The future is now for energy savings and energy management and it’ss no secret that a focused, well-defined sustainability strategy, is beneficial to an organization’s bottom line. Going green is no longer a fad or a trend, but a course of action for individuals and businesses alike – benefiting the Triple Bottom Line that balances social, environmental, and financial factors.
Today’s facility and property managers needs to be able to clearly communicate the benefits and positive economic impact of sustainability and energy-efficient practices, not only to the public, but also to the C-suite. Employees expect their employers to act responsibly, and vice versa, in saving energy.
While there is a dramatic need for each of us–and our organizations–to care for the environment, it is just as important that we convey to executives and stakeholders how these initiatives can benefit our company’s financial success. Where better to start than reducing energy costs?
The benefits of energy efficiency don’t stop at the meter—they extend to your bottom line. Improved energy performance can boost your net operating income (NOI) and increase your property’s asset value. ENERGY STAR calculates that a 10 percent decrease in energy use could lead to a 1.5 percent increase in NOI with even more impressive figures as the energy savings grow.
In light of the current compression of capitalization (“cap”) rates (net operating income divided by the sales price or value of a property expressed as a percentage), it is possible to turn pennies into millions. For example, in a 200,000-square foot office building that pays $2 per square foot in energy costs, a 10 percent reduction in energy consumption can translate into an additional $40,000 of NOI. At a cap rate of 8 percent, this could mean a potential asset value boost of $500,000!
Tailoring the Business Case to Your Organization’s Energy Saving Goals
To build the strongest business case for energy savings and efficiency, you should not only leverage the appropriate financial metrics to assess project impacts, but also present the proposal at the right time and in the context of other planned expenditures. Preparing a draft for your CFO’s review ahead of time, cementing an ally to save energy costs, and showing how you’ll improve your organizations financial bottom line as well as the triple-bottom line—are all wise moves.
With an energy audit and benchmarking report in place, a FM will be equipped with the essential reports and statistics to make their point. Data, reports and energy efficiency is directly tied to lower utility bills and, consequently, lower overall operating expenses.
There are also a host of non-energy benefits to efficiency. A recent study by the U.S. Department of Energy (DOE) found that high-performing buildings are able to demand higher rental rates. They also attract better quality tenants with superior creditworthiness and maintain increased occupancy rates. Although it may be challenging to quantify, efficient buildings increase tenant comfort, improve occupant health, and allow an owner to market the property as sustainable. The resulting increase in overall rental income, in combination with lower operating expenses, means higher NOI.
This translates to increased asset value and a competitive advantage in commercial real estate markets. Energy efficiency offers an opportunity for owners and asset managers to invest in repositioning their building and reduce the associated risk of their investment. Appraisers are increasingly adept at including the value of energy efficiency in their property valuations. This improves an owner’s access to favorable financing and underwriting. Finally, strong energy performance is a reflection of excellent building management and can be a key differentiator for a building or an entire firm in competitive markets.
Some financial metrics are more effective than others in evaluating the true costs and benefits of an energy efficient building. It’s imperative that efficiency champions communicate efficiency performance metrics in terms that will resonate with tenants and ownership. At the most basic level, this requires translating energy savings from simple kWh or KW to monetary benefits, such as increased rental rates and decreased operating expenses in dollars per square foot.
Many of the most common financial metrics, such as simple payback period, internal rate of return (IRR), and return on investment (ROI) in fact do not capture the full benefits of energy efficient buildings. To build the strongest case for your energy efficiency upgrade or investment, emphasize the following key financial metrics:
Net Present Value (NPV) takes into account the investor’s discount rate to calculate how much a cash flow from energy savings is worth in today’s dollars, which more accurately reflects the value of efficiency across an efficiency project’s payback horizon.
Savings-to-Investment Ratio (SIR) reflects the present value of cash inflows from a project, relative to the present value of cash outflows, which more accurately reflects your return to investment than similar metrics, such as the internal rate of return (IRR).
For more details on how to estimate the costs and savings quickly and easily for a large, complex energy retrofit project at your building, check out the Appendix link for the Spark Tool: A Personalized Business Case to Present to Ownership.
