SEMA eNews Vol. 10, No. 21, May 24, 2007

HOW YOUR COMPETITION DEALS WITH RISING ENERGY COSTS

SEMA members cited rising operating costs as the number-one obstacle facing their businesses, according to a SEMA research. Part of these operating costs include money spent on energy, and a recent study showed that businesses in general are faced with similar challenges imposed by rising energy costs. Results from a survey of North American business leaders indicate they expect energy prices to continue to rise, and plan to invest in energy efficiency measures to help fight rising costs, according to a recent Johnson Controls press release.

The Johnson Controls Energy Efficiency Indicator research commissioned by the company identified individuals from a wide range of facilities and locations who were decision-makers for energy-management issues within organizations. They asked how these managers were responding to rising energy costs, defined as electricity and natural-gas costs. Members from the International Facility Management Association were included as survey respondents. 

Just over half (52%) of the executives surveyed say that costs savings are either entirely or somewhat the driver for their decision to invest in energy-efficiency measures. Thirty-five percent say cost savings and environmental responsibility are equal motivators, while only 13% cite environmental concern as the greater motivator.

The executives appear to have reached a consensus that energy costs will continue to rise in the near future. Seventy-nine percent say they believe that electricity and natural-gas prices will increase significantly during the next 12 months, with an average price hike of 13.25% expected.

Consistent with the rising energy cost forecast, 62% say their companies are paying more attention to energy efficiency today than five years ago. As a result, they are acting on it. Almost 57% expect to make energy-efficiency improvements using their capital budgets in the next 12 months, spending an average of 8% of those budgets. In addition, 64% anticipate using their operating budgets, allocating 6% to energy-efficiency improvements.

Despite the pain of rising energy costs, executives are generally limiting their investments to more conservative energy-management solutions. Of respondents who have already made energy-efficiency investments:

• 70% educated staff and other facility users on how to be more efficient
• 67% switched to energy efficient lighting
• 60% adjusted HVAC controls
• 46% installed lighting sensors

Commercial buildings consume about 40% of natural gas and 60% of the electricity generated in the United States. So it’s not surprising that three-quarters of executives with companies that are building or planning to build new facilities, or are launching retrofits in the next year, say that energy efficiency will be a priority in the design of those projects.

When it comes to energy-supply-related matters, 36% have negotiated energy contracts with suppliers. Only 14% are putting energy-price hedging strategies in place. In addition, 11% currently have a stated carbon-reduction goal.

“This survey provides a valuable snapshot of how organizations are reacting to rising energy prices, and I think we’re going to see even more attention paid to this in the future,” said C. David Myers, president of the Johnson Controls Building Efficiency business. “There’s a growing realization of the role commercial and industrial facilities play in energy consumption, and the role they can play in making the economy more energy efficient.”

Whatever the motivation for making energy-efficiency investments, companies have by and large not relaxed their payback requirements for such measures (i.e. time for return on investment). About two thirds of companies (64%) have a maximum payback period of between two and five years. Overall, only 18% of those surveyed say their companies would allow a longer payback period today than five years ago. About 45% say the required payback period has not changed compared with five years ago.

Executives responsible for larger facilities (500,000 square feet or more) are an exception, according to Johnson Controls. They spend a bigger part of their budgets on energy, are planning to invest more of their budgets on energy-efficiency measures and will tolerate a longer payback period. A summary of the survey findings are presented below.

Source: Johnson Controls (May 17, 2007). “New Research Shows Businesses Investing in Energy Efficiency Measures to Combat Rising Energy Costs.” Johnson Controls press release courtesy of PR Newswire.

 

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