Energy Conservation: The Extra Benefits

09/17/2012 | By Eric Woodroof, Ph.D., CEM, CRM

Energy conservation strategies can have a significant impact on your facility's bottom line.

Peer-reviewed research compiled and published in 2012 shows that there are significant and highly probable extra benefits that result from energy conservation. The minimum extra benefit was calculated to be worth 11% of additional value beyond the direct energy budget savings.  These benefits are highly probable because it was found that a high percentage of facility managers did experience these benefits.  The implications of this research suggest that more of these extra benefits should be included when energy conservation projects are proposed.  The full research article: “Energy Conservation Also Yields: Capital, Operations, Recognition and Environmental Benefits” was published in Energy Engineering, Vol. 109 (5), 2012.  

The Concept of Energy Conservation:

During a diet, when a person doesn’t over eat, they are likely to receive benefits that extend beyond weight loss.  The person may be happier, live longer, have increased stamina and avoid other diseases. 

Similarly, the benefits of putting a building on an energy diet extend beyond the reduction of energy expenses.  Such benefits can include tangible and measurable values such as reduced material and labor costs, as well as other soft benefits such as increased productivity and morale.  Soft benefits were not calculated within this article.

Examples of Additional Benefits from Energy Conservation

These benefits usually apply to a facility’s capital, operations, maintenance, administrative, marketing, environmental, and/or other budgets.

1. Reduced Maintenance Material Costs

Example: If lights are not "on" as many hours, they may not burn out as often.  This means you won’t have to buy as many replacement lamps in a year.  Another example is reduced Heating, Ventilating and Air Conditioning (HVAC) filter replacement costs as a result of operating such systems fewer hours per year.

2. Reduced Maintenance Labor Costs

Example: If an HVAC system is not "on" as many hours, the filters can be changed less often, resulting in labor savings. Similarly, if lighting is used fewer hours, then lamp lives are longer and annual re-lamping labor costs decline.  Finally, if an energy conservation program results in a labor savings worth 10% of a maintenance person’s time, that’s a real savings - That 10% is available for other activities.

3. Avoided Capital Investment

Example: You reduce energy consumption so much that you don't need to purchase equipment you thought you needed such as an additional chiller, boiler, lights, etc. This would be a one-time savings and its impact can be huge, think about the price of a new chiller.

4. Avoided Procurement Costs

Example: You operate the equipment less hours per year and it lasts longer.  You don't need to replace it as often, which represents deferred planning, legal, administrative, procurement and other costs.  The savings depend on the amount deferred and other factors, such as your interest rate, opportunity cost, staff time, or new positions avoided, etc..

5. Avoided Purchases of Carbon Offsets

Example: If your facility is buying carbon offsets, then you will need to purchase fewer carbon offsets as a result of energy savings. This is only a direct, measurable savings if your organization is purchasing offsets as an objective to be more sustainable.

6. Enhanced Image, Public Relations or Recognition

Example: If your facility pays for public relations, or engages in "green marketing", your success at energy conservation will provide benefits such as free press in newspaper, awards, etc.. 

7. Reduced Sales Taxes/Environmental Penalties

Example: A company will not pay taxes or environmental surcharges on energy that it does not use.  This avoided cost represents an additional 8% to 15% of the energy savings usually estimated by engineers.  Note that if a facility calculates savings using an “average cost per kWh” (when the total electric bill is divided by total kWh), these savings are automatically recognized (and the value from Benefit #7 would be zero).  

8. Improved Building Value

Example: From a property management standpoint, when comparing two identical buildings, if one has reduced operational costs, then that building is worth more.  You can estimate the increased value by applying a Capitalization Rate Factor, which = [Yearly Income/Total Value]. 

Consider a business that earns $100,000 per year and it is valued at $1,000,000 then the Capitalization Rate is 10%.  Thus, if that business reduces its operating cost via energy conservation by $20,000/year thereby improving income by $20,000/year, then the Total Value becomes:

= [Yearly Income/Cap Factor]

=[$120,000/0.1]

=$1,200,000

It has been widely reported that the occupancy rate, rental price, and sale price of a building can increase by 2% to 25% after a commercial building has attained the Energy Star label or LEED Certification.

Eric A. Woodroof, Ph.D., is the Chairman of the Board for the Certified Carbon Reduction Manager (CRM) program and he has been a board member of the Certified Energy Manager (CEM) Program since 1999. His clients include government agencies, airports, utilities, cities, universities and foreign governments. Private clients include IBM, Pepsi, GM, Verizon, Hertz, Visteon, JP Morgan-Chase, and Lockheed Martin.

Summary:

Not all of the extra benefits will apply to any one facility, but a facility manager can choose which ones are relevant.  It is also worth mentioning a few other facts about energy conservation projects:

Stock prices of corporations have been proven to improve dramatically when energy management programs are announced, or when an organization publishes its corporate sustainability report.[1] 

Avoided energy expenses go directly to the bottom line and result in a very efficient use of money, sometimes even greater than the host company’s profit margin.

In Part 2, I will describe the methods to calculate the savings of some of these benefits.  My hope is that you will be able to think about some of the extra benefits that you receive from energy projects (perhaps even increased productivity).  If you have interesting stories to share, feel free to write me: eric@profitablegreensolutions.com



[1] Wingender, J. and Woodroof, E., (1997) “When Firms Publicize Energy Management Projects: Their Stock Prices Go Up”- How much- 21.33% on Average! Strategic Planning for Energy and the Environment, Summer Issue 1997.


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