Climate Corps 2010: Why is the Reality of Energy Efficiency So Grim?

EDF Climate Corps

Climate Corps 2010: Why is the Reality of Energy Efficiency So Grim?

Image CC licensed by Flickr user Hello Turkey Toe

If it's true that making money and creating wealth for shareholders is the primary objective in every business, one would expect companies to squeeze out every bit of profit from their operations by making them efficient and technologically advanced.

So why is the reality of energy efficiency so grim?

Most companies are so preoccupied with external factors, such as sales that contribute to top-line growth, that they often neglect operational improvements and energy efficiency -- two opportunities with huge potential to boost the bottom line.

As an EDF Climate Corps fellow at PSC Environmental Services, I've come to realize there is no shortage of reasons for a company should look at energy efficiency projects with utmost urgency, regardless of its stance on going green. In simple words, energy efficiency and operational improvements pay.

Moreover, government and utility providers across the nation provide rebates that make green projects financially appealing to companies. In the past, companies used to complain that getting facilities and plants audited for energy efficiency was a cumbersome process. This argument, though possibly true a few years ago, does not fly anymore. Many utility providers do the audit for the companies at no cost. Even getting the plant audited by a third party is no longer as costly as it used to be; sometimes it's even free if negotiated properly.

Sensing the huge potential, companies including Chevron (Chevron Energy Solution) and Walmart (Energy Services) are already out in the market with cutting-edge technology to help Corporate America reduce its energy bills. Throughout my EDF Climate Corps fellowship, I never came across any major utility providers that didn't offer some kind of rebate program.

What should companies do?

Knock on the right door: State and federal governments, various utility providers across different states and even third party auditors are working together to make energy efficiency projects for companies a success. Companies simply need to knock on the right door for help.

Jump on the bandwagon while you can: Time is running out. For example, inefficient T12 Florescent bulbs have already been phased out of production. Soon, rebates for switching to T8 or T5 fluorescent bulbs (from T12's) will no longer exist. This may be the last call for companies make the switch before it is too late.

Get with the (business) times: In line with hanging on to inefficient, old-school lighting, many companies continue to rely on simple payback methods for capital budgeting and are, at times, unwilling to invest in projects that have a payback period that is longer than one to two years. Elementary finance courses teach the "payback method" (unlike NPV). Though easy and intuitive, this does not account for time-value of money, nor does it consider the cash flow that may occur after the payback period. Yet, plenty of companies still religiously follow this method. The end result is that many, otherwise profitable, green projects simply never happen.

Fortunately, all is not lost for Corporate America. Many Companies, such as PSC (PDF), are making significant progress in their sustainability efforts and are willing to walk an extra mile to capture the gains of energy efficiency projects. Increased awareness among consumers motivates companies to move in the right direction as well. Hopefully, this trend will continue to spread like wild fire, not only in Corporate America, but beyond its borders -- leading to meaningful, positive impacts on our entire planet.

Arindam Jha is an MBA candidate at the Weatherhead School of Management at Case Western Reserve University, and a Net Impact member. He is a 2010 Climate Corps fellow at PSC Environmental Services. Further coverage of the Climate Corps program is available at GreenBiz.com/edfclimatecorps. This content is cross-posted at the Environmental Defense Fund Innovation Exchange Blog.

Image CC licensed by Flickr user Hello Turkey Toe.