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Lighting: A Path to a Greener Bottom Line

<p>Companies must not only survive the &quot;Great Recession&quot; of today, but must strategically position themselves for the green economy of tomorrow. More than even before, sustainability objectives are converging with profitability expectations.<br /> &nbsp;</p>

Call them the two greatest challenges now facing American businesses: Companies must not only survive the "Great Recession" of today, but must strategically position themselves for the green economy of tomorrow.

The bad news is that the pressure to perform flawlessly on both scores is greater than ever.

The good news is that there are ways to do both for the short-, medium-, and long-term, saving money while also reducing a company's overall carbon footprint.

More than ever before, sustainability objectives converge with profitability expectations. In fact, one of the best means of doing so comes from an expense many companies take for granted -- lighting.

Often, lighting is simply a forgotten topic.
Best case, it may only be a fixed cost with limited wiggle room -- yet it still has a significant impact on the operational bottom line, especially given fluctuating energy costs.

According to the U.S. Department of Energy, lighting consumes as much as 30 percent of all electric expenses in commercial buildings nationwide, costing some $37 billion -- an amount almost equal to Fed Ex's entire revenue last year.

In the typical commercial building, lighting costs about $1 per square foot, but with recent advancements in lighting technology, it's now possible to bring that number down by 50 percent. Not a small savings for any business: A typical 200,000 square foot building may offer $100,000 annual savings through re-lighting.

No, this is not some visionary technology that may never leave the confines of the R&D lab. Nor is it so complex that it can't be deployed under real-world conditions.

It's using the smart use of the cutting-edge technologies that are commercially available today to solve twin challenges that face virtually every business in America today. The implication for business can be profound -- exactly the "twofer" they have been looking for: Cutting costs while also minimizing a company's carbon footprint.

In one example, a national department store we worked with had more than 160 stores, offices and distribution centers across the United States totaling more than 13 million square feet of space. But they were using outdated lighting that cost them $15.6 million annually.

An $11 million investment was made to replace their lighting systems using high performance lamps and electric ballasts to standardize the lamp types throughout all facilities. Existing four lamp fixtures were delamped to save energy while maintaining light output and distribution using new reflectors and louvers. Existing fixtures were cleaned to restore reflectivity and light control sensors were installed.

Because time is money, the upgrades were done during nighttime hours to ensure minimal impact on the business, its customers and employees. The investment paid itself back within 14 months based on the savings accrued. This retailer shaved $4.3 million in annual costs plus another $1.7 million in projected maintenance savings. In cases where financing is done over 36 months, the net cash flow is $144,000 annually, with no waiting more than a year for a payback.

The return on investment extends from the balance sheet to the environment -- the energy efficient lighting upgrade prevented hundreds of thousands of pounds of power plant carbon emissions from entering the atmosphere -- the equivalent of removing 2,500 cars from the road.

In another example, we worked with a well-known producer of soy sauce products to retrofit two distribution centers in Pennsylvania and Kentucky. Both relamping efforts involved conversion from HID to fluorescent systems that use motion sensors.

At the Pennsylvania facility, six-lamp and 10-lamp T5 fixtures were deployed to replace the existing HID fixtures in a project that took four weeks to complete.

We did the same in Kentucky, replacing all HID fixtures with T5s with motion sensors. Motion sensors were a particularly important cost saver since not every aisle of both 500,000-square foot facility was occupied by employees around the clock. We then installed large ceiling fans of up to 20 feet in diameter to rotate interior air, reducing the need for natural gas use at both facilities.

By installing energy efficient upgrades at both facilities, the company was able to save almost 3 million kWh hours of power -- the equivalent of nearly 5 million pounds of CO2 and taking more than 250 cars permanently off the road.

The bottom line impact in these specific cases is about $150,000 a year in savings from operational costs. Similar upgrade projects have been completed at other of the same company's facilities elsewhere in Pennsylvania as well and are expected to pay for themselves -- in energy savings and federal energy conservation tax credits -- in about 18 months. More retrofits are being planned for other facilities.

With relatively quick savings like these you would expect U.S. companies to be taking the lead on green initiatives in the midst of the current downturn. Not so.

At least when polled, U.S. CFOs showed relatively little enthusiasm for going green to make green. In a summer 2009 poll by CFO Research Services, while nearly a majority of CFOs in Europe and Asia/Australia said it was important to sustain green initiatives in the midst of a downturn, only a quarter of U.S. CFOs agreed -- the largest discrepancy between U.S. CFOs and their counterparts in the rest of the world of all the topics polled.

While most companies' financial officers worldwide generally agreed on the importance of spending money on IT, M&A, as well as employee benefits during a downturn, why this large perception gap when it comes to green?

Perhaps European and Asian/Australian counterparts have been more eco-friendly longer than U.S. colleagues?

Perhaps U.S. CFOs are just more instinctively hardnosed about these matters?

Whatever the answer, bringing the operations back into the black can start with helping the companies become more green.

It's a twofer that really should be a no-brainer.

The pleasant surprise is that doing so is not always as financially painful as many think. That should be welcome news for businesses which have had more than their share of bottom-line pain these days.

Matthias Grossmann and Jean-Paul Michel are the CFOs of Siemens Financial Services Inc. and Osram Sylvania Inc., respectively.

Images courtesy of Siemens Financial Services Inc. and Osram Sylvania Inc.

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