Reducing the Impact of Energy Costs on Business

Transcription

1 Reducing the Impact of Energy Costs on Business Your roadmap to targeting energy efficiencies in a dynamic business environment September 2007 / White Paper Make the most of your energy

2 Summary I. Executive Summary...3 II. Energy and the Corner Office...4 The cost of business as usual...4 Seizing the opportunity: energy efficiency as a manageable investment...5 Financial benefits and more...5 III. How EnergyEdge Captures the Opportunity...7 Energy efficiency as a managed process...7 A focus on proactive measures...7 A holistic approach...8 IV. Case Studies of Energy Savings...9 V. Conclusion... 11

3 I. Executive Summary Rising energy costs are a critical concern for executives, yet few companies have begun serious energy efficiency programs. The major reason for this oversight is that executives often view their facilities and energy use as a sunk cost, instead of an investment. By leveraging energy and facilities as investments, companies can gain control of energy use and achieve high rates of return in the form of energy savings. The Internal Rate of Return (IRR) on these projects can be sizeable. In fact, they can be even greater than other corporate investments. When considering the cost of capital, the Modified Internal Rate of Return (MIRR) can be as high as 29 percent. Companies are also eligible for rebates from utility and government programs. Benefits from this investment approach include double digit energy reductions, as well as improved building performance, worker productivity, and environmental responsibility. The EnergyEdge service helps companies realize the benefits of energy efficiency with minimal risk and a large potential payback. Our proven process, combined with a holistic view of facilities and ongoing proactive measures, gives companies the ability to invest in energy efficiency with a predictable rate of return. EnergyEdge addresses all energy consumption in a facility, from the building envelope to the internal controls and systems, including lighting, heating, air conditioning, electricity, and water. The comprehensive, step-by-step approach of EnergyEdge allows executives to make informed decisions about their facilities and energy use. The result converts sunk energy costs into competitive agile assets. EnergyEdge helps companies realize the benefits of energy efficiency with minimal risk and a large payback. EnergyEdge 3

4 II. Energy and the Corner Office For CFOs and other executives, the quest to streamline operations and cut costs has never been more urgent. Ironically, a vital source of financial savings is all around them the very buildings where they do business. The biggest issue is the surging cost of energy, which now makes up 30 percent of operating costs for the average company. 1 According to U.S. federal figures, energy costs rose 31 percent from 2003 to and there is no indication that these costs will fall in the future. The US Department of Energy projects 30 percent sustained increases in the cost of electricity. 3 The impact of high energy prices is felt in every corner office and boardroom. A recent Duke University study ranked high energy costs as the number one concern of executives, ahead of even healthcare costs and rising interest rates for US corporations. Yet remarkably, the same study revealed that only a minority of companies have made any attempt to improve the efficiency of their facilities. 4 What explains this apparent contradiction? Why have business executives who want to squeeze every ounce of performance from their operations failed to take action when it comes to energy efficiency? Energy costs rose 31 percent from 2003 to 2005 Reasons Why Companies Have Not Acted Executives can t spare the time, people, or money Prefer to invest scarce available dollars on more important issues Most facilities are managed on a reactive basis, rather than a proactive one Owners feel they solved facility issues years ago when they installed new controls or updated their systems Owners view energy issues as costs, not as investments The cost of business as usual There are ample reasons why companies have not acted. First, executives feel they can t spare the time, people or money to worry about facility overhauls. As long as the heating and air conditioning operates and buildings are secure, companies prefer to invest scarce available dollars on more important issues. Second, most facilities are managed on a reactive basis, rather than a proactive one. Boilers get fixed when they start spewing steam. New controls are installed when the HVAC system finally breaks down. The typical facility manager is stretched just keeping up with repairs and maintenance within the budget never mind requesting money to fix things that aren t broken. The majority of building owners feel they solved facilities issues five or ten years ago when 1 Energy & Power Management, Connecting the Dots, Mark Jewell, June 1, US Energy Information Administration, Annual Energy Outlook, TheOpenPress.com, Energy Survey and Waste Analysis Bring Big Savings through Energy Efficiency for Companies, December 7, Duke University/CFO Magazine Business Outlook survey, Dec EnergyEdge 4

