Energy Efficiency Beats Wall Street Returns

Jan. 10, 2018

Use these investment facts to help you sell your conservation projectUse these investment facts to help you sell your conservation project.

Trends in energy use and efficiency are changing business, the economy and the environment. Those who lead in efficiency will reap the inevitable and increasing benefits. In this column, I typically discuss applications to save energy. But facility managers can’t implement these applications unless their organization approves them. Today I want to help you sell conservation projects with some facts about the return on an organization’s investment.

But Almost Nobody Cares

I have had thousands of discussions with energy managers that I’ve met at seminars. I’ve come to the conclusion that we aren’t very good at selling conservation projects. After all, the C-suite recognizes that the lights in the building will come on tomorrow whether the execs fund a conservation measure or not.

Moreover, most people yawn about the technical details of projects (how they work, how many kWh they save, etc.). Energy is not top of mind for facility owners because these folks are more interested in finding ways to reduce the hassle in their jobs. But they might pay attention if you present your project as an investment that provides benefits or avoids pain.  

In 2018 we need to focus more on the risk/reward ratio of energy efficiency compared to other investments.  

Uncertainty Levels Are High

I think it is fair to say that no one knows what the U.S. president or government will do next. Uncertainty trickles down to business. But facility operations are relatively constant year to year. You are going to have energy bills, and reducing those bills is an investment worth capturing.

Over the past 15 months U.S. stockholders have been thrilled by the great returns on their investments. But there is no promise that such performance is going to continue. Stockholders have no control over Wall Street’s performance but they do have some control over energy investments – and these have higher returns.

The table below compares the performance of the Dow Jones Industrial Average (DJI) over the last 10 years to an efficiency project that yielded a conservative 5-year simple payback, which is equal to a 20% ROI. Here is the year by year comparison of value if you invested $1 and then re-invested the gains each year (either into additional energy projects or the Wall Street Fund):

Energy Project

  • 2007: Annual Return - n/a; Account Value - 1
  • 2008: Annual Return - 20%; Account Value - 1.20
  • 2009: Annual Return - 20%; Account Value - 1.44
  • 2010: Annual Return - 20%; Account Value - 1.73
  • 2011: Annual Return - 20%; Account Value - 2.07
  • 2012: Annual Return - 20%; Account Value - 2.49
  • 2013: Annual Return - 20%; Account Value - 2.99
  • 2014: Annual Return - 20%; Account Value - 3.58
  • 2015: Annual Return - 20%; Account Value - 4.30
  • 2016: Annual Return - 20%; Account Value - 5.16
  • 2017: Annual Return - 20%; Account Value - 6.19

DJI Performance

  • 2007: Annual Return - n/a; Account Value - 1
  • 2008: Annual Return - -33.8%; Account Value - 0.66
  • 2009: Annual Return - 18.8%; Account Value - 0.79
  • 2010: Annual Return - 11.0%; Account Value - 0.87
  • 2011: Annual Return - 5.5%; Account Value - 0.92
  • 2012: Annual Return - 7.3%; Account Value - 0.99
  • 2013: Annual Return - 26.5%; Account Value - 1.25
  • 2014: Annual Return - 7.5%; Account Value - 1.34
  • 2015: Annual Return - -2.2%; Account Value - 1.31
  • 2016: Annual Return - 13.4%; Account Value - 1.49
  • 2017: Annual Return - 25.1%; Account Value - 1.86

At the end of 10 years, the energy project would have yielded $6.19 for every dollar invested (net gain of $5.19), while the DJI would have yielded only $1.86 for every dollar (net gain of 86 cents).

Suppose we remove the year 2008 from the table because that was a particularly bad year for Wall Street. In this case, the energy project still would have yielded $5.16 for every dollar invested (net gain of $4.16), while the DJI would have yielded only $2.82 for every dollar (net gain of $1.82). In 8 of the last 10 years, energy projects beat the DJI and did so with very little risk.

Your company may have business projects that are returning more than 20%. That’s great! You should put your money there. But don’t forget to ask if those non-energy projects will get those returns year after year. Efficiency projects also insulate firms from fluctuations in utility prices.

You can also note a study that I did about 20 years ago showing that a company’s stock price increases significantly – by 21% above market – when that company announces an energy project. That study was done with a confidence interval of 95%. Your company’s CFO may be very interested in reading that paper. Also, don’t forget that there are additional savings beyond energy use alone, including less maintenance, less labor and longer service life of equipment. In several previous articles, I have shown how your CFO can calculate these additional savings.


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.

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