Focusing on Energy Efficiency Investments

With everyone talking about skyrocketing energy costs and the environment, executives are continuing to focus on energy efficiency investments, according to new research commissioned by Johnson Controls.

"It appears as though companies are feeling the pressure of increasing energy costs and environmental responsibility," said C. David Myers, president of Building Efficiency for Johnson Controls. "According to our research, they definitely understand that's it's important to be pro-active when coping with economic and environmental challenges."

Johnson Controls, a global leader in creating smart environments, commissioned the survey of 1,500 North American executives, the most authoritative study of energy management practices. The research was conducted in March 2008.

According to the second annual Johnson Controls Energy Efficiency Indicator survey, nearly three-quarters (72 percent) of organizations are paying more attention to energy efficiency than they were just a year ago. However, the percentage of companies expecting to make energy efficiency improvements, as well as their planned investment over the next year, has remained constant.

"It's one thing to be aware of a problem, and another to take steps to solve it," said Clay Nesler, vice-president of global energy and sustainability for Johnson Controls. "But as energy prices continue to rise, our research indicates that the combination of economic pressure and environmental awareness will motivate people to make smart investments that have a big payoff in the long term."

The research identified energy management decision-makers and asked how their organizations were responding to rising energy costs and environmental issues. Members of the International Facility Management Association and the American Society of Healthcare Engineering were included as survey respondents.

Expectations of Rising Costs

It may be that the full impact of risings costs is yet to be acted upon by industry. In last year's survey, 79 percent said they expected energy costs to rise, and the average anticipated increase was 13.25 percent. According to the Energy Information Administration, however, the reality was that while crude oil prices jumped about 30 percent between the first and fourth quarters of 2007, commercial natural gas and electricity prices were flat.

In this year's survey, 80 percent of respondents believe that natural gas and electricity prices will rise an additional 13.79 percent over the next year.

Businesses Continue to Implement Basic Energy Efficiency Measures

While interest in energy efficiency and energy management has increased significantly from last year, related investments have remained steady. The most significant growth in energy efficiency measures include replacing inefficient equipment before the end of its useful life (41 percent, up 13 percent from 2007) and switching to energy efficient lighting (78 percent, up 11 percent). Also, 88 percent claim that energy efficiency is a design priority in construction and retrofit projects, up 11 percent from just a year ago.

"Businesses are starting to move beyond the low-hanging fruit and make more significant energy efficiency investments," said Nesler. "It appears that, with more energy efficient design in future development, we'll see a broader, farther reaching approach to the way in which companies react."

Environment Increasingly Important as an Energy Efficiency Motivator

For 53 percent of respondents (up 5 percent), environmental responsibility is an equal or greater motivator for investing in energy efficiency than cost reduction. Seventeen percent cited environmental responsibility as the stronger motivator, up from 13 percent in 2007. Thirty-six percent (about the same as last year) said they were equally motivated by environmental responsibility and cost savings.

For the first time, the Energy Efficiency Indicator probed deeper into how environmental and financial factors influence their company's energy efficiency decisions:

  • Twenty-eight percent of respondents feel climate change is an extremely or very significant influence, and 31 percent said it was somewhat significant.
  • Thirty-eight percent believe utility or government incentives are extremely or very influential. For executives with large facilities that number rose to 45 percent. In the only significant regional difference in the results, an even higher percentage of executives in the Western part of the U.S. (47 percent) said incentives were extremely or very influential.

Expectations for the Future Some interesting expectations for the coming years include the following:

  • Nearly 40 percent believe it is extremely or very likely that, within the next two years, legislation will mandate energy efficiency and/or carbon reduction.
  • Nearly one-third (31 percent) believe that green buildings will be extremely or very important in attracting and retaining future employees.

As in 2007, executives responsible for larger facilities (500,000+ square feet) place more importance on energy management. A significantly higher proportion of them (84 percent vs. 56 percent for all respondents) plan to invest in energy efficiency measures in the coming year, and they are willing to tolerate a longer payback period for those investments. The ROI tolerance compared to five years ago for the group as a whole was essentially flat, but for executives with large facilities a large percent (29 percent versus 21 percent for all respondents) will tolerate a longer payback period than five years ago

"We see an increasing number of our members not only expressing greater concern about energy efficiency but making investments in both capital and operating budgets to become more energy efficient," said David J. Brady, president and chief executive officer of IFMA.

Renewable Energy Gaining Ground

Executives surveyed appear increasingly open to investments in renewable energy. In response to a new question this year, 38 percent said that solar electric panels were being either included or considered in their new construction or retrofit projects, and 24 percent said they were including or considering solar thermal panels for their projects. One possible explanation is that a significant percentage of executives (38 percent) said their companies felt it was extremely or very important to minimize dependence on traditional energy sources such as gas, oil and electricity.

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