Companies always look to make the best decisions when selecting capital projects to work into the budget; simple metrics like Return on Investment and Internal Rate of Return tend to dictate how the budget for these projects is written each year. In an effort to increase the bottom line, investments are often times funneled toward projects and purchases that directly affect sales rather than decreasing operating costs, but sales growth is never guaranteed.
In other cases, capital projects are indefinitely suspended, forcing companies to make due with what they have until either more funding becomes available or sales increase.
When considering ways to increase the bottom line, it’s important to turn a critical eye towards expenses – and ways to control unnecessary spending. Energy costs can seem like an ever-inflating, uncontrollable expense, but in reality energy consumption can and should be controlled by implementing the right energy efficiency systems for your facility. Those energy efficiency projects are not always budgeted for though, and as a result get postponed year after year.
The time for implementing energy efficiency systems couldn’t be better. Most states are offering substantial incentives and rebates to offset the costs – and low interest, short-term financing is available, allowing you to move the savings on your electric bill directly into your monthly payment and still have some of that savings left over. Energy Star research shows that decreasing your energy consumption by 20% looks exactly the same to your bottom line as a 5% increase in sales. In fact, in most cases it will cost you more to wait a year or two to work energy projects into your budget than it does to take advantage of low interest financing.
The truth is, you already have the monthly payment built into your operating budget – you’re just sending it on to the electric company instead of using your savings to finance a project that will save you thousands every year, for years to come. Energy prices aren’t going down. Providers will continue to raise rates as they are pushed to capacity, so your annual return on investment will increase every time your energy costs go up.
There truly is a cost to postponing or canceling energy efficiency projects all together – and its a cost that is easily quantified. For example, if a $3,000 machine insulation project will save a plant $3,725.30 a month, and the project is financed over a period of 12 months at 5%, making the monthly payment $2887.50 – then in the first year alone the project creates $10,053 in positive cash flow and the project is paid for. To see the long-term impact, consider the return on investment after just 3 years: $102,442.
Add to that the incentives and rebates available in most areas and the ROI is even higher. Even at a 30% match from the state or utility provider, the ROI in this scenario becomes $112,088 after 3 years.
Estimate a conservative 2.5% increase in kWh rates, and a 5% increase in project costs due to inflation and the cost of waiting just 12 months for cash to become available for your energy project is $47,703 ($55,098 if you figure a 30% incentive) – money that could easily be moved to the bottom line by taking advantage of incentives, rebates, and financing programs now.
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*Photo used under Creative Commons from 401K