By Chris Mbori
Selling Energy Saving Projects for implementation can be an uphill task for many energy managers, energy engineers or project developers. In most energy efficiency projects, the selling point is normally the energy savings. But is energy savings alone enough to win project approval?
According to ESMAP (Energy Sector Management Assistance Program) an estimated 80% of economically viable energy saving projects in buildings still remain untapped. This shows that most energy saving projects are not getting implemented. As energy saving project developers, we therefore need to dig deeper to find out what we need to do to get more projects approved and implemented.
Neuroscience behind decision making states that most decisions are made from an emotional standpoint. Even when we believe the decision was logical, the very point of choice is always based on emotion. Emotion is therefore the energy that drives decision making. As project developers pushing for energy projects approvals, we therefore need to ask ourselves the following:
“Does energy saving alone arouse the much-needed emotion to get a positive decision?”
“Are there other benefits associated with the energy projects that can create the emotional response needed for decision making?”
Most of the time, it is very difficult to tell if the business case for your energy saving project will create the right response from the decision makers. This is especially true if you are seeking capital for the project. Project developers therefore need to build better business cases that are not only based on energy savings alone but other Non-Energy Benefits (NEBs) associated by energy projects. Building better business cases is essential to increase capital flows into energy efficiency – whether they be financed by internal or third party capital.
To build better business cases, there are three aspects that a project developer needs to consider:
1. Make energy efficiency more strategic
2. Value Non-Energy Benefits (NEBs)
3. Understand risks involved in the projects
In most capital investment decision making, profitability is not the main driver for decision-making. The decision makers are looking for something more strategic. It is this strategic view that provides the emotional response for a positive decision. The strategic character of investments has a heavier decisional weight than profitability. Keep in mind that financial evaluation is important, but most of the time it plays a secondary role in corporate investment decisions. We therefore need to make Energy Efficiency Strategic and sell the strategic benefits.
The Key to making Energy Efficiency more strategic is to include Non-Energy Benefits in the proposal, and multiple Non-Energy Benefits (NEBs) exist including:
- Better comfort in the building
- Better health in the building
- Better employee productivity or reduced absenteeism
- Better plant productivity
- Increased asset value
- Reduced maintenance cost
- Reduced need for capex in energy supply
- Poverty alleviation
- Improved local air quality
- Improved “Green” or “Sustainable image”
NEBs are often much more strategic and attractive to decision makers than just energy cost savings and NEBs can be both strategic in nature and have real financial value.
These can be:
- 25% to 58% reduction in sick days* = $$$
- 40% higher value than comparable offices* = $$$$
- Reduced capex & reduced build time due to integrated design* = $$$$$
The ingredients of better business cases with inclusion of energy savings are:
- Identifying NEBs
- Linking NEBs to strategic direction – create that strategic value for your corporate.
- Appraising strategic and financial value of NEBs. This is not an exact science but cash value can be shown.
- Appraising value of energy savings as has traditionally always been done using cash savings with other financial metrics
- Conducting a risk assessment of the energy project.
In diagrammatic format it would look like the depiction below:
Risk assessment is so important as it helps decision makers get the “certainty emotion” needed to get the project approved. Most energy projects fail to conduct a risk assessment and they simply come with a tag that says –
“The return is tremendous and there’s virtually no risk!”
This tag is actually counterproductive towards seeking for capital to implement projects. It creates a lot of uncertainty as no project is risk averse. There are many sources of risk and these have to be addressed. One way to address performance risk is documenting the project in accordance with Investor Ready Energy Efficiencyprotocols. This is an international framework for reducing owner and investor risk, lowering due diligence costs, increasing certainty of savings achievement and enabling aggregation of energy efficiency projects.
So the bottom line to get more energy efficiency projects approved is, on top of the energy savings, let us add the Strategic and Financial values of Non Energy Benefits. This will lead to better business cases and definitely more capital flows. The Non Energy Benefits hold the key to more rational and emotional response to project approval decisions.