With a new year coming up soon, this is the time to start budgeting for a new round of energy efficiency projects, including an intelligent lighting upgrade. Where else do you have the potential to deploy your capital with a 50% return?
It’s a simple process and one of the best investments you can make. First, build a business case:
- Capture all the costs associated with the upgrade, including purchasing new equipment, expected maintenance, disposal of old equipment, installation, etc.
- Compare that to the expected energy savings derived from the project, taking into account any residual energy benefits, such as reduced chiller load as a result of more energy efficient lighting with less ‘on’ time.
- If you invest $100K into an LED project that saves you $50K per year in electricity and maintenance, that’s a 2-year payback and a 50% ROI. It’s hard to find investment opportunities with a 50% return! And, the savings continue after the payback period has passed, lowering your operating expenses.
Armed with compelling economics like that, it could very well make sense to expand your capital budget to get as many of these projects done as possible. Obviously, you have to work within the financial constraints of your company. But capital budgeting cycles tend to be long, so build a strong case now to invest the capital you can to lower your operating costs.
If your capital budget is constrained, consider financing a project with a lender who understands energy efficiency. In the simplified example above, if you finance the purchase of the LED fixtures over three years at 10% interest, your annual payments would be about $39,000. But, you are generating $50,000 in savings, leaving you $11,000 ahead per year with no up-front cost! And, after you pay for the lights over the first three years, you’ll enjoy the full $50,000 per year savings for years to come!
Financing can be a great way to tackle energy efficiency. While your company has to be willing and able to take on the debt while the loan is being repaid, with such huge savings possible, these types of loans can really pay off.
Yes, there are a few steps involved. But that bit of homework and preparation for the budgeting cycle can mean the best use of capital in the entire year’s budget.