This time a few years ago our team met up with a customer to review an energy efficiency proposal planned for early the following year. Our HVAC and lighting upgrade was set to improve ventilation and lighting, while reducing the building’s annual energy consumption by 250,000 kWh. The local utility was prepared to contribute 30% of the project’s cost, producing a 28 month return on the potential investment.
Yet our customer spoke candidly. The payback was “outside their 2 year hurdle,” so it could be a challenge to get the project funded in their end-of-year budget negotiations. As our group left the building, wondering if our sponsor would prevail, they promptly bumped into two large solar inverters.
Earlier that year the company’s CEO had commissioned the new 200kW rooftop solar array at a press event, describing it as a “green mission investment.” The system would produce as much electricity as our efficiency project would save, but delivered a 5+ year payback.
Welcome to our world. Solar is sexy, energy efficiency is ho-hum.
Although our engineers were indignant, the injustice was purely human nature at work. People buy emotionally – and justify intellectually.
The math said solar required an adjusted investment hurdle rate. Senior managers knew it was the right thing to do (the emotional) so the financial yardstick had to be lengthened to make it work (the intellectual.)
So what would it take for efficiency investing to be seen in a similar way? We think efficiency needs to be viewed as both forward thinking and more urgent.
Last week Goldman Sachs’ new report recommended investors focus on four technologies addressing climate change: solar, wind, electric cars and LED lighting. Described as being”ready for scale” these four market plays allow investors to make dual, long-term bets on both value creation and a positive impact on the climate. Energy efficient LED lighting got positioned alongside these other hot categories.
So LED efficiency projects get that “forward thinking” check mark, an effect we’ve already been seeing in 2015.
The bigger challenge is the sense of urgency.
There are some companies who make efficiency an integrated part of what they do – they’re proactive, plan investments and execute them each year. But more typically efficiency is not high on the awareness scale compared to other investments.
And it makes some sense when you consider the nature of retrofits. When we proposed the upgrades, our customer’s existing lighting and HVAC wasn’t failing. Our retrofit project would run the building more efficiently and save energy, but the building was already operating pretty reliably. Replacing something that’s already working doesn’t feel as pressing, which explains why many projects we design aren’t acted on for years after we submit them.
There are many encouraging things happening as 2015 ends. The Paris climate deal, the investment funding that may flow as a result and the solar/wind ITC being extended are all big shifts. Importantly for commercial energy efficiency, Washington’s year end negotiations also passed a reinstatement and extension of the Federal EPAct tax incentive, that expired on New Year’s 2013.
All this helps increase awareness at both the business and consumer level, which can help drive the market. So whether its renaming “energy efficiency” to “energy productivity,” cool new technology like LEDs, or utility and Federal incentives being enhanced, we’ll hope that in 2016 positive messaging associated with efficiency investments continues to grow.
Because for us energy efficiency is emotional. Now we just need to do a better job of making it feel that way for our customers.