Energy Saving Projects and Profitability

Published on Thursday, 24 April 2014 06:25:58    Written by Marc
With the ever-rising cost of energy, more companies are examining their utility costs and finding ways that they might work towards reduce them. However, for many building owners and managers, one question still comes back repeatedly each time they are presented with an energy-saving measure or project, “Will the investment really be worth it?”

Energy Saving Projects and Profitability - Image from buildnative.comI guess it is a very legitimate question. After all, if the return on investment is not good, why make an investment in the first place? In a world of limited funds, companies try to to make the best out of what they have. Therefore, each dollar invested needs to be for a good reason.

Fundamentally, all companies are open towards finding ways to save money and increase their bottom line. In addition to this, most companies have well-defined investment criteria. They also know what kind of return on investment will get a project approved and what will get a project rejected. Putting these components together and any good product that does meet the requirements, should be getting a green light. That is in theory.

From the Supplier’s Point of View

If we look at the situation from a solutions provider’s point of view (energy engineer, contractor specialized in energy saving projects, or a supplier of energy saving products), what they propose to their clients comes with measurable paybacks. Energy savings could be calculated with a reasonable deal of precision for every energy-saving measure and the risks can be isolated and often mitigated. In the end, the building owners and managers can rely on a predicted return on investment.

However, there are reasons why companies do not yet make energy-savings a priority, and do not commit sufficient funds to reach their full energy saving potential. In some cases, it is because the company is struggling with funds for basic operations and cannot spare any additional investment for other types of projects. In other cases, it is because the company does not fully believe in the proposed return on investment that the energy-saving measure will bring.

Avoid the Rush

Whatever the reason, the result is the same and great energy-saving ideas are left on the table. It sometimes takes an external event for companies to shift their thinking. Prior to the energy crisis in the early 1970s, few car manufacturers (if any) were trying to find ways to make motors more energy-efficient. Then the crisis came and it triggered a rush towards improving efficiency. Today, cars are dramatically more efficient, but companies did struggle to respond. In addition, not only car companies, most companies using energy suffered some kind of consequence from that crisis. Eventually, it will probably be the same for energy-savings in companies, and maybe at one point in the future all companies will be working towards reducing to a minimum their energy usage. If reducing costs can help becoming more competitive, the companies striving to reduce their energy usage today could potentially get a head start. In addition, being pro-active often makes more sense that waiting for a crisis to trigger a response.

Creating an Energy-Saving Fund

One method that companies might keep at the forefront of the curve is to reserve, annually, an amount of capital for energy-saving measures and projects. By investing some funds into making their company more energy-efficient each year, the results can really build up in just a few years, and they might avoid having to play catch-up with other companies in their industry at one point in time. This tendency of setting up a dedicated energy fund appears to be getting more popular, and a number of companies are taking the savings that result from the projects to reinvest them into the fund, creating a method to bankroll their new projects using the savings generated from recent ones. Energy saving projects, when done well, are highly profitable, and after a few years the companies that set these funds aside no longer need to inject additional capital into the fund as it auto-generates the liquidity to pay for all energy-saving projects.