The American Council for an Energy-Efficient Economy (ACEEE) issued a report last year detailing the special value and benefits of becoming more energy efficient (for access, see: http://aceee.org/research-report/u1402). The report determined that improved energy efficiency costs on average 2.8 cents for every kilowatt-hour saved, while the average American spends 10 cents per kilowatt-hour used (of course, we in the Northeast pay much more), making energy efficiency a great value. Therefore, efficiency is the true cheapest form of energy and pursuing energy efficiency is, if done properly, a positive financial success for any business or families in their homes.

This and other papers drive home this point this way:

The unseen cost value of energy efficiency. Many energy efficiency projects are judged by the payback on the initial investment. Many companies have a threshold (i.e., 3 years or 4 years) above which they will not make the investment in the project. No matter what! Within limits of what money is available to be invested, this is a short-sited argument. The real value of energy efficiency is in the length of time the savings continues, as well as, the continued and growing value of the savings.

Here is a conservative example where I overestimate costs and underestimate benefits: a simple group of lights in one particular room is replaced with LEDs, say 20 60-watt fluorescent lights with 18-watt LED equivalent lights. Assuming the lights are on 12 hours/day, 5 days/week, then the electricity savings would be over 2,600 kWh/year. At $0.20/kWh, this alone would save $520/year. Assuming an installed cost of $80 per LED, the upfront cost would be $1,600, for a simple payback of just over 3 years. Not a bad payback. (Again, overestimating costs, underestimating savings) 2 “by the ways”: 1st, this does not include incentives from your state or utility for lighting upgrades, reducing the payback. 2nd, many buildings pay for electricity based on peak demand as well as usage. Reducing demand here by nearly 1 kW would further save costs.

What is often not included in such evaluations of energy efficiency upgrades is that the new lights will likely last for over 10 years. Many LED lights are waranteed for 50,000 hours of usage, which would be 16 years of usage at this rate. So after the investment is paid back, you will continue to save and come out ahead for the next 7 years, maybe 13 years or more. These lights would save >$3,600 in the lifetime on short end of range.

Remember, the savings calculations are just for one area of only 20 lights. Imagine how many lights your building actually uses and, therefore, the potential cost savings! And now add on improvements in your insulation, HVAC systems, etc., and the savings multiply. There is a special value to this. Depending on the size and complexity of a building, energy cost savings can be hundreds of thousands of dollars per year. That’s money in the company’s “pocket”. How else does a company make money? By increasing revenue; by selling more widgets. But if the average widget yields 10% profit, that’s an awfully lot of widgets that have to be sold to make up for energy efficiency savings. And, after a year, you have to go right out and sell even more widgets. Once you make the energy efficiency upgrades, the savings stick around with no additional work for a long time!

But even this underestimates the savings in two ways. Unit electricity prices change and only go up. Assuming the $0.20/kWh rate rises even 2% per year, cumulative savings will grow by about another 10%. Also, the fluorescent bulbs that would have replaced existing bulbs had LEDs not been used have a much shorter lifespan. They would need to be replaced much more often than LEDs, requiring additional capital costs and raising the cost savings of using LEDs.

Hard-to-measure added benefits. Energy efficiency projects also have many significant benefits that are good for a business or residence that are not directly energy-related and hard to quanitify, yet are significant. New, more efficient equipment generally needs less maintenance, freeing up your maintenance workers to perform other needed tasks. A more efficient HVAC system with smart controls (thermostats) will result in a more comfortable work staff, raising worker productivity and resulting in tenants who will complain less. Studies show that well-designed efficient lighting causes less eyestrain, not only also raising productivity, but also reducing sick days and even the number of “coffee breaks” a worker needs. How much this benefits a building owner or a business is hard to quantify and depends on the individual needs of the business; but nobody can deny that these benefits of energy upgrades are real and significant.

Not all energy efficiency projects are created equal. Different types of energy efficiency projects are more cost beneficial than others. According to the McKinsey report: “Pathways to a Low Carbon Economy”, replacing lights with LEDs and installing more efficient appliances and electronics are the two most cost-effective ways to be more energy efficient. According to the report, other strategies are less cost-effective (upgrade motors, retrofit insulation, upgrade HVAC) and some are theoretically not cost-effective at all (renewable energy in absence of incentives, plug-in hybrid fleets), yet have many positive non-energy benefits.

How do you get the go-ahead to pursue an energy efficiency project that is beneficial, but may have a longer payback or reduced return on investment? There are two approaches. In the first one, an entity may concentrate on “low hanging fruit”, such as lighting and appliance and electronics upgrades, have management be aware of the quick reduction in the electricity bills and quick payback. With this money “in the bank” and the confidence that this instills, then begin to address slower payback strategies, using the money saved as upfront cost, a springboard to implementing these strategies.

The other approach is to perform a comprehensive energy efficiency upgrade of your facility and address several strategies at once. Calculate the expected payback and return on investment of the blended project. Average the “good” numbers from a lighting or electronics project together with the worse-appearing numbers for insulation and HVAC upgrades to provide an overall payback and return on investment that management will accept and allow you to do all of the projects and reap all the benefits.

CCES can help you organize, implement, and verify the success of a robust energy efficiency program to maximize both your financial and non-financial benefits, reduce your upfront costs, and to ensure that all elements of your organization is “on-board” and shares in the benefits. Our technical and policy experts can maximize your benefits and ensure that the projects proceed smoothly with minimal disruptions. Contact us today at 914-584-6720 or karell@CCESworld.com.