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What's a kWh? I only speak $$$.

Whenever I'm discussing energy conservation or renewable energy expenditures with customers for my job or readers of the Mapawatt Blog the question almost always comes up:  What's my payback? Unfortunately this isn't as easy to answer as one may think.

Organizations and individuals undertake clean energy projects (energy conservation programs or renewable energy production) for three main reasons:

1. Save Money
2. Help the Environment
3. Show others how much they care about saving the environment

Industrial

In my job I sell electrical products to industrial factories.  Unfortunately, most of them do not have any sustainability programs.  For them, energy conservation projects, whether it is a lighting retrofit, more efficient motors, or a power monitoring program have to demonstrate a payback of under 2 years!  Luckily many energy saving projects in an industrial setting do actually have a 2 year payback.  But this makes more advanced projects, like solar power out of the question!

Why 2 years?  I'm not really sure.  It is some number a bean counter somewhere in the back office came up with.  But to their defense, some of these factories aren't even sure if they will be in business in 2 years, so I'm guessing the payback number has more to do with their appetite for risk and keeping investors happy.  Unless an industrial business has a sustainability program or very progressive management, then getting past the 2 year time-line for energy retrofits is extremely hard.

Of the three energy saving reasons above, Industrials (manufacturers) will save energy mostly just to save money.  I'm still amazed at how many energy saving opportunities exist in Industrial settings just because the facility operators don't focus on saving energy.  This is mainly because the aforementioned bean counters are locked away at the corporate office somewhere and view energy as just another cost.  They don't know how the machines use energy and don't understand how it can be saved.  For most industrial users, the clean energy project payback equation is simply:

Payback of Clean Energy = (cost of clean energy project) ÷ (cost of energy saved)

Commercial

Now commercial settings are a little different, but not much.  While Industrials are focused on getting widgets out the door, Commercial energy users are focused on keeping customers happy while they are in the building.  Commercial buildings are either housing employees (as in an office space) or are catering to customers (as in a shopping mall).  Commercial energy users are more likely to undertake energy projects because they are more visible by the employees or customers.

For instance, a company that makes shoes may not do much for energy conservation at it's manufacturing plants (which are probably not in the U.S.) but it may have solar panels on the corporate H.Q. or flagship store.  I've spoken with several decision makers about their experience with solar projects, and many of them go into purchasing a solar power system solely focused on the energy payback.  As they learn more about clean energy (as opposed to dirty, fossil fuel energy) they learn you really can't judge a clean energy project solely on a cost basis or by the cost of energy saved alone (unless you live in the handful of states that have good renewable energy incentives like NJ or CA).

You also have to factor in improvement in employee morale (because employees are happier who feel their company stands for something like a clean environment) and an improved company image by customers, which will lead to more sales.   Clean energy projects in commercial settings are done by companies who are leaders in their businesses and are on the cutting edge.  Emloyees and customers both recognize this fact, and it is time that the accountants who analyze clean energy paybacks for commercial accounts start realizing this fact as well.  It for this reason that quantifying energy projects in Commercial settings is a little more difficult than in industrial settings.

How do you quantify that amount of money that happier employees/customers who are excited about the new solar array on corporate H.Q. are going to add to the bottom line?  It's not easy, but sometimes being a leader in energy conservation isn't.  For commercial energy users the equation should look something like this:

Payback of Clean Energy Project = (cost of clean energy project)÷(cost of energy saved  + improvement in employee productivity + increased sales from progressive customers)

I'm reading Confessions of a Radical Industrialist: Profits, People, Purpose by Interface Inc.'s found Ray Andersen.Two paragraphs  from the chapter "Mountain Climbing" sums up the way Corporations need to start thinking about how they make product and conduct business:

On the societal level, we'll have to start setting ecologically honest prices that reflect the damage we do to innocent third parties - society in general - who are neither buyers nor sellers in the transactions that damage them.  Only when all these "externalities" appear in prices, profits, and losses can an honest free market function responsibly.

At the corporate level, we'll need new tools to help us evaluate choices and trade-offs, tools that look far deeper than we're accustomed to and measure results beyond the immediate dollars and cents - certainly beyond the immediate financial quarter.  We'll need new ways to analyze our operations in what I like to call "God's currency," the nonfinancial costs and benefits that accrue to the living world as a result of everything we do to the land, sea, and air around us.

Residential

Often times residential energy consumers will fall into the same trap that corporate accountants will when analyzing clean energy projects.  They will say, "My energy is cheap so undertaking clean energy projects just doesn't pay back." They say this because the externalities associated with their current energy delivery system (pollution/land degradation) are so far removed from their thoughts when they plug something into a wall outlet.

The payback equation for residential customers should really be:

Payback of Clean Energy Project = (cost of clean energy project)÷(cost of energy saved + increased pleasure due to knowing your family isn't contributing as much to air/land/water pollution + increased pleasure knowing you are a little less reliant on someone/something else, the utility)

The Reality

But let's face it; some management teams are never going to care about their impact to the environment.  They are just out to get rich no matter the cost to society.  For them, the energy payback question will always be project cost divided by saved energy cost.  They will never think about employee morale or customer image.  They are not the thought leaders in their industry.  They are dinosaurs, and their constricted and unimaginative thought will eventually lead to their extinction.

The same goes for many residential users.  They really could care less about mountain-top coal removal, coal sludge spills, or climate change (which they probably don't believe is caused by man).  They too find pleasure only in saving money, not improving the environment around them.  They aren't interested in teaching their kids the importance of saving energy, a lesson that gets more important with an exponentially rising human population.

But then there are others.  There are those of us who strive to save energy because it makes us happy to know that we are putting money in our wallets AND helping our environment and future generations.  We save energy and install energy monitors because saving energy is a hobby.  It becomes a game for us.  We enjoy talking about how efficient our homes are to our neighbors and co-workers.

We don't look at solar panels and just see silicon and wires; we see self-reliance and clean electrons.  We look at wind turbines and take pleasure in what we don't see - a smokestack.

And finally: A clean energy project doesn't always have to payback in an "acceptable" time frame.  Sometimes it's just the right thing to do.