Best Practice Guide

Food and Beverage Growers and Processors

Funding and Approval

Selling the Program

To have an energy project approved and funded, it must successfully compete with other capital project proposals. The good news is that energy efficiency investments can reduce energy costs by as much as 37 percent. Lower expenses mean that the cost per unit of production drops.

There are other potential benefits that should be articulated when proposing an energy-related project. Consider whether the project might:

  • Improve production processes. Most technological advancements that boost energy efficiency actually stem from efforts to improve production efficiency. Repairing leaks in a compressed air system, for example, improves the performance of end-use applications.
  • Enhance data collection to control costs. Energy accounting systems, energy management systems, advanced meters and other tools that track and record energy use can achieve sometimes surprising results. Harold S. Geneen, former CEO of ITT, put it this way, "The professional's grasp of the numbers is a measure of the control he has over the events that the figures represent." Besides showing where and how energy is being used, good data helps managers evaluate capital investment options and identify the most cost-effective opportunities.
  • Protect assets. Energy efficiency measures usually prolong the useful life of equipment and other assets. Some even help alert managers when maintenance is needed, which reduces downtime or slowdowns due to equipment malfunctions.
  • Reduce environmental impacts. Most obviously, using less energy reduces air pollution and helps conserve valuable natural resources. But many measures have more subtle effects. Upgrading refrigeration equipment, for example, typically results in the reduction or elimination of greenhouse gas emissions from chlorofluorocarbons. Similarly, water use efficiency measures reduce the amount electricity needed for water pumping and wastewater treatment. Often, these measures result in direct savings for a company.
  • Garner positive public attention. By adopting sound energy management practices, a company can demonstrate to the public that it is a good corporate citizen. To investors, it shows a proactive management style capable of tackling complex problems and limiting health and safety liabilities. Companies can also benefit from earned media - news stories about "green" companies are increasingly common.

The first step in getting a project approved is to understand the internal investment criteria of a company, often quantified in terms of the rate of return on investment (RRI). Use this information to weigh the cost-benefit of potential projects. Whenever possible, calculate the life-cycle cost, not just first-cost, since this can be misleading. Assess the levelized cost and relative net present value of projects so that the cost of capital and the tradeoffs between investment options can be fully evaluated. If possible, enlist the help of a financial manager - not only are these partners helpful with cost-benefit analysis, they get the chance to learn about the benefits of energy management. Don't be surprised if they become important champions of the most cost-effective projects.

The next step is to explore creative funding strategies, such as government and utility incentive programs. To secure rebates and grants before a project is fully implemented, carefully align the project to meet program requirements and then establish open communications with the local utility or authorizing government agency. When working with contractors, discuss how performance contracts or performance guarantees might reduce first-costs or lower the risk of investment by tying payment to end results, usually measured in terms of cost reduction or utility meter readings. Leverage any government-funded programs, such as energy assessments or pilot projects, for which you might qualify.

Speak dollars, not kilowatts or therms, when describing the benefits of an energy project to internal stakeholders. Express both cost savings as well as the any reduction in cost per unit of production. Energy managers who base their case on the financial sense of projects help demonstrate how building operations impact the bottom line just like any other company unit, and should receive similar consideration when investment dollars are at stake.

Common Financial Definitions

Common Financial Definitions

Simple Payback - the length of time needed to pay back the initial capital investment, usually expressed in years.

Life-Cycle Cost Analysis - the total cost of a design choice over its serviceable life.

Levelized Cost - the present value of the total cost of an investment, converted to equal annual payments.

Net Present Value - the net result of an investment, expressed in today's dollars.

Return on Investment - the income an investment provides in a year.

More definitions plus links to calculators can be found in Appendix 1.


Resources

Software tools to help identify and analyze energy system savings opportunities in your plant, from the U.S. Department of Energy.

Industrial Financing, Valuable information and resources that will help you finance your energy efficient productivity improvement and pollution prevention technologies projects, from the California Energy Commission.

Current electricity prices from the California Energy Commission.

Current natural gas prices from the California Energy Commission.

GreenBiz.com, Executive Briefing: Energy Management and Shareholder Value.

Hoots, M. Finance for FMs an excerpt from Capital Planning and Budgeting - IFMA's Facility Management Finance Competency Course (2005). Appeared in Buildings.com, October 2005.

Energy Design Resources, eVALUator online calculator is an easy-to-use Windows-based program that calculates the lifecycle benefits of investments that improve building design.

BPG Appendix 1: Financial Calculators and Online Resources (PDF download, 84 KB)