Since the mid-90s, the prevailing excuse for why a good project – one with less than a three-year payback – didn’t get approved or implemented is lack of capital. Some twenty years ago, during my Ph.D. research, I found that 35% of projects were postponed or canceled due to the shortage of upfront capital. Today, the percentage is closer to 50%.
Although the global economy does have an influence on the percent of projects that are being initiated and financed, we can do much more in this area to implement projects that save energy, improve economic competitiveness, and enable environmental prosperity.
What follows are a few key concepts you can use today and should keep in mind on all projects. These points are modified from chapter 1 of my latest book How to Finance Energy Management Projects.
Key Concepts for Successful Presentation of Energy Projects
- Point #1: If your energy project has an Internal Rate of Return (IRR) that is greater than your company’s profit margin, then the energy project is the best place to invest shareholder’s dollars. This is often the case, as many energy projects have IRRs greater than 25%
- Point #2: If your energy project has a return that is greater than the finance rate (borrowing rate), then you can finance the project (thus, zero upfront cost) and you will improve cash flow to your organization with relatively little risk. A good phrase to use is: “The cost of delay is greater than the cost of financing.”
- Point #3: “Savings = Waste.” Any energy savings that you could be getting from a potential project is also an existing waste stream that – by doing nothing – continues to drain your operating cash and is essentially a penalty you pay every months. Most people will take quicker action to avoid a penalty than to receive an equivalently valued reward. For more on this topic, visit www.ProfitableGreenSolutions.com and use the “Resources” tab, which contains free articles and webinars.
- Point #4: Saving energy has a far greater impact than just reducing the utility bill. Recent research has shown that maintenance material and labor are almost always directly impacted and are also reduced. Externalities also include reduced risk to price spikes, reduced pollution, and health care costs. Energy security can also be affected as well as your company’s green image, employee morale, and human relations or recruitment. Many young people want to work for companies that are energy efficient and environmentally friendly – or are at least executing some type of sustainability strategy.
- Point #5: Know the codes, standards, and laws that drive activity in your building sector and geographic region. Whether it’s the federal government or a local energy efficiency requirement, these rules can keep your project moving forward and even motivate projects that you never imagined.
- Point #6: Know where you can get free money for your projects. This can come in the form of tax credits or deductions, utility rebates, special financing rates, utility service contracts, etc. Visit www.dsireusa.org for a list of these incentives by state. Also see www.eere.energy.gov and www.eere.energy.gov/femp for useful information.
- Point #7: Your audience only has the attention span to solve one problem at a time. Make your presentation the most exciting solution possible, so they can’t resist approving it.
The importance of your work and the value of your efforts to implement energy efficiency projects cannot be overstressed. Your progress in energy efficiency does the following:
- Reduces your organization’s expenses and improves cash flow;
- Decreases your country’s dependence on energy sources and raw materials;
- Diminishes your environmental impact and lessens pollution;
- Improves your organization’s green image;
- Increases your building’s value, if leasing or selling;
- Heightens your company’s morale and productivity.
When you present your project, remember the above advice, because your project is not just an energy project. It could positively impact marketing, administration, finance, legal, human resources, security, and productivity.
One thing I’ve learned from the hundreds of organizations I have analyzed and from the thousands of students I have taught is that one denominator of behavior is evident: “Necessity is the mother of invention.”
Thus, if your project is needed by more of the aforementioned departments, then more people are likely to approve your ideas and implement a plan.