Outdoor Lighting and Energy
Outdoor Lighting and Energy specializes in commercial parking lot lighting
services. Founded in 1975, Outdoor Lighting and Energy has a well-established
reputation for quality workmanship and customer satisfaction. Outdoor
Lighting and Energy specializes in high-level, hard-to-reach commercial lighting
repair, maintenance, retrofits and upgrades. They provide skilled
technicians trained in how to trouble shoot. They understand how
important parking lot lighting is. Proper lighting levels provide not
only visibility to a business, but also provide needed security for
patrons and employees. Outdoor Lighting and Energy technicians are on call 24 ⁄ 7 ⁄
365 for emergency response.
Contact: Clifford Parks
PO Box 1437
Carrboro, NC 27510
Phone: (919) 596-0030
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Energy Economics - Lighting Retrofits
As fuel costs increase and the
demand for power grows, expect your electricity bill to grow as well. To all
those who have not included energy conservation in their business plans,
this will be a wake-up call –- don’t be caught by surprise!
Did you budget enough for electricity bills this year? If not, you are
not alone. Who could have predicted double-digit increases in fuel costs
driving up utility expenses? Unfortunately, crude oil prices continue to
trend upward with no apparent end in sight.
The good news is that there is something you can do to control your
energy costs. In fact, it might surprise you to know just how valuable
energy conservation can be to your company’s bottom line.
Throughout the country, millions of dollars are wasted on inefficient
building systems –- HVAC, lighting, pumps, and motors -- that use more
electricity than needed. By replacing old equipment with high efficiency
equipment and adding new energy-saving technologies, businesses can
often gain operational and financial benefits beyond expectation.
When measured in financial terms, energy-efficiency projects, or
energy conservation measures (ECMs), can generate significant returns of
20% to 60% on capital improvement costs. A lighting retrofit project
alone might achieve a 50% internal rate of return (IRR). These are
numbers that will make any CFO sit up and take notice.
Upon implementing an energy-saving measure, the associated reduction
in utility bills represent a cash stream of “usable” or “savable” funds
that can either offset other operating costs or enhance operating
income. Think of the ECMs as “unrealized” cash streams waiting to be
tapped.
Generally speaking, energy-efficiency projects are different than
other capital improvement projects because of their cash stream
component, and should be evaluated on both operational and financial
merits, apart from typical capital improvements. A good rule is to place
energy-efficiency project on a separate list than other capital
improvements, and do them first.
Despite excellent cost saving opportunities, many energy-efficiency
projects are never accomplished because the cost of the ECM is often
greater than the company’s capital improvement budget allowance. The
conundrum, therefore, is… “How does one benefit from energy saving
measures if one cannot afford the measures?”
Interestingly, there is an ideal solution for addressing this aspect
of energy projects -– equipment leases. While companies frequently use
equipment leases in the normal course of their businesses for vehicles,
computers and photocopiers, they are often unaware that it is possible
to lease almost any fixed asset used in business operations, like HVAC
or lighting equipment.
Equipment leasing is a form of financial leveraging that eliminates
the large front-end payments in favor of smaller monthly payments over a
period of time. This allows for the “matching” of cash inflows (monthly
utility savings) and cash outflows (monthly lease rents).
For energy projects, the desired condition occurs when monthly
utility bill savings are greater than monthly lease payments. When
projects are properly leveraged using equipment leasing programs, they
become “sources of cash” that can be used to fund other expenses. Here
is an example:
Assume a lighting project for an office
building -- say, retrofitting 1,000 fluorescent fixtures with
energy efficient components. The project might cost about
$50,000, and reduce utility bills by about $1,666 per month, or
$20,000 annually. The project will have a “payback” of about 2.5
years on energy savings alone. The calculated internal rate of
return (IRR) is 49%.
Now, if this retrofit is procured under an
equipment lease program (capital lease) at 8% for 5 years,
monthly payments would be approximately $1,000 per month, or
$12,000 annually. When the monthly lease payments and utility
savings are netted together, the result is positive cash flow of
approximately $666 per month, or $8,000 annually – yes, positive
cash flow.
In addition to positive cash flow, the utility company will often
provide a rebate check to encourage energy saving, say $10,000. In
total, over a five year period, $50,000 of “usable” or “savable” cash is
made available to the customer, not to mention the operational
improvement to the property.
Through the use of leverage, the project IRR increased from 49% to an
number that cannot be calculated because there are no periods of cash
outflow. As illustrated, this energy project has become a real “source
of cash”, not just a “use of cash” like other capital improvements.
To some, this might sound too good to be true, but it is simple math
when investment returns are greater than interest rates. It does not
take “rocket science” to determine that borrowing at 8% to achieve
returns of 49% makes good economic sense.
Financial benefits like this are available to all those who choose to
take energy conservation seriously. Here are some financial tips for the
energy-minded:
Don’t underestimate the real value of energy efficiency. Find
out for yourself, because the results might surprise you.
Consider old inefficient equipment to be unrealized cash
streams, waiting to be tapped.
Place energy efficiency projects on a different “to do” list
than typical capital improvement projects. They might be sources of
cash.
Match your cash inflows and outflows. When possible, use
equipment financing to let energy savings pay for projects over
time.
If you think you can’t afford an energy project, think again.
There is definitely a “cost of delay” for energy inefficiency.
In summary, there are two important concepts to understand and
remember about energy-conservation measures. The first is simply that
the investment value of an ECM can be excellent, often much better than
traditional security investments. The second point is that thoughtful
use of financial leverage can make an ECM become a source of cash.
As fuel costs increase and the demand for power grows, expect your
electricity bill to grow as well. To all those who have not included
energy conservation in their business plans, this will be a wake-up call
–- don’t be caught by surprise!
Check back for more Best Practices Webinars coming soon!
Schedule and topics subject to change. E-mail executive director,
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