Money Talk: Selling Energy Efficiency

You know that energy efficiency upgrades can reduce operating costs, but how do you convince financial decision-makers that such projects are worth the investment? You have to learn to speak their language — dollars and cents. The following examples show how it can be done.

Using the right tool

Over 12 years, USAA Real Estate reduced overall energy consumption by more than 40% across its portfolio, saving $20 million. With numerous ENERGY STAR® partner awards under its belt, USAA knows the value of energy efficiency. But first, the company needed a financial analysis tool that spoke the CFO’s language.

The Building Upgrade Value Calculator from the U.S. Department of Energy measures key financial metrics including energy cost reduction, simple payback, internal rate of return (IRR), return on investment (ROI), net present value (NPV) and the potential impact on asset value.

The benefits of using this tool included:

  • A more objective process and a continuous improvement approach to planning.
  • Increased project approvals, leading to increased energy-savings portfolio-wide, along with increased asset value, net operating income and tenant satisfaction.
  • A more strategic approach to energy management that supports financial success across the portfolio.

USAA steadily improved its energy efficiency as measured by energy consumption reductions at both the asset and portfolio level.

Don’t overestimate the savings

With its numerous LEED-certified buildings, it’s no surprise the University of California-Irvine made the Sierra Club’s top 10 list of green colleges, receiving California’s highest environmental award for its sustainability program. The university used the following strategies to convince the finance department to support energy efficiency:

  • Incorporate both strategic and implementation level plans for sustainability.
  • Propose projects with a track record of savings in comparable climates, organizations and facilities.
  • Include secondary savings up front but don’t overstate secondary benefits.
  • Take a portfolio approach rather than project-by-project and prioritize deep energy retrofits.
  • Have access to debt financing, such as tax-exempt revenue bonds.
  • Require debt-coverage ratios (available cash flow for making debt payments) for project approval: 1.15 for simple upgrades; 1.4 for complex retrofits.

In one year, the university added over 1.5 million square feet of new LEED-certified buildings across its campuses.

Embed finance into sustainability

Retailer Kohl’s, another multiple ENERGY STAR award winner, placed a financial analyst on the energy team. This person reports to the finance department and acts as a liaison between the two departments, improving communications.

Having a connection with the finance department helped decrease approval times for energy efficiency projects while increasing credibility. Funding was earmarked for an emerging technology budget, with several pilot projects being approved. If these projects go well, capital funding is set aside for more stores. Once the company CFO realized how much value was added, the analyst became a full-time member of the team.

With the right attitude, tools and language, the finance department can be an asset when it comes to funding energy efficiency projects.