How to budget for energy efficiency

Small businesses in the U.S. spend more than $60 billion annually on energy.¹ Opportunities exist for commercial businesses to reduce their carbon footprint and grow savings. However, not enough companies actually invest in energy efficiency initiatives.²

Investing in energy efficiency initiatives can reduce operational expenses, lower utility costs and ultimately achieve savings for small and medium-sized businesses. Establishing an energy efficiency budget can be a challenge for many businesses. Different energy efficiency budgeting and financing techniques can be used to overcome project barriers and make energy efficiency improvements viable for businesses of all sizes.

Energy efficiency budgeting processes

Establishing and understanding the drivers and amounts of energy your businesses use are first steps in identifying energy efficiency opportunities. Businesses must know what aspects or areas of their facility are consuming the most energy to identify energy savings opportunities. PG&E's My Energy tool can help businesses understand their current usage – or establish an energy use baseline – to better prepare them for more in-depth identification of savings opportunities when working with a contractor or technician.

Variables that can affect energy usage, such as changes in operations or weather, must also be accounted for in the baseline number. These changes can cause energy usage to fluctuate and create a higher or lower utility bill. An adequate time frame should be considered in the energy baselining process to account for seasonality and determine the scope of potential energy savings.

Savings calculations help establish budget parameters for energy efficiency improvements in a business. Businesses can look at the percentage of their utility bill that is projected to be saved to assess projected savings calculations. Savings calculations depend on a business's planned energy efficiency measures. Energy efficiency improvements range across business upgrades, retrofits, repairs and replacements.

Strategic changes for energy efficiency

Comprehensive energy efficiency projects and budgets can provide substantial savings that are practical for small and medium-sized businesses to achieve.

Most energy savings projects typically range between 10% and 30% of annual energy spending, depending on the measures installed. However, some energy efficiency projects, such as lighting, can provide faster return on investment (ROI) than others.

Businesses can offset the costs of such projects as heating, ventilation and air conditioning (HVAC) that provide longer paybacks through available financing. Tax credits, grants, loans and leasing are some of the financial resources available to aid businesses in their energy efficiency initiatives. The following are four other considerations for the energy efficiency budgeting and planning process:

• Planning for expense escalation: Businesses should incorporate some utility escalations and an inflation factor, which are likely to happen over time, into payback calculations; however, be wary of contractors who overestimate energy escalation in an attempt to make projects look better than they actually are.
• Presenting the case for energy efficiency: Project advocates must be able to articulate how high energy consumption impacts the business cash flow due to inefficient building systems. A financial leader on your team can be tasked to work with a contractor to determine what savings an investment can generate.
• Understanding forecasted equipment savings: Businesses can determine which areas of their building need upgrades and work with a contractor to invest in equipment that matches the initial energy efficiency goals and aligns with their available energy budget. A contractor can help accurately determine your business's energy baseline and associated savings calculation.
• Other benefits: Studies show that the advantages of energy efficiency upgrades extend far beyond cost savings. Energy efficiency projects can affect other dimensions that directly impact the company's bottom line, such as employee comfort, worker productivity and the customer experience.

Financing energy efficiency

PG&E offers 0% interest loans ranging from $5,000 to $4,000,000 with a five-year repayment period. Businesses must determine factors that include project size, payback period terms and eligible products, and they must meet credit check requirements to ensure that they will qualify to participate in this program.

To learn more about financing for commercial energy efficiency projects, download the "Insider's Guide to Financing Energy Efficiency Projects" from PG&E. This guide contains actionable information and proven resources to help you plan, finance and successfully complete energy efficiency upgrades, retrofits, repairs and replacements.

Referenced in article:

1.     ENERGY STAR

2.     American Council for an Energy-Efficient Economy