critical product group to consider for the small commercial market. Commercial unitary equipment is quite simple, and except for dual compressors, is very similar to residential equipment in the smaller sizes in terms of expansion devices, type of compressors and other features. Above 10 to 20 RT, the frequency of economizers, VAV and multizone systems increases somewhat.

Codes are necessary to increase energy efficiency in the commercial market because of the tremendous pressure to minimize first-costs. Three of the four major vendors of commercial unitary air conditioning equipment interviewed only manufacture a single product line with one efficiency level for the commercial market. They find that, while there is a small market niche for more efficient equipment, there is not a sufficient market to justify the costs of producing a second product line. Carrier, the only exception, does produce a higher efficiency commercial product line, but it has only accounted for about 5% of their sales in Minnesota.

In 1990-91, staff of the Minnesota Senate Energy Committee and the Senate Majority Leader asked Minnesotans for an Energy Efficient Economy to develop recommendations for changes to Minnesota's building code to increase the energy efficiency of new construction. ME3 convened a committee of Minnesota building scientists to develop these recommendations. CEUE staff served on the committee, and based on information gathered in early phases of this project, recommended accelerated adoption of ASHRAE/IES Standard 90.1-1989 for commercial buildings. This recommendation, along with others, was submitted to Senate staff in March of 1991 and was included in the Omnibus Energy Bill of 1991. As part of this project on small commercial purchase decisions, CEUE compiled and submitted additional data addressing commercial cooling equipment in response to the Department of Public Service's (DPS's) solicitation of outside opinion regarding the Minnesota Energy Code.

CEUE analysis showed that adoption of the ASHRAE/IES 90.1-1989 "January 1, 1992" standards for commercial cooling equipment would result in significant efficiency improvements over equipment available in 1990. Specifically, the less efficient half of large unitary equipment and the less efficient two-thirds of small unitary equipment available in 1990 would be eliminated from the market. That higher efficiency equipment could easily be produced using off-the-shelf technologies and components was demonstrated by the fact that residential equipment is already more efficient than the commercial efficiency standards set in ASHRAE 90.1. In addition, the major manufacturers were all upgrading their commercial product lines to meet the ASHRAE/IES 90.1 January 1, 1992 standard, anticipating that a number of states would adopt the standard into their codes. Their target dates were early to mid 1992, so no problem was anticipated with availability of models meeting the code, sufficient numbers of units of these models, or unfair advantages to one vendor over another. None of the vendors anticipated a significant cost increase in connection with the efficiency increases, so the code was not expected to have a large impact on costs to businesses. Since the efficiency increases were being achieved with off-the-shelf technologies and components, the vendors did not think the new, more efficient equipment would have any drawbacks in terms of reliability and life expectancy relative to current equipment. The revisions to the state energy code for commercial unitary cooling equipment were successfully adopted based primarily on CEUE input. DPS staff indicated that the documentation provided by CEUE was substantially better than that usually available for decision making on code issues.

In late 1991, at DPS staff request, CEUE also submitted comments to the Council of American Building Officials (CABO) proposing that the ASHRAE/IES Standard 90.1-1989 for commercial unitary cooling equipment be incorporated into the Model Energy Code. Since Minnesota (along with many other states) uses the Model Energy Code as a base document, the Minnesota code is simplified when it is consistent with the MEC. A number of other parties submitted similar comments. These changes were approved by CABO in late 1992.

The national Energy Policy Act of 1992 gave new significance to ASHRAE/IES Standard 90.1. The Act requires a number of types of commercial equipment, including cooling equipment, manufactured  on or after January 1, 1994, to meet efficiency requirements similar to the ASHRAE "1992" levels. In addition, if ASHRAE/IES 90.1 is amended with respect to any of this equipment, the Secretary of the Department of Energy is required to amend the national standard for that product to match ASHRAE/IES Standard 90.1. The efficiency standards established by the Energy Policy Act preempt state standards, but there are some exceptions. One important exception is that state standards are not exempted in areas where the Energy Policy Act prescribes no standard. An important such area is unitary cooling equipment over 20 RT. While units over 250,000 Btu/h account for only about 12% of unitary air conditioning units shipped, they account for about 30% of unitary cooling tonnage, so their efficiency is important. There are some potential concerns about the lack of certified ratings for this larger equipment. DPS staff should gather input from vendors and should consider adding language to the code requiring rating to be done in accordance with ARI procedures and to be publicly available in product literature. Code officials and utility staff should work closely with vendors of this large equipment to make them aware of Minnesota's code provisions for equipment in this size range.

Unitary cooling equipment on the market in late 1992 and early 1993 was evaluated to determine how much the market had shifted in response to the ASHRAE standard, state activities, and the Energy Policy Act. The overall range of efficiencies available had changed very little. But the percent of models meeting the ASHRAE standards had increased significantly. The percentage of unique large unitary equipment models passing the "1992" standard increased from 54% to 78% over a two year period. The percentage of unique small unitary equipment models passing the "1992" standard increased from 34% to 64%. One significant fact is that the upper limit of efficiency moved up very little over the two year period for most product categories. This is consistent with the common observation that codes and standards raise the floor but do relatively little to expand the upper range of available efficiencies. This is particularly true in the commercial market, where most vendors only make one product line in terms of efficiency.

At least 47 utilities offer rebates for commercial unitary cooling equipment, ranging from $7 to $300 per ton with an average of $80 per ton (EPRI 1992). As the largest electric utility in Minnesota, Northern States Power Company provides a relevant case study. As of September 1, 1992, NSP had set qualifying levels for rebates at high EERs which reflected the expectation that the bottom of the market would be moving up to the levels called for in ASHRAE/IES Standard 90.1-1989. Unfortunately, there are currently very few units on the market that meet these efficiency levels. Overall, only 3% of large units and 6% of small units can qualify for even the lowest NSP rebate level. In many individual product categories, the percentage is even lower than this. Given the small dollar value of the rebates ($10 to $40/RT) and the fact that there are other important factors besides efficiency that must be considered in selecting cooling equipment, it is not surprising that participation in NSP's rebate program is low (historically running below 10% even before the qualifying efficiencies were raised). Utilities may have to look at more innovative strategies, including very aggressive marketing, larger rebates, hook-up fees for buildings with inefficient equipment, convenient positive cash-flow financing (including financing tied to the meter rather than to the customer, to reduce loan qualification problems and split incentives between developers and tenants), incentives given to the manufacturers, or other mechanisms to boost participation.

One avenue utilities can pursue to increase equipment efficiency is so-called "Golden Carrot" programs. The concept of this approach is that a large number of utilities get together and guarantee a substantial future market for very high efficiency equipment, by promising to rebate it if available. A national effort is now underway to establish a Golden Carrot program for commercial unitary air conditioning equipment. There is no fee for utilities to participate. As of mid-1992, the organizers of this effort had preliminary statements of interest from utilities representing one fourth of electric sales nationwide, including NSP in Minnesota. Broad utility participation is crucial to guarantee a sufficient market to cause manufacturers to produce high efficiency equipment. In addition, participation in the Golden Carrot program by a large number of utilities in any given region will help provide a critical mass that will encourage distributors to stock the new, efficient equipment in substantial quantities. DPS should require Minnesota electric utilities to participate in the Golden Carrot program for commercial unitary air conditioning equipment as part of their Conservation Improvement Programs.

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Improving Cooling Equipment for the Small Commercial Buildings Market