By and large, energy efficiency is easy. It doesn’t take an advanced degree to see the financial and environmental benefits that come from replacing an incandescent bulb with a fluorescent one or replacing a gas guzzler with a hybrid. So the question becomes, “Why haven’t all individuals and businesses already implemented such simple projects?”
While it’s possible that complacency plays some role in this lack of progress, there are other more dominant forces that impede progress in this area. One of the biggest has to do with the cost of energy and its relevant carbon impact.
As a global company, Diversey has experienced firsthand the wide variation in electricity prices and associated carbon emissions at each of our sites. Where one manufacturing plant pays $0.06/kWh for purchased electricity, another pays $0.47/kWh; where one office location has an emission rate of 1.01 kg/kWh for purchased electricity, another has a rate of 0.09kg/kWh. The only common denominator here is that where electricity tends to be “cleaner” (e.g. lower carbon emissions) it also tends to be more expensive.
Even though these may seem like technicalities to some, the reality is that they often create a nearly impossible hurdle for energy efficiency projects to overcome. Consider that a simple lighting retrofit, which reduces 100,000kWh of electricity at a site paying $0.06/kWh, will take more than 7 times longer to pay for itself than the exact same project done at a site paying $0.47/kWh. And since emission rates tend to run inversely to energy costs, the capital cost for each metric ton of carbon reduction could be upwards of 10 times more expensive at the site with the most attractive simple payback. This effectively creates a conflict between the relative speed of payback of invested capital and the efficacy of those invested dollars in reducing carbon emissions.
In order to overcome these market conditions and to enhance the performance of our overall investments, Diversey began to take a more balanced approach to energy investments several years ago. We manage these investments in much the same way one would manage his/her personal retirement plan. Instead of evaluating each efficiency project solely as a discrete investment, we’ve found significant opportunity by looking at them as part of a long term strategy that balances the speed of financial return (simple payback), the volume of financial return (NPV) and the cost of the carbon investment ($/MT carbon). This approach reduces uncertainty and risk through diversification and most importantly allows for a predictable and reliable rate of return.
It’s here that the expertise of EDF’s Climate Corps program really begins to shine. In 2010 Diversey brought on an EDF Climate Corps fellow, Adam Ostaszewski, to better translate these working methodologies into a series of simplified tools that could be used both internally and externally. By applying equal parts of financial rigor and a fresh, entrepreneurial perspective, Adam was able to craft tools that did just that. These tools simplify and standardize our approach and allow business users to focus more of their time on the development of quality projects rather than on the financial analysis of those projects in terms of all other investments.
Through methodologies and tools like these, we have been able to make significant improvements to the financial and carbon performance of our global operations. Such improvements include increasing our absolute carbon reduction commitment from 8% to 25%, maintaining the $32MM in total cash savings while reducing the required capital investment from $19MM to $14MM.
We look forward to harnessing the finely tuned skills and extensive resources of our new Climate Corps fellow in 2011 with confidence that he or she will play an integral part of our holistic approach to energy investments going forward.