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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Ohio’s Ranking Drops on ACEEE Scorecard for Energy Efficiency

Every year, ACEEE (American Council for Energy-Efficient Economy) ranks states on their energy efficiency policy and program efforts and also provides recommendations for ways that states can improve their energy performance. The State Scorecard is a benchmark, which serves to encourage states to continue “strengthening their efficiency commitments as a pragmatic and effective strategy for promoting economic growth, securing environmental benefits, and increasing their communities’ resilience in the face of the uncertain costs and supplies of the energy resources on which they depend.” Last week, the 2015 State Scorecards were released and Ohio was ranked 27th. This is a drop from Ohio’s 2014 placement at 25th.

This drop in ranking is no surprise after Ohio became the first state to reverse energy efficiency and renewable fuel mandates in 2014. Ohio Governor John Kasich signed Senate Bill 310 in 2014, which froze annually-increasing energy mandates until the year 2017. At which point, the “the automatic levels are to be restored”, a provision that Kasich requested to be part of the legislation, according to The Plain Dealer (Cleveland). The bill also included language that establishes a legislative study committee tasked with evaluating the effectiveness and future of the original portfolio standards.

Senate Bill 310 counteracted Ohio Senate Bill 221, which was passed in 2008 and established the efficiency standard. Under Senate Bill 221, Ohio ranked #1 in the nation for advance energy and renewables, “bringing in more renewable energy facilities than any other state,” according to JobsOhio. Under the legislation, utilities can count improvements made by their own customers and also roll over any savings above a given target into the next year. Language in SB 310 created a provision that permits large industrial users to opt-out of utility offered programs; allowing these users to develop and institute internal programs. Concern has arisen that this may adversely impact the effectiveness of the utility offered programs; potentially increasing the cost and burden of compliance on smaller commercial entities.

Overall, the passage of SB 310 has negatively impacted the implementation of commercial energy efficiency retrofits throughout the First Energy territory. Unlike other state utilities, First Energy has opted to discontinue any rebates for energy efficiency work performed by its customers. As a result, there has been a decline in the number of small and mid-size commercial entities instituting energy efficiency related projects. This concern may persist beyond the current two-year freeze in place under SB 310.

Recently, the legislative study committee released a report recommending an indefinite freeze on the mandates. This has largely been met with criticism from environmental groups, politicians and industrial entities alike. In response, Governor Kasich stated that “a continued freeze of Ohio’s energy standards is unacceptable”. There is much debate still to take place before a final determination is made on the future of Ohio’s renewable and energy efficiency portfolio standards. EPCO will continue to provide additional review and analysis as more information becomes available.

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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.

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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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Identify Energy Solutions with an Energy Advisor

The energy industry today is more dynamic and complex than ever before. The advent of new technologies, shifting energy costs, and the constant barrage of federal and state legislation, has made it extremely difficult for consumers to stay adequately informed. For these reasons, EPCO is a huge proponent of the idea that every business should have an energy advisor.

The concept of an energy advisor hasn’t fully taken hold throughout the marketplace. Perhaps it is because most businesses don’t clearly understand what an energy advisor is, or, how they would use one. Think of it in these terms. A typical business will utilize a lawyer for legal needs or a CPA for accounting. There are many professionals and firms that can provide the same consultative services for managing your energy consumption.

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For smaller enterprises, you may leverage the expertise of an energy advisor to negotiate better rates for your gas and electric utility. But if you are a larger consumer, like most clients I work with, your energy management needs could be substantial. The right advisor can help identify and craft energy solutions for a myriad of concerns. This may include lighting audits and retrofits, power factor correction studies, or improvement to process cooling / heating performance.

You want to be sure to work with the right advisor, not all are created equal. Each client that EPCO collaborates with receives a unique and customized energy evaluation. No two businesses have the same needs or operate in the same way. Your energy consultant should provide you with a distinctive energy saving solutions that will allow you to make immediate and lasting cuts to your operating budgets.

Working in concert with you, and focusing on your specific needs, a reputable advisor will design a sensible compilation of measures that provide for turnkey energy efficiency solutions. Ultimately, you will want to take a long-term planning approach, leveraging short term savings opportunities that are invested into more capital intensive projects. This diversifies energy portfolios and ensures a cost effective and sustainable path into the future.

There are many more factors to include. You will want to leverage potential financing and rebates as well as develop a structured strategic plan to help guide you. The first step though is to find and work with the right team of professionals. The world of energy procurement and management is virtually the Wild West. Make sure you are coming armed with the right support.

