The Payback Potential of Power
November 21 2011 by Chris Curtis
Most CEOs know the exact cost of their IT or healthcare spending, yet most don’t know the costs associated with their energy use. For many companies, particularly manufacturing firms, this energy expenditure is larger than healthcare or IT costs and growing faster. Perhaps most importantly, it’s a cost businesses can often reduce by 30 percent or more through active energy management or the process of measuring where you are today, fixing the basics, automating and continuously monitoring and improving.
What’s more, companies can often fund energy management projects out of their capital budgets, using the savings yielded as the basis for the investment. Another option is to finance the project by using the potential savings as the asset that pays for the capital upgrade. In this case, the note is paid out of the maturity of the savings, with no financial outlay required. Whatever funding route is chosen, there is an attractive ROI for energy management. Essentially, every dollar saved goes towards the bottom line.
This is good news to the 88 percent of Fortune 1000 senior executives polled by Harris Interactive, who feel business has a moral responsibility, beyond regulatory requirements, to be more energy efficient. The vast majority (61 percent) of those respondents also say that cost savings are required to initiate projects—outranking environmental concerns (13 percent) or government regulations (2 percent). Mirroring these concerns from a small business standpoint, a recent poll by the Small Business Majority found that 87 percent of small business owners believe improving energy efficiency is a good way to increase prosperity among small businesses, while 46 percent of small business employers are challenged by economic uncertainty, and 43 percent feel the most pressure from rising energy costs.
Macy’s is one company that has delivered the ROI required for energy efficiency investment. Energy management initiatives, such as putting progressive control systems in buildings, have led to more than a four percent energy reduction year over year for the retail giant. Years of meeting financial commitment for energy savings have established credibility for the program, leading to further energy and sustainability investments each year.
At Schneider Electric, our focus on increasing the efficiency of our North American facilities led to a goal of cutting energy consumption per employee by 10 percent over four years and, of course, capitalizing on the dollar savings. We launched a system to examine our usage patterns to identify opportunities to improve efficiency. Then, we prioritized based on initial cost and payback, taking on projects with the greatest savings and fastest payback first. Since 2004, we have reduced our energy usage by more than 20 percent, saving more than $18 million. We also reduced greenhouse gases by more than 30 percent, reached our goal two years ahead of schedule and reinvested the savings in other strategic areas.
From government, academia and environmental groups, we all hear about the environmental impact of “going green,” but beyond moral responsibility, there is also a business case for energy management. By taking an active stance in energy management, every business has an opportunity for significant energy savings.
I truly believe that business leaders want to be good corporate citizens with regard to their energy usage. Often, they just don’t know where to start. Awareness is a great first step; the next is taking action. It really is simple to change the way you think about energy and realize untapped savings and many other benefits. I bet your accountants, employees and shareholders will thank you.
3 Steps to Making the Most of Energy Management
- Make it visible. The technologies exist today to make energy visible and manageable. Organizations need to take an active role in cutting their energy consumption and putting a program in place to measure, monitor and improve is an important first step.
- Think ROI. Think about your energy investments like any other assets in your portfolio. Most energy projects have a 15 to 30 percent return—making them an attractive investment—and many have payback periods of between one and three years.
- Energy management is a differentiator. The best companies today are changing the game by using energy management and sustainability as a key way to differentiate themselves from their competitors. Beyond increasing profitability, such innovative practices can help your company attract the best talent and boost shareholder and brand value.