Hurdle the barriers to energy project savings
Having a good partner can overcome financing, confidence issues.
As an energy professional who for years has been helping industry implement energy saving projects, I have seen a fair share of projects not take flight. Despite having a high level of return on investment (ROI), energy projects often are a “want” and not necessarily a “need.”
Brighter, more efficient LED lighting, a variable speed drive to control a motor or replacing a leaking steam trap usually does not have a direct effect on production. Combining that with cost and logistical hurdles can prevent any project from moving forward.
Below are three common hurdles in implementing energy saving projects, and various options for overcoming them to help projects take flight.
1. Lack of capital
Perhaps the biggest obstacle to any energy project is the required capital to get started. A project may have less than one-year payback, but if the investment for that project is more than six figures, it could be a struggle to obtain.
There are two ways of overcoming this obstacle and to aid in getting project approval:
- Utility incentive assignment and/or,
Utility incentive assignment
In areas where utility incentives exist, consider assigning the incentive to the energy provider. If you have a financially sound partner for your energy endeavor, the partner should be able to assume an assignment of incentives, or be paid directly from the utility company, easing the burden on the project for your company.
This has two positive effects. First, it removes the burden of a capital expense from your company. Second, all utility companies who assign incentives have an energy project inspection and validation process. This inspection ensures your company has not fallen prey to any voodoo economics.
In areas where either these incentives do not exist or where the incentives only pay a fraction of the project, financing can be the easier option. In most cases, energy projects can be financed over a term that would allow a positive cash flow positive from day one. For example, two summaries have been compiled from a project recently undertaken. (See Figure 1.) The first example is a cash option which carries a simple ROI of 3.38 percent at an investment of $342,500 and an annual savings of $101,220. Since $342,500 may not be in the budget for the year, a secondary, financed option was put together at $7,000/month for 60 months netting the customer $1,435 cash flow positive month one and for the term of the project.
The $7,000 monthly payment doesn’t have to be found as new accounts payable. This comes off the allotment of the monthly power factor penalty already being paid on the electric bill.
Financing is often an afterthought as a vehicle for helping energy projects be realized. A partner who offers financing may be the first step in helping a project get off the ground because it eliminates the capital restrictions that companies struggles with.
2. Limited internal resources
Another major hurdle is that internal resources for the fixes are extremely limited. As everyone continues to get leaner, maintenance can struggle to execute for such things as fixing air leaks, replacing failed steam traps or retrofitting existing inefficient lighting with LEDs. A true partner in these projects could offer these projects as a turnkey solution.
There are increased costs with this approach but sometimes there is no other option if the process is being overrun with day to day operations. A partner who can offer a turnkey solution can make it much easier to implement an energy project.
In some cases, the energy projects being entertained do not meet the hurdle rate in terms of ROI. This can be a real challenge to overcome as most companies who trade in energy projects are specialized in a certain technology. Unless they are able to procure a cheaper (and typically less reliable) product they have no chance in achieving the desired ROI.
Some technologies will have a better payback than the ones currently being explored. For example, if you wanted to upgrade to LED lighting from an existing fluorescent T5 lighting system the payback may not be as quick as your company’s requirements are. Fluorescent T5 lighting is the last generation of efficient technology and will not save as much energy in this case as it would for a site that still uses metal halide or high-pressure sodium lights.
But what if the project went from a lighting project alone to an energy project that included fixing air leaks, which often have a very rapid payback? Perhaps the lighting project on its own had a payback of over four years, but when coupled with fixing air leaks, that payback dropped to approximately two years. Might this be what you need to get the project approved? If so, the right partner could be a single point of contact for multiple energy opportunities.
3. Lack of confidence
Maybe the real reason a project does not get approval is because of a company’s lack of confidence in the project. Production is king and if an energy project negatively impacts production because it does not live up to its promises, who will be blamed? Often jumping into an energy project that may carry these ramifications is daunting, which makes choosing the appropriate partner of utmost importance.
A true partner has just as much to lose as you do if these projects do not work as promised. This is a tough area to overcome as most energy service companies are only present for the project and then go onto the next job. This is not what being a partner is about. A partner has a vested interest in the project and needs it to be a success to maintain your ongoing business. If you can find a partner who has just as much to lose as you do in the project, then helping you develop the confidence in the project should be much easier.
On any energy project, you should ask yourself: do I have the correct partner in place to see the project through? Your partner should offer solutions that help you navigate internal obstacles while offering competitive financing solutions.
Having a true partnership for your project will be of tremendous benefit in overcoming the hurdles to start any energy project, and to start realizing the environmental and financial benefits of doing so.