Reducing Capital Expenditures for Onsite Renewable Energy

20 May 2010

Solar panel representing energy efficiencyBy Andrea Thomas & Paul Shmotolokha

Renewable energy use in the United States is growing rapidly due to a combination of environmental, economic, and political drivers. However, renewable sources still represent only a small fraction of the overall energy supply, mainly due to the high cost of related technologies in comparison to more conventional sources.

Although the potential for Federal and state incentives may ease some of the initial capital expenses, there is another method by which companies can actively decrease the high cost of onsite renewable energy projects. By reducing operational energy demands upfront through energy efficient technologies and practices, for instance, companies can choose more affordable systems to cover their energy demands—thereby, making the proposition of using renewables all the more effective. 

Energy policy favors clean energy
Federal and state governments are offering various incentives, rebates, and tax credits to encourage investment in energy efficiency and renewable energy projects. Most notably, the American Recovery and Reinvestment Act of 2009 designated $4 billion dollars in Federal renewable energy loan guarantees and $16.8 billion dollars for energy efficiency and renewables. Most of this funding is realized in the form of Federal tax credits, which greatly help to offset the costs of onsite renewable projects for private business. Federal funding from the Reinvestment Act pushed the US solar industry to grow its revenue by 36%, boost its installations by 5%, and increase total electrical capacity by more than two gigawatts in 2009. Energy efficiency incentives include the Federal Energy Efficient Commercial Buildings Tax Deduction, in addition to hundreds of utility sponsored programs geared toward lighting and HVAC retrofits. Businesses should seriously consider taking advantage of these cost-saving measures to increase the payback period on their investment.

Federal funding stimulates energy in private sector
Private sector companies seeing the advantages of onsite renewable energy have benefited from these incentives. For example, in early April 2010, PepsiCo. decided to put a halt to its purchase of Renewable Energy Credits (RECs) and, instead, invest in upwards of $30 million in renewable energy projects at its facilities across the country. PepsiCo. cites innovation in technology and changes in incentives as the reason behind this investment decision. Another example of private business interest in onsite renewable energy is Cox Enterprises, a cable TV provider. As part of “Cox Conserves” program that began in 2007, the company has installed nine photovoltaic solar arrays, and intends to reduce the company’s carbon footprint by 20% throughout the next decade. It was only after Cox Enterprises initiated several years of energy efficiency improvements to lower energy loads did it decide to install onsite renewable energy projects.

Rising energy costs support operational efficiency
Historically, US companies have enjoyed relatively low energy costs. During this time, concerns about facility or operational efficiency were rare. Over the last decade, however, concerns about improving energy efficiency have increased along with the price of oil and natural gas. Regionally speaking, the US Energy Information Administration (EIA) expects utility rates to increase as the price for oil and natural gas continue to rise from 2009 to 2035. If greenhouse gas (GHG) legislation should come into play, EIA’s Annual Energy Outlook 2009 estimates that utility rates under a GHG policy would be 22% higher in 2030 than in a “business-as-usual” case.

As utility rates increase, companies have a greater incentive to adopt energy saving technologies and behaviors to save money. Unfortunately, there is a perception that energy conservation projects in commercial and industrial facilities are expensive and present a long-awaited return on investment. On the contrary, many efficiency gains with a short-term ROI can be achieved with little or no capital investment. By evaluating the baseline energy consumption patterns of a plant or network, companies can start to identify significant savings opportunities.

Energy efficiency consulting
Energy efficiency and sustainability consultancies can help to facilitate cost-saving opportunities by working closely with clients to identify, develop, and implement energy efficiency, carbon abatement, and sustainability solutions to better achieve operational excellence. Teams of efficiency experts conduct survey audits of facilities and network servers to analyze a company’s current energy profile. Throughout the audit process, the consultancy can identify the areas within a client’s operations that are the biggest energy wasters and provide recommendations that work within their business model, corporate planning methodology, and capital strategy to help meet energy goals. Creating an optimal solution is achieved by combining technical energy efficiency audits and behavioral change programs.

Energy efficiency measures maximize investment
Despite the Federal incentives and tax credits available, onsite renewable energy systems remain inherently capital intensive—lowering overall consumption significantly reduces the upfront capital expenditures in the form of a smaller renewable energy system to cover energy demands. Consulting services can help identify areas that create visible energy cost savings. While energy efficiency and renewable energy projects can both reduce operating expenses and minimize risk against volatile utility prices, companies should prioritize efficiency measures to produce less costly returns on investment.

Andrea Thomas is the carbon & energy analyst, while Paul Shmotolokha is the president of Coppervale Enterprises Inc.

Coppervale Enterprises Inc.