Energy management provides businesses with an essential competitive edge, and the much-maligned energy bill is the secret to unlocking this advantage. Gone are the days CEOs could ignore energy management as a PR tactic that had little meaning in the real world. This is no longer a matter of politics or being “green.” Businesses that don’t cut costs either fail or get chewed up by leaner and meaner companies that do care about how energy costs affect their bottom line.
This post will make the argument that energy management is crucial for business success and provide three specific ways your business can benefit. It will also provide some tips on how to use your energy bill to target the areas where you can improve efficiency.
Why Is Energy Management Crucial for Businesses?
According to a 2015 survey of 600 decision-makers conducted by Deloitte, 79 percent of managers view reducing energy costs as essential to creating and maintaining a competitive advantage over less efficient companies. I feel bad for the shareholders in the companies where the other 21 percent work.
The need to streamline operations and cut costs has never been more important. Ironically, a vital and huge source of financial savings is all around us in the very buildings and machinery we use to conduct business.
Energy Management as a Way to Reduce Risk
The price volatility of costs in the ever-changing energy market is a serious concern for businesses
Energy costs make up 30 percent of operating costs for the average company. The cost of energy, particularly electricity, has consistently risen in the recent past. From 2003 to 2013 the annual electricity index increased from 139.5 to 200.75: a hike of almost 44 percent. In 2014, the average price for a kilowatt hour climbed to a record 14.3 cents, representing an annual electricity index of 209.144. The bad news is that energy prices will continue to rise. According to an estimate by the Edison Electric Institute, energy costs are increasing at an average of 2.5 percent annually.
Investing in alternative sources of energy and reducing overall energy usage mitigates the effect of price volatility to your bottom line and increases your ability to budget effectively. This obviously gives energy-efficient businesses an edge over energy-guzzlers that are completely at the mercy of the whims of the energy market.
Energy Bill Tip: Look at the demand charge in your bill. This charge is based on your highest 15-minute peak each month. Businesses can reduce their demand charge by storing electrical energy generated during low demand periods or by using energy generated on site from renewable energy sources.
Financial Benefits of Energy Management
The goal of a good manager is to do more with less. To squeeze every ounce of productivity out of a company. Smart energy management helps businesses do just that.
- Take for example restaurants, which operate on extremely tight profit margins. According to a report by National Grid, the average restaurant has a pretax income of 4 to 7 percent of total revenue. However, 3 to 5 percent of its total operating costs are spent on energy. This means that even a modest reduction of just 20 percent in energy costs could increase a restaurant’s income by as much as 33 percent.
- Organizations that operate large buildings, such as office complexes, hotels, hospitals and schools can generate huge savings by investing in energy efficiency. For instance, office buildings with energy management plans in place use 35 percent less energy than average buildings.
- Retail companies spend nearly $20 billion on energy every year. A very modest reduction in energy costs of only 10 percent could increase profit margins by 1.55 percent and sales per square foot by $25, according to a report by the SBA.
- The same SBA report indicates that a 10 percent reduction in energy costs for the typical supermarket can improve net profit margins by up to 16 percent and sales per square foot by $44. This is serious money. Food Lion, for instance, which has won the Energy Star award for five years in a row, has generated $105 million in savings.
Energy Bill Tip: Check your bill for differences in “time of use” rates. In many states utility, companies can charge businesses different rates depending on the time of use. Companies can save money by shifting energy use to off-peak or partial-peak hours.
Energy Management as a Way to Improve Corporate Image
Apart from reducing operating costs, improving your business’s energy management makes you look good. Looking good is great for business.
According to a 2014 global survey by Nielsen, 55 percent of respondents said they were willing to pay extra for products and services from companies that are committed to positive social and environmental impact. This is a rising trend. The same survey in 2011 reported 45 percent, and in 2012, it was 50 percent.
Energy Bill Tip: Many utility companies charge a power factor fee to companies that run inefficient equipment. This charge is used to cover the additional infrastructure and maintenance costs required to provide the extra current. A high power factor charge may indicate it’s time to invest in more efficient equipment.
Energy management is a powerful weapon that can give you an edge on competitors. Knowing how to read your utility bill will help you find ways to save money without sacrificing production or revenue. According to the Environmental Protection Agency, 30 percent of the energy used in commercial buildings is wasted.
Companies can use energy savings to lower prices and gain market share; increase profit margins, or reinvest in additional energy efficiency upgrades.
In summary, businesses that invest in general management are more successful. Reducing energy costs does require time and effort, but the return on investment is worth it.