When tackling ambitious publicly disclosed sustainability goals such as science-based targets (SBTs), organizations need a way to fund projects and maintain momentum year-over-year.
Relying on operational-focused projects, or “low-hanging fruit”, such as adjusting temperature setpoints, will not be enough to achieve long-term goals.
In order to make significant gains, companies need to implement robust resource efficiency programs alongside other workstreams, such as purchasing electricity from renewable sources, owned renewables generation, and engaging supply chains.
The traditional approach to assess and prioritize savings opportunities emphasizes payback of operational versus capital projects. Evaluated on a project-by-project basis, capital efficiency projects with longer payback often fail to meet internal hurdle rate requirements. One approach to overcome this challenge is to start with low-hanging fruit (opex projects) as a way to demonstrate results quickly and, ideally, build credibility with leadership for future funding approval on more capital-intensive efficiency projects.
However, this is not always how it works in practice. Even when capital becomes available, energy efficiency projects have difficulty gaining support over competing business priorities – resulting in what seems like an endless cycle of low-hanging fruit projects and painfully slow progress towards cost- and carbon-reduction.
Case Study: Accelerating results at scale
A global leader in rolled aluminum production and recycling implemented a number of low-cost, opex efficiency measures to achieve energy reduction targets in FY14 and 15. However, capital projects could not be implemented at the same pace, meaning strategic opportunities were missed along the way. When sites ran out of low-hanging fruit opportunities, there were no upcoming energy efficiency projects to maintain progress. This resulted in a period of stagnation, which eventually led to a growing gap in savings targets in 2017.
With only a few years remaining to meet its 2020 goals, the company engaged Schneider Electric to accelerate its results at scale. Through a collaborative workshop approach, the teams developed an enterprise strategy to fast-track existing projects in the pipeline and bring payback of strategic capex projects in line with corporate hurdle rate requirements, allowing the company to get back on-track to achieving 2020 goals in time.
How do you get beyond the low-hanging fruit in times of insufficient funding? How do you overcome internal red-tape to fund larger capex projects?
In an alternate, more innovative approach, energy efficiency and sustainability initiatives are addressed in parallel and at the enterprise level (across a complete portfolio of sites). Opex and capex projects are combined into an “opportunity portfolio”, blending shorter time-to-savings and long-term investments in a project stream.
Opportunity Portfolio Example
By leveraging the shorter payback of quick-turn opex projects, capital projects with longer paybacks can be subsidized, in a sense, to meet internal hurdle rate requirements and made part of the overall performance plan. Furthermore, opex projects that can be replicated across like-sites can be industrialized, which unlocks significant cumulative savings when implemented across the entire portfolio.
This strategy results in an investment strategy designed to achieve the twin goals of cost and carbon reduction, and makes it easier to win executive buy-in and influence the rest of the organization to make energy and carbon part of its investment process.
By taking a programmatic approach, organizations can make strategic investments to implement the right projects, at the right time (not just what is in the budget at any given time). Creating a holistic investment strategy that connects energy efficiency, sustainability and renewable energy initiatives has several advantages for planning and performance. In order to be successful, there must be greater pre-planning and collaboration across traditional silos of efficiency and sustainability teams . . . and that starts with shared goals.
Download the how-to guide to learn how efficiency and sustainability teams can collaborate to unlock budget and accelerate energy management programs.