By John Schinter and Gary Graham, Jones Lang LaSalle
Owners of commercial buildings in the United States will spend about $100 billion on electricity this year, and more than $10 billion of it will be wasted due to inefficiency. Vacant floors are temperature controlled as if they were occupied, lights illuminate areas when no one is working, lights are brighter than necessary when people are working, and dozens of other inefficient practices cause energy costs to be higher than necessary.
The good news is that facility and real estate professionals are becoming increasingly aware that operations can be more efficient, and many are doing something about it. The primary reason is cost savings, especially as the cost of energy escalates. More and more people are realizing that ever-increasing global demand for fossil fuels is straining the world's capacity to extract and, in the case of oil, refine enough fuel to meet demand. As more people perceive the supply-demand equation as becoming unbalanced, energy costs continue to rise, as does the motivation to reduce consumption.
The movement toward restructuring the energy industry in the United States provides additional motivation for companies to examine their energy-management practices. Under restructuring, laws governing the energy market vary state by state, leaving managers of national portfolios to contend with a patchwork of purchasing options. The ever-increasing demand for power to the outmoded power grid has reduced the reliability of power in some states, leading to power outages and sudden rate spikes. These challenges can be mitigated, but it requires attention and expertise that only a large-scale strategic energy-management program can address.
If energy cost and reliability are not motivation enough to implement energy-management strategies, companies have an additional reason: the need for environmental sustainability. Energy usage translates into increased greenhouse-gas emissions, and many companies are focused on reducing their impact on the environment to enhance their image with customers, employees, and communities where they operate. Senior managers are increasingly concerned with corporate social responsibility (CSR) and, while that umbrella term involves many factors, environmental sustainability is one of the most visible and arguably one of the most overlooked factors in the past. Energy-efficiency programs often are part of a larger corporate commitment to clean air that also includes locating near transit lines, encouraging carpooling, and community planting initiatives.
Most companies that have improved energy efficiency, however, have not implemented a systematic energy-management program. A recent survey of U.S. corporate real estate executives, co-sponsored by Jones Lang LaSalle and CoreNet Global, found that only 15 percent had a strategy to deal with rising energy expenditures. Without a comprehensive, strategic energy program, companies are not only continuing to waste thousands of dollars a day, but they're almost certainly not getting CSR credit for the things they are doing right.
A complete energy-management program has several major areas of consideration:
- Operational Improvements - The greatest opportunities for savings at the lowest upfront cost can be found in lighting and HVAC usage. Typically, corporate facilities can achieve a 15-percent reduction in usage with no capital expenditures by reducing the hours that buildings are lit up and optimizing HVAC system use. Simply turning off the lights in a building 40 minutes earlier at night and turning them on 40 minutes later in the morning will save 3 to 4 percent. But, many facilities are lit up all night even when no one is working. Another example: Many HVAC systems circulate fresh air at unrestricted maximum levels rather than the recommended or minimum standard level. The extra air offers no health or productivity benefits and requires a significant amount of additional energy to heal and cool. Dozens of similar examples can be identified by conducting a thorough energy audit.
- Capital Improvements - Companies that are willing to spend some money upfront can expect to make their money back in 2 to 4 years in the form of incremental cost reductions. Retrofitting facilities with ENERGY STAR®-rated equipment is a great idea, but more than most companies want to spend. Switching lighting fixtures to fluorescent can be expensive, too, but this can reduce lighting costs by 50 to 75 percent.
- Procurement - Procurement plans don't reduce usage, but do minimize the risk of price volatility. A professional energy management team can negotiate fixed price contracts with the right hedges and swaps to match a company's risk profile.
- Power Distribution - The focus on energy efficiency has led to innovations in power distribution that challenge the traditional model of a distant power plant sending electricity over power lines. Distributed generation (DG) systems, which generate power near its point of use, may include combined heat and power technology (CHP) to recover heat that would otherwise be wasted in the generation process. An optimal energy management program will combine the benefits of several strategies. For example, a DG system can reduce consumption of high-priced electricity at peak hours, which may affect energy-procurement strategies. Similarly, the money saved on operational strategies may bolster a facility manager's argument for implementing capital improvements to achieve even greater savings.
Managers of individual facilities can take energy efficiency only so far. To make a real impact on the corporate bottom line requires a portfolio-wide initiative that measures usage before and after implementing strategies, and reports progress in terms of cost savings and reductions in greenhouse gases.
Both forms of measurement ought to be of interest to senior management. Energy cost savings totaling $1 million or more annually may not sound like much for a company with revenues in the billions of dollars; however, the savings drops to the bottom line as profit, and an additional $1 million in annual profit can be significant. Translating the reduction in energy usage into reduced greenhouse gases is a fairly simple equation, and senior managers at many companies are taking a strong interest in reducing their carbon footprint. If the case for cost savings is not compelling enough to interest the CEO, the environmental case may be.
Multi-national firms are even more likely to be focused on environmental sustainability than regional or national firms. Sadly, the United States lags much of the industrialized world in the area of energy conservation. European companies, as a rule, are much more advanced in their environmental awareness, and Australia has been a leader in mandating sensible conservation efforts. In February, Australia passed a law to replace the notoriously inefficient incandescent light bulb with compact fluorescent bulbs that use 75-percent less energy and last up to 10-times longer.
Companies in the United States are well advised to adopt similar tactics as a simple step toward sustainability. Ultimately, however, tactics are not enough. For companies to become serious about sustainability, they must pursue a full-fledged energy-management program consisting of well-thought-out goals, the means of measuring progress, and a single point of oversight and accountability to ensure success.
John Schinter is global president of energy & sustainability services at Jones Lang LaSalle. He can be reached at ([email protected]) or (312) 855-2596.
Gary Graham is vice president in the energy services practice at Jones Lang LaSalle. He can be reached at ([email protected]) or (312) 228-2097.