Energy Savings Add Up – Improving Industrial Carbon Footprint
Businesses know they can significantly improve their bottom line by reducing operating costs. One way to reduce costs and carbon footprint is through energy efficiency upgrades – particularly in an industrial environment. Energy cost savings directly impact the bottom line and can increase profit margins. For example, 5% to 15% annual energy cost reductions can be realized by conducting a retro-commissioning project to optimize your facility’s mechanical systems. The up-front cost of the retro-commissioning project is normally within a 1 to 2-year simple payback. So, to realize these financial benefits, here are some general tips demonstrating the benefits of implementing energy cost-saving projects.
Let’s start with a simple example. Say a company has a net profit of 5% and would like to increase its net profit. There are generally two ways to do this; either increase revenue or decrease costs. If your business were to look at reducing costs by implementing an energy project that would save them $1,000 annually, that would be equivalent to otherwise earning an additional $20,000 in revenue ($1000/0.05 = $20,000). An energy efficiency project of this type has the same impact on profits as increasing sales 20:1.
If the energy project has a return greater than the borrowing rate, then you can finance the project, and you may improve cash flow with relatively little risk. Let’s say a business finances an energy project with a $100,000 loan for 15 years at an interest rate of 10%. Your business has no up-front cost, but pays ~$13,100 each year for 15 years. The energy project you were considering was calculated to generate ~$14,900 each year in annual energy cost savings. Since the energy cost savings exceed the financed payments, the project exhibits a net-positive cash flow of $1,800 annually with no upfront costs.
Simple payback is an important financial consideration under many circumstances in conjunction with the Internal Rate of Return (IRR). If an energy project has an IRR greater than your business’s profit margin, energy cost-savings projects are where you should invest money. For example, suppose a business has determined they will consider energy projects with a 2% return above their net profit of 4.0% (i.e., anything >6.0%). In that case, an energy project with a lifespan of 20 years and an IRR of 6.5% fits their financial goals. In this scenario, the project’s simple payback is irrelevant to the goal of returning an established minimum IRR. Had the company insisted on a 2- to 3-year simple payback, an opportunity that could have far exceeded their financial expectations, would have been overlooked.
Consider looking at energy costs differently than currently viewing them. Energy savings realized from a potential energy project are conversely an existing waste stream (a penalty). By doing nothing, the excess energy consumption continues to drain your operating cash every month, not to mention the impact on your carbon footprint. Reducing energy costs and eliminating energy waste can add to a business’s operations’ efficiencies and impress shareholders looking for a lower carbon footprint.
How can you realize energy and cost savings benefits without knowing where to turn next? The first step under the umbrella of energy management is to perform a formal study to identify energy savings opportunities accomplished through an Energy Assessment. The Energy Assessment looks at how energy is consumed at your facility and, through the formal process, will provide you with the fundamental knowledge you need to make a case for implementing energy cost-saving projects. From there, you can work with the decision-makers to prioritize energy savings in your business. Below are a few ideas that may make sense for your business and lower your carbon footprint:
Building system performance can decline, and energy consumption can increase over time, even when performing routine maintenance on equipment. However, you can increase productivity, improve work environments, and reduce maintenance costs while saving money by conducting an energy assessment and investing in your business’s discovered energy savings opportunities.
About the authors:
Sam Cooke, PE, CEM, is a Vice President and Project Director at SCS Engineers. He has over 40 years of engineering experience specializing in manufacturing energy management assessments and implementation projects. Sam was the technical lead for projects involving the performance of energy assessments at over 100 manufacturing companies, including compressed air audits, compressed air leak surveys, process heating assessments, manufacturing HVAC assessments, lighting assessments/replacement, refrigeration efficiency assessments, etc.
Tony Kriel, PE, LEED AP, is SCS Engineers’ National Expert on Facility Energy Management. He has 13 years of consulting experience as a mechanical engineer. His project experience includes specializing in Cx, RCx, ASHRAE Level I-III energy audits, and other design-related energy services. Tony has managed multiple large (>million square foot) projects and has worked with industrial, commercial, military, federal, state, municipal, and solid waste clients. He is a LEED Accredited Professional AP BD+C, and LEED AP O+M. His projects include Commissioning (Cx), Retro-Commissioning (RCx), ASHRAE Energy Audits, Energy Modeling, Geothermal Feasibility and Design, and Solar PV.
Congratulations on joining SCS Engineers! You’ll work on projects alongside our employees and management in the next months. Jump in, ask questions, and take advantage of working with some of the finest environmental engineers, geologists, scientists, and consultants in the U.S. You are now part of a national team solving some of the most challenging problems for our planet and our society. You’ve got the smarts and the desire, and we’re here to help build your skills.
If you are interested in making a difference, find your fit here!
SCS Engineers is expanding its Phoenix, Arizona, office to meet the growing demand for sustainable environmental consulting and engineering. Recent employee-owners joining the firm are pictured upper left to right, including Samantha Montgomery, a technical associate; Mike Bradford, senior professional engineer; Cynthia Neitzel, a professional engineer; and Taylor Goins, field services working as part of SCS’s comprehensive team.
Montgomery’s focus is to prepare monthly, semi-annual, and annual greenhouse gas reports, along with processing and analyzing the data associated with those reports. She specializes in air quality compliance and permitting, particularly for landfills.
Bradford brings more than 20 years of experience in civil engineering and project management. He has been the principal engineer and engineer of record for a wide range of public and private sector capital projects in Arizona and across the country for solid waste landfills and other public works civil projects.
As a landfill project manager focusing on landfill gas collection and control systems and compliance reporting, Neitzel brings more than 20 years of experience. She has a background in landfill design, construction quality assurance, and air quality permitting and compliance.
Goins provides clients with landfill gas monitoring and other related environmental monitoring services, helping them reduce operational costs and protect air quality. He also operates and maintains other environmental pollution control systems.
“Mike and Cynthia bring invaluable experience creating and overseeing environmental solutions for municipalities and businesses, which provide essential services in our region,” said Pat Sullivan, senior vice president of SCS Engineers. “They, along with the rest of the team, join SCS to serve our clients who are actively seeking to protect public health and the environment as part of doing business, whether that’s remediating property, operating a landfill, lowering their carbon footprint, or running a fuel station.
SCS Engineers’ environmental solutions and technology directly result from our experience and dedication to our clients responsible for safeguarding the environment as they deliver their services and products. For more information about joining this remarkable national firm, please visit SCS Engineers Careers.
Engineering News Report publishes the ENR Top 500 List, which ranks global design/engineering firms by revenue. SCS Engineers again ranks in the top 100, moving up this year from #73 to #59. We thank our clients and our employee-owners for helping SCS continue to rank as a top-tier environmental services engineering, consultanting, and construction firm.
ENR is one of the premier companies tracking the A&E industry, and these rankings are closely followed as they publish throughout the year. SCS Engineers is also recognized in the Sewer & Waste List of Top 20 companies globally, ranking at #5, up from #10 the previous year.
Climate change and reducing our nation’s carbon footprint are important challenges facing our planet. SCS Engineers remains a leader in recovering and utilizing methane from landfills, a potent greenhouse gas. In the last decade, we’ve been expanding our role to include more utilization of biogas from agriculture, carbon sequestration, management of other greenhouse gas and environmental impacts for multiple sectors while reducing methane production in landfills by diverting organics.
SCS designs and supports innovative environmental solutions with our in-house award-winning technologies to help our clients. With more data and control available 24/7, our clients can make more informed decisions, operate more efficiently, running cleaner and safer while delivering essential services, products, and properties.