5 they installed new systems or lighting controls. Yet buildings drift out-of-control over time, as occupancy and use change, and technicians override controls to fix day-to-day problems. A key reason for corporate inaction is that executives continue to view facilities and energy as costs, not as investments. Facilities and energy are part of the cost of doing business, they think. As with any drain on the bottom line, the goal is to minimize costs. Thus, even with energy prices rising to historic highs, 58 percent of US facility managers say their budget has remained constant or even decreased from year to year. 5 The result is inevitable: Companies face a growing problem of aging equipment, inefficient facility operations, rising maintenance costs, and uncontrollable energy prices. Trimming facility costs has not solved the problem. It has compounded it. Seizing the opportunity: Energy efficiency as a manageable investment For companies willing to take the initiative, energy problems offer a golden opportunity. Managing facilities and energy as assets that can be invested in with a predictable return is the solution. Investments in energy efficient electrical products afford tremendous economic opportunities, says Dr. Steven M. Bloom, principal of the financial consulting firm Capital Markets International, in The Modified Internal Rate of Return can be as high as 29 percent an article for the Energy Cost Savings Council. He says the Modified Internal Rate of Return (MIRR) can be as high as 29 percent significantly higher than most other investments a company is probably making. 6 According to the Energy Cost Saving Council, this opportunity is great because so many building systems are aging and out-of-date. With advances in energy efficiency over the last ten to twenty years, there is dramatic room for savings in almost every area, from ballasts and lamps to chillers, motors and drives. 7 When compared to other options, concludes Bloom, energy upgrades should be viewed by CFOs and other operational executives as investment opportunities to stand up and cheer about. 8 Financial benefits and more The financial benefits of facilities investments are well documented. Most significant of all, according to the US government program EnergyStar, Organizations that improve energy performance outperform their competitors by as much as 10 percent. 9 5 Survey conducted in 2004 by the International Facility Management Association, FMLink, the Association for Facilities Engineering (AFE), The Association of Higher Education Facilities Officers (APPA), The Building Owners & Managers Association (BOMA) and Building Operating Management magazine. 6 Energy Cost Savings Council, 7 Energy Cost Savings Council, 8 Energy Cost Savings Council, 9 EnergyStar: EnergyEdge 5

6 This Return on Investment (ROI) comes from more than just energy savings. One study found a two percent drop in employee productivity for each degree above 78 F in a typical environment. A similar reduction in productivity occurs when the temperature drops below 72 F. 10 How valuable is that productivity difference? Considering the cost of a company s payroll, a 1 to 2 percent increase in staff productivity could offset a significant portion of its energy budget. Further energy ROI comes from government tax incentives. In the US, the Energy Policy Act of 2005 provides new tax deductions and credits for energy efficient and renewable energy investments. According to an article in Energy & Power Management, Pursuing energy efficiency that exceeds code increases eligibility for these tax benefits while lowering lifecycle costs. 11 Finally, energy management offers every executive a chance to deal with environmental issues like energy and water use within a profitable initiative, instead of as a costly drain on finances. With all these benefits, the question is not whether to move forward with a corporate approach to energy savings, but how to go about it successfully, with a measurable program and predictable ROI. For every degree below 72 F or above 78 F 2 percent Drop in workers poductivity Studies have shown that: The average building uses 20 percent more energy than needed Proactive maintenance can reduce the energy cost of a system by 5 to 10 percent Equipment upgrades and tune-ups can save 5 percent to 15 percent 10 Control of Temperature for Health and Productivity in Offices, Helsinki University of Technology Institute of Heating Ventilating and Air Conditioning, and the Lawrence Berkeley National Laboratory Environmental Energy Technologies Division. 11 Energy & Power Management, Connecting the Dots, Mark Jewell, June 1, 2006 EnergyEdge 6

