Energy Upgrades—Is Total Cost of Ownership the Best Way?

total-cost-of-ownershipWhen evaluating energy upgrades, the #1 question a business will ask is always, what is the return on our investment (ROI)? How much am I (really) going to save from doing this project? Traditionally in energy efficiency projects, Total Cost of Ownership analysis is the universally accepted way of determining ROI. While total cost of ownership is a good benchmark for evaluating the value of energy upgrades, it isn’t the ‘be all end all’ way of determining the projects benefits. In this blog, I’ll discuss total cost of ownership analysis, as well as additional methods for getting the most accurate ROI projection for your energy efficiency project.

Total Cost of Ownership (TCO) is defined as, “an estimation of the expenses associated with purchasing, deploying, using, and retiring a product or piece of equipment. “ Let’s look at a school system deciding whether or not to upgrade to LED lighting. While the florescent lights the district is currently using has a lower starting price, LED lights may have a better value over an extended period of time. If the total cost of ownership shows an advantage of LED lights over florescent lights in the next 2-5 years, than the LED lights are most certainly the better choice. However, there are complicating factors, such as access to capital, alternative capital expenses, and the current economic situation of that particular school district that should also be considered.

A total cost of ownership analysis takes into consideration multiple factors including initial cost, product lifespan, energy cost to operate, frequency of maintenance, expense of product replacement, hours of operation, utility incentives, and how the product will be used. While this is the go-to method of gauging the value of energy efficiency projects, EPCO likes to take this analysis a step further. It is common practice to determine TCO by using industry standard figures for maintenance, repair and operation (MRO) expenses. EPCO has found this isn’t always the most accurate method for determining ROI in energy upgrades.

At EPCO, we believe interviewing the client and understanding their unique energy fingerprint, is the best method for understanding the true inputs and cost of operational expenses. Some businesses have energy expenses that are higher than the industry standards. For example, manufacturers that operate and run equipment more heavily during second shift will likely have a more unfavorable load profile than their counterparts producing mostly during first shift. This effects avoided cost values. EPCO will always review historical billing and consumption patterns to determine the true value of an energy efficiency project.

Although SB 310 led to the discontinuation of small commercial energy rebates throughout northern Ohio, larger businesses and school systems have the potential to capitalize on remaining incentives and tax credits for energy efficiency projects. One such example is receiving an exemption to costly utility fees and riders that appear on all electric consumer bills. EPCO has the expertise to identify, prepare, and submit exemption applications on behalf of clients. Most energy firms overlook this option, but it has added benefits for many large businesses and school districts.

Total cost of ownership is the standard way of determining the added value of energy efficiency projects. Though this analysis can give an accurate judgement of savings with projects, industry standards are not always the best indicator of true ROI. It is important to take an individualized, case-by-case approach, when evaluating energy efficiency projects. To learn more about how this could help your organization, email EPCO at info@energyplanners.com, or visit us at www.energyplanners.com

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EPCO Energy Infographic

Recently EPCO decided to evaluate the influence our team has had within the energy marketplace. We were curious to know what the economic and environmental impact has been from the projects we have facilitated over the past couple of years. To that end, we identified several key metrics from each projects portfolio, and put it into an infographic to share with prospective clients.

We were really pleased the results, and have opted to share it with the larger community. The numbers speak for themselves, but there are three metrics I would like to highlight.

  • $1.87 million in annual energy savings
  • Average project payback period is 0.96 years
  • Energy savings are the equivalent of more than 11.1 million pounds of coal burned

All Projects Infographic

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Energy Efficiency: Transaction vs. Consultative Approach

Tell me if this scenario sounds familiar. You’ve been tasked with managing the energy portfolio for a building. Your company may be a manufacturer, hospital, school or commercial real estate property. Regardless of your specific operation, the common thread is that you likely have a very small operating budget, minimal staff, and host of ongoing issues that land on your desk.

You want to be proactive; planning for future issues before they arise, but the resources you are given forces you to be reactive.

