Cost benefits of energy management

ALL TOO OFTEN, energy management programmes are devoid of what finance professionals are looking for: a positive impact on the balance sheet. Worse still, energy management has been bound up in sustainability programmes, which is usually advocated by CSR and CSO professionals whose vision tends to be more focused by environmental concerns than monetary business goals.

Finance professionals understand capital; their priorities are activities and strategies that stimulate business growth or manage bottom-line performance. The general view of energy management is that it is costly, difficult to implement and an issue of forced compliance. However, carbon and energy management programmes are now as vital to the health of the corporate balance sheet as debtor days and foreign exchange fluctuations. Why? Because there can be a dramatic cost saving for your organisation and a revenue stream to add to your bottom line.

But where do you start when you speak a different language to your CSR colleagues? Firstly, it’s critical to understand the difference between corporate social responsibility (CSR) and performance-managing energy reduction. If you allow energy reduction to be attacked as a badge of social responsibility, you are likely to limit the benefits by choosing projects that have visible PR. This is the wrong way to go about it.

Corporate responsibility needs separating from social responsibility. Both are important, but the former is concerned with the efficient running of the business, while the latter is regenerative at best.

In my experience, organisations that have implemented energy management programmes are realising dramatic cost savings, between 20% and 40%. For example, we reduced our annual energy bill by £30m at Royal Mail. If you can do the same, these programmes can pay back within your investment timeframe and meet your internal rate of return.

An as you are very much aware, we are not operating from a business as usual standpoint anymore. You understand the irreversible trend of increasing energy prices and tax rises driven by the government’s response to climate change. A comprehensive energy programme can protect your organisation from these rising operating costs.

There is huge potential for energy management programmes from a finance perspective, but why should finance lead the energy charge? To answer this question, you need to take a step back and look at the bigger corporate picture.

Whether it’s keeping transport fleets on the roads, sustaining a large building estate or powering the IT systems in your datacentre, does your organisation measure its energy usage and flows in appropriate disaggregated detail? Does your organisation know how efficient it is?

In the majority of cases, organisations have failed to fully examine their energy usage and find it difficult to project efficiencies or cost savings. This is where your organisation needs to gather good qualitative and quantitative data across its energy use. Many organisations don’t do this and, if they are honest, are not sure where to look for the data in the first place.

There are strong arguments for finance to be the department to do this. After all, what group is better equipped to collate and evaluate this type of complex data? Most organisations fail to run long-term and successful energy management programmes because they enter them blindly and motivated by the wrong drivers.

If you don’t have the data, you don’t know how efficient you are. So how can you accurately quantify any savings and choose between rapid payback and positive NPV projects from PR eco-bling projects that are often a waste of resources.

With accurate data management and appropriate high-level analysis and modelling, the cost benefit of various relevant carbon reduction strategies can be compared and quantified. However, this is not a job for somebody who cannot find their way around numbers. You will need to look deeply into complex areas, both physical such as buildings as well as upstream and downstream along your supply chain. If you can’t do the sums, you’ll never realise the potential.

During my time at Royal Mail, our focus was to build a compelling business case for our long-term energy management programme. My team had to look across the whole business, into areas where they had no previous expertise or others had already assumed things were running at maximum efficiency. You won’t be surprised to hear that, while the board was concerned about CSR, it was the £30m saving figure that got their attention.

But we had to gather and evaluate the data and competing technology options, and then compare and build business or investment case. We built credibility through being considered, but also by being single-minded about what would save the business money.

Ultimately, reducing your energy bills, creating smarter buildings, reducing transport costs, and bringing carbon efficiency to your supply chain will be a programme that brings together expertise from all parts of your business. It will engage a broad tapestry of disciplines, from the number-crunching skills of finance to the people and education skills of HR.

However, if your organisation can achieve triple-digit rates of return from energy management, you have to manage your programme with a determination never to accept anything other than bottom-line savings. On balance, who better than finance to become the new carbon management leaders of the future? After all, what have you got to lose?

Martin Blake is chairman of Carbon Zero Solutions and the former head of sustainability at the Royal Mail Group