The question is: should you consider energy projects during tough times? The short answer is yes.”
Roxanne Fong, Director of Utility Programs, Southland Energy
Amid a global health crisis, many projects are being put on the back burner and being evaluated for their return on investment. However, energy demand, consumption, and production doesn’t just stop during a pandemic. The question is: should you consider energy projects during tough times? The short answer is yes, in fact, with a looming recession, it is actually an ideal time to reduce expenses.
Making any comprehensive energy investment during a pending recession followed by reduced operating and capital budgets will undoubtedly get some attention from leadership, but it depends on how the energy savings opportunity is perceived. Usually the most popular response for a request for capital is that there is no money in the budget. Typically, projects are “shelved” for the next budget review cycle. Although that seems like a logical sequence of events, what actually needs to occur is a paradigm shift within an organization. Specifically, with energy projects, an organization needs to understand that a comprehensive energy efficiency project is an investment rather than an expense with impressive returns.
With an impending recession, the time value of money is also affected. However, an investment in energy efficiency can pay for itself in a short time and can improve your building’s mechanical systems and energy infrastructure. Almost immediately, the net present value (NPV) of the majority of comprehensive energy efficiency investments are positive and will undoubtedly eclipse any other project competing for time and budget dollars. In addition to short-term benefits, the long-term impact of a comprehensive energy efficiency project can be considerable with utility cost savings continuing for up to 10–20 years after implementation.
As many buildings or facilities remain empty due to COVID-19, now is an excellent time to identify operational efficiencies to lower energy use in facilities and buildings, address deferred maintenance, and reduce operating expenses.”
Roxanne Fong, Director of Utility Programs, Southland Energy
Around the world, many of us are working from home, many industries are closed or operating at reduced capacity, and cities are largely quiet. When the world is facing unprecedented economic realities, owners are also facing the implications of reduced capacity and financial adversity for an undetermined amount of time.
As many buildings or facilities remain empty due to COVID-19, now is an excellent time to identify operational efficiencies to lower energy use in facilities and buildings, address deferred maintenance, and reduce operating expenses. Some of the solutions to these problems can be addressed via low-cost, high-return-on-investment improvements. When in uncharted territory, it’s often a good time to think bigger — with new financing tools available that make energy efficiency retrofits cash-positive right from the start.
Focusing on energy and cost-saving opportunities helps minimize operating expenses in these uncertain times. Facilities can enact measures to immediately drive down energy use and reduce costs, helping themselves financially through this pandemic challenge. Consequently, engaging in a comprehensive energy efficiency project makes more sense now than ever before
Clearly, the near-term focus is on the health, safety, and wellness of staff and customers for reentry — all while balancing long-term needs for sustainability and resiliency. Creating a Master Energy Plan with focused solutions that include critical HVAC, ventilation, and high-quality lighting improvement measures to support the safety, wellness, and working environments is crucial and will help address the uncertainty we all face in the COVID-19 era.
As the reentry of people may be phased and with public areas being repurposed, construction schedules can be accelerated and/or adjusted to reduce project duration costs. Early construction will provide early savings and help mitigate the cost impact of scheduled annual utility rate increases.
Energy efficiency projects have a plethora of opportunities and combinations of solutions that provide positive impacts for businesses, both near and long term. Additionally, by way of financing, businesses can preserve their own capital and be the benefactor of net annual positive cash flow, supplementing their budget for other immediate needs.
During times of uncertainty, it may be challenging to see a path forward. Finding an implementation partner who is committed to laying out a road map for the realization of the right project(s) for your business is key. Identifying project packages that combine and balance energy efficient measures with capital improvement measures creates a scenario where the identified measures facilitate enough savings for both debt service and additional positive cash back to the customer.
In other words, energy efficiency services can feasibly pay for themselves through performance contracting, and when leveraged with stimulus money (hopefully in the works), the result serves as a joint investment greater than what each would achieve alone. Energy Service Performance Contracts (ESPCs), the standard financing model for energy efficiency and built infrastructure improvement products and services, is a valuable contracting mechanism that allows a business or institution to offset the life-cycle costs associated with acquiring energy efficiency with the money saved by improved facility or building asset performance. This contracting model puts the responsibility of achieving energy savings upon the contractor, essentially eliminating credit and performance risks for the customer.
The success of an ESPC depends on a clear definition of a desired outcome. The journey begins with a preliminary assessment of the facility by a trusted ESCO partner to identify needs, the level of savings potential, and performance requirements. This analysis will then help determine a strategy for the desired outcome, which could include critical infrastructure improvements and the establishment of a healthier, safer working environment. Many types of building improvements can be funded through existing budgets, including HVAC, boilers, chillers, energy management systems, and new lighting technologies.
Businesses can make the facility upgrades you need now — with no up-front capital — and pay for them over time through the utility and operational savings that result. The benefit is immediate by getting new equipment, expertise from energy service professionals, ongoing maintenance services, and the ability to accomplish many projects all at once.
Organizations that reduce their energy-related expenditures through performance contracting or otherwise will have more cash on hand to invest in improving or developing new products and services, entering new markets, and expanding their workforces.
Although the COVID-19 pandemic has been difficult and affected nearly everyone in some way or another, the time to go “all in” with energy efficiency is presenting itself as a great opportunity in otherwise rather gloomy times.
To learn more about using energy performance contracting for energy resiliency projects, check out part 5 of our Conversations about Energy: Energy Resiliency Series video here.