Since 1996, the global healthcare company Roche has doubled its energy efficiency, saving money as well as reducing the intensity of its environmental impact.
In 2005, it set itself a new goal of reducing energy consumption by a further 10% over the next five years, on a per employee basis.
But energy managers had already attacked the ' low hanging fruit' of low. cost, no-cost and quick to payback energy efficiency opportunities. In competing for limited capital, they were beginning to come up against investment hurdles that made it difficult for them to demonstrate the feasibility of energy conservation investments.
The problem they faced was that simple payback and return on investment calculations tend to underestimate the cost savings from energy efficiency investments and fail to take into account other benefits such as lower emissions, reduced exposure to energy price fluctuations, increased staff comfort and better public relations.
So Roche changed the rules about the way it assesses the net present value of energy conservation measures. Net present value is a common tool for financial feasibility analysis that allows the future income (or savings) flows from different investment alternatives to be rolled up into a measure of their ' present value ' at the beginning of the project, incorporating the cost of capital invested. If a project has a positive net present value, it is profitable.
Roche set out four simple changes to the standard net present value calculation in order to capture the true balance of costs and benefits of energy efficiency investments:
• Lower discount rates-Energy efficiency investments are much less risky than normal pharmaceutical investments, therefore the high discount rate used in most net present value calculations within the company are reduced significantly when considering energy conservation.
• Multiple benefits from energy efficiency investments-Financial measures for benefits such as increased comfort, productivity, environmental benefits, better public relations, as well as utility rebates from energy providers and government grants are included in the calculation.
• Full life-cycle analysis-Design alternatives must be compared for the impacts of energy and all other costs (investment, maintenance, etc.) over the expected life of the asset.
This methodology allows Roche to rigorously compare different design alternatives and select the most profitable contender, which will also be the most energy efficient because of the strong emphasis on the future costs.
The new methodology for assessing feasibility was backed up by a Board level commitment that if the net present value of an energy efficiency proposal is positive then the project has to be done, unless there is a more profitable alternative currently available.
In the two years since this methodology was introduced, Roche has managed to reduce energy use per employee by 8%, despite growing the business and incorporating new enterprises.
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