In today's fast-paced business environment, the financial and operational losses businesses incur by delaying energy efficiency improvements, the "cost of inaction," is more relevant than ever. Energy efficiency projects cost money, that’s obvious. By taking advantage of utility incentives, you can significantly reduce this price point, and short payback periods make efficiency projects smart, long-term investments. There is, of course, still a clear cost associated with any energy efficiency upgrade you may pursue; however, not pursuing energy efficiency projects costs you money, too.
Imagine keeping your car running constantly, even when you aren’t driving. Much of the equipment at your facility works this way. Just like you’d be spending unnecessary amounts on your car, by not operating a facility efficiently, you are spending unnecessarily on energy usage funding the utility instead of saving for your organization. This is where you can identify your organization’s cost of inaction.
Calculating your known costs of inaction can demand careful thought, depending on your project type, available incentives, and other factors. A trusted facility consultant who knows the nuances of various projects and the financing resources available would be a valuable asset in your determination. They can guide your team to ensure your project's proper implementation.
Once you’ve calculated the cost, then, you can determine how much money could be spent elsewhere in your facilities.
Calculating the cost of inaction for energy efficiency projects
The cost of inaction refers to the period during which you could be paying a fraction of what you usually spend on energy but are instead overpaying to run inefficient building systems. This money could go to several other, more valuable and productive spends for any company.
If you had thousands of dollars available all of a sudden, how would you spend it?
The other costs of waiting
The costs of waiting for energy efficiency projects are not always easily identified and can appear unpredictably, impacting your financial stability.
One significant cost of inaction is the missed opportunity to take advantage of utility incentives and special funding programs. Delaying action means potentially losing out on these valuable incentives, which can significantly offset project costs.
Another critical cost is the potential fines from carbon emissions regulations. As legislation like New York’s Local Law 97 and other carbon emissions caps come into effect, commercial buildings face strict deadlines for completing energy efficiency projects. Waiting too long can result in hefty fines, adding another layer to the cost of inaction. These legislative trends are emerging throughout the country, aiming to lower carbon footprints, which means businesses must act promptly to avoid penalties.
Given these unpredictable costs, the urgency to start efficiency projects is clear. Begin by determining your measurable costs of waiting to prioritize projects that offer significant savings and quick payback periods. This proactive approach not only helps in cost avoidance but also sets the stage for long-term sustainability and operational efficiency.
Achieving Rapid ROI
While energy efficiency projects do have initial costs, these can be quickly offset through the compounded effect of lower overall energy usage and more efficient operations post-completion. Incentives can vary by state or region, but for those with favorable incentives, project paybacks can be less than 3 years. When actual annual savings, installed costs, utility incentives, and project ROI are clearly defined, the initial investments can become much easier for your wary executive team to sign off on.
Common reasons for delaying efficiency projects
We understand that companies have many reasons for not moving forward on an energy efficiency project.
Here are the four most common reasons I hear for delaying projects:
- “We don’t have the budget for efficiency projects”: Budget constraints often lead to postponing energy efficiency improvements. However, delaying these projects can result in higher operational costs over time.
- “We don’t have the time for a project of this scope”: Large-scale projects can seem daunting and time-consuming. This hesitation can lead to missed opportunities for savings and efficiency.
- “We have to wait for the next budget cycle”: Waiting for the next budget cycle can delay critical improvements. This approach can increase costs and reduce potential savings.
- “We’re just going to do it ourselves”: DIY approaches may seem cost-effective but can lack the expertise needed for optimal results. This can lead to inefficiencies and higher long-term costs.
How to calculate the cost of inaction
Here are some figurative and real-world examples that visualize how to ascertain the costs of waiting for your organization (and where a consultant can help you plan accordingly):
An LED lighting example
Consider the cost of inaction to install new, more efficient lighting. Imagine a building that spends $100,000 annually on lighting with outdated fixtures. Upgrading to LED lighting, which is 70% more efficient, could reduce lighting costs to $30,000 annually, saving $70,000 each year. Delaying this upgrade means losing over $5,800 every month, and waiting just three months would cost over $17,000 in unnecessary utility expenses.
While the initial upgrade will incur costs and have a payback period, the potential savings can quickly offset these expenses. Depending on the project's scope and engineering, the savings could cover the costs within a few years or even sooner in some markets.
Real-World Examples of the Cost of inaction
Edward-Elmhurst Health
A few years ago, we worked on a large efficiency project for Edward-Elmhurst Health, a Midwest hospital network. We discovered that their outdated lighting system was costing them an extra $5,723 per day, amounting to over $2 million annually. This lighting energy use was approximately 15% of Edward-Elmhurst's overall utility spend. The CFO recognized the significant financial drain and the potential benefits of upgrading their lighting system.
We completed an LED lighting retrofit of approximately 40,000 fixtures across multiple buildings to address this. This project reduced the energy usage required for lighting by 61%, resulting in substantial savings. After just 2.3 years, Edward-Elmhurst would save over $2 million annually, freeing up funds for other critical investments.
Auto Repair Chain
One of our clients, a nationwide auto repair chain, faced high energy costs due to inefficient lighting across hundreds of locations. Their outdated lighting systems were a significant portion of their total energy bill, with lighting accounting for about 18% of their overall energy usage. Recognizing the potential for savings, the client decided to upgrade to LED technology.
We implemented LED lighting upgrades across their locations, resulting in 30-60% savings on their electrical usage from lighting, depending on each location's current setup. Each store now averages approximately $1,000 in monthly savings, which adds up to several hundred thousand dollars across all their sites. This project reduced their energy costs and improved the overall lighting quality, enhancing the customer experience and operational efficiency.
Where you should start to tackle your cost of inaction
Despite the clear benefits, many businesses remain hesitant to invest in energy efficiency projects due to concerns about the project's scope and integration with existing systems. A practical starting point is to focus on low-hanging fruit—holistic, no-cost, or low-cost options that require minimal alterations to current systems. Simple actions like reviewing your building automation system (BAS) settings to ensure optimal operation times can yield significant savings without any upfront costs. Similarly, minor lighting upgrades or adding occupancy sensors are low-cost solutions that can provide immediate benefits.
The cost of inaction is a significant factor that businesses cannot afford to ignore, but it can be mitigated with careful planning and the right guidance. Partnering with a trusted energy efficiency consultant who takes the time to understand your organization's needs, concerns, and current capabilities is crucial. This approach ensures that projects are not just implemented but are part of a strategic roadmap to unlocking efficiencies.
Don't wait—start your journey towards energy efficiency today and experience the benefits of action. Contact Mantis Innovation to learn more about how we can help you optimize your facility’s performance and reduce the cost of inaction.
