Blog: Energy Efficiency - moving from savings to value and impact
Conventionally energy efficiency projects have been evaluated in terms of payback or IRR, using capex and projected savings – basically spend £x and save £y on energy. Although strictly financial criteria are important, and should be a determinant of capital allocation for organisations and governments, the simplistic way of arriving at those financial assessments is no longer valid. The paradigm has to change from simply assessing energy saving to assessing value – and that means all value streams and all types of impact. Doing so will unlock the massive potential for improving efficiency and the attendant multiple co-benefits.
As an example, an LED lighting project can bring significant energy savings. But it can also bring additional value streams in addition to energy savings such as reduced maintenance costs and demand response capabilities that can generate income, it can also bring non-energy benefits such as better flexibility of lighting that contributes to employee satisfaction and comfort, higher productivity, reduced absenteeism, better learning outcomes in schools and better health outcomes in hospitals. All these value streams need to be identified and valued in project assessment.
Another example we are involved in is the use of distributed solar and efficiency combined in new ‘Convergence’ business models in India. These projects reduce energy costs, reduce emissions, increase health and safety, reduce the need for women to gather fuel, improve indoor air quality and can contribute to increased agricultural outputs. Identifying, valuing and measuring all these impacts is important. In development terms energy access is critical, but energy is not the be all and end all – it is all about development, improving the life of people.
The way to do this is to consider them at the design and evaluation stage using an approach similar to the impact management project’s impact measurement system. Valuing some of the impacts may be difficult, but if they are identified and some methodology used to estimate them, then in project evaluation a debate can be had about the accuracy of the estimate. Importantly, as in the impact management project’s approach sets out, it is important at the design stage to consider and build in post-investment impact measurement.
Considering value and impact in energy efficiency investments has several effects:
It can help to improve financial returns and hence the probability of investment by identifying value streams that would have occurred anyway but traditionally would not have been counted in the evaluation.
It can make the proposed investment more strategic, again increasing the probability of investment.
It means investments can become impact investments, something that makes them interesting to impact investors.
As companies and others increasingly track their ‘green’ investment, as required by the EU Taxonomy and other planned regulations, it can put efficiency firmly in the green, impact category.
Let’s design, evaluate and measure energy efficiency projects from a total value and impact perspective rather than just an energy saving perspective. Doing so will increase investment flows and hence the uptake of the economic potential, and help achieve our climate and other environmental goals.
EnergyPro can assist with the design, evaluation and measurement of all value streams and impacts when designing and assessing projects.