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How Expensive Is It To Build An Energy Efficient Business?

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Averaging data across states from all sectors, the Lawrence Berkeley National Laboratory estimates that businesses must spend around 4.6 cents to save 1 kWh of energy. If you’re trying to run a cost-benefit analysis, the answer is that investing in energy efficiency will save you more money than it costs you. Research by the American Council for an Energy Efficient Economy (ACEEE) notes that the average cost to save 1 kWh of energy is around 3.5 cents, but the average net savings as a percentage of sales resulting from an investment in energy efficiency increased from around 0.8% to 1.8% from 2007 to 2014.

In other words, the cost of saving 1 kWh of energy has roughly remained the same, but the savings as a percentage of sales provided by energy efficiency have increased exponentially over time – you spend the same money for energy efficiency and save more. However, this just gives us a feeling that there is some upside – there’s not enough detail to put it into practice. Can we further itemize the costs and benefits of energy efficiency initiatives for business?

The Total Resource Cost Test

The EPA states that five types of cost-effectiveness tests are frequently used to evaluate decisions regarding building an energy efficient infrastructure. These major tests are called:

  • Participant cost test
  • Utility/program administrator cost test
  • Ratepayer impact cost test
  • Total resource cost test
  • Societal cost test

As you may have guessed, these tests relate to figuring the costs and benefits energy efficiency from the perspectives of different individuals or groups of people. The total resource cost test is used most commonly because it considers the costs from the perspective of all utility customers in an area. A proper total resource cost test is really a cost-benefit analysis that follows these guidelines: “Costs may include the full incremental cost of the measure, program installation and overhead costs; benefits may include avoided energy and capacity costs, and additional resource savings.”

Sample Program Installation and Overhead Costs

You can begin sketching out a plan and the costs of energy efficiency programs by checking out the types of building energy codes established by the government. These codes are guidelines concerning the thermal performance of features like the walls, windows, floors, and ceilings of both residential and commercial buildings. Building codes set the standard for air and duct leakages. They also cover lighting system efficiency, hot water system efficiency, and heating and cooling system efficiency.

This covers one aspect of energy efficiency which involves improving and following the standards set forth for how thermal energy is controlled within your buildings. There are specific software to aid you in checking if your business is compliant with a certain building energy code. To calculate the overhead costs, you will need to inspect the data that you have on your building and the add up the costs required to hire the relevant experts to make sure that your building’s appliances and rooms are thermally efficient regarding a building energy code.

Another program installation that you may want to pursue may involve the incorporation of renewable energy to cut down on your business’ electricity costs in the form of solar or wind power. In a comprehensive report on energy costs, Lazard, a global consultancy firm, compares the cost competitiveness of conventional and renewable forms of energy.

Lazard takes a variety of factors into account such as the typical debt structure a company might take when investing in energy generation: “analysis assumes 60% debt at 8% interest rate and 40% equity at 12% cost for both conventional and Alternative Energy generation technologies,” and records the costs on a $ / MWh basis. You may want to consider how much business credit you can leverage since savings scale for renewable installations, so fixing credit should be treated as a priority if your business is seeking to undertake an energy efficiency initiative.

While natural gas energy generation is the lowest cost basis among conventional forms of energy, a number of newer solar technologies are shown to be more cost efficient or at least competitive with natural gas.

Resource and Reputation-based Benefits

One big thing to remember is that Lazard’s study only calculates the cost of installing alternative energy systems and doesn’t focus on accounting for the lifetime savings that are gained from those applications or other reputation-based benefits that come from energy efficiency. For example, the government organization EnergyStar notes that: “Research also shows that more efficient buildings have higher occupancy rates and increased asset value compared to typical buildings. Tenants want real estate with lower utility bills, and more and more organizations are implementing leasing policies mandating environmentally friendly space.”

Having a renewable energy infrastructure directly saves you money by reducing the risk associated with a market. Once you build a solar panel the amount of electricity it produces won’t be sensitive to market changes. Apart from the costs that you get from the relatively static cost to gather renewable resources, EnergyStar also makes the case that 68% of individuals want to be affiliated with businesses that are considered environmentally responsible whether it concerns leasing properties or general interactions.

While these reputational benefits are hard to quantify, the fact remains that renewable energy is now cost-competitive with conventional energy. Even if it costs money to change up your building’s infrastructure to be more thermally efficient or install solar panels, those costs will be largely recouped over time. Reputational benefits are the cherry on top.

Jeff is a contractor specializing in residential construction and construction management in Chicago, Illinois for over 20 years. He deals exclusively in new construction and remodeling for residential projects and can act as designer, builder, and general contractor as well as preliminary estimates, cost vs. benefit analysis.

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