7 III. How EnergyEdge Captures the Opportunity Based on decades of experience and engagements with a wide range of companies, EnergyEdge works with customers on a local or global basis to plan and control energy use through an ongoing, strategic energy efficiency program. Energy efficiency as a managed process EnergyEdge helps our customers begin immediate and long term plans that reduce energy costs and give them better control of their facilities. We identify specific issues, estimate the investments required, and project the ROI that can be expected. Since Schneider Electric includes a program to sustain energy efficiency, savings estimates are likely to be realized. We use a proven process to achieve optimum energy use throughout the lifecycle of a facility: Energy Assessment: We compare a customer s utility bills to similar facilities in the region to determine energy conservation opportunity. Preliminary Energy Report: A high-level site survey to identify potential energy conservation measures to align the customer s energy profile with business objectives. Comprehensive Analysis: Through a detailed energy analysis of the facility by a Certified Energy Manager, we create a program and plan to improve facility operation and meet energy targets. Program Implementation: We work closely with customers throughout the implementation process to verify that goals are met, with regular milestones and reports. Sustained Performance: We regularly review the project and results, make sure performance goals are met, and fine tune to ensure continued energy efficiency and savings. A focus on proactive measures EnergyEdge has found that companies are most successful with energy efficiency when they implement a sustained approach, including proactive Operations & Maintenance. As mentioned earlier, buildings drift out-of-control without a managed energy efficiency program to sustain and care for its systems. Savings from past system upgrades can evaporate quickly. The US Department of Energy s Federal Energy Management Program (FEMP) reports that energy losses from steam, water and air leaks, uninsulated lines, maladjusted or inoperable controls, and other losses from poor maintenance are considerable. FEMP s studies show that investing in proactive maintenance programs can save from 12 percent to 18 percent over reactive maintenance approaches, and many facilities could save more if they are purely reactive Federal Energy Management Program: strat_preventive.cfm EnergyEdge 7

8 For this reason, EnergyEdge always includes ongoing energy efficiency measures as part of our program to help sustain the desired Return on Investment. A holistic approach TAC s review of energy efficiency takes a holistic approach to solving an energy problem. We find opportunities to leverage each improvement and to enhance others. This includes every aspect of facility operations to ensure financial and technical balance in an energy conservation program. An Energy Cost Savings Council study found that the greatest cost savings are achieved when a range of technologies and applications are used. The report states: In a sense, it works like compound interest. Each technology that is upgraded provides energy savings on its own. But it also provides a base on which other energy savings can grow. 13 The reverse is also true. Projects that are undertaken as one-off upgrades may look good on paper, but don t deliver expected returns. Using a holistic approach avoids the adverse impact of a less than stellar ROI. A simple example of this is a retrofit of lighting that can appear to save 50 kilowatts per hour on paper. In the real world, when the weather is cold, the loss of heat, once provided by the inefficient lighting, must be made up by the heating system, thus the expected savings are eroded. Here s What We Look At: Building Controls Simple control adjustments can produce rapid energy savings. Are your building controls optimized for performance? Are lights and other systems running at the correct settings and at the right times? We look at optimizing controls first, rather than replacing them, through software changes or tune-ups; sometimes a simple adjustment in controls can improve efficiency significantly. Mechanical How do HVAC systems use energy throughout the building? Can the performance of chill water, distribution and steam systems be improved? Do air handlers and sequencers need upgrading or adjusting? Are outdated motors wasting energy? Replacing an old motor with a newer, high-efficiency motor can improve energy efficiency by 90 percent. Electrical How electricity is used and how efficient is the total system from lighting and controls to office equipment, refrigeration, and kitchens? Since facilities use electricity in many ways, there are usually opportunities for savings. Envelope How does your building envelope perform, and how does it affect other energy systems? Could simple improvements to insulation yield significant savings? Water Water, like energy, is a resource that can be conserved to save money. Are cooling towers losing too much water to evaporation? Are you paying for sewage charges that could be avoided with metering? Can water heating be planned and managed to reduce costs, based on actual usage times and areas? 13 Energy Cost Savings Council: EnergyEdge 8

