Risky Business? How-tos for Investing in Building Upgrades

The ENERGY STAR® Building Upgrade Manual, a "strategic guide to help plan and implement profitable energy saving building upgrades,” claims that businesses can maximize energy savings by sequentially following its five building upgrade stages (1) retrocommisioning; 2) lighting; 3) supplemental load reductions; 4) air distribution systems; and 5) heating and cooling systems). It also states that business “[e]nergy management begins with a senior-level commitment to continuous improvement in energy efficiency. Executive leadership demonstrates this commitment by issuing a formal energy policy for the organization and by supporting the energy objectives with adequate financial and staffing resources.” But how do executives know what adequate financing is – and how can they best secure the capital needed to implement energy saving changes to buildings?

The process recommended in the ENERGY STAR manual begins with management and planning steps. First among them is benchmarking to identify the best opportunities for energy savings. Since these upgrades will represent an investment, you’ll next need to conduct financial analysis based on the company’s cash flow to rank and select from the opportunities revealed in the benchmarking process.

Your project analysis should consider that, in addition to dollar savings, there are several other benefits from incorporating energy efficiency into your business strategy. One of those is that ENERGY STAR upgrades offer “superior returns at a lower risk than many other investments,” as illustrated in Figure 1 of the 2004 edition of the Manual (p. 3). As the EPA points out, improving energy performance is a multi-faceted investment, offering long-term, low-risk returns, reductions in energy consumption and costs, increases in worker productivity, and improved asset value.

Once you’ve determined that energy efficiency upgrades are a good investment for your business, you’ll likely want to seek financing for them. Options include grants, rebates and loans now being offered by utilities, governments and non-profit organizations, as well as more traditional sources like financial institutions and capital markets.

EVO has developed the International Energy Efficiency Financing Protocol (IEEFP) which provides guidelines for Local Financing Institutions (LFI) around the world to evaluate and finance energy efficiency and savings-based renewable projects (Energy Savings Projects). The IEEFP is a long-term "grass roots" solution to financing Energy Savings Projects. It is envisioned that the IEEFP will ultimately become the global "blue print" for educating and training LFIs around the world on the special intricacies and benefits of financing Energy Savings Projects.

The IEEFP's objective is to create a better understanding by LFIs and other global stakeholders on how Energy Savings Projects generate savings from existing operating expenses of end-use consumers, and how this equates to new cash flow and increased credit capacity for end-use consumers to repay EEP loans.

At the core of the IEEFP is the need to measure and verify energy savings created by the Energy Savings Projects to ensure sustainability of the reduced energy costs and the resulting available cash flow to repay the LFIs. The International Performance Measurement and Verification Protocol (IPMVP) provides an overview of current best practice techniques available for verifying results of energy efficiency, water efficiency, and renewable energy projects in commercial and industrial facilities. It may also be used by facility operators to assess and improve facility performance.

Listen to the EVO Insights podcast interview with EVO Board member Tom Dreesen in which he discusses the background and purpose of the IEEFP – including responses to the challenges posed by: corporate capital funding methods, commercial lending practices, and subsidies for energy efficient behavior.

--Betsy Wilkins
EVO Communications