In this column, I analyze the energy opportunities identified in previous articles from a technical, cost and payback standpoint. The goal is to develop a set of feasible energy-saving initiatives that the customer may want to undertake.
Know your customer
The key to successfully analyzing energy project opportunities and developing feasible initiatives for your customer is understanding your customer’s motivations and goals, technical interests and limitations, and financial constraints. A customer who wants to earn a third-party certification will have different interests and motivations than a customer who just wants to lower monthly energy expenses.
To demonstrate the value of your services today and build a long-term relationship with your customer, you need to understand what your customer’s interests and needs are. Even though your customer can’t or won’t want to take on all of the energy opportunities that you identified in Step No. 3, by understanding the customer’s needs and proposing alternatives that make both technical and financial sense, you can build the customer’s confidence in your services. This confidence will aid the relationship moving into the future.
Keep it simple when necessary
From Step No. 1, you should have a good idea of your customer’s motivations and goals. At this point, you also should understand your customer’s technical interests and limitations. If your customer’s business is nontechnical in nature, and he or she has limited technical expertise, an integrated energy management system (EMS) may not be the answer. Instead, a simpler, distributed control system—including programmable thermostats, stand-alone occupancy and daylight sensors, photocells, and time clocks—may be a better solution. On the other hand, a customer with a similar size business that has the technical interest and expertise may want a central EMS that controls building functions and tracks energy usage for the building, individual systems and equipment.
Even if you think it is justifiable and will benefit the customer, you don’t want to scare him or her away with technical complexity. A good start for the customer might be to propose and install a simple distributed control system with components that have the ability to be networked into a future centralized EMS. Then, the customer can see the effect on his or her energy expenses and become comfortable with both the technology and your capabilities.
Addressing financial constraints
Most important at this stage are the customer’s financial constraints and the criteria by which the customer will judge the various energy project opportunities that you propose. First, you need to remember that these energy project opportunities will be competing for your customer’s scarce financial resources that can be used to increase revenues or reduce expenses in other parts of the business. Instead of investing in a new lighting system, your customer could keep its existing lighting system and invest available capital elsewhere. It’s good to understand how your customer makes investment decisions and the criteria for comparing and selecting among competing investment alternatives. By understanding the criteria your customer uses to make investment decisions, you can define a viable energy project.
Selecting feasible opportunities
After narrowing down the energy opportunities identified in Step No. 3 based on the customer’s interests, needs and technical capabilities, the remaining opportunities should be screened based on the customer’s financial criteria. The screening of the remaining energy opportunities should include both an estimate of the initial investment required and the projected monthly energy savings that can be expected by implementing the energy opportunity. The estimated cost of carrying out energy opportunities can be used to identify which ones fit the customer’s budget. The projected energy savings resulting from carrying out energy-saving strategies can be used to estimate the return on investment (ROI) that the customer can expect to receive.
There are many ways to estimate the ROI of an energy opportunity. For some customers considering complex projects that include energy production installations with tax and other financial incentives, sophisticated financial modeling may be required. However, for most businesses, simple payback analysis should be sufficient to make a decision. This is easily calculated by dividing the estimated investment in the energy opportunity by the expected monthly savings, which tells the customer how long in months or years it will take to recover his or her investment with the projected savings. The advantage of simple payback is that it is easily understood, and larger businesses often have established simple payback criteria to guide front-line decision-makers. If your customer has these guidelines, your simple payback estimate provides a quick way to separate feasible from unfeasible energy project opportunities.
With this feasible set of opportunities, you can define a viable energy project for the customer in Step No. 5, which I will cover in the next issue.
GLAVINICH is director of Architectural Engineering & Construction Programs and an associate professor in the Department of Civil, Environmental and Architectural Engineering at the University of Kansas. He can be reached at 785.864.3435 and firstname.lastname@example.org.