To Win Funding For Energy Efficiency Projects, Think Like A CFO
3. Look for utility incentives. Utility companies and state public service commissions acknowledge that energy efficiency generates multiple benefits for those directly involved and for the community in general. Lower average utility peak load results from energy management projects. The lower peak loads enable utility companies to extend the life of their generation assets and avoid future capital expenditures required only on peak load days. This rock solid logic of demand-side management has led state public service commissions to make it a regulatory requirement for utility companies.
Facility managers participate in this process by understanding demand-side management rebates. These rebates reduce an energy management project's net investment and therefore improve its ROI and NPV. While a rebate may appear to be a gift from the utility company to help pay for an energy management project, it actually helps every ratepayer. Lower capital cost for the electric utility, natural gas utility, or water/sewer authority results in lower rates for everyone. And while the energy management project provides ROI to the company it also helps the utility companies and its ratepayers.
4. Look for large energy-saving opportunities. Another consideration is the scale of the investment opportunity as it relates to the overall business. What will impress the CEO more: a $1,000 project that saves $1,000 per year (1 year simple payback period with 100 percent ROI) or a $1,000,000 project that saves $1,000,000 per year? Senior management is interested in projects that provide attractive ROI and will have a significant impact on the business. Therefore think big regarding energy management opportunities. Why settle for 5 percent utility savings when 50 percent utility savings may be possible?
5. Focus on long-term cash flow. What is the point of focusing on the payback period of an energy management project? The focus should be the net cost savings after the energy management project pays for itself. A cash-flow project should not only show the payback period but the long-term impact of reducing operating costs. Why not provide views of the cash flow over five, 10, 15, or even 20 years? What is the life-cycle cost of the project? If the effective life of a replacement chiller is 25 years, why not show the life-cycle cost of the old chiller compared to the new premium efficiency chiller over a period of years? If the replacement boiler life is 40 years, the analysis period should reflect the life of the investment.
While senior management might have some passing interest in kWh, therms, BTUs, etc., they are really focused on the dollars of the investment. Facility managers can conservatively show expected project cash flows without any provision for utility rate increases or even inflation. A second version of the same economic justification could include allowance for rate increases that affects the dollar value of the energy unit saved. Some other items than can be included in various views of the cash flow might be: operational savings, air conditioning savings, heating savings, maintenance savings, and maybe staff savings. Staff savings can be real but are often exaggerated in cash flow projections developed by parties in interest.