As I meet with clients in varying industries, I continually hear this same narrative. To add insult to injury, many of these managers express the challenge of juggling additional responsibilities outside their defined position. Obviously, this further strains their budget, time, and personnel.

Building Construction

This struggle sets the stage for two opposed energy management methods, transaction versus consultative.

A transaction sale can be categorized by solutions that are specific to equipment failure or end of life. You would see this for example with an old boiler or HVAC unit. After decades of operation, they simply stop working. This requires the consumer to engage in a point of sale transaction.

Usually, the replacement comes with a premium cost because of the urgency. In many cases, this could easily erase whatever capital budget you had planned to use for energy efficient upgrades.

Contrary to a reactive transaction is a more proactive consultative approach. We can simplify this with two specific examples.

In the first example, your energy advisor can help you address the unique pain points your facility must deal with. A common one I often come across are issues with facility lighting. It may surprise you to learn that with older lighting technology, you will experience over time lumen degradation. This is a fancy way to say your fixtures aren’t emitting as brightly today as they did when first installed.

(A simple solution for this is to install an LED fixture. Prices for LED solutions have come down dramatically and have become more economical. The life of an LED fixtures last substantively longer than outmoded CFL solutions.)

The second example is the purest form of energy consultation. In this instance, your energy advisor would work alongside you to draft a comprehensive energy management plan. This includes identifying all existing pain points, categorizing remaining equipment life, and producing an analysis on potential retrofit costs and payback periods. This latter portion should factor available incentives and rebates as well as creative or alternative financing mechanisms.

This enables you to prepare, well into the future, for all contingencies and eventualities. You can include capital improvement projects in annual budgets, factor in the energy savings, and ultimately avoid untimely failures that can dramatically disrupt production.

For many dealing with complex energy issues, transaction selling has become the norm. Emerging resources in the market can help you better plan, prepare and manage energy portfolios. Leveraging an advisor can enable you to develop a more structured approach and avoid the roller coaster that has been your energy management strategy to date.

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Yes… Lighting is Your Low Hanging Fruit

Let’s say you’re the director of facilities for a local manufacturer or the business manager for a school district. By now, you’ve likely had a parade of salespeople knocking on your door to sell you a lighting retrofit. Each comes armed with a very similar pitch. Lighting technologies are the most advanced that they’ve ever been. ROIs are up and payback periods are down. And the most overused saying, lighting is your low hanging fruit.

In your job, you have to wade through all the gimmicky sales jargon and back of the envelope math to figure out what’s real and what’s a mirage. The difficulty is you wear many hats, and finding the time to learn the truth is challenging.

Having a clear understanding of your opportunity, along with a defined plan, will help streamline and simplify the process.

First, let’s be realistic. Just because a lighting retrofit reduces energy, doesn’t automatically mean it’s the highest and best use of your capital improvement dollars. As we have previously shared, you should start with a comprehensive facility audit. This will help to determine what projects, if any, you should focus on.

Assuming, lighting is a true cost-saving opportunity, you should understand what the current environment looks like. It is true that LED lighting efficiency is on the rise and costs have continued to decline.  This has made retrofitting your facility more economical than ever before.

However, lighting is no longer as simple as swapping out a light bulb. Advancements in lighting solutions have required the industry to move away from simple one-to-one replacements, opting instead for structured and thoughtful design. This is where it becomes imperative that you work with the right lighting firm that understands your specific needs.

Church Lighting

Many lighting firms still use antiquated methods for installing lighting. Worse yet, some firms attempt to sell you a solution you don’t need, simply to increase project costs. Ultimately, the lighting solution you choose should be unique and customized to your facility. It should incorporate the most efficient and effective design with products that maximize lumens and comfort for employees and guests of your facility.

Don’t be afraid to utilize a design-build process. Your energy advisor can work alongside you to create the right facility design and layout, and then solicit bids for the cost of the fixtures to ensure you receive a favorable market rate.

Opportunities for energy efficiency will continue to increase as technology improves. Surround yourself with a competent energy advisor that will ensure clear, transparent, and efficient energy solutions for you and your facility.

 

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