In recent weeks, major articles in the New York Times (http://opinionator.blogs.nytimes.com/2015/02/06/investing-in-energy-efficiency-pays-off/) and the Wall St. Journal (http://deloitte.wsj.com/riskandcompliance/2015/01/22/energy-management-becoming-a-core-business-competency-survey/?KEYWORDS=energy+efficiency) have stated what you have been reading here for several years: that energy efficiency pays off big time, better than most other investments, and that major companies now recognize energy management as an essential part of any business functioning and growing. Any business that ignores energy is at risk for major problems.
David Goldstein, the Energy Director of the National Resources Defense Council, recently wrote an interesting blog article (see NRDC’s Switchboard), stating that the lack of energy efficiency legislation for a number of decades contributed to the recession that hit the US starting in 2008 and that recent energy efficiency policies had a major influence in us getting out of the recession. For example, the Department of Energy recently issued stronger appliance efficiency standards than any previous administration. These standards have been conservatively estimated to save consumers over $425 billion over the next 30 years. That savings in the hands of consumers and businesses allow them to spend that money in other ways or save it, benefitting other businesses, banks, and investment houses.
Similarly, the USEPA issued updated fuel economy standard for automobiles and for trucks for the first time in decades, saving consumers and businesses an estimated $2.7 trillion, and generated almost an additional million new jobs for parts manufacturers and the businesses that the savings support.
States and localities are realizing this, too, and have implemented a wide array of rebates, tax credits, and low-interest loan programs. These programs help local businesses stay competitive and put more money in the hands of families and businesses to spend and benefit other businesses. In addition, being more energy efficient and reducing peak demand enables utilities to put off or reduce the amount of new or updated infrastructure it needs to install, saving billions of dollars which, of course, would be collected from consumers in higher energy (electricity and gas) rates.
Energy efficiency also influences markets. As we are all aware, crude oil prices have dropped (as of this writing) by over 50% compared to a year ago. Of course, many reasons contributed to this (greater natural gas and oil exploration). But one definite factor is energy efficiency, such as the greater purchasing of fuel efficient cars (not only in the US due to the recession, but in China and Europe) and that the average number of miles driven annually by Americans has dropped in recent years due to millennials staying home more and land use law changes reducing urban sprawl.
And finally, we come to everyday businesses and municipalities. In these tough monetary times, there is great economic benefit in improving energy efficiency, reducing energy used and, therefore, costs that go to someone else, while not impacting service at all. Here are three examples.
The recent NY Times article spotlights several universities that have set up “green funds” to pay for energy efficiency upgrades. The direct cost savings goes back into the green fund to implement other energy efficiency projects. The University of New Hampshire is an example. They started such a green fund with $600,000 of university money, and within 5 years saved $1.3 million, which went back into the fund and invested in other energy efficiency projects. They believe that in another 5 years, the university will have saved over $3 million dollars all coming from the original one-time $600,000 investment. Once all major projects have been completed, the university can reap the full benefits of the cost savings to their budget.
I recently did an analysis for a municipality for one energy efficiency project only, replacing street lights with LED lamps. This municipality had a cocophony of different types of lights and lamps. Many of them shone a yellowish tint and times were tough for it, being in a state that limits property tax increases. My analysis showed that switching all of their street lights to LEDs would likely save them $250,000 per year, which they were quite happy about. It would be a 3.5 year payback, but more important, the cost savings would likely increase every year as the utility’s rates would likely increase. Therefore, the rate of return of investing nearly one million dollars in LED street lights would be 14% per year for 7 years. What bank pays that rate of return? What Wall St. investment is as good with no risk (lower wattage means lower wattage)? With such a rate of return, it would be quite easy to borrow the money or float a bond. In addition, I pointed out that these LED street lights would likely be warranteed for 10 years before any need to be replaced; their current lights need to be replaced every 1-2 years. In fact, the town has two workers who nearly full time replace street lights that burn out. They were thrilled to free up those workers for other tasks. In addition, this means fewer trips up the cherry picker and reduced risk of an accident and tying up traffic.
And finally, how does energy efficiency help business? I worked for a small warehouse / light industrial facility who was not only being hurt by high energy costs, but the workers were not comfortable in the office and warehouse. The building was over 60 years old, and still had its original windows and some of its HVAC equipment. The owner, to his credit, did not just put “band-aids” to fix the problems, but instead went first-class, with 21st century energy upgrades. He saw this as an investment. He upgraded the windows, installed improved insulation on the exterior walls and roof, upgraded the lights, installed solar PV and hot water, and installed a new boiler with thermostats to control heat distribution. The building has reduced its energy bills by over 50% due to these changes. We also helped them obtain applicable incentives from the utility and state and a federal tax deduction for the upgrades. But two other things resulted from the energy upgrade. First, a section of their warehouse that was hardly used was now, given the upgrades, attractive for alternative use. The company fixed up the area and now rents it out to a supplier, not only resulting in additional (rental) income, but better assuring that supplies will arrive quicker! Finally, workers were much more comfortable in all seasons and noticeably more motivated and efficient.
CCES has the experts to help you design the right energy upgrades to maximize the myriad of financial benefits possible. We can manage the implementation of the upgrades you choose and ensure it confers the benefits projected. We can help you get the maximum incentives, low-interest loans, and deductions that the project qualifies for. Contact us today at 914-584-6720 or at karell@CCESworld.com.