Energy prices continue to rise, but projects to save energy can pay for themselves and put money in your pocket.
Did you know?
· Energy efficiency improvements provide savings for their entire product life, perhaps up to 20 years, well past the point where the savings have paid for the initial improvement.
· Improvements in energy performance and employee comfort can increase income due to improved productivity, perhaps as much as 10 times as high as the energy cost savings produced by performing the upgrade.
· Many energy efficiency improvement programs pay for themselves in less than 3 years.
· Improved comfort results in improved retention; in retail stores, shoppers stay longer and are more likely to make a purchase; and in industrial settings, there are fewer absences.
Energy efficiency improvements aren’t rocket science, but it does take some specialized knowledge. Studies regularly show that the money for the upgrade is already in most operating budgets but is being used to pay high utility rates due to inefficient use of energy resources. Let’s take a look at a hypothetical property and see how this works.
Given a 20, 000 SF owned facility with annual energy costs of $10,000 (building A) and an 80,000 SF owned facility with $90,000 annual energy costs (building B), we find that:
· Building A costs $0.50 per square foot for energy
· Building B costs $1.13 per square foot for energy.
· If we want energy savings of 15 and 30%, respectively, Building A provides a potential annual savings of $1500 and Building B provides a savings of $27,000.
The annual cash flow is $28,500. With an interest rate of 5%, a 7 year term, and a decision to use 90% of the savings for energy investments:
· You can finance energy projects equal to $151,000 without increasing the capital and operating budgets, and the budget contributes $1.51 per square foot for energy improvement.
· The simple payback period is 5 years 4 months; savings begin accumulating beyond that point.
If you lease, it still can work to your advantage. Let’s say that you have the above property on a three-year lease.
· You can finance energy projects equal to $69,000 without increasing the capital and operating budgets, and the budget contributes $0.69 per SF for energy improvement.
· The simple payback is 2 years 5 months.
· Not only do you pay for energy improvements today using the money saved from future bills, but you also are saving money before the end of your lease period.
Tenants in leased facilities often are concerned that the landlord reaps a no-cost benefit of having a more energy efficient building. After all, he or she is getting an increase in asset value of the property and an environment that leads to increased tenant satisfaction and retention. Most forward-thinking landlords will see their benefit, and agree to some sort of cost sharing approach; others may respond by lowering rents and other tenant costs.
Additional analysis can be done using more advanced tools that help determine the best time frame to do the project, the effect of different interest rates, the internal rate of return, and so on. The important thing to remember is that energy improvements last well beyond the payoff date, and savings continue to grow from that time forward.
For the leased property, and going back to the plus points, this means that even a 10 year service life generates a cumulative cash flow of over $230,000 and that improvements in employee productivity could yield an additional $690,000.
Here are the results from a couple of properties in Oakland County, Michigan:
· A 68-unit apartment complex was able to improve electrical energy efficiency by 39% and gas use by 10 to 25%. The upgrade will pay for itself through energy savings in just over 3 months, and the owner will save over $2300 every year on energy costs.
· A 21,000 SF industrial site owner can invest up to $27,000 in energy upgrades without affecting his capital or operating budgets. Payback through energy savings is in less than 3 years; energy efficiency improves by over 35%, and he saves over $9600 every year after the project is completed.
It’s easy to choose to invest in energy efficiency when you know the facts!
Richard Buzard holds a BS degree in Facilities Management and is the owner of Facilities Performance Services, an ENERGY STAR service provider located in SE Michigan. The company provides a full range of facility and energy management services to its clients. He can be reached at (248) 814-4097 or at support@fps-fm.com.
