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 you from becoming more energy efficient? In this, and the part-two blog post are some of the responses I often hear and a little discussion about ways to address these barriers.
The “Finance Committee” (or someone else) chose 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.
In the next blog post, we’ll continue taking a look at some of the barriers you might face when attempting to drive projects that increase energy efficiency.