Energy Efficiency Project Approval and Execution
March 2022 --
This installment is the last in a series exploring energy use baselines, goal setting, reduction strategies and treasure hunts.
Energy efficiency opportunities typically come in two forms. The no cost/low cost “just do it” kind can be implemented with relative ease with the help of facility technicians. The second type – those requiring on-or-off balance sheet capital expenditure – require more due diligence.
The first step is to get professional engineering help. If you don’t have in-house project engineering support, options include contracting for these services or taking part in a utility-sponsored commercial energy efficiency incentive program. Utility on-bill financing, performance contracting and property assessed clean energy (PACE) programs can also be options for funding project development and implementation. Whether using one of these options or more straight forward approaches such as funding through capital budgets or debt financing, it is incredibly important to speak the Corporate Financial Officer’s language.
Unlike most facilities projects, energy efficiency projects make good investments; they offer guaranteed returns and improved cash flow.
Another important step to getting energy efficiency projects approved and executed is to convince your company’s decision makers. It is important to emphasize to leadership that, unlike most facilities projects, energy efficiency projects make good investments; they offer low or no risk (guaranteed returns) and improve cash flow (lower expenses).
Talk to the CFO to identify an appropriate discount rate (cost of capital) for calculating the project’s net present value and/or internal rate of return (IRR). Compared to simple payback, these data points make a much more convincing business case. Calculations should consider all of the impacts on cash flow, e.g., avoided utility costs, escalation rates for utility costs, operations and maintenance savings, rebates and tax incentives.
Once a funding mechanism is identified, the work of executing a project can begin, from drafting a scope of work to getting the installing contractors on board through construction and final commissioning. As the approved projects typically have a good payback it’s imperative to get them off the ground so that the savings can be realized quickly. The project team may also want to measure the results once completed to validate the business case and use success stories to justify future projects.
- Financing Energy Efficiency Projects: What to Know Before you Sign is an upcoming live (March 22, 2022) and recorded ENERGY STAR webinar to help you get started.
- ENERGY STAR also offers a good primer on making the business case.
- This excellent DOE Better Buildings resource will help you explore project financing options tailored to your needs and even connect you with financial allies.