What is energy efficiency?

Energy is a big subject. Where do we get it? How do we use it? How should we plan for the future use of it and what are the environmental and political implications of these choices? It’s too big of a subject for most people to consider from all aspects and total overwhelming for most people who are running or managing a business. We’ve determined that there is one question that affects everyone, how do we incentivize people to use energy more efficiently? We may not all agree that global warming is happening, only 63% of Americans do, according to a recent study by Yale University, but we all agree that saving money is a good thing.

Why is energy efficiency important?

There is one commonality for all businesses, they want to reduce costs. Energy efficiency upgrades can pay for themselves in as little as one year, although some larger measures may take up to ten. The savings realized after the initial investment is repaid is then cash savings. I always look at reducing budgeted in expenses in relationship to expected net income. If you can reduce your operating expenses by $1,000 per month and you have an expected net income of 10% then that’s equivalent to generating an additional $10,000 a month in sales. Although saving money is a universally loved concept, it doesn’t usually compare to the “hidden” value of energy efficiency measures. These hidden or experiential benefits are often a larger financial benefit to property and business owners. For some projects this is sound attenuation, some light quality, others want inhabitant comfort. People smarter than me are working on formulas that attempt to quantify these ancillary benefits.

How do we use our energy?

Our business works primarily with commercial businesses. These businesses consume about 37% of California’s total electricity. Both lighting and heating/cooling accounts for about one third of commercial building electricity use in California so they are the first energy efficiency measures that we evaluate. Windows have a major impact on both lighting and cooling costs so window retrofitting can provide substantial energy savings and comfort improvements. The remaining third of energy consumed by commercial facilities is from office equipment, refrigeration, and water heating.

How do utility companies make money?

Under the current U.S. rate structure for utilities, revenues are dependant on the amount of energy they deliver to customers. More energy delivered equals more revenue and thus more profit, which does not incentivize efficiency. Individual states have therefore implemented decoupling rate structures, which separates sales volume from profits. Currently twenty three states have implemented decoupling for gas or electric utilities, and eleven require decoupling for both gas and electric. All of the top ten most energy efficient states have decoupling in place for electric utilities, so the relationship between decoupling and energy efficiency is pretty clear. Utilities in decoupled states often have progressive incentives for energy efficiency because their profits are not tied to increased sales.

California partially deregulated their energy market in the mid 1990s then reversed that decision after the California electricity crisis of 2000 and 2001, in which over 1.5 million customers experienced blackouts. The motivation was for increased retail market competition, but it allowed market manipulation by Enron and others, which led to customers experiencing 300% price increases and major shortages.

Blackouts are bad for business, so energy shortages motive utilities to incentivize efficiency. Importing energy from out of state and building power plants are very expensive so it’s imperative that utilities help reduce demand. New time of use and peak day rates, where customers are charged a premium for usage during the peak times (usually noon to 6pm) and for the hottest days of the year (PG&E’s peak day plan has 9-15 days), help incentive commercial customers to conserve. Peak charges are often 5 times higher than non-peak rates.

How do I start saving money on my utilities?

Energy auditors usually divide their findings into three categories; high cost capital improvements, such as furnace replacements; low cost upgrades, such as window film and occupancy sensors; and no cost measures, such as reprogramming thermostats, unplugging equipment that is not in use, and properly configuring the energy savings setting on your desktop computer. Many no cost measures do not require special training to identify, but sometimes having a third party identify problem areas can help with policy enforcement. SBA provides some great tips for no cost measures here. In many states, such as California and Arizona, utilities provide sizable rebates for the high and low cost measures. Rebates vary from utility to utility, but often provide incentives for energy efficient HVAC equipment, appliances, water heaters,  and LED lighting. Check out the resources page of our website for information on the California utility rebates. Finally, knowing your rate structure is important. If you’re on a peak day pricing structure, it’s imperative that you know when a peak day is coming. Utilities will email notifications so make sure they have the correct contact information for you. If you’re on a time of use you should consider some of the low cost measures above in order. Peak demand pricing per kWh can be as high as $.85 per kWh so payback periods are much shorter for these measures.