Energy Efficiency | August 3, 2020
Calculating Your Cost of Waiting: Generating Savings for Reinvestment
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. However, there is still a clear cost associated with any energy efficiency upgrade you may choose to pursue. Not pursuing energy efficiency projects also costs you money, known as your cost of waiting.
Let’s imagine that you kept your car running all the time, even though you weren’t driving. Picture how this would impact your gas and maintenance costs. It would be like funding gas station and repair shops with no benefit to you. Equipment at your facility is the same.
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 waiting.
Whether it is the lights, HVAC, boilers, chillers, air handlers, or any other energy consuming equipment, by not operating equipment efficiently, your organization is simply overpaying for energy month over month, year over year. Every day that savings are not being captured adds to your cost of waiting. The longer you wait, the higher the cost.
And, as it turns out, your cost of waiting isn’t hard to calculate either. Once it’s determined, you can figure out how much money you could be spending elsewhere if it were available to you.
If you had thousands of dollars available all of a sudden, how would you spend it?
Calculating the cost of waiting for energy efficiency projects
The cost of waiting for energy efficiency refers to the span of time during which you could be paying a fraction of what you normally spend on energy, but are instead overpaying to run inefficient building systems. This money could go to a number of other, more useful and productive spends for any company.
How the cost of waiting works: an LED lighting example
For example, let’s look at the cost of waiting for an installation of new, more efficient lighting. Let’s say a building spends $100,000 every year just to light their facility. The existing lighting system uses outdated fixtures. An upgraded system could be 70% more efficient if updated to LEDs, resulting in a corresponding 70% savings on the lighting portion of this building’s current utility bill.
Therefore, upgrading this lighting system reduces lighting costs to $30,000 a year and saves the building $70,000 a year! Every month this company waits to complete this project, they are losing over $5,800 a month. These savings can be realized on a day to day and month to month basis, so even waiting three months to upgrade would cost this company over $17,000 in unnecessary utility spend.
Of course, this upgrade will cost money and will have a payback period, but depending on the goal of the retrofit and project engineering, this could be paid for by the savings within only a few years, and in some markets, even sooner.
Once this project is paid back in full by its savings, the building now has $70,000 that previously went to the utility energy expenses that can be used in a number of different ways. To put it simply, the savings goes in your pocket, instead of the utility company’s.
Cost of waiting in real life [hospital case studies]
Mantis Innovation's LED lighting upgrade at Edward-Elmhurst Hospital.
The example above isn’t just a hypothetical. Here’s how it works.
A few years ago, I worked on a large efficiency project for the Midwest hospital network, Edward-Elmhurst Health. As we built out the project scope, I discovered that they handed their utility approximately $5,723 extra a day on inefficient lighting. As we all know, hospitals do not have off days, and they do not shut down for weekends, so this healthcare complex was unnecessarily spending over $2 million on outdated lighting per year. This lighting energy use was approximately 15% of Edward-Elmhurst's overall utility spend.
I asked the CFO at the time this same question from above: what would you do with that money?
Unsurprisingly, they thought spending less on their utility bill was a great idea! Over the next several months, we completed an LED lighting retrofit of approximately 40,000 fixtures across multiple buildings that reduced the portion of energy usage required for lighting by 61%. After 2.3 years, Edward-Elmhurst would have over $2 million annually to spend elsewhere. That’s a huge amount of operating cost reduction!
When I worked on a project at another hospital in the greater Chicago area, I had the same conversation with their CFO. He decided that, after the project generated sufficient savings, he would spend the newly found money on something specific: he planned to buy a brand-new Siemens MRI machine.
This new equipment could provide more insight for patients, expanding his hospital’s clientele and service offerings. This CFO wanted to convert the money that would normally be wasted on inefficient energy usage to an investment that would continue to contribute to their work in healthcare.
What are your other costs of waiting?
Losing out on potential savings isn’t the only cost of waiting.
As shown above, the biggest component of cost of waiting is the lost opportunity to spend this money elsewhere – or to simply just save it! This money can easily strengthen your bottom line and add to your company’s profitability by a decrease in operating costs. But whether you choose to spend this money or to save it, by waiting you are actively losing out on these options.
The cost of waiting could also include the lost chance to take advantage of incentives or special funding opportunities. Programs like the ComEd’s Ways to Save, different Property Assessed Clean Energy (PACE) options, tax benefits or other incentives are not all infinite. By not acting soon enough, you may lose out on your chance to achieve a certain financing prospect.
For example, under utilization of utility incentives in the New York region (and many others) due to COVID-19 means that more funds are available right now for energy projects. However, next year and the year after, these funds will more than likely be used up faster as NYC moves closer to the 2024 deadline for Local Law 97. Similarly, funds that may be more readily available this year for other states across the country, due to COVID-19, may not be as available in the future.
Last, your cost of waiting could also include fines. As legislation like Local Law 97 passes and other cities set carbon emissions caps, commercial buildings are facing deadlines for completing their own energy efficiency projects. Waiting too long can result in hefty fines, another cost of waiting. We’re seeing these legislative trends in several major cities, as they attempt to lower their carbon footprints. So, wherever you are, you may find yourself facing emission fines in the future.
When it comes to these additional costs of waiting, it’s hard to predict exactly when and how they’ll affect you. Legislation will give you some time to update your practices to meet sustainability goals, but these laws may come at inopportune times for your company. Incentives can and do change every year, so their availability is hard to anticipate. Don’t wait for a better time to make the investment into an energy project and find yourself with fewer opportunities for making that investment more affordable.
Determining your cost of waiting is a good starting place to discover what can be done today to help both your environmental impact AND your bottom line in the future.
Determining your own cost of waiting
The cost of waiting is, in essence, opportunity cost. Energy efficiency projects have a clear price tag – we can determine how much you’ll be paying upfront, with all the available incentives and programs that can lower that bill. But the cost of waiting shows what money you’ll be missing out on if you don’t act today. These savings can be huge year over year, but even monthly or daily, you can reap large savings in your overhead by increasing your energy efficiency.
Ultimately, if your energy systems are outdated or inefficient, they’ll have to be updated eventually anyway. Why wait?
Especially when updating sooner can save you significant amounts of money on each utility bill, waiting is only pushing back the inevitable while losing out on potential savings. By upgrading to a more efficient energy system now, a company can reap the benefits of decreased energy output sooner.
Our final question is: what will you do with that money?
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