9 IV. Case Studies of Energy Savings IV. Case Studies of Energy Savings IV. Case Studies of Energy Savings Case Study 1 Case Study 1 For the the owner owner of of various various manufacturing manufacturing Case Study buildings 1 buildings and and distribution facilities distribution across facilities the across UK, rising the UK, energy rising energy prices prices and old, inefficient For and old, the inefficient owner of equipment various manufacturing were factors enlisting buildings and distribution equipment were factors in enlisting TAC EnergyEdge for an energy facilities EnergyEdge across for an the energy UK, solution. rising energy prices and old, inefficient solution. equipment were factors in enlisting TAC EnergyEdge for an energy solution. Working with this customer to find appropriate solutions, Working with this customer to find appropriate solutions, the TAC the EnergyEdge team introduced the latest building EnergyEdge team introduced the latest building management Working management with system this customer (BMS) and to data find logging appropriate capabilities solutions, the TAC system (BMS) and data logging capabilities and replaced old EnergyEdge and replaced old team technology. introduced the latest building management technology. system (BMS) and data logging capabilities and replaced old technology. Gains Gains As a result, the customer gained intelligent control over As its energy-related a result, the customer equipment and gained now intelligent collects energy control over its energyrelated consumption equipment data continue and now evaluating collects the energy progress consumption of this data to Gains As a result, the customer gained intelligent control over its energyrelated equipment and now collects energy consumption data to continue project. After evaluating funding this the initiative, progress the of customer this project. produced After a funding this initiative, 35 percent savings the customer electrical produced consumption a 35 and percent a 25 percent savings in electrical continue evaluating the progress of this project. After funding this consumption cost savings. In and addition, a 25 the percent customer cost was savings. recognized In addition, its the initiative, the customer produced a 35 percent savings in electrical customer industry and was has recognized received awards in its for industry these efforts. and has received awards consumption and a 25 percent cost savings. In addition, the for these efforts. customer was recognized in its industry and has received awards for these efforts. Case Study 2 Case Study 2 Struggling with high energy Case costs, Study aging 2 HVAC and lighting equipment, with and high little energy control costs, of aging its equipment, HVAC and lighting a US-based Struggling with high energy costs, aging HVAC and lighting industrial manufacturer and little control needed of its equipment, to cut those a US-based costs while aligning its equipment, and little control of its equipment, a US-based HVAC controls with its needed business to cut objectives. industrial manufacturer needed to those cut those costs while costs while aligning its HVAC aligning controls its HVAC with controls its business with its business objectives. objectives. Outdated lighting equipment and HVAC roof top units were replaced. lighting TAC also equipment implemented and HVAC network-based roof top units were HVAC controls to Outdated lighting equipment and HVAC roof top units were serve replaced. production Schneider Electric times and also implemented schedules. This network-based manufacturer is now replaced. TAC also implemented network-based HVAC controls to able HVAC to controls track to its serve energy production consumption times and through schedules. ongoing This monitoring serve production times and schedules. This manufacturer is now and manufacturer reporting is now capabilities. able to track its energy able to consumption track its energy through consumption ongoing monitoring through ongoing monitoring and reporting capabilities. and reporting capabilities. Gains As Gains required, the BMS is aligned with the company s goals. This Gains energy As required, management the BMS is aligned system with has the attained company s goals. annual savings of As required, the BMS is aligned with the company s goals. This $241,000 This energy with management a payback system of three has attained years. an The annual company and its energy building savings of management are $241,000 positioned with system a for payback has continued of three attained efficiencies years. an The annual savings of and financial $241,000 success company with and with its a building a payback sustainable are positioned of three years. energy management for continued The company and its solution in place. building efficiencies are and positioned financial success for continued with a sustainable efficiencies energy and financial success management with solution a sustainable place. energy management solution in place. TAC EnergyEdge White Paper TAC EnergyEdge White Paper 9 9 EnergyEdge 9

