09 May 2017
Okay, so everyone bangs on about measuring how much energy you use but …
…the problem with monitoring energy is that there is a cost to put a system in but no guarantee any savings. Try getting that past the powers with the purse strings!
It’s not like loft insulation or LED lighting, you can’t just ‘fit-and-forget’ an energy monitoring system – if you don’t act on the information it produces you won’t save a penny.
So, to come up with a plan that has the financial justification that will hold water with your finance director, firstly you have to understand the type of savings that energy monitoring can identify. All savings fall into two categories: ‘no-cost/low-cost’ savings and ‘capital savings projects’.
‘No-cost/low-cost’ savings are just as the name suggests, savings that can be achieved with little or no investment. Typically, things like; improving staff awareness – making them understand how much energy they use and what are the costs to the company and the environment, improving operating procedures to minimise consumption, using a monitoring systems alarm function to notify staff that equipment has been left on, etc.
When a business starts out on an energy monitoring project they typically find that they can quickly identify ‘no-cost/low cost’ savings of between 8% and 15% plus they can identify additional ‘capital savings projects’ with reasonable pay-back periods.
Identifying capital savings projects
In addition to the ‘no-cost/low-cost’ savings, energy monitoring can find and justify larger ‘capital’ projects that will require a financial investment. Typical projects in this category include: installation of LED lighting, replacing inefficient equipment, power factor correction or boiler maintenance/replacement.
Ironically, with capital projects there is often a clear justification to spend the money based on the traditional payback model:
Payback Time (in years) = Total Project Cost / Annual Energy Savings
But you probably know all this so, let’s move on …
Putting a no-cost/low-cost savings justification together…
To build a solid financial justification for a monitoring project that is only likely to result in no-cost/low-cost savings, you will need to know two other pieces of information:
1. What your annual energy spend is and
2. What are your businesses ROI/payback period requirements?
With this information, you can work out the maximum justifiable project spend as follows:
To illustrate this; working with estimated “no-cost/low-cost” savings of between 8%-15% as mentioned above:
If a business spends £100,000 per year on energy and has an internal pay-back requirement of 2 years it should expect to be able to justify a monitoring project spend of between £16,000 and £30,000.
Take it step-by-step: start slowly, show savings and invest again…
The good news is that the justifiable budget for a monitoring project doesn’t need to be spent all in one go. It is often better (and easier to sell to the powers that be) to install monitoring systems in two or more phases, this is because the energy information collected in the first phase of the project is used to identify the areas that need additional metering.
So, bit by bit you can invest in a monitoring system that will help you to see how the whole business is using energy and the savings from each phase installed should help to pay for the next bit you want and you’re not asking for all of the money as your project is helping to fund itself.
Win, win if you ask me!