Budgeting for energy efficiency projects in Q4 means a year’s worth of energy savings for your company.
TL;DR
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Companies that greenlight energy-efficiency projects in Q4 will avoid another year of missed savings.
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CFOs are playing a greater role in procurement, sustainability, and operations management.
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Innovative on-bill repayment solutions turn projects into reality by helping companies avoid budgeting obstacles.
With fall approaching, companies are looking ahead to Q4 and their budgets for 2023. Businesses are dealing with global instability, record inflation, talent shortages, rising interest rates, and mounting energy costs.
Companies capturing energy savings will be in a better position to navigate these challenges, and overcome a looming recession.
At the same time, we’re witnessing a once-in-a-lifetime surge on capital spending for physical assets. Between 2022 and 2027, $130 trillion will be allocated by governments and private investors towards decarbonization and infrastructure renewal.
Businesses that don’t budget for energy efficiency now will face higher costs from waiting. This is because most energy efficiency projects pay for themselves in the short to medium term, but businesses are hesitant to part with capital.
Hesitating causes companies to lose out on missed savings while dealing with higher energy bills at the same time. Proactive energy efficiency budgeting goes a long way to mitigating these risks and providing companies with a competitive advantage.
Energy efficiency isn’t just about managing costs
Creating competitive advantage is vital to a winning business strategy, especially in difficult economic times. According to Michael E. Porter, Professor of Business Administration at Harvard Business School, companies create advantage either by keeping costs low or differentiating themselves—and energy efficiency projects empower businesses to do both.
Sustainability is a growing operational priority for many businesses, with 93 percent of CEOs from the largest businesses in the world saying the issue is important for future success. Investing in energy-efficiency solutions also helps attract and retain talent, investors, and eco-conscious customers.
That said, companies remain reluctant to part with capital, in part due to a lack of knowledge about innovative funding options.
While energy is a major business expense, many companies still don’t monitor or manage it carefully.
“Renewables and other clean technologies are some of the fastest growing parts of the economy […] and yet CFOs generally have little knowledge of the dominant funding mechanism[s],” explains Jigar Shah, Director of the Department of Energy’s Loan Programs Office.
Specifically, Harvard Business Review notes that, “the majority of [companies] approach energy as merely a cost to be managed. This is a strategic mistake that overlooks enormous opportunities to reduce risk, improve resilience, and create new value.”
Ultimately, enshrining sustainability as a core value drives a shift in business culture and budgeting priorities.
Dedicated spending and engaged finance teams are key
Companies are cutting back on office space and other on-site resources, but many industries cannot leverage remote work as much. For these businesses, finding on-site energy savings is vital, especially given ongoing economic instability and record energy prices.
As such, companies need to prioritize energy efficiency projects in their capital allocation process.
For instance, GM and Johnson & Johnson allocated $20 million and $40 million respectively for energy efficiency upgrades in 2017. Most companies do not have such ample capital reserves, but even small efficiency projects can make a big difference.
Similarly, 3M set aside $1 million per year for small energy-efficiency projects (under $50,000) that didn’t qualify for other funding allocations. Over two years, the company funded 69 projects, resulting in annual savings of $580,000.
Alongside savings, many CFOs are approving the budgets for comprehensive environmental, social, and corporate governance (ESG) programs. ESG initiatives help companies attract investment and reduce risk. More CFOs are seeing a role for themselves in ESG beyond reporting, especially as investors place more weight on ESG performance.
“There is a 20 to 30 percentage point higher alignment with strategic goals when CFOs are actively engaged in ESG topics,” explains Ankur Agrawal, partner at McKinsey.
CFOs acting as energy efficiency champions face a race to get projects budgeted and approved in time. Failure to get budget approval due to limited capital reserves means another year of lost savings and higher costs.
Additionally, a survey by McKinsey found that among roles directly reporting to CFOs, procurement saw the largest increase (16 percent) between 2018-2021. This is highlighted in post-Covid budgets that are focusing more on operations management.
Consequently, McKinsey sees capital and resource allocation as important topics for CFOs through 2023.
This growing input on sustainability, procurement, and operations from CFOs further underscores the need for a coordinated approach.
For example, Kohl’s built an Energy Team to target ‘low-hanging fruit’ energy efficiency projects, with targeted payback periods across the company’s value chain. The company also added members of its finance department to the team. This helped the team communicate the financial benefits of projects and speed up approvals.
As a result of these efforts, the company saved $50 million over four years.
Effective communication and fast approvals are key, because projects need funding now, but savings only emerge in future budgets.
“The resulting budget challenge can result in difficulty for businesses to make smart investments in energy conservation measures,” explains Al Gaspari, Principal Program Manager for energy efficiency finance at Pacific Gas & Electric.
CFOs acting as energy efficiency champions face a race to get projects budgeted and approved in time. Failure to get budget approval due to limited capital reserves means another year of lost savings and higher costs.
EnPowered facilitates energy efficiency projects without impacting budgets
For companies budgeting in Q4, energy efficiency projects are an effective way to capture extra savings. That said, funding obstacles continue to derail too many projects.
Faced with stalled projects and another year of lost savings, companies need access to flexible, scalable funding solutions. Being able to side-step capital concerns goes a long way to realizing corporate sustainability and ESG goals.
EnPowered Payments helps finance teams realize energy-efficiency projects through their electricity bill. Projects are paid for using a portion of their energy savings (which act as the project’s budget), with no upfront costs and minimal risk, while remaining cash flow positive.
Ready to learn more? Reach out today to see how EnPowered helps companies ensure more energy savings in their Q4 budgets.
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