Energy efficiency is being recognized in many quarters as more than just a “feel good”, environmentally-beneficial business activity, but as a positive financial investment goal itself. After all, what is an investment; any kind of an investment? It is spending money so that you get that money back and a lot more. Investing in energy efficiency is an effective way of making money invested in saved costs and other financial benefits.

How do we define a good investment? Making the most money within a risk – reward paradigm. If you are risk averse, you invest money in T-bills are similar instruments. You make a great yield, but it is understood that the US government is behind the investment, and at worst, you are unlikely to lose the money you invested. Or if you wish to entertain risk, there are many investments that could pay a high yield, but there is a risk that business conditions will change, you don’t make that yield, and, in fact, you could lose all or some of the principal; a high risk.

Smartly investing money in energy efficiency projects is the best of all worlds. The risk is low. The technologies are known; if implemented correctly, they will work in lowering your energy use. And if a particular technology fails, the vendor should replace or repair it. They are simple; a lower wattage light bulb uses less electricity than a higher one. Period. And if designed right, provide you with the same (or better) light.

And the savings are potentially great. LED lights in many cases produce the same light using less than half the electricity of many current conventional lamps. In addition, these new technologies often last longer than those replaced, saving the user much in O&M risks, costs and improving worker flexibility (reassign workers to other tasks and fewer trips up the ladder to replace lights). I recently performed an evaluation of a large light replacement project. The client’s investment would conservatively (overestimating costs and underestimating savings) have a rate of return of 14%/year for at least 7 years. And the likely rate would be higher, with no risk (the lights work). What investment on Wall St. results in such a return?! Really! Tell me one. Many other strategies – if planned well for your particular building – will result in similar yields and benefits.

Some say: “This is great, but where do I get the upfront capital to buy the technologies I need to be more energy efficient?” Given the high rate of return and low risk, many financial institutions would be happy to lend money at low interest knowing their risk of default is low. Several government agencies have set up low-interest loan programs geared to cost savings, enabling companies to have only positive cash flow in these projects. Principal / interest are paid back only when energy cost savings are achieved.

The organization The American Council for an Energy Efficient Economy (www.aceee.org) has compiled many financial studies and case studies on energy efficiency upgrades. See the following graph comparing the risk-reward of a typical energy upgrade with that for other monetary investments. If the graph does not appear, then note that typical energy efficiency projects have a risk index of about 5% (comparable to US T bills), yet a typical rate of return of over 20% (comparable to small company stocks).

See how energy efficiency projects – again, if designed and implemented professionally – has a low risk index, yet high annual rate of return.

CCES can perform an energy evaluation and manage the implementation of energy efficiency projects you select for your buildings and operations to maximize your financial benefits. Contact us today at 914-584-6720 or at karell@CCESworld.com.