Strategic: Investing in industrial Energy Efficiency is a major decision

Finance

I

01 September 2017

I

Rod Janssen

Investing in industrial energy efficiency is a major decision  

To succeed, businesses are continually investing in product inputs, equipment, buildings, marketing, distribution and people to name but a few. Most of the expenditure is essential to simply stay in business. Industrial companies are a complex of literally hundreds and thousands of elements.

Investing in the enterprise is essential to maintain one’s competitive position. Understandably no one wants to invest in measures that have no value to the company and that do not contribute to the bottom line.  

All recent studies show that there is considerable potential for investing in cost-effective energy efficiency measures.  Somehow, they do not get the attention by senior management or in the boardroom that they deserve. As Dr Catherine Cooremans from the University of Neuchâtel in Switzerland writes in a paper for the 2017 eceee summer study [http://www.eceee.org/summerstudy/]: “investment decisions are the product of a complex process influenced by many different factors, which can be classified into four broad categories:

  1. external context, which refers to a firm’s environment,
  2. internal context, which comprises structure and management systems, strategy and organizational culture, and revenues/cost relations,
  3. actors involved, either individuals or groups, which can be more or less powerful, and
  4. characteristics of the investment to be made.” 

Dr. Cooremans uses the following diagram:    

Strategicity  

Dr. Cooremans goes on: “In this framework, investment characteristics strongly influence decision-making. Investment characteristics are numerous and diverse. Among these characteristics, an investment’s strategic character – i.e. its “strategicity” – plays a paramount role in decision-making. Strategicity, which can be defined as an investment’s contribution to a firm’s competitive advantage, is more important than profitability in the competition for resources, which exists in any organization.”  

Dr. Cooremans makes an important point about the strategic aspect of investments.  She further states that: “Many factors, internal as well external to the firm, influence an energy-efficiency investment decision.”   

Taking a close look at your own company  

The important point Dr. Cooremans makes is that energy efficiency investments should be considered strategically.  Too often senior management essentially snubs at such investments. Yet, too often, senior management does not know or does not appreciate the full range of benefits from energy efficiency investments.  

Do you know how energy efficient your operations are?  Have you invested to make improvements? Did you have to borrow to finance such measures? Did you set aside such measures because they were too expensive or too complicated?   

Remember that too often paying for the energy used in your operations is just considered ‘business as usual’, without much thought that those expenditures could be reduced to a point that you would see it on your bottom line.  This attitude – for whatever reason – means reducing energy consumption isn’t yet considered of strategic importance to your management decisions – yet!  

Where ICP can help  

As Dr. Cooremans states, there are many factors that influence decisions and action. The Investor Confidence Project is there to remove many of the complications and risks in improving your company’s energy performance. It ensures that the process of choosing what to do, how to do it and how to finance it is standardised, giving you assurance. It can help senior management better understand energy efficiency from a strategic perspective because it does remove risk.  

ICP brought to Europe to develop a system to give confidence to all active stakeholders. There are still concerns that investing in energy efficiency is risky. ICP is designed to change that. ICP started with investments in buildings and is now broadening the scope to include industry, district energy and street lighting through a two-year project funded by the European Commission.  

The concept of ICP is relatively simple to understand. A potential project in a factory or a district heating system, for example, is identified. Someone has to do the necessary calculations to determine the viability. Someone has to be identified to install it (often the same organisation). And some organisation needs to fund it. What this project does is standardise the procedures so that all players gain confidence in the system. The factory owner is happy. The developer/auditor/installer is happy. The financial institution is happy. There are protocols in place and third party monitoring to ensure everything is done correctly. The protocols are developed by interested experts and not by commercial interests.  

The project will work with all of those involved in the project cycle from owners through to project developers and verifiers. They all have a key role to play.  To ensure that the protocols are robust, technical forums are being set up to review the draft protocols and provide important technical input to their development.  

For owners or managers, the ICP approach will provide transparency of the process and will give them the confidence in implementing the measures.  

For the project developer, ICP provides a process that is understood and accepted by all participants. This will reduce transaction costs and should minimise any misunderstandings.  

For the financial community, the ICP approach will standardise the project development process and bring the necessary confidence to undertake the investments.  

Once the industry protocol is complete in the next few months, we will be looking for projects to test the system. It has been used successfully for the buildings sector, but we believe there is even more scope for industry.  

More Information

If you would like more information, please check out our website http://europe.eeperformance.org/ or contact me at rod.janssen@ee-ip.org.

Join Technical Forum developing the protocols

To develop such protocols, we would like to invite you to join our Technical Forum to review and comment on the development.  
First drafts will be send around in September 2017 – so there is still time to join.  

In case you are interested, please just register via http://europe.eeperformance.org/technical-forum.html

Related Articles

Related case studies and whitepapers

In case you are interested to receive latest case studies and whitepapers in selected categories such as Financing Energy Efficiency (or Energy Management, Motors, IoT, Energy Recovery etc.), you can sign up for our mailing service, select your categories of interest - and you get them send to you directly into your inbox.

About the Author

Rod Janssen is the President of Energy Efficiency in Industrial Processes (EEIP).