The other day, I was researching something on the web, and came across a study from McKinsey & Company titled: Unlocking Energy Efficiency in the US Economy. Since I spend a lot of my time trying to convince industrial companies to invest in energy efficiency, I thought I would take a look. In this extensively researched 2009 study, the author determined there was potential to reduce annual US non-transportation energy consumption by 23 percent by 2020. This would save something on the order of $1.2 trillion by 2020 and require an up-front investment of roughly $520 billion. In round numbers, the potential savings were split three ways between the residential, commercial, and industrial sectors. Based on my professional interests, I immediately zeroed-in on the $400 billion potential savings in the industrial sector—that’s a lot of money!
The study went on to say that, unfortunately, there are significant barriers that impede deployment of energy efficiency practices and technologies. The authors listed a bunch of barriers including the investment required, the fact that energy efficiency opportunities are widely distributed rather than concentrated in a few areas, low share of mind for energy efficiency, difficulty in measuring and verifying energy that isn’t consumed, and many more. Although the study was taking a very macro perspective, the barriers they listed sounded pretty familiar based on the feedback I get from customers when they talk about the problems they run into as they try to get energy efficiency programs and projects approved.
This brings me to the question: What’s stopping your company from becoming more energy efficient? In this post are some of the responses I often hear from corporations and a little discussion about ways to address these barriers.
Argument #1: The corporate “finance committee” (or someone else) wants to fund other project(s) instead of those related to energy efficiency.
Most businesses have more opportunities for investment than there are funds to go around. Clearly, some activities are required for employee safety, regulatory compliance, or business maintenance of the business and need to have priority. So, where to invest next? This decision may involve some combination of allocating various percentages of the budget to different functional areas, ranking of projects based on expected return on investment, and determining how well projects support your company’s strategic objectives.
If you are the person responsible for energy efficiency, you’ll want to understand the decision making process, and make sure to propose investments that can successfully compete for limited funds. Some questions to ask yourself might include:
- Is there a percentage of the corporate capital or expense budget allocated specifically for energy efficiency? If not, could there be in the future?
- Have you selected projects with a financial return that exceeds the company minimum “hurdle rate?” Do you have sufficient data, product/vendor track record, etc. to help the decision-maker(s) feel comfortable that the project(s) will actually deliver the projected financial return?
- Are there utility or government incentives available that could offset some of the cost and significantly reduce risk while improving the rate of return?
- Have you selected and/or positioned energy projects so they clearly align with corporate objectives such as improving operational efficiency, reducing costs, demonstrating sustainability, improving customer’s perception of the company, etc.?
If you can get a handle on these questions and devise your answers before promoting an energy efficiency project or program to your stakeholders, you stand a greater chance of getting the go ahead.
Argument #2: We don’t have “bandwidth” (resources or time) to take on anything more than what we’re already doing.
In today’s economy, most corporations are pretty “lean and mean” when it comes to staffing. If you are going to ask staff members to allocate a significant amount of time to corporate energy efficiency, you will need to be able to make the case that this is a good investment of their time. In some cases, the justification can be financial. For example: If a person costs a company $100k/year (salary, benefits, etc.) and you ask them to spend 20 percent of their time on energy efficiency, the cost to the company is $20k/year. If the company saves $40k/year (or more) on their energy expense for this effort, it shouldn’t be too hard to justify. Another consideration is how competitive the company is in the market. If your company keeps on doing the minimum, and doesn’t invest in improving efficiency, will it remain competitive in the long run?
Argument #3: We don’t know how long we’ll be in our current facility and don’t want to commit to long-term investments.
This is a valid concern. If a company only has a limited time remaining on a lease, or is considering building, or moving to a new location, it doesn’t make sense to invest in major capital improvements with a long payback period. On the other hand, some companies say this year after year as they wait for changes in the market, watch what competitors are doing, etc. Either way, there are often low-cost operations and maintenance activities that will improve energy efficiency and will pay back the up-front investment in a very short period of time. For a company that is considering making a change in three to five years, investments with a one year or less payback period will deliver a great return, even if the facility only remains in operation for another three years.
Argument #4: We want to wait until the technology is more mature.
There are always new technologies coming to market that will improve energy efficiency. In many cases, performance improves and prices come down significantly as products mature and are manufactured in higher volumes. So, when is the right time to invest? There is no single right answer to this question. However, it is often wise to wait a little while before investing in technology that is brand-new. This way, there will be a track record of performance and savings from early-adopter customers you can reference when projecting return on investment. Also, the second release of a new product often corrects some problems that were identified in the first release.
The other side of the coin is that, if you wait too long for a product to become fully mature and prices to drop to their minimum point, you may miss out on significant savings and fall behind competitors that adopted the technology earlier. One way to decide whether to act now or wait is to look at the payback period. For a relatively new product that has gone through one or two releases and looks pretty stable, if the payback period is on the order of two years, you could invest in the product today and recoup your investment in two years. From that point forward, you would continue to bank the savings while you monitor improvements in product performance and cost and decide if it makes sense to change again a few years down the road.
Hopefully this post will give you food for thought when considering some of the typical challenges you might face when launching a corporate energy efficiency project or program—and some effective ways to overcome them.