January 31, 2005

Business, industry have more to gain than ever from energy efficiency

Energy efficiency is back, and business executives have more to gain than ever by embracing it, according to a Conference Board of Canada briefing, "Why Energy Efficiency?"

"Energy efficiency directly impacts the bottom line. Company champions need to communicate the benefits of energy efficiency to their organizations in terms of dollar savings. They need to make the business case, so that energy-efficient investments are clearly attractive," said John Roberts, the Conference Board's director of environment, energy and transportation.

High energy prices, the same impetus that prompted energy conservation and efficiency in the early 1970s, have returned and are accompanied by a combination of factors which underscore the new importance of energy efficiency. These include: security of supply; climate change and air quality, which are critical environmental, health and social issues; and valuable opportunities-now going to waste-to commercialize existing technologies.

"Energy costs are increasing faster than other overhead expenditures, so energy-efficient organizations will give themselves a competitive advantage, at a low risk and a predictable return. Organizations that adopt energy efficiency today will also have a head start on competitors as Kyoto targets are introduced," Roberts noted.

The Canadian Industry Program for Energy Conservation (CIPEC) says industries saved $3.4 billion in 2002 through effective energy management. Energy efficiency continues to offer tremendous gain with very little pain, says the paper, adding that it is action that all Canadian companies can take today, with minimal risk, proven technology and added benefits to be gained beyond just cost savings.

Moreover, says the Conference Board, there is still plenty of "low-hanging fruit" which could produce tremendous savings. At a workshop co-sponsored last March by CIPEC and Natural Resources Canada (NRCan), it was noted that "$1-billion worth of EE [energy efficiency] projects has been identified in North America with a 12- to 36-month payback."

It's a no-brainer, tet energy efficiency does not often register as a priority compared to developing new products or entering new markets. The paper cites two reasons for this lack of action.

First, executives often assume that energy consumption is a minor, uncontrollable cost, and are not made aware of the additional, societal benefits. In addition, the size of EE investments requires executive attention, but operating engineers have difficulty conveying EE investment proposals in executives' language. Moreover, EE investments lack the glamour and excitement associated with developing a new product or expanding operations into a new country.

Secondly, EE investments can take several years to generate financial returns. The financial criterion often takes EE capital investment proposals off the executive agenda before they even appear. However, the paper points out, the risks of EE investments-which are lower or non-existent compared to other types of investments-are neither well quantified nor well communicated to business leaders.

The briefing outlines four reasons why executives should pay attention to energy efficiency.

(0) Improving financial performance: One U.K. study indicates that saving 20% in energy consumption can have the same positive effect as a five per cent increase in sales. The paper points out that energy costs are rising faster than virtually all other overhead costs, with industry fuel costs having increased by 99% and electricity costs by 32% in just two and one-half years. Accordingly, improving business performance begins by singling out energy as a variable to be controlled, with particular focus on eliminating wasted energy, i.e. consumption that could have been avoided. This may require only a minimum of physical capital, but it does require a focus on energy use and application of standard management practices to energy use.

(0) Low-risk, predictable returns on investment (ROI), often with respectable payback periods: The risk and ROI associated with EE projects are such that a new sector known as Energy Service Companies (ESC) has sprung up. ESC's offer financing for the initial investment in an EE project, along with a guarantee of reduced energy costs. They derive their revenues from collecting a portion of their clients' energy savings.

(0) EE projects reflect a company's commitment to and progress toward achieving societal goals of energy security, climate change mitigation and improved air quality: Sustainable practices support brand value and can yield business efficiencies. The paper points out that the Dow Jones Sustainability Index has outperformed the Dow Jones Global Index over the past ten years.

(0) Increasing potential to commercialize energy-efficient Canadian technology: The CIPEC workshop concluded that governments and industry should invest in commercializing proven EE solutions at least to the extent that they invest in research and development for emerging, still-unproven technologies. CANMET (NRCan's main energy R&D division) has various clean energy technologies on the verge of commercial viability, such as a technology which converts low-grade waste heat into electricity. With Canadian industry estimated to be discharging more than 100 petaJoules per year of waste heat, such a technology could save industrial sectors tens of millions of dollars annually-in addition to reducing greenhouse gas and other related air emissions.

The briefing paper goes on to discuss ways in which industrial energy efficiency might be motivated. For example, a public-private task force could be set up to further investigate the barriers to investing in EE, and solutions to overcome them. A fund similar to the Federation of Canadian Municipalities' Green Municipal Fund could be established and expanded to incorporate EE projects.

One of the most important tools for encouraging EE, says the paper, is more aggressive information programs to promote EE opportunities, including current government programs. These, it adds, need to be directed specifically toward business executives (CFOs and CEOs) to make them understand not just the costs of EE investments, but the immediate savings, low financial risk, decreased waste and enviro-social benefits.

"Why Energy Efficiency?" may be viewed on the Conference Board's e-Library, www.conferenceboard.ca/boardwise.

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