Investment Analysis and Financing Options if Needed
To implement your action plan, consider taking the following steps:
Create a Communication Plan—Develop targeted information for key audiences about your energy management program.
Raise Awareness—Build support at all levels of your organization for energy management initiatives and goals.
Gain Support From Upper Management – In most companies, it's necessary to gain the support of upper management to move forward with any significant project.
Create a Communication Plan
Good communication does not just happen. It requires careful planning and implementation. To communicate strategically, you will need to identify key audiences, determine the information that they need, and adapt your messages appropriately for each one. ENERGY STAR offers a variety of communication resources, such as posters and templates that your organization can customize to help you spread the word to employees, customers, and stakeholders. These resources are available on the ENERGY STAR web site.
Raise Awareness in Your Organization
Everyone has a role in energy management. Effective programs make employees, managers, and other key stakeholders aware of energy performance goals and initiatives, as well as their responsibility in carrying out the program.
Communication strategies and materials for raising awareness of energy use, goals and impacts should be tailored to the needs of the intended audience.
Gain Support From Upper Management
The most important point of your energy savings plan is to demonstrate how your goals help upper management reach their bottom line. In most companies, it's necessary to gain the support of upper management to move forward with any significant project. Members of upper management are the decision-makers and gatekeepers for making changes.
Survey Those Involved – When attempting to initiate a new project, gather information from those involved in it. Build your case by showing the necessity of a new proposal. Without this evidence, senior management is not likely to see the need for a proposed change.
Show the Budget – If you're suggesting to implement change at work or put a new process in place, show how it will be funded. Senior managers are more likely to support an idea that already has financing in place.
Give Them a Choice - You're more likely to gain upper management support if they feel they had a hand in a decision. When you want to change how something is done, produce more than one solution. More options are better than none.
Fit Into Their Goals – Upper management has its own set of goals and objectives to meet throughout the year. Show how your goals help achieve the bottom line and you're more likely to gain support for an idea.
When searching for project capital, begin by bargain hunting for special programs that support energy performance. Every organization planning an energy performance upgrade should investigate utility incentives, state assistance, and other funding opportunities. A good place to start is the DSIRE - Database of State Incentives for Renewables & Efficiency in the Appendix.
Utility Incentives - Utilities often provide financial incentives for energy-performance upgrades through grants, rebates, fuel-switching incentives, low-interest loans, and energy audits.
State Assistance - Many states offer financial assistance to local governments, nonprofit organizations, small businesses, and other targeted organizations for energy-efficiency upgrades.
Foundations and Nonprofit Organizations - Many foundations and nonprofit organizations sponsor programs that fund energy-efficiency projects.
Today is the fourteenth of 15 installments of the 15 chapters of the second edition of ENERGY Cost Savings For Facilities, by Corey L. Wilson, that will will be presented each week in this newsletter. Each chapter is approximately 3 to 4 pages long covering essential info every FM should know about concerning energy cost savings for their facilities. If you can't wait until the last chapter, you can purchase the guidebook right now by following the instructions below.
ENERGY Cost Savings For Facilities Available in epub, pdf, and paperback versions for $7.99, $14.99 and $24.99. Excellent resource and textbook for facilities and operatons managers, energy industry professionals, sustainability workforce development, educators and students. CHAPTERS 1 – An ENERGY Savings Introduction For Facilities 2 – Your Facilities’ Electrical ENERGY Future is Now 3 – Electrical ENERGY Saving Systems For Facilities 4 – Potential ENERGY Cost Savings For Facilities 5 – Sustainable ENERGY Buildings Plans For Facilities 6 – ENERGY & Buildings Management Software For Facilities 7 – ENERGY Surveys, Inspections, Audits & Commissioning For Facilities 8 – Facilities ENERGY Benchmarking Using Portfolio Manager 9 – ENERGY Efficient Lighting For Facilities 10 – ENERGY Efficient HVACR Systems For Facilities 11 – California’s Time-of-Use ENERGY Rate Changes For Facilities 12 – ENERGY Code Compliance Measures For Facilities 13 – ENERGY Certifications for Facilities and Managers 14 – Utilizing an ENERGY Savings Plan Budget For Facilities 15 – Implementing an ENERGY Storage System For Facilities