May 18 2007
Results from a first-time survey of North American business leaders indicate they expect energy prices to continue to rise, and plan to invest in energy efficiency measures to help fight rising costs. Despite the trend toward sustainability, executives cite a desire to decrease energy expenditures within their organizations as a greater motivator than environmental responsibility.
Those are some of the findings of the research commissioned by Johnson Controls, Inc., a global leader in creating smart environments. The Johnson Controls Energy Efficiency Indicator research identified individuals from a wide range of facilities and locations who were decision-makers for energy management issues within organizations and asked how they were responding to rising energy costs, defined as electricity and natural gas costs. Members from the International Facility Management Association were included as survey respondents. The research was conducted in March and released today. Johnson Controls plans to repeat the Energy Efficiency Indicator research annually.
Just over half -- 52 percent -- of the executives surveyed say costs savings as either entirely or somewhat the driver for their decision to invest in energy efficiency measures. Thirty-five percent say cost savings and environmental responsibility are equal motivators, while only 13 percent cite environmental concern as the greater motivator.
The executives appear to have reached a consensus that energy costs will continue to rise in the near future. Seventy-nine percent say they believe that electricity and natural gas prices will increase significant during the next 12 months, with an average price hike of 13.25 percent expected.
Consistent with the rising energy cost forecast, 62 percent say their companies are paying more attention to energy efficiency today than five years ago. As a result, they are acting on it. Almost 57 percent expect to make energy efficiency improvements using their capital budgets in the next 12 months, spending an average of 8 percent of those budgets. In addition, 64 percent anticipate using their operating budgets, allocating 6 percent to energy efficiency improvements.
Most executives choose basic measures
Despite the pain of rising energy costs, executives are generally limiting their investments to more conservative energy management solutions. Of respondents who have already made energy efficiency investments:
- 70 percent educated staff and other facility users on how to be more efficient
- 67 percent switched to energy efficient lighting
- 60 percent adjusted HVAC controls
- 46 percent installed lighting sensors
Commercial buildings consume about 40 percent of natural gas and 60 percent of the electricity generated in the U.S. So it's not surprising that three-quarters of executives with companies that are building or planning to build new facilities, or are launching retrofits in the next year, say that energy efficiency will be a priority in the design of those projects.
When it comes to energy supply-related matters, 36 percent have negotiated energy contracts with suppliers. Only 14 percent are putting energy price hedging strategies in place. In addition, 11 percent currently have a stated carbon reduction goal.
"This survey provides a valuable snapshot of how organizations are reacting to rising energy prices, and I think we're going to see even more attention paid to this in the future," said C. David Myers, president of the Johnson Controls Building Efficiency business. "There's a growing realization of the role commercial and industrial facilities play in energy consumption, and the role they can play in making the economy more energy efficient. Johnson Controls believes that employing effective energy management strategies can help mitigate the impact of those costs and improve our country's energy self sufficiency."
Whatever the motivation for making energy efficiency investments, companies have by and large not relaxed their payback requirements for such measures. About two thirds of companies (64 percent) have a maximum payback period of between two and five years. Overall, only 18 percent of those surveyed say their companies would allow a longer payback period today than five years ago. About 45 percent say the required payback period has not changed compared with five years ago.
Executives responsible for larger facilities (500,000 square feet or more) are an exception. They spend a bigger part of their budgets on energy, are planning to invest more of their budgets on energy efficiency measures, and will tolerate a longer payback period.
"This report is a step in the right direction to show that companies are making positive steps in energy efficiency, for this is the greatest long-term method for stretching limited resources," said David J. Brady, president and chief executive officer of IFMA.