Disruptive investment model is novel addition
The American Council for an Energy Efficient Economy (ACEEE) recently published a three-part blog on energy efficient trends within the United States. Their highly informative series provided valuable insights for residents and businesses by sharing market data, surveys and suggested approaches.
We have the highlights for you plus added information on why most businesses don’t implement energy efficient enhancements along with solutions to overcome their obstacles.
The quick answer – an estimated $60 -115 billion is invested in the U.S. market based on several referenced reports and studies.
ACEEE’s blog provides a great overview of which B2B sectors are making energy enhancements – but the real meat here is what is motivating them to invest in energy performance.
While 61% of residents make energy enhancements to save money, business’s motives are more diverse. ACEEE noted an interesting shift in business motivations over the past three years and with uncertainty about future energy policies, results will continue to evolve.
Top reasons business’s chose energy reform include concerns about climate change, compliance with government standards, available tax incentives, a commitment to health and wellness and consumer expectations were among growing motivations in 2016—all with the end goals of sustainability, conservation, energy savings and cost reductions.
So why is cost savings becoming less of a motivation for enhancements?
The short answer is that the enhancements businesses are choosing are not positively affecting their financial bottom line as much as expected. Why aren’t savings as much as anticipated?
It comes down to the variability of what occurs. Product sales teams seek to create the best value possible to stand out from their competitors. When this happens, they often overstate what savings efficiencies their products offer or base their pitches on non-applicable testing results. This isn’t to say that suppliers and product providers are intentionally misleading clients; rather, their proposals don’t consider clients’ variabilities and future assumptions.
ACEEE noted 26.4% of efficiency improvements in buildings were related to lighting. Most LED suppliers promote high-savings percentages. The challenge is that these percentages are rarely accurate based on site-specific lighting. Let’s take a standard T8 32-watt lamp; commonly its calculated at 35 to 36 watts to account for ballast factors. The reality of its actual use is 28 to 29 watts because existing lamps have degraded from the original install resulting in 20% overstatement. Now let’s consider the usage of lighting systems. Most usage is not verified with metering but based on an assumed usage, which creates inaccurate estimates. Project cost may not consider all actual costs like sales tax or freight. Lastly, energy rates are often reported as being higher than actuals by both suppliers and clients. This is not to say we don’t support making these improvements, because we certainly do. They just don’t represent actual financial returns.
It is understandable to see why cost savings is becoming less of a motivation for businesses to make energy enhancements. Actual results are much lower than represented, resulting in less-than-expected financial returns. It should be noted that most, if not all energy efficient technologies, have similar challenges.
The impacts of inaccurate returns can clearly affect choices on future projects and would explain, in part, the decline in energy savings and cost reductions as highlighted by the survey. These declines along with the increasing numbers of mandates and policies would suggest that businesses could feel forced into a corner to make improvements and become less interested in going above the regulated levels.
ACEEE’s third blog in this series provides valuable suggestions on how to encourage energy efficient investments. It’s a big challenge as 79% of business decision-makers believe their facilities are already efficient. Combine that with a lack of financial savings from investments, management not having time to oversee improvements, businesses lacking expertise, senior management not getting onboard, and a lack of financial capital. All these responses are largely money related concerns.
Let’s add an 11th solution—a disruptive investment model.
ACEEE’s 10 suggestions address many good options to improve the acceptance or adoption of energy efficiencies for both residents and businesses; however, to accommodate a larger adoption rate in business, it is going to require a major shift in thinking from product, policy, creative marketing and simple debt-driven financial models. What the industry needs is disruptive investment models that put the risk on investors not clients/businesses. This disruption will address the barriers preventing widespread adoption of actual energy efficiency results, promote the mission of less energy dependence, improve the environment and provide true savings to clients’ bottom line.
Simply put, businesses large and small have financial limitations. They assess the overall value of each project (financial, resources and risk) with leaders and boards deciding what will provide the most value for their specific needs. Competing with revenue-generating projects can be very difficult. That’s not to say that savings is not important to a business— but all things considered, revenue wins. Until now.
Current Investors’ approach to the disruptive investment model.
A disruptive investment model may be part of the answer. Current Investors, an energy efficient investment company, developed an investment model that transfers the financial and operational risk from the client to the investor (Current Investors).
What makes this model so disruptive?
- Current Investors uses its own capital, saving clients from financial risk.
- It addresses the financial barrier. No capital or debt needed from clients.
- Current Investors develops customized solutions based on actual financial returns for the opportunity, not just percentages of savings or isolated technologies.
- Solutions are the optimal mix of technologies to maximize the mutual benefit. Most businesses (customers and providers) focus on either too much technology or not enough, which commonly results in lower returns.
- Current Investors provides all resources and monitoring equipment at no cost.
- Assessments are provided at no cost to protect the investor; the client receives the details and approval of the plan.
- Contracting is made simple with short terms of less than five years, allowing Current Investors enough cost-saving time to regain investment.
- Current Investors analyzes and reports monthly results to clients.
The largest benefit is aligning the motives of the client and investors. This removes subjectivity from the process, replacing it with fact-based solutions and returns. It’s critical to provide clients with assurances to help establish confidence. This bridge assists business’s who traditionally don’t have capital, debt availability, resources, expertise or the time to take on an energy enhancement project.
This disruptive investment model focuses on all non-governmental facilities (commercial, industrial, distribution, hospitals, universities and general buildings) with project sizes ranging from $100 thousand to $2 million. There are no fees or costs built into agreements. All projects are validated using investment-grade sub-metering both pre-and post-installation. Results are tracked and reported monthly for the duration of the agreement. Project terms are less than five years in duration with an average of four years. Terms are very important to the long-term success of energy-efficiency adoption as technology is improving at a rapid rate and long-term contracts inadvertently lock customers from future savings.
How this model benefits the industry?
This disruptive investment model promotes energy efficiency and bridges the current gaps preventing businesses from making large-scale improvements. By addressing the financial barrier, product and service provides will gain business that likely would not have occurred due to previous financial barriers. The other benefit is that detailed performance data for products and demographics is tracked to better promote results and benefits.
Here’s a quick overview of how Current Investors works.