Why Energy Efficiency?

The  managers  have other tasks that require their attention ...

The energy bill alone usually doesn't motivate the entrepreneur to dedicate time, funds or even attention to it.

Below I will show you the reasons why a deeper attention to this topic can increase the value of your company.

 

From an accounting point of view

 

"Is the energy bill so important? It is often only between 2% and 9% of sales ..."

This mindset is incorrect. You have to compare the savings with the profit, not with the sales, Don't compare apples with pears.

Profit / Sales ratio

Prepare yourself for a surprise! 

How much do you have to sell to realize a CHF 1,000 profit?

Because energy costs are deducted from taxes, the best way is to compare savings is with profit or earnings before tax & interest (EBIT).

If the profit / sales ratio is 8.3%, for example, you have to sell USD 12,000 for every USD 1,000 profit (100 / 8.3 = 12).

This means that a cost saving of CHF 1,000 is worth the same as the sale of CHF 12,000 of your products or services.

The result is the same. The choice is yours.

Save 1'000 USD energy OR sell 400 square meters of spruce boards, planed.

The result is the same. The choice is yours.

Profit / Sales ratio

Payback period or other performance parameters?

If you look the savings that an energy saving measure adds to the profit over the years, it is sometimes (much) larger than the investment in this saving measure. Now, the much-used payback period unfortunately only looks at the time in which the savings have reached the value of the investment. And then? The cash flow just goes on ... 

The so-called SIR (Savings to Investment Ratio) is often a better measure than the payback period because it considers the cash flow over the entire life cycle of the improvement.

The Net Present Value (NPV) method considers all cash flows of the entire life of the investment. Here the investments are deducted from all discounted future savings. This should result in a positive value if you want a positive return on investment.  Discounted future savings are the positive cash flows that are reduced as result of the inflation and other percentages, which detract to the perceived value of money that you receive not today but in the future.

Payback period or other performance parameters?

Don’t forget the positive side effects

 Unfortunately, an energy saving measure is often only assessed on the basis of the financial savings (the energy bill). 

However, don’t forget the positive side effects:

​​​

  • Effects with financial value (except for in addition to the energy bill).
    For example, better lighting can reduce production errors; better ventilation or more stable temperature control can increase employee productivity. A system for heat recovery can shorten the heating-up time of the new products and thus increase productivity. There are many examples where such financial side effects were even greater than the total energy bill itself, making the energy practically free.
    This additional saving can also be added directly to the profit.  This will quickly make your company more competitive.

  • Effects that cannot be expressed financially.
    Here you have to think about values ​​such as security, well-being of employees and prestige. Compliance with safety and environmental laws also  take out the stress from your management tasks make your company more competitive. Moreover, some of these non-financial benefit can actually become a financial benefit. For example, more prestige can attract additional customers, which want to make their supply chain greener.

Without a doubt, all of this contributes to the company's success. 

Don’t forget the positive side effects

Last but not least

How does your savings affect your country or region?

If environmentally questionable power plants (nuclear, coal) shut down ...
... do we have to buy the electrical energy abroad and partially give up our independence? How is this imported energy actually generated?

We can better fill in the missing energy (of the closed power plants) in another way: just leave it in the sockets! Every saved kWh is completely clean, does not need to be produced and usually requires less investment than the power plants.  

Last but not least

Financial arguments 

  • Profit / Sales ratio

  • Positive side effects

  • Swiss energy independence 

Image by Isaac Smith

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