We all know that project implementation is the final step of the process for utilities to capture energy savings. But too often, energy efficiency project opportunities aren’t implemented, meaning customers miss out on incentive dollars and hinder a utility’s progress toward savings targets. The problem is paramount in office buildings for two reasons: the real estate industry’s budgeting process for potential projects does not align to utility incentive funding cycles, and incentive dollars alone do not guarantee a strong business case for energy efficiency.
How can you drive energy efficiency projects to completion? In our first two installments of this three-part series on energy efficiency in commercial office markets, we outlined strategies for to identify energy savings opportunities and translate the energy efficiency benefits into terms that will resonate with customers. In our final installment, we break down two strategies to expedite energy efficiency project opportunities that may be stalled in a program pipeline.
1. Strengthen the Business Case to Secure Project Commitments
For most efficiency projects, utility incentive payments make investments more financially appealing – but the incentive alone won’t be a deciding factor for implementation. It’s critical to present commercial real estate (CRE) customers with a business case that shows project costs, savings, and financial metrics in compelling terms for decision makers at the building.
- Quantify annual dollar savings and savings per square foot. Often, energy efficiency opportunities are calculated in terms of energy savings (kilowatt hours or therms) and lump sum incentive payments. Commercial customers who own and manage office buildings need to see how these projects benefit a property’s bottom line.
- Highlight key financial metrics. Business cases should include metrics such as internal rate of return (IRR), return on investment (ROI), net present value (NPV), and simple payback period—terms that will resonate with office building decision makers and ultimately help secure project approval. Don’t forget to include how energy savings increase net operating income (NOI) and improve asset value as well.
- Keep it short and sweet. One-pagers work best with data behind them to support the claims. Get the right decision-makers in the room, and present it before they’ve planned their capital projects for the coming year.
2. Optimize Project Timing to Avoid a Budget Disconnect
Even with a strong business case, energy efficiency projects can stall when annual commercial real estate budgeting processes don’t align with incentive program funding and implementation cycles. Building owners and property managers typically plan their budgets for capital improvements and operational expenses a year into the future. Budgeting begins in mid-Summer, as firms review their past year of budgeted versus actual expenditures, and plan all capital and operational budgets by early-Fall for the following year. Some of these projects—such as boiler replacements—include energy-related elements, while others—such as lobby renovations—do not.
The trouble is, utilities typically don’t disclose incentive levels until the beginning of the new calendar year, creating a budget disconnect for the office market. If a utility approaches a CRE customer about a project opportunity in January, there likely won’t be funds available in the budget for an additional project, so the project wouldn’t be completed until the following year. In these instances, energy efficiency projects can be stalled or derailed between these budget cycles. Utilities should talk about efficiency opportunities during the lead-up to and during CRE capital budgeting season to secure commitment of the energy efficiency projects in the budget… and also in the utility savings pipeline.
Let’s Get in Gear. There’s a common theme here: energy efficiency is not created equal, especially in the office market. Luckily you can overcome that and help these commercial real estate customers let go of the challenges holding them back from energy efficiency participation. Analyze your office customers by running market segmentation analyses and addressing gaps in efficiency programs to meet their needs. Reduce utility jargon and speak directly to the stakeholders’ motivations and priorities including non-energy benefits. Build the business case that works for your customers, and communicate the opportunity at a time that makes sense for their organization.
To learn how utilities across the country are capturing efficiency savings in hard-to-reach commercial markets, visit www.waypointbuilding.com/aligned. You’ll find three cases of utilities aligning to customer cycles to complete energy efficiency projects.