UPDATED 1 Sept: The EI library in London is temporarily closed to the public, as a precautionary measure in light of the ongoing COVID-19 situation. The Knowledge Service will still be answering email queries via email , or via live chats during working hours (09:15-17:00 GMT). Our e-library is always open for members here: eLibrary , for full-text access to over 200 e-books and millions of articles. Thank you for your patience.
- Energy and carbon management solutions are typically classified according to three capital cost categories: zero, low cost or high/capital cost.
- There are several common investment criteria, for example Simple Payback, Internal Rate of Return or Net Present Value that should be employed to decide on the commercial merits of a chosen solution.
Some energy and carbon management solutions may be low-cost while others will require a considerable investment. An energy and carbon manager should estimate the implementation cost of every identified project. This should include both the initial capital investment (if needed) and the ongoing operational expenses.
Often projects are prioritised according to three capital cost categories: no/zero cost, low cost and high capital cost.
Zero cost indicates simple, corrective measures that usually involve effort, rather than funds, to change habits and methodologies.
Low cost suggests a degree of annual ‘revenue expenditure’ in the form of training and maintenance funded from training and maintenance budgets to improve the operation of equipment by staff.
High capital cost and future investment signposts that senior management permission, support, and funding will be required to carry out the delivery of the specifically identified solution. The high-cost projects will normally have to be planned into capital budget provisions rather than from annual revenue budgets.
Low- or no-cost opportunities, such as behavioural change measures, are expected to generate net financial gains early on. Therefore, normally, low- or no-cost opportunities are evaluated using a simple payback approach, i.e., the number of years during which savings on the energy bill are needed to payback all additional costs.
High-cost opportunities should be looked at from a life-cycle perspective where the upfront investment is set against the energy and cost savings over the life of the intervention.
Examples of energy and carbon saving expenditures (split by the cost categories)
Heat
Check that existing controls are correctly set and working properly. Check that internal and external sensors are situated correctly and not obscured or damaged.
Insulate bare pipes, valves and ancillary items. Install timers on water heaters.
Purchase more novel heating systems (e.g., Combined Heat and Power, heat pumps, condensing boilers). Add more controls to space heating system.
Ventilation and air conditioning
Maximise natural ventilation. Remove internal barriers to free air movement. Clean and check filters at recommended intervals.
Use colder night air to cool the building. Install timer controls on chilling units.
Incorporate natural cooling strategies in building design. Invest in alternative cooling plants such as absorption chilling and ground water cooling.
Lighting
Make the most of available switching. Ensure areas are not over lit and remove fittings if appropriate.
Install time controls and occupancy controls. Choose lamps with a longer life, as this will reduce maintenance (replacement) costs.
Install induction lighting in inaccessible places. Use daylight-linked lighting controls where natural light is present.
Building fabric
Check for effective window and door closing.
Draught proofing Use daylight blinds to restrict direct sunlight.
Cavity wall insulation Installation of double/triple glazing.
Heat
Check that existing controls are correctly set and working properly. Check that internal and external sensors are situated correctly and not obscured or damaged.
Insulate bare pipes, valves and ancillary items. Install timers on water heaters.
Purchase more novel heating systems (e.g., Combined Heat and Power, heat pumps, condensing boilers). Add more controls to space heating system.
Ventilation and air conditioning
Maximise natural ventilation. Remove internal barriers to free air movement. Clean and check filters at recommended intervals.
Use colder night air to cool the building. Install timer controls on chilling units.
Incorporate natural cooling strategies in building design. Invest in alternative cooling plants such as absorption chilling and ground water cooling.
Lighting
Make the most of available switching. Ensure areas are not over lit and remove fittings if appropriate.
Install time controls and occupancy controls. Choose lamps with a longer life, as this will reduce maintenance (replacement) costs.
Install induction lighting in inaccessible places. Use daylight-linked lighting controls where natural light is present.
Building fabric
Check for effective window and door closing.
Draught proofing Use daylight blinds to restrict direct sunlight.
Cavity wall insulation Installation of double/triple glazing.
Finding the right solution
There is no one size fits all solution and what is a low-cost item to one organisation may be a high-cost item to another.
However, the key is to calculate the average actual running and operational costs of any existing equipment. Checks can then be made to decide if this equipment works as expected and as designed. If not, then maintenance may be the first solution. If the results of the calculations indicate that there is room for improvement, then the next approach is to consider refurbishments or replacement. Both options have a cost, so this must be balanced against the likely saving that could be made with the alternative.
As long as the financial and technical resources of an organisation are sufficient, then an energy and carbon manager can carry out final benefits analysis based on kWh saved and any other relevant barometers and see whether this indicates that the replacement will cover its costs within an acceptable time scale for the business.
Tools employed can be as straightforward as a simple payback period, which involves savings being equal to the cost over a specified timeline. However, this approach fails to recognise the true time base value of money. Hence other calculation methodologies could be employed, such as Internal Rate of Return (IRR), Net Present Value (NPV) and others, to decide on the commercial merits.
Common investment criteria
Simple Payback is the most common criterion for evaluating a project. It is simply the cost in comparison to the cost benefit. It acts as a quick snapshot of how quickly a project or change is going to pay itself back.
Discounted cash flow is a valuation method used to estimate the attractiveness of an investment opportunity. It has the purpose of providing an estimate for the money that would be received from an investment and to adjust it for its time value. In other words, if an organisation employs their money elsewhere, would they receive a better return? If the discounted cash flow is higher than the current financial projections, then it will be seen as a good opportunity.
Net Present Value is used to establish the profitability of a project over its lifetime or over a set period. It is the difference between the present value of cash inflows and the present value of cash outflows. It uses the premise that £1 today is not worth the same as £1 tomorrow. A positive value would indicate that the value in the project will not be eroded by the drop in the value of money over time (and a negative value would indicate the opposite).
Internal Rate of Return of a project makes the net present value of all cash flows from a particular project equal to zero. It may be perceived as the rate of growth a project is expected to generate. This can then be compared with other projects of competing budgets (or similar or different nature) or compared with prevailing rates offered for either savings or investments elsewhere.
Life Cycle Costing (or whole life cycle costing) is an assessment of the total costs involved in a project over its lifetime. As such, it takes into consideration all the cost benefits available from implementing a project. In some cases, it is not just an energy benefit but also incorporates others, for example reduction in maintenance costs or reduction in other operating costs.
Cost of not acting
When evaluating opportunities, it is important to consider the cost of not acting. This involves looking at likely future energy prices, the price of carbon, the benefits of improved environmental reputation, and any other benefits that can be valued. If an opportunity or a package of opportunities is not progressed, this may result in the organisation paying more over time in energy bills and other costs or lost revenue.
Want to know more? More detailed information is available in our online training course, Level 1, Certificate in Energy Management Essentials and Energy Conscious Organisation’s resources. To learn more, visit Energy Management Training | Energy Institute and Resources | Energy Conscious Organisation, by Energy Services & Technology Association (ESTA) and Energy Institute (EI).
