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Why companies are moving toward renewable energy and implementing efficiency projects

Date Posted: 11/17/15
By Kevin Carpenter, contact: kcarpenter@kca-us.com

 

Whether you’re a large multinational or a company serving local and regional customers, renewable energy and energy efficiency projects are becoming commonplace for a variety of reasons. The cornerstone of any project is its financial impact on your company; if it doesn’t make sense (and cents!), it is unlikely to be executed.

There are other factors that influence implementation of these projects including corporate policy (perhaps a “triple bottom line” sustainability policy), maintaining a competitive and attractive workplace, and external forces such as shareholder and competitor pressures. Sometimes these ancillary pressures are enough to push a financially marginal project over the top.

Tools for evaluating renewable energy and energy efficiency projects

What if you’re interested in these types of projects and want to understand how they could positively impact your business? How do you go about assessing the multitude of potential projects and determining which fit best with your goals and budget? Should you look at implementation of onsite renewable energy like solar or wind? What about purchasing renewable energy certificates (RECs), which convey the “green” attributes of renewable energy that is generated offsite? Or perhaps a simple lighting or HVAC retrofit could provide significant annual cost savings?

We’ve found that framing the opportunity and defining the business case can be THE most critical step when assessing a potential project. Below are some simple steps and tools that we recommend to help you along the way.

1. Identify and clarify the opportunity

a. Who is the decision maker and what is the opportunity they are trying to address? This does not have to be an onerous task, but projects can easily veer off track when they aren’t addressing the correct issue. This leads to continuous rework and suboptimal solutions.

2. Assess the business situation

a. Use this opportunity to let the project team raise any potential issue they can think of. You can give everyone some sticky notes and about 10 minutes to think. While some duplication is inevitable, the most unique and potentially important issues tend to surface this way.

b. Sort the issues into Decisions, Uncertainties, and Objectives. Decisions are things under your control, uncertainties are things out of your control, and objectives are things you want. Below are some examples. A stakeholder assessment can also be conducted to make sure that how the project provides value to each.

  • Decisions – Should we implement a power generation project onsite or partner with someone offsite? Should we own the project or work with a developer and instead buy power from them?
  • Uncertainties – What price do we currently pay for electricity and gas services? What are our competitors doing in this space?
  • Objectives – Our project should have a return of at least 25%. Our project needs to be onsite for our employees and customers to see.

c. Sort your list of Decisions using a Decision Hierarchy, which separates the “givens” from the strategic and tactical decisions. Some examples are below the hierarchy.

  • Givens – Examples might be found in corporate policy or mission statements…We don’t do business internationally. Project must meet IRR hurdle rate of 15%.
  • Strategic decisions – Should we implement the project onsite or partner with someone offsite? What type of renewable energy technology should we use? Is it more important to showcase an emerging technology or use something proven and reliable?
  • Tactical decisions – What kind of solar panels should we put on the roof? Which retrofit company would be the best partner?

3. Generate creative, doable alternatives

a. This is an important part of the structuring phase where the team uses the Strategic decisions to help guide them through generation of various project alternatives. These can be nicely displayed in a Strategy Table, shown below.

b. Note that the meaning of each decision should be clearly spelled out, and that once each is defined the team should develop Strategy Themes which contain one alternative from each decision column. You can then name each strategy and develop a short write-up describing the strategy.

Moving forward

Now that you’ve established the opportunity, assessed the situation, and created some project alternatives, you’re well on your way to a more detailed assessment of your chosen alternative(s) and ultimately execution of a successful project that aligns with your goals. The various strategies should be discussed with the decision maker so that they can provide feedback on the set of strategies and analysis work so far.

Beyond that comes developing the analysis for each strategy which may require a detailed quantitative model as well as a host of other project execution tools. But if you’ve gotten this far there should be good alignment between the decision maker and the project team, and within the team itself. You’ve created a solid foundation upon which you can build a successful project!

Benefits of this Structured Approach

The traditional business decision process can look quite a bit different than this decision analysis-based approach. Have you experienced the traditional approach at your workplace?

  • Decision maker states the problem or opportunity and tasks a person or team with its evaluation
  • Person/team gathers data, chooses a solution, evaluates it, and presents their recommendation
  • If the analysis agrees with the decision maker’s preferences/beliefs, then the recommendation is approved
  • If the analysis does not agree, the team is asked to rework the situation until it matches the expectations of the decision maker

This advocacy-based approach is like a lawyer presenting his case to a judge. The judge must try to uncover the truth before making a decision. Unfortunately, this approach forces the project team to try to persuade the decision maker, and the true potential value of the problem or opportunity is not realized.

Using a structured decision analysis-based approach requires the entire team (including the decision maker) to keep an open mind and develop multiple strategic alternatives. The team develops a shared understanding of the problem and is able to explore where and why value is created for each alternative, and then can choose the one that maximizes value to the company. And when it is time to make this decision, the whole team understands the value proposition and is aligned with the recommendation.

The level of detail and the tools required to complete the analysis can vary significantly for different projects, but as project complexity increases this decision analysis-based helps clarify the most important uncertainties and guide the team to the solution which provides the most value.

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