 

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Three Ways to Pay for Energy Efficiency

Recently, I shared with you the importance of crafting an energy plan to help guide your mission of becoming more energy efficient. Having a plan is great way to identify the opportunities in your facility and how best to prioritize your implementation schedule. However, knowing what you should retrofit and subsequently how you will pay for it, are two very different objectives.

In today’s economic climate, finding discretionary dollars to pay for energy efficiency upgrades is challenging to say the least. Typically, for most businesses, only a fraction of total operating expenses are energy related. Each fiscal year, when evaluating capital expenditures, energy projects tend to rank pretty low.

EPCO understands the financial concerns and restrictions our clients face. Part of our value proposition is to cultivate and leverage any and all incentive opportunities that exist in the market. Below are three essential and easy steps, to be packaged with your project, that will help lessen installation costs, increase project ROI, reduce payback periods, and amplify net savings.

Utility Procurement

Most consumers are content to simply sign a multi-year contract and never think about their utility bill again. This can be a costly mistake, especially for larger consumers. Negotiating a lower rate by even a few cents can yield significant value. In addition, it is very likely that at some point, now or in the future, an error on your bill will occur.

Think about the number of residential, commercial and industrial customers served by your utility.  Statistically, a mistake is bound to happen. Be sure to work with your energy advisor to review your billing history for any anomalies or incorrect charges. When billing errors are found, the money owed to you by your local utility can be reinvested into your energy project.

Rebates, Tax Credits, & Grants

Many utilities and state funded agencies offer a host of incentives, rebates, credits and grants to specifically help fund energy efficiency. Some of these opportunities do carry restrictions based on your industry, geography, or annual consumption. Other programs are publically available to all. The important point here, is to work with a professional energy advisor that is well versed on the available programs and application processes.

Traditional and Non-Traditional Financing

This is the most critical part of the implementation process. No longer are businesses relegated to merely two financing options; using one’s own capital or traditional lending institutions. Popping up around the country are these novel and creative alternative financing mechanisms. They leverage the net savings of your project and structure the loan terms as a service agreement. This allows you to fund the project with little to no money out of pocket and treat the payments as you would an operational expense.

In the end, the reduction you enjoy in operating expenses means more dollars toward increased productivity, better employee wages, and more revenue. The opportunities are certainly out there. Talk with your energy advisor today about how you can become more energy independent.

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What EPCO Can Do For You

As we approach summer, more and more businesses will begin to think about their energy consumption. In a just a couple of months, higher temperatures will bring increased electric consumption. Consumers will be cranking up their cooling load or increasing production. With increased consumption come increased energy costs. That is the bad news. The good news is that there are steps you can take to mitigate those rising operations expenses.

Energy Planners Company (EPCO) is a full service energy solutions firm committed to providing the best products and services available to our clients and partners. Leveraging our proprietary approach to energy management, EPCO will work alongside our clients to create a long-lasting advanced strategic plan to address all their current and future energy related needs. EPCO’s carefully designed methods and portfolio will help your business realize savings in areas you may not have known existed.

Electric & Natural Gas Utility Bill Review

For each metered account, EPCO will review all supply side charges related to the acquisition of, and costs associated with, electric and gas procurement.

ASHRAE Levels 1, 2, & 3 Assessments & Design

ASHRAE level energy audit & lighting assessments determine where, when, why and how energy is used in a facility. The main outcome of our customized energy audits is a list of recommended energy efficiency measures (EEMs), associated energy savings projections, and a calculation of whether EEM installation costs are a good financial investment for your facility.

Rebates, Incentives & Financing

EPCO specializes in creative and alternative financing mechanisms. Our team of professionals will leverage the energy efficiency projects you perform to exempt your facility from costly utility fees or apply for rebates through either your local or regional utility.

Long-term Energy Planning & Strategy

EPCO takes a holistic look at an entire building or campus to choose the appropriate approach to create cascading savings and improve asset value. EPCO will help design a clear and customized business case for a deep energy retrofit through quantifiable savings and empirical research.

Project Management & Implementation

From project identification, to design, and ultimately installation; EPCO can manage and facilitate the entire retrofit process for your facility. EPCO works with all energy intensive industries and consumers and understands the complexities of retrofitting a facility such as yours. Areas of project management expertise for EPCO include, but are not limited to, the following.

  • Lighting
  • HVAC
  • Motors, Drives, & Controls
  • Roof Top Units (RTUs)
  • Air Handling Units (AHUs)
  • Combined Heat & Power (CHP)

EPCO prides itself in its ability to cultivate unique and customized solutions for each client it works with.

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