Rising energy costs are a critical concern for executives across all sectors and implementing energy efficiency initiatives is now one of the core corporate strategies across industries today. For CFOs and other executives, the quest to streamline operations and cut costs has never been more urgent with Global energy prices having soared 260% since 2000, and world energy consumption projected to rise by 30% by 2020.
In a survey of senior finance executives conducted by CFO India and Schneider Electric, most executives viewed themselves as “strategic change agents” for energy efficiency initiatives in their organizations. The study found that maximum number of CFOs polled wished to be a pivotal part of energy optimization efforts in the future and aimed for these initiatives to be omnipresent in all business units of their respective organizations.
An investment with large payback
A big issue today is the surging cost of energy, which now makes up 30% of operating costs for the average company. However, over 80% organizations polled in the survey spend less than 5% on energy solutions. About 20% of the CFOs claimed they were not sure about the energy management practices followed in their organization. Effective energy management programmes can help companies realize the benefits of energy efficiency with minimal risk and a large potential payback. A proven process, combined with a holistic view of facilities and ongoing proactive measures, gives companies the ability to invest in energy efficiency with a predictable Rate of return.
Barriers in meeting energy efficiency goals
The survey noted that some of the biggest challenges for companies in meeting energy efficiency goals are insufficient funding, inability to split responsibility across divisions, lack of dedicated personnel and inability to link energy management practices with RoI. Among these, CFOs identified funding as the least of the challenges while RoI and split responsibilities across divisions emerged as the major barriers.
Determining the RoI for Energy Efficiency Initiatives
According to the survey, 39% of the respondents were not sure about the RoI for their existing energy efficiency and sustainability Investments. This is reflective of the fact that many organizations are unable to see how energy efficiency measures add value to the bottom line and are an investment, not a cost. However, that trend is on a decline as an increasing number of executives are focused on making their existing facilities more energy efficient.
Major Drivers Impacting Energy Management Decisions
The top drivers identified by a majority of executives that emerge as reasons for investing in energy efficiency in their organization included energy cost savings and incentives by the government. Effective energy management programmes help companies begin immediate and long-term plans that reduce energy costs and give them better control of their facilities. Energy experts such as Schneider Electric identify specific issues, estimate the investments required, and project the ROI that can be expected from the project.
Energy trends and role of the CFOs
About 45% of the executives polled expected a rise in their energy spends in the next three years. The energy spends are dependent primarily on three factors: • Inflation / increase in energy rates • Production volume and • Investment in better infrastructure. Many respondents claimed that the increase in energy spends owing to production volume and inflation would be offset by smart investments in energy infrastructure. Therefore, even the increase in spends would not be very high.
In a positive sign, most CFOs polled viewed themselves as strategic change agents for their company and aimed at utilizing sustainable energy management as a long-term strategic goal. Most CFOs saw themselves being strategically involved in energy efficiency solutions going forward. And, even if their involvement in such investments is low currently, it is expected to increase significantly in the future.