10 Case Study 3 Case Study 3 Although their structure was new, Case the Study owners of 3 a London, UK-based Although tourist their structure destination was also new, sought the ways owners to make of their a London, UKbased Although tourist more their energy destination structure efficient was also while new, sought reducing the ways owners environmental to make of a London, their building UK- building impacts more based energy tourist and energy efficient destination costs. while also reducing sought environmental ways to make their impacts building and energy more energy costs. efficient while reducing environmental impacts and energy costs. An energy management consultant dispatched by Schneider Electric An energy monitored management building performance consultant dispatched and controls by as TAC monitored well building An energy as emissions performance management and consumption. and consultant controls From as dispatched that well data, as an emissions by TAC monitored and energy consumption. building action performance plan From was that approved. and data, controls an energy as well action as emissions plan was and approved. consumption. From that data, an energy action plan was approved. Gains Gains This Gains initiative surpassed its goals: its goals: within within the first the 18 first 18 months, the months, company This initiative the reported company surpassed savings reported its of savings goals: more within of than more 55,000. the than first 18 Electrical months, the 55,000. consumption company Electrical reported was consumption reduced savings by of was more nine reduced percent than by 55,000. nine and gas Electrical consumption fell percent by consumption 15 percent. and gas was consumption The reduced long term fell by by nine savings 15 percent. realized The and long by gas the consumption customer will fell term help by 15 savings enable percent. realized the The implementation by long the term customer savings of will more help realized energy enable by savings. the customer Because will it the help is operating implementation enable the more implementation of efficiently, more energy the savings. of building s more Because energy equipment it savings. is earmarked Because it is for is operating operating a longer more life more efficiently, span saving efficiently, the building s the building s owner equipment substantial equipment maintenance is earmarked is for costs. earmarked a longer for life a longer span saving life span saving the owner the owner substantial maintenance substantial costs. maintenance costs. Case Study 4 Case Study 4 Case Study 4 A London, UK-based retailer with 500 retail units sought to decrease A London, utility UK-based costs retailer retailer while with improving with 500 retail 500 units environmental retail sought units sought conditions to and to plant decrease efficiency. utility costs TAC used while data improving analysis, environmental benchmarking, conditions and the and conditions plant compilation efficiency. aplant of a efficiency. TAC pre-visit used Schneider report data analysis, to Electric create used benchmarking, a best data practice and strat the egy analysis, for compilation this retailer. benchmarking, of a pre-visit and the report compilation to create of a pre-visit best practice strategy report for this to retailer. create a best practice stratfor this retailer. The TAC team then performed a one-day site visit to conduct an energy The Schneider TAC survey team Electric then and identify team performed then energy performed a one-day saving a one-day site opportunities. visit to conduct TAC an site followed energy visit to survey up conduct by and implementing an identify energy survey energy the and recommended saving identify opportunities. energy strategies. TAC It also saving created followed opportunities. a up report by implementing outlining Schneider payback. Electric the recommended followed Continued up by savings strategies. are ensured It also implementing through created a post report the visit recommended outlining energy performance payback. strategies. Continued It tracking. also created savings are ensured a through report outlining post visit payback. energy Continued performance savings tracking. are ensured through Gains post visit energy performance tracking. After Gains investing 131,000, this customer has achieved an annual savings After investing of 750, ,000, and increased this customer its plant has life achieved expectancy annual through After investing 131,000, this customer has achieved an savings reduced of loading. 750,000 and increased its plant life expectancy through annual savings of 750,000 and increased its plant life reduced loading. expectancy through reduced loading. TAC EnergyEdge White Paper TAC EnergyEdge White Paper EnergyEdge 10

11 V. Conclusion Viewing facilities and energy use as investments rather than costs allows companies to achieve high rates of return from energy savings while lowering lifecycle costs. Studies have shown that successful companies manage their energy in this asset focused way. It also enables companies to promote their energy efficiency and enhance worker productivity. EnergyEdge draws on worldwide resources and experience to examine every phase of energy use, helping companies take control of their energy investments with a program of immediate savings and sustained energy efficiency. The initial steps of this holistic approach are low cost and low risk. In the long term, proactive energy savings can easily reach double digits. The result is that EnergyEdge empowers executives to manage their company s energy consumption and achieve true competitive advantage. EnergyEdge 11

12 Schneider Electric One High Street, North Andover, MA USA Telephone: Fax: All brand names, trademarks and registered trademarks are the property of their respective owners. Information contained within this document is subject to change without notice Schneider Electric. All rights reserved. WP-TACENERGYEDGE-A4.BU.N.EN CC September 2007 sm