John Schinter, Executive Vice President of Client Solutions at Redaptive Inc., provides his views on how to encourage energy efficiency. What do you think of his four suggestions?
Shifting The Paradigm Of Energy Efficiency
Improving the bottom line is always top of mind for companies. The trouble is, costs are always going up, whether it’s volatility in commodity pricing or unexpected operational disruptions. I previously worked on a real estate team at a telecommunications company where we focused on improving the capacity and speed of our network. So optimizing the lighting or HVAC technologies in our buildings took a back seat. Similarly, in my time working in commercial real estate, I saw how the buildings that companies own and operate are, in many cases, working against them. If your company only owns one or a few buildings, wasted energy might not break your bank. But with a distributed real estate portfolio, those kilowatt-hours (kWhs) can add up to serious dollars — coupled with maintenance risk and unexpected downtime. Companies allocate budget very effectively to their core business, but proactively replacing equipment is typically not a winning proposition.
Fortunately, as the vice president of client solutions at an energy efficiency as a service company, I’ve seen that businesses are learning how to tackle these risky asset management challenges to cut operating expenses, preserve capital and drive broader business objectives.
Energy efficiency and proactive asset replacement aren’t new concepts, but deploying efficiency at scale without burdening capital budgets or assuming risk is moving the conversation from facility management to the CFO’s office. Back in 2009, a McKinsey report said companies could save up to $700 billion in energy bills over the next decade simply by cutting energy usage by 20%. A decade later, efficiency is still largely a missed opportunity. With a strategic and proactive efficiency program, a company can redirect cash generated from energy savings to its core business and potentially even increase its workforce.
Why Is Energy Efficiency Still A Challenge?
So why does energy efficiency remain a sticking point for many companies? Part of it is mentality, or the way companies view energy efficiency on a fundamental level. Corporate facility management has traditionally been reactive, using a run-until-fail paradigm. It’s understandable, considering that someone might wonder why you are prioritizing replacing a bunch of lightbulbs that are “working.” And they might say, “If it’s not broken, don’t fix it.” This passive approach may lead to higher utility bills and operational risk. Facility managers often associate efficiency with maintenance as opposed to an opportunity for low-risk cash flow.
Another roadblock to energy efficiency is a lack of transparency and data on utility bills. Some companies simply don’t have equipment-level data to get a full picture of energy consumption within their facilities. Without isolated consumption data, managers have no real-time indicators for how their equipment is running. It’s pretty amazing when you think about how data mining and optimization are so critical for every other part of an organization, but facility management is left in the Dark Ages with paper utility bills.
There are opportunities to scale efficiency deployments and turn the tide against wasted energy and budgetary drains. Installing equipment-level metering can arm the facility team with strategic risk mitigation and cost reduction insights that you can then translate into huge savings for the finance team.
And finally, keeping the capital budget process in mind is crucial. Corporate thresholds for minimum hurdle rates and term lengths can prevent project approvals. Often, management decisions are focused on payback periods and lack the framework to evaluate funding models that bypass balance sheet financing.
Four Ways Companies Can Drive Financial Results And Mitigate Risk Through Energy Efficiency
Below are four DIY tips to help you start increasing your building’s energy efficiency and reducing energy usage:
- Rethink your facility management strategy. Instead of approaching HVAC, lighting, rooftop units and refrigeration as future maintenance expenses, why not think about your assets as savings opportunities? Which assets should you proactively replace instead of putting Band-Aids on aging equipment? First, identify which appliances and other equipment are consuming the most energy. You can do this by deploying energy meters to track the electricity usage of different parts of your building. Using this data, you can identify energy-guzzling appliances and repair or replace them to ensure your building is running as efficiently as possible.
- Make sure your equipment is up to regulation. For example, did you know that the U.S. government is phasing out freon (R-22), which is common in most air-conditioning units? Freon is a refrigerant used in older air conditioners that the EPA says depletes the ozone layer. To see if your unit contains freon, check the year your AC unit was manufactured. Units manufactured before 2010 may contain freon. You may also notice condensation pools and ice around your pipes, as well as puddles around your AC units, refrigerators and freezers. These may all be signs of inefficient appliances.
- Decide on and then outline which metrics would drive a successful energy efficiency program for your company. For example, reducing downtime from failed HVAC or rooftop air conditioning units (RTUs) could be important for reducing your operating expenses. Which units could you update to improve customer experience and employee productivity?
- To create a long-term plan for change, it is important to gain operational insight and identify anomalies in equipment performance with a real-time view, which energy meters can provide. For example, if your lighting system is not shutting off when it’s supposed to, your rooftop cooling unit is cycling when it should be idling, or a piece of equipment is guzzling more electricity than it should, you can compare your data to the manufacturer’s specifications to determine whether the unit is operating as it should and whether to repair or replace the equipment. Keep track of equipment repairs or replacements you might need in one building or across a portfolio of buildings that will make your buildings run better and use less energy. Identify the big drivers of energy consumption so you can make informed decisions about how to optimize the equipment in your buildings.
Businesses with large-scale real estate portfolios are sitting on an untapped financial opportunity. Fortunately, many companies are starting to realize the benefits of efficiency, including enhancing their fiduciary responsibility to shareholders, maximizing profits, and contributing to broader corporate social and environmental objectives for years to come.