Getting ahead of the curve on energy investment

Building a better case for ROI on energy efficiency would help accelerate take-up of renewable technologies, but lack of data is a stumbling block. A new digital platform built on peer-to-peer sharing could overcome this, as Maxine Perella finds out.

Turning carbon reduction into competitive advantage is one of the smartest strategies out there, but there remains a pressing need for businesses to demonstrate the benefits of the corporate energy strategies they invest in. Energy efficiency is an area that is often talked about, but rarely proven. It remains a non-core business issue – companies aren’t particularly skilled in this area and see significant innovation risk attached to emerging and fast-moving technologies.

Dr Steve Fawkes is an expert in energy efficiency and finance. He feels businesses are being hampered by a lack of capacity and knowledge when it comes to making investment decisions around energy efficiency. “As organisations have downsized, a lot of in-house energy and engineering capability in these areas has been lost,” he says. “People are being given responsibility for energy without prior experience in some cases.”

He adds that the strategic nature of energy investments, particularly energy efficiency, is not generally recognised which means energy investments are lower down the priority list than they should be. “Given the realities of the energy situation, particularly around energy security, the ability of energy efficiency investments to deliver competitive advantage through cost reduction, risk reduction and value creation … needs to be higher up the agenda.”

Over the past year, Dr Fawkes has been working with sustainability thinktank The Crowd to develop a digital platform, The Curve, to address this issue. The Curve is an interactive database that allows corporates and public sector bodies to collaboratively share their carbon and energy investment data, enabling them to make smarter decisions on best available technologies and vendors.

Return on investment

Analysis resulting from the data (which is fed in anonymously) maps trends across 12 different types of technology areas. These trends include energy spend, payback threshold, star rating and supplier recommendation, plus added benefits such as brand enhancement and employee engagement. Companies can search the database to find investments similar to the ones they are considering to assess what the average returns are, and what the best rated technologies are. They can also contact their peers to find out more about their experiences.

The platform was piloted last year – 65 companies took part and each shared up to five energy investments, resulting in a total of 220 investments worth £400m. The pilot companies have an aggregate energy spend of more than £1bn per annum, which represents around 7% of the UK industrial and commercial energy spend.

One of the key findings to emerge from the pilot was that the average payback period across all 12 energy technology areas was 3.2 years. This is equivalent to more than a 25% return on investment (ROI) per annum, which is impressive. Drilling down further, the average payback for the renewables category (which includes combined heat and power) is almost twice as long – 6 years. Compared to other categories such as lighting, power, refrigeration and software, it’s a significant lag.

This has surprised some of the companies involved in the pilot. Ben Orchard, environmental sustainability manager for Adnams, says the aggregated investment payback data on renewables came out “less than anticipated” but that all others were reassuring against previous assumptions and calculations. Adnams shared two investment profiles representing around £10 million – one on heating, ventilation and air conditioning, and one on a non-defined category relating to an energy efficient brew house with steam reclamation and complete build of an eco-friendly distribution centre.

Sanity check

Orchard says the pilot data could potentially help inform Adnams’ own energy strategy in terms of CAPEX and ROI, but adds that with this type of measurement and validation, “direct comparisons are often hard”. He sees the real value in collaborative knowledge transfer. “[We] can compare to other manufacturing companies, but beyond this, we have not seen it as a tool to benchmark ourselves against our peers. Instead, it’s used to learn from them. It’s helpful for proof of technology success and uptake across many other companies including those in our sector.”

This view is echoed by Caroline Holman, operational carbon strategy manager at Jaguar Land Rover (JLR), who says there is a perceived lack of a single source, targeted database for energy reduction investment. “While there are many sources of information and data, including government and industry websites and technology forums, there is never anything more powerful and convincing than applications and experiences in the real world,” she maintains.

JLR shared several investment profiles across four key technologies into the pilot – PV solar, LED lighting, variable speed drives and boiler house optimisation. Holman says the data has been useful in early stage validation of investment proposals and as a sanity check for base assumptions. Going forward, she believes this type of peer-to-peer sharing on corporate energy data will bring wider advantages to the sustainability agenda such as faster adoption of low carbon technologies and upskilling.

“There is real value in the opportunity to compare and benchmark a range of technologies and initiatives across a broad spectrum of applications and industries,” Holman observes. “Benchmarks need to go beyond just our industry.”

Looking ahead

The next stage of The Curve is now under development – a new database is being built that will enable companies to share their energy investment data going back three years; for a large retailer that level of investment runs into hundreds of millions of pounds. The aim is to feed in around $1 billion worth of investment data over the next few months, and build up from there.

Looking ahead, Dr Fawkes would like to see functionality built into the platform to record actual project performance. “For many years the energy efficiency industry has sold payback period, but there is a dearth of data to actually demonstrate what happens in reality. Even those companies investing the most in energy efficiency rarely measure the results of individual investments which is surprising – especially when they are replicating those investments across a portfolio.”

Asked what learnings have come out of The Curve so far, Dr Fawkes says he was surprised by the extent to which big corporates do not impose post-investment monitoring. “The basics of energy management include monitoring and targeting (M&T). A good M&T system can provide post-investment measurement. This reinforces my view that a lot of basic energy management capability has been lost. If these organisations have M&T, they are not using it effectively.”

Maxine Perella is a freelance journalist. 

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