Five barriers to energy efficiency savings – and how smart companies can overcome them

Here’s a business conundrum for you: energy efficiency saves serious money, cuts carbon pollution, requires low tech solutions, and is a known quotient, having been around since the 1970s. So why are so many companies still not taking the necessary steps to identify and eliminate these inefficiencies?

“What we learned in Econ 101 doesn’t hold true when it comes to energy efficiency – the notion of perfect markets, where information flows freely and people are maximizing their value,” notes Environmental Defense Fund’s Gwen Ruta. “Instead, it’s as if companies across the globe are walking around with a hole in their pocket with coins dribbling out nonstop.”

How is it that smart companies who are vigilant about monitoring the bottom line, stock price, customer satisfaction and much more let this wasteful “dribbling” occur?  This question launched a robust discussion at a Fortune Brainstorm Green session last week titled “A Trillion Dollar Opportunity: The Hunt for Energy Efficiency.” Gwen Ruta was joined on the panel by Gretchen Hancock, Project Manager for Corporate Environmental Programs at GE; Bill Weihl, Google’s Green Energy Czar and Beth Trask, Deputy Director of EDF’s Innovation Exchange.  GE and Google have made huge strides around energy efficiencies in past years, with still more work to do on the horizon and still some barriers of their own to break down.

So what are the main barriers to energy efficiency and how can companies try to overcome them?

Barrier #1: Information overload and lack of focus. There’s a ton of information out there about energy efficiency – and what companies should do to reap the savings – but it’s diffuse and challenging to wade through. Companies need help focusing in on the right tools and content and prioritizing where and how to begin. GE conducts through regular energy “treasure hunts” inside a given company where selected employees come together for a jam-packed three-day working session to identify energy efficiency savings at a chosen manufacturing site. The results are impressive – each treasure hunt typically identifies opportunities to reduce energy spent by 20% – and proves that when people have the information, data and focused time to spend on this challenge, huge savings can be found.

Barrier #2: Structural limitations. This is a big one. Companies of all sizes suffer from a siloed approach to business, where business units and operational departments are managed by separate budgets, performance timelines, product cycles and more. Finding energy efficiency savings requires employees throughout the company to share information and make trade offs in order to achieve strong results. For example, there may be an increase in cost to the R&D budget around energy efficiency efforts, but balanced by a result in savings that will show up in the facilities management budget. Most likely, these two divisions communicate rarely and have little in common – including different bosses who may not communicate well among themselves, either. Why would one take on a cost for the other to reap the savings?  Google takes a “total cost approach” that is geared to precisely avoid this problem. And GE’s treasure hunts bring cross-functional teams together over the three-day activity which by definition helps break down silos. According to Gretchen Hancock, the more people from different departments are involved, the better the results of these treasure hunts are.

Barrier #3: The solutions are small and diffuse, not few and mighty. There is no single “gee whiz” step that companies can take to ensure they are reaping all the benefits of energy efficiency for their organizations.  It takes time for companies to unearth where and how they can save both cash and carbon through energy efficiency. Some employees may be attracted by bigger, more appealing sustainability projects or cost savings efforts that are being considered or launched by their company. To avoid this problem, the hunt for energy efficiency savings should be institutionalized throughout companies as a continuous process, not one-off events.  Energy efficiency savings should be one of the metrics that business units are evaluated on, and therefore, regularly measured and reported on.

Barrier #4: Cultural resistance within companies. As Gretchen Hancock noted, some companies hear the phrase energy efficiency and think, “Didn’t we tackle this problem in the 1970s?” In companies where innovation and excellence is the expectation and the norm, executives may believe that the “low hanging fruit” of energy efficiency is either too low-tech to consider or has been dealt with decades ago. But the fact is that energy efficiencies exist where even super bright executives might not expect to find them. Aging equipment can cause inefficiencies, new technology enables new savings and employees need to be trained and retrained on efficiency issues and practices.

Barrier #5:  Those super-short ROI expectations. We all know how Wall Street expects speedy ROI for corporations across the board. As a result, public companies have a strong disincentive to invest in processes, products or technologies where recouping the costs may take anywhere from 1 to 5 years. This short-term thinking leads to short-term strategies, and serious money being left on the table

There are other ways companies can encourage energy efficiency savings. One way is to engage the supply chain and provide incentives to find the energy cuts in various ways. Another potentially powerful strategy is to use social influence and competition to ensure results – having different office locations “race” to find the biggest savings, engage local schools to help with the hunt for energy efficiency in their communities, among other things. Once we see how quickly those coins can add up, we’re all likely to join in the race.

What other powerful ideas can companies consider as they embark on the hunt for energy efficiency?

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  • Full disclosure: I am an executive at the attached company.

    I agree with your observations that so little action has been taken by businesses to pursue energy efficiency in the work place. The reasons you mention are good but I’ll also add that the cost of electricity is so low in this country that it is hard for energy savings really to bubble up to become a significant priority.

    Still, we are seeing strong uptake in the office energy efficiency space with a wireless mesh network of smart meters and smart power sockets that are controlled over the Web. It pays for itself in 1-2 years and is trivially simple to install/maintain. Our clients reduce energy consumption up to 30% by identifying/addressing their major sources of energy waste, shutting off power automatically to devices that aren’t in use (In an office, they’re not in use most of the time!), and capitalizing on human behavior by measuring the power consumption of individual employees and reporting it to them in real time relative to their peers.

    You’ve hit the nail on the head; ensuring the spread of energy efficiency best practices isn’t about super-futuristic technologies or major sacrifices in way of life/business. It’s really just about making smarter technologies and behaviors ridiculously easy to adopt.

  • fmonachello | 10 years ago

    Companies like GE and Google have been citing these barriers to making Energy Efficiency investments for DECADES! What EDF should be asking each of their representatives is: “What specific actions should their respective stockholders or the Federal Government take to help companies, like GE and Google, BREAK THROUGH THESE BARRIERS?” All of us who care about sustainability would love to hear an answer to that question whenever these old, recycled barriers are stated by publicly traded companies so the dialogue in this country about corporate energy efficiency can be moved forward in a meaningful, responsible, and collaborative way.

  • Both inter-organizational and intra-organizational split incentives offer serious barriers to sustainable investments and sustainable behaviour.

    In any building that is not owner-occupied, there is often a disconnect between the party who pays for energy efficiency measures (or adopts energy efficient practices)and the party who reaps the financial benefits. Submetering and green leases are helping to address that.

    In many orgainzations, the design and construction department is unwilling to spend even a relatively modest incremental amount out of its budget in order to have what could be a considerable positive effect on the budget of the facilities department. Harvard University has a revolving fund from which a facility manager can borrow money to finance a project and pay it back with money saved by the measure. The fund has been realizing a 20% ROI, which is considerably better than other investments. That could provide an attractive model for other not-for-profits and for businessed.

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