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The Economics of Energy Efficiency Projects

Profit maximization undoubtedly remains a key motive behind any entrepreneurial activity. Business owners make new investments, take technological and a myriad of other risks, keep on inventing and innovating aiming to maximize their profits and sustain their market relevance. Growing concerns over environmental damages, climate change and patterns of energy consumption by industrial and business activities have provided a unique opportunity for calibrating industrial activity in a significant manner.

 

Undeniably, the cost of energy is typically one of the most significant cost factors for many businesses. As such, there is significant potential to reduce these energy costs, Particularly, given the technologies that are readily available for energy efficiency. It’s been proven that an energy efficiency upgrade can reduce your energy bills by as much as 70% and that retrofit projects can reduce operating costs by up to 19%. We refer to the energy efficiency as the use of less energy for the same level of output. For instance, insulation measures cut down the energy usage whilst maintaining the desired temperature levels.

 

Research on the proportion of energy costs relative to the total costs of businesses reveals that energy consumption is amongst one of the greatest costs, far above the cost of human capital, raw material and other factors of production. This is even more significant for small and medium size enterprises with a more desperate need for cutting the cost in order to remain competitive. Additionally, cost of all sources of energy has been rising globally with no indication of it reducing anytime soon – this may be the best time for businesses to invest into energy efficiency measures. It undoubtedly reduces the overall cost of business operations and helps to make products and services more competitive.

 

Reducing energy use also reduces the carbon footprint of a business. Carbon footprint is defined by “the amount of carbon dioxide released into the atmosphere as a result of the activities of a particular individual, organisation or community”. Reducing this footprint has several advantages. First of all, it reduces cost by reducing money spent on items like carbon credits, fuel, electricity etc. It also shows that the business is environmentally responsible, an essential element for market reputation.  

 

So how to achieve energy efficiency?  Commonly It is understood that it requires tearing and replacing old equipment, incurring large expenses in the process as well as disruption to the normal business activities. However, this is not necessarily true. In most cases, retrofitting and upgrading of existing equipment along with introduction of small but innovative measures results in achieving significant efficiency savings. Let’s take the simple example of the IOT Smart Thermostat. The average thermostat will be able to save 10-12% in heating costs and 15% in cooling. Although the initial investment is slightly higher than normal thermostats, payback can be under a year. There are several other examples which improve the energy efficiency without disrupting business operations.

 

With the advancements of technologies, implementing energy efficiency plans has never been easier. The global market for energy-efficient building technologies reached £173.15 billion in 2017 and is expected to rise to £274.58 billion by 2026. Large developments are occurring in areas like HVAC (Heating, Ventilation and Air Conditioning) and lighting.

 

In the modern era, profitability doesn’t always refer to generating money. A business’s reputation is equally or even more important than profitability. Implementing and promoting your environmentally friendly methods can attract a large number of customers who prefer to buy their products from a business that cares about the global issues and are willing to invest to make sure they don’t cause any harm. A great example is Mark and Spencer’s Plan A. Plan A is Marks & Spencer’s eco and ethical programme that tackles both today’s and tomorrow’s sustainable retail challenges.

 

In the end, this is the perfect time to equip your business with the powerful tools of energy efficiency, which will provide you rewards in both the long term and short term.

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