11/10/2014

Documenting the Invisible Benefits of Energy Efficiency

Make sure you're accounting for all the benefits of new energy policies

When you are trying to get the buy-in of a CFO or other decision makers on an energy conservation project, it is important to mention all the benefits – and those may not be readily visible.

From my previous research, I have described some of the benefits of conservation beyond consumption cost. However, I included only tangible and easily measured benefits. The International Energy Agency (IEA) has published a more comprehensive review in a new publication, Capturing the Multiple Benefits of Energy Efficiency.

The IEA’s compilation is drawn from energy experts working independently in several countries. While my research showed additional benefits valued at up to 31%, IEA finds more. The report’s executive summary describes how a project that has a 4.2-year payback on energy alone can become 1.9-year payback when the non-utility benefits are included.

The IEA paper is lengthy, but Figure 1 summarizes the different buckets of benefits categorized by the researchers. Some extra benefits apply to the organization receiving the energy savings and others to society generally. IEA’s estimated values for additional benefits are quite conservative, and I believe that more benefits remain to be measured and quantified.

The study establishes rules of thumb that you can use when pitching a project. For example, it documents that healthcare receives $4 dollars in additional benefits for every dollar invested in energy efficiency. In commerce, every $1 saved in energy resulted in up to $2.5 in productivity improvements. The IEA study includes many such interesting and surprising factoids on returns.

It is not surprising that most companies unfairly discount energy projects by requiring a 50% minimum attractive rate of return (MARR), which is much higher than that required of other capital improvement projects. The IEA report discusses many under-reported benefits (Figure 2). For example, when you reduce facility operating costs, the facility’s asset value increases – a key goal of many executives. Your energy projects may have an upward spiral of benefits that may be new to you.

Reading these tables reminded me of another hidden benefit that I read about in Jigar Shah’s recent book, Creating Climate Wealth. He describes the challenges of developing Sun Edison, an initiator of the solar Power Purchase Agreement (PPA). PPAs are the financing source responsible for the majority of U.S. solar projects. Shah states that a main attraction for executives was not the energy savings or the green aspect. Execs bought into PPAs because they reduce the risk of utility price spikes in the future. Avoidance of risk is a very powerful benefit, as I have described in previous papers. I encourage you to review Figure 2 and consider the risk reduction that your energy efficiency projects yield.

Of course there are other benefits in addition to risk avoidance. I remember one project I proposed that was stalled until I pointed out to the CEO that it would have an environmental benefit equivalent to planting over 1,000 acres of trees each year. That was the ONLY reason the project got the CEO’s approval – and the project has been saving energy for 13 years now.  

Capturing the Multiple Benefits of Energy Efficiency is available at the website of the International Energy Agency:
www.iea.org/W/bookshop/475-Capturing_the_Multiple_Benefits_of_Energy_Efficiency

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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. In August 2014, he was named to the Association of Energy Engineers (AEE) Energy Managers Hall of Fame.