Financing a route to reducing energy costs
The upfront costs of reducing energy costs by as much as 30% can be a deterrent to many organisations. David Smithson of the Siemens Building Technologies division, outlines the business case for BEMS and highlights bespoke financial support available to overcome the commercial challenges of financing an effective BEMS.
With 40% of a building’s operational cost linked to its energy consumption, it makes real business sense to save energy and therefore, reduce this cost. Building energy management systems (BEMS) are independently acknowledged to reduce energy consumption and subsequent energy costs by up to 30%.
However, concerns about how to finance upfront capital costs in this specialist area — as well as a typical short-term approach as opposed to considering a building’s total lifecycle costs — has led some companies to refrain from adopting this technology.
With energy consumption forming such a high proportion of a building’s operating costs, it really pays to take management of it seriously and consider the benefits an effective BEMS offers. In fact, the Government has also got its eyes on this issue and the forthcoming Energy Bill, set to become law in 2016, will place increasing obligation on landlords to ensure effective energy-control measures are in place. Those that do not may even be prevented from letting the building!
Using a system to help identify, monitor, control and, ultimately, reduce energy consumption over the long term offers real benefits. The starting point for any effective energy-efficiency drive is to know where and how a building is using energy, and a BEMS can co-ordinate all this information. Plus, it can manage the different energy-consuming systems within the building such as lighting, heating and air conditioning, to provide as efficient a system as possible.
The BS EN 15232 standard provides independent verification of the effectiveness of a BEMS in saving energy. Indeed, a fully integrated BEMS can deliver energy savings of up to 30% per annum. For a small to medium-size business with a typical yearly energy bill of up to 5% of turnover, any saving of this magnitude can have a real impact on the bottom line.
Despite this benefit, many companies have faced hard decisions concerning capital investments. Though the hardware for a BEMS (controllers, sensors etc.) can account for as little as 10 to 15% of the upfront capital cost, when engineering, software and installation costs are added, the general outlay has forced many to consider a short-term approach of an alternative system which may be under-specified, or even replace an existing system with a similar one.
However, such an approach does not consider the lifecycle implications of operating the building. It is in many ways a false economy. Short-term thinking to drive the lowest possible upfront system spend will produce higher costs down the line as the available energy-saving efficiencies inherent in a properly specified BEMS are not realised over the longer term.
A new funding concept can assist those companies interested in the business benefit and bottom-line impact a BEMS can achieve but which are reticent to commit hard-earned capital resources or have faced rejection from the banking community that will traditionally shy away from funding such areas of capital expenditure.
Siemens Financial Services (SFS) understands the marketplace of many of the businesses seeking such energy saving potential. Banks will tend not to look favourably on asset financing elements of BEMS such as controls, wiring and engineering activity. However, a lifeline can be offered through the financing of the total system solution, as well as third-party equipment, and ensures affordability is the key criteria for the company in question.
This type of solution enables businesses to manage cash and budget constraints, improve equipment acquisition and deployment and speed up timings for what are required improvements when it comes to managing energy consumption. A good example is the ability to put in place energy-efficiency measures without any upfront capital investment. For the initial period, a financing solution can be structured such that any capital costs are offset against reductions in utility bills — after which companies reap the full financial benefit.
Accessing the capital in an affordable manner, which includes fixed payments for easier budgeting, enables a route for businesses to both specify a wholly appropriate up-to-date system for the building in question, as opposed to making do with a solution that realises only part of the potential efficiency savings. It also allows projects to proceed more quickly, resulting in deliverable energy savings being accessed without delay.
The business benefit for funding BEMS in this way is ideal for companies which either do not have the cash or do not wish to use it. It allows the conservation of existing cash reserves and maintains alternative credit lines for additional use.
Once energy consumption is minimised and cost savings maximised, the energy bill in essence creates its own budget, and the system effectively becomes ‘self-financing’. With typical payback periods being two or three years, modelling tools can easily demonstrate that energy savings implemented courtesy of a BEMS can be realised by the time of the arrival of the next utility bill, e.g. three months — thereby vastly accelerating the payback on capital expenditure and return on investment.
As companies seek efficiencies in all areas of their operations, the increasing cost of energy and the long-term total lifecycle cost of a building’s energy use has brought the area of affordable energy management into sharp focus. The technology exists to reduce consumption levels significantly, and with such a flexible, collaborative and financing approach, a short-term view towards implementing an effective BEMS can be challenged.
For those charged with operating and running a building, or the financial director keen to maximise cost control, it is certainly advisable to investigate both an effective BEMS and the financing solutions available to make it as commercially attractive as possible.
David Smithson is business unit head for the UK and Ireland of control products and systems within the Siemens Building Technologies division.