The right return for your money

The Greening Government commitments superseded the Sustainable Operations on the Government Estate (SOGE) programme in April this year. These new targets included one of reducing greenhouse gas emissions by 25 per cent from a 2009-10 baseline. These savings are to be achieved from “the whole estate and business-related transport.”

Given how notoriously difficult it seems to be to cut transport emissions, it would not be surprising if the main area for savings were the buildings owned or tenanted by government departments. In addition, the central government office estate has to become ‘carbon neutral’ by next year – 2012.

A further 25 per cent on top of savings already achieved is no mean feat, especially given the restrictions on expenditure following the Comprehensive Spending Review. Yet there are a number of options open to the public sector that can achieve a return on investment of more than 30 per cent. Against that background, perhaps the targets are not unattainable after all.

Seeking best value

The main options are to cut back on consumption or to invest in renewable energy. Much attention has been given recently to the possibilities of installing on-site renewables. The Feed In Tariffs (FITs) and now the Renewable Heat Incentive (RHI) offer participants grants or preferable rates in order to reduce the level of investment and decrease the payback period. While renewables are clearly going to form a significant part of our power supply over the coming years, does investment in these technologies today represent best value compared with, say, energy efficiency?

Well, FITs are based on a return on investment (ROI) of just eight per cent, or over 10 years to achieve a simple payback on investment. While the proposals for the RHI are slightly more generous with an ROI of around 12 per cent, you still will not see a return on the investment before 2020. The comparison with energy efficiency technologies could not be more striking. ESTA members regularly report an ROI of more than 30 per cent on projects they are engaged in.

Return on technologies

Clearly, the payback on different measures will vary according to the complexity and size of the installation. Yet for some basic measures, like automatic Monitoring & Targeting (aM&T) – and without some form of monitoring and targeting system there is no real way to prioritise and measure improvements – payback can often be measured in months rather than years. Remember that by 2015, virtually all public buildings where the public has access will need annual assessments of energy performance which then have to be on public display in the form of Display Energy Certificates (DECs). Many of the newer aM&T systems can produce these certificates automatically, amortising the cost still further.

While there are a wide range of technologies available, some have fairly universal application. We all need lighting; indeed in many modern buildings lighting is one of the main electricity loads. Now while most organisations will by now have installed low energy lighting (in the form of compact fluorescents or high efficiency strip lighting) this can still involve waste of energy. Any light that is on unnecessarily is wasting money. The way to ensure that this does not happen is to have an effective system of control. Energy controls vary from simple on/off timeswitches, through presence detectors (for storage areas or intermittently used spaces for example) and daylight sensors to sophisticated zone controls integrated with a Building Energy Management System (BEMS). Once again payback and ROI will vary but there is plenty of evidence from real installations that a comprehensive control system can cut lighting energy by up to 30 per cent.

Another technology that has wide application is the inverter or variable speed drive (VSD). Conventional motors operate best when working flat out; as output is reduced, the efficiency of operation falls too. In fact, most systems involving motors are oversized at the outset to allow for changes in usage and loading over time. So the chances are that the motors in a host of items of equipment, from lifts to air conditioning fans to pumps, are not working as efficiently as they should.

VSDs tackle this problem by matching the motor energy consumption to output. Studies suggest that VSDs achieve simple payback between three to 12 months of installation and are capable of reducing motor energy consumption by up to 70 per cent (as well as improving the ‘fine control’ of motor load). They can also ensure longer motor life.

Presenting the case

The finance departments of many organisations set a standard level of return which proposals must exceed before investment committees will consider them. According to the Carbon Trust, the vast majority of large businesses have an Internal Rate of Return (see box) of under 30 per cent, although a number who were surveyed by the Trust actually approved investments with an IRR of just 12 per cent.

The Trust also calculated that most large organisations have the potential to save at least 15 per cent of their energy. The technologies that will allow them to achieve this typically have IRRs of 48 per cent. So these investments are likely to outperform most of those commonly approved. Yet they are often ignored or rejected. Why?

There seems to be a problem of perception amongst senior managers. The same Carbon Trust study interviewed a number of chief financial officers and found that attitudes to energy efficiency were subject to two questionable assumptions. First, most did not see energy as a ‘material cost’ despite the continuing impact on their operations from sharply rising and volatile prices (energy regulator Ofgem suggests that prices could rise by 40 per cent by the end of the decade).

The second reason was that most of them felt energy efficiency offered relatively low returns compared to other investment options. When asked to estimate the average IRR of a number of energy efficiency projects, almost two thirds (64 per cent) of the CFOs interviewed gave an average figure of just 20 per cent – way below the 48 per cent in the  recommendations commonly offered by Carbon Trust advisers. The moral is: you have to get your figures straight and be prepared to challenge mis-informed assumptions about energy efficiency.

My bank account does not give me a 30 per cent rate of return on my investment – I don’t know of any that do. But energy efficiency will – and it continues to save money year on year.

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