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How The Inflation Reduction Act Could Affect the Hotel Industry

U.S. hotels that are looking to improve their energy efficiency could find a friend in the incentives provided by The Inflation Reduction Act.
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The Inflation Reduction Act, signed into law by President Biden on Aug. 16, 2022, aims to turn America into a global leader when it comes to clean energy technology, manufacturing, and innovation. It provides $370B in investments to help lower energy costs for families and small businesses, accelerate private investment in clean energy solutions, strengthen supply chains, and create more jobs. The Inflation Reduction Act also offers incentives – such as broadened 179D tax deductions – to businesses such as U.S. hotels that are looking to improve their energy efficiency. HVAC use within the hotel industry is notorious for being the opposite of sustainable. But now, U.S. hoteliers could have the opportunity to change that. To learn more about how this act could affect hoteliers, HT spoke with Tom Varga, Business Development Manager, Mitsubishi Electric Trane HVAC US.

How do typical hotel HVAC units work, and how do they affect a hotel's use of energy?

There are multiple ways to heat and air-condition spaces in a typical hotel, including using these conventional systems: packaged-terminal air conditioners (PTACs), conventional splits, vertical-terminal air conditioners and water-source heat pumps.

These systems constantly cycle on and off to reach a desired set point. This can lead to premature compressor failure or adversely affect a hotel’s energy rates. These systems also require a compressor in EACH room, and each compressor has a 30 to 40-amp electrical circuit. This adds up to roughly 6,000 amps of electrical service in a 150-room hotel.

Since HVAC energy represents 35%-50% of hotel operating costs, there has been a big push to get more energy-efficient options on the market. More hotel owners and operators are considering energy-saving solutions like commercial variable refrigerant flow (VRF) systems that enable zoning and other benefits.

The inverter-driven compressor technology of a VRF system’s outdoor unit provides soft controlled starts while only producing the capacity needed to satisfy hotel rooms calling for cooling or heating. More on VRF below.

How can hoteliers improve their HVAC systems to be more efficient and sustainable? 

For the reasons stated above, hoteliers need to be proactive about responsible energy consumption. The ideal time to consider energy-saving technologies is during the conceptual phase of new hotel design. All key stakeholders, including the architect and engineer design teams, should be involved in choosing an energy-efficient HVAC system that makes the most sense for the project.  

Right now, there is a lot of exciting technology hitting the market. All-electric VRF technology is the fastest-growing segment of the commercial HVAC industry, and there are good reasons for it. VRF technology allows hotels to use zoning in their buildings, meaning that common areas, back-of-house spaces and guest rooms can each have a unique HVAC solution. VRF solutions can also provide simultaneous cooling and heating by transferring thermal energy captured during cooling to rooms that need to be heated. This is precisely why VRF systems can dramatically lower the energy needs and the associated cost to heat and cool a hotel. 

Additionally, VRF systems usually outlast more conventional systems. VRF systems can last 20 years or longer, whereas conventional solutions might need to be replaced two to three times during the same timeframe. Hotel owners and operators who choose a VRF system during their conceptual phase will have decades to reap the energy efficiency benefits of the technology. However, for hotels that are already operating, retrofitting their building with a VRF system is still an option.

There are other ways hotels can ensure their current systems are running efficiently. For example, all HVAC solutions require routine maintenance for optimal performance. Hoteliers may be tempted to forego or postpone check-ups for their HVAC systems to save on costs. But they are actually increasing the likelihood that the equipment will break or their system will simply not perform at the level it should, which can quickly drive up energy costs for the hotel.

Occupancy sensors can also be incorporated into energy-efficient solutions. When a room is unoccupied, sensors send a signal to the HVAC system to turn the system off or to ensure it does not run as often – thus, saving energy.

What are some of the typical differences in energy use between a typical HVAC unit and a more efficient one? Are there cost efficiencies as well? 

In answer to the first question, I stated that a 150-room hotel using a conventional HVAC system will likely use 6,000 amps of electrical service. In contrast, a VRF solution is much more energy efficient. Each connected unit in a hotel may only require about 1-2 amps. For a 150-room hotel, that equates to only about 300 amps of electrical service. 

To better understand potential energy savings, hoteliers and their design teams should compare the coefficient of performance (COP) and integrated energy efficiency ratio (IEER) ratings of different HVAC equipment. 

COP and IEER ratings are identified on each piece of HVAC equipment. It is important to evaluate each system’s performance by comparing these two different peak load ratings.

COPs are typically between 2 and 4+. This means that for every kW of input power, one can expect 2-4+ kW of cooling and heating power. IEER provides for a greater representation of peak load AND part load efficiencies.

What financial resources are available to hoteliers to help offset the initial purchasing/installation costs of more efficient HVAC units?

Funding from the Inflation Reduction Act goes toward many areas, including clean electricity, carbon reduction and efficiency. For commercial buildings like hotels, the IRA has expanded on 179D tax deductions available for facilities that improve their energy efficiency. Energy reduction requirements will be lowered from 50% to 25% compared to the most recent ASHRAE Standard 90.1, and hotel owners can now qualify for larger tax deductions than in the past—as much as $1.25 million for 250,000 square feet. Hotels that improve energy efficiency by installing VRF and ductless technologies will be more likely to qualify for these tax deductions.

Separate from the IRA, the superior energy efficiency of VRF systems enables hotel developers to apply for utility rebates. In fact, METUS sought out such rebates on behalf of one of our mixed-use development customers in Columbus, Ohio, through the local utility provider. The development features Marriott’s modern hotel brand, Moxy, a coworking space and two restaurants located in the Short North Arts District. The rebates secured were based on equipment-improved efficiencies over ASHRAE’s baseline figures. Specifically, for every kilowatt hour improved, the property owner was able to receive up to a 10-cent credit.

Any other comments?

Increasingly, big brands such as IHG Hotels & Resorts, Hilton Hotels & Resorts and Marriott International are requiring energy-efficient technology like VRF technology for their properties.

Early engagement with a trusted provider of ductless and VRF systems can help hoteliers explore and vet many options for becoming more energy-efficient and sustainable – saving money and helping to save the planet. Find a vendor that can help your hotel get unmatched energy efficiency and performance. Consider a company that will provide a team of experienced support people throughout the entire process so you’ll get the best results.

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