WHAT MANUFACTURERS SHOULD KNOW ABOUT EVALUATING ENERGY EFFICIENCY PROPOSALS AND THE PURCHASING PROCESS
Manufacturers seeking to cut energy use and costs and improve sustainability look to install more efficient energy consuming measures such as lighting. Many times they receive energy efficiency improvement proposals and claims from vendors and contractors where it is hard to know fact from fiction. To get the results desired it is important to know the specific details in the proposal so that a sound decision can be made. There are pitfalls to be avoided in this process. So, here goes our effort to provide a little advice based on EnStar’s experience with numerous facilities and contractors.
First, get enough detail to thoroughly understand the assumptions savings estimates are based upon. You will not get the results expected unless the assumptions are realistic. Then:
When considering multiple measures or projects, keep in mind that energy cost savings cannot be created twice. For example, if a rate change reduction and a lighting retrofit are both being considered, lighting savings need to be priced at the lower rate.
Don’t use total costs per kWh or MCF when evaluating projected savings. Monthly per customer and distribution charges on utility bills are unavoidable and should be eliminated. Also, how the measure impacts costs such as peak demand charges and on/off peak rates need to be considered. For example, outdoor lighting will have no effect on a peak demand which occurs during the day even though peak demand charges may make up half of a plant’s monthly bills.
Maintenance cost savings should be considered when evaluating the payback potential of efficiency measures proposed. But certain that the maintenance savings estimates are realistic relative to how your plant is operated and maintenance is performed. For example, there will be no maintenance labor savings if it is done by a salaried employee whose job will be unchanged.
It is wise to put specific deadlines in contractor agreements and penalties if they are not met. More than one project has dragged on for months because the customer had no leverage.
Contractors may ask for excessive down payments before starting a project. Don’t give it to them. Some contractors ask for 70% or more of the total job cost. Once this is paid the customer has no leverage. A down payment should not exceed the cost of equipment ordered.
Get an enforceable warranty for at least 5 years that covers everything. It should be a guarantee by the contractor, not a lighting company in China.
Be certain that the contractor applies for a rebate from the utility and the project cost is reduced by the rebate amount. Some contractors don’t want to bother with this process, especially if a sale can be made without it. Others want the customer to receive the rebate and wait for the payment as well as assume the risk that the rebate is calculated correctly. Some have been known to claim the rebate and not pass the reduction to the customer.
Don’t wait to do projects because of funding. There are loan programs available that are designed to insure the savings exceed the cost of the loan repayment, creating a positive cash flow. The “Michigan Saves” program, for example, has reduced interest payments paid down by the utilities using funds from the “Energy Waste Reduction” surcharge on everyone’s utility bill. You paid into the fund. Why not get some back? Other programs are designed to be “off balance sheet”. All are designed to move projects forward now rather than waiting.
Keep in mind that installed measures are a “sunk cost”. It doesn’t matter how recently the existing measures were installed or how well they work. If the payback is short enough, they should be replaced. If a proposed project’s savings exceed the Company’s target rate whether expressed in payback period or internal rate of return, it should move forward. In many cases, the annual budgeting process is a significant obstacle, so the project needs to be plugged into the budget cycle as quickly as possible. Time lost is energy wasted.
EnStar, MMA’s energy consultant, is availble to help on these and and other energy matters.
