The manufacturing and industrial sectors have traditionally been leaders in energy management strategies. For these types of facilities, energy use has an obvious impact on the cost of operations, and management understands a strong energy management strategy is key to overall business success. Utilities have also historically offered these big energy users better incentives to curtail electricity use during periods of peak electricity demand. Now, businesses with smaller, multisite facilities are increasingly choosing to optimize their energy use to realize the benefits of energy management technologies.
Market fundamentals are lining up for 2018 to be the year that commercial businesses actively implement energy management plans. Here are five reasons why:
1. Non-Industrial Users Are Feeling The Pain Of Energy Bills
According to the EPA, commercial businesses account for 35% of U.S. electricity usage -- 8% more than the industrial and manufacturing industry. Compared to these industrial customers, the commercial sector is more fragmented and harder for providers to reach, so demand response and smart energy management programs have often focused on the lower hanging fruit of the industrial sector for efficiency gains.
But that’s not to say commercial facilities don’t feel the pain of energy bills. Among non-industrial businesses, heating, ventilation, air conditioning (HVAC), lighting and other energy drains make up a substantial amount of operating expenses. In retail stores, for example, it is estimated that between 4% and 9% of overall operating costs are energy-related, according to McKinsey & Company. Quick-service restaurants, though they might have smaller bills, may even use up to 10 times more energy per square foot than other commercial buildings according to Energy Star.
With businesses feeling the need and the market untapped by dominant energy management players, the time is right for other market entrants to offer practices and systems that can benefit these underserved customers.
2. Technology Is Becoming More Affordable And More Familiar Than Ever Before
Borrowing from residential sector innovations, devices such as smart thermostats and internet of things (IoT) lighting controls are also simple to install at business locations. These devices can be used to make impactful alterations to HVAC and lighting usage in settings from restaurants to retailers to school classrooms. Lengthy sales cycles are no longer required as more and more consumers understand and adopt smart technology at home — businesses are more attuned to how the same tools can benefit the workplace. This technology is now widely available at an affordable price point that makes it easier to implement. Gone are complex, multiday installations or complicated reporting platforms managed off-site by third parties. In their place are streamlined innovations as innocuous as a thermostat and as simple to use as a smartphone app.
3. Demand Response Utility Incentive Programs Are Moving Down Market
IoT devices and other energy management equipment for commercial businesses are now commonly included in utility automated demand response (“ADR”) programs, which not only offer incentives to reduce demand but also may pay from some or all of the up-front cost. There are already programs that deliver valuable savings to a specific set of commercial customers that have traditionally been left out: smaller offices, retail stores and restaurants. In many cases, energy efficiency upgrades may be entirely free to the business, and the savings from energy reduction during demand response events go straight to the bottom line.
4. 'Energy As A Service' Pricing Models Are Being Applied To Energy Efficiency Upgrades
Increasingly creative ‘energy as a service’ business models are ensuring energy management equipment and programs can still be affordable for all types of business, even if costs aren’t offset by utility incentives. The concept provides energy production or savings as a subscription-style ‘service’ that can often be paid for out of energy bill reductions. These models work to reduce up-front investment and make energy efficiency and management upgrades as easy to pay for as the monthly utility bill. This model has helped bolster the solar industry — end consumers in solar power purchase agreements (PPAs) pay just for the electricity produced by solar panels, rather than buying expensive solar equipment and waiting for the payback over many years. This same type of creativity in pricing models will continue to reduce the cost of entry to energy management best practices and make it accessible to all types of businesses.
5. Sustainability Is Now Considered A Core Business -- And Societal -- Value
Finally, businesses of all sizes continue to take corporate social responsibility seriously. According to a 2015 Nielsen study, 66% of global consumers are willing to pay more for a socially responsible product, with over 50% influenced by factors like a brand’s commitment to environmental responsibility. More than 9 in 10 Millennials say they would switch brands to one associated with a cause -- an important statement from a market segment that wields over $1 trillion in purchasing power in the United States. This means corporate social responsibility (CSR) initiatives are increasingly important to a profitable business strategy, and energy consciousness and carbon emissions reductions must be a top consideration. Previously viewed as only a cost-cutting measure, saving energy is now also a top-line-driving marketing program. The authenticity with which brands create and implement CSR programs has the power to make or break businesses of all sizes.
Whether you’re thinking about energy upgrades for the new year or you’re already implementing a program, commercial entities prioritizing smart energy management systems will be in good company in 2018.
