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While there is widespread acceptance of the common sense behind taking a whole life costing approach,some organisations are implementing this philosophy much better than others. Steven Henry of energy services specialist Chalmor UK applauds the public sector’s
far-sighted performance,while finding the private sector wanting
When you take a close look at whole life costing, it all makes perfect sense.While many people think solely in terms of energy consumption,whole life costing actually goes far beyond that. It takes in the ongoing maintenance costs and the indirect costs associated with maintenance such as disruption, staff training and health and safety administration.
Which makes it all the more surprising that so many companies
are eschewing the benefits of whole life costing through what can
only be described as a myopic approach.
All of the parameters mentioned above are important in considering whole life costs – and by adopting this holistic approach organisations can save a great deal of money,as well as minimising their environmental impact.
For example, investment in light fittings and lamps that offer long
life and efficient performance will reduce energy consumption –
and maintenance costs because re-lamping cycles can be extended.
This in turn brings down other costs that often go unnoticed.
For instance, if an area has to be cordoned off while fittings are
being accessed, in compliance with the Work at Height Regulations
2005, this will disrupt the activities in that area and impinge on
productivity. Working at height also generates paperwork to prove
that work has been carried out by trained staff and an appropriate
risk assessment has been carried out. Longer maintenance cycles
reduce all of these indirect costs.
Taking this a step further, making further investment in lighting
controls will provide even greater energy savings and extend lamp
life further, so the savings in all of these areas are greater as well.
In addition, when the WEEE (Waste Electrical and Electronic
Equipment) Directive comes into force next year, it will be
mandatory to recycle discharge lamps such as fluorescent, sodium
and metal halide, bringing additional costs. Enabling lamps to last
longer will also reduce these costs. Use of controls to extend the
life of other items of plant will bring similar benefits.
All of these factors add up to present a compelling argument for
a more holistic approach.
Unfortunately,many privately owned companies are doing little
more than paying lip service to this concept. Their publicity
machines churn out tonnes of hype about how they are working to make the planet a better place but,when it comes down to the nitty gritty,their decision making processes is all too often determined by the capital outlay alone.
In contrast,the public sector is proving far more receptive to
the concept of whole life costing. Consequently, organisations
such as local authorities, colleges and universities are leading by example and putting the private sector to shame.
This situation marks a change in the thinking of local authorities
that has almost gone unnoticed. It’s not so long ago that public
bodies were notorious for doing everything in the context of an
annual budget,making procurement decisions on the basis of how much they had to use up by the end of the financial year.
In our experience,the public sector has now got its energy act
very much together with everyone working to a common agenda that is markedly missing from many private organisations.
In both sectors, it is often the people on the ground – engineers,
energy managers, facilities managers etc – who recognise the
benefits of replacing outdated equipment and improving control
strategies. They then have to sell those benefits to the people who
hold the purse strings.
Where these sectors differ is in the reaction to such proposals.
Because the public sector people are all singing from the same
hymn sheet there seems to be a more measured analysis of the cost implications in relation to longer term goals.
For instance, there is a greater willingness to look at all of the life cycle costs, such as savings on maintenance that can be achieved
through better control of plant. Commercial organisations, on the
other hand, straightjacket themselves with the way they structure
budgets, treating the development/capital budget separately from
the operating/maintenance budget.
Local authorities have certainly joined up their thinking to
overcome this problem and there are now some commercial organisations that are taking similar measures to escape the
inflexibility inherent in the conventional approach.
A further point is that whole life costing and sustainability work
hand in glove, so that public sector bodies, which are required to
have a sustainability plan, are strongly motivated to favour whole
life costing. The result is that these organisations are more likely to accept a longer payback period – say four to five years – instead of the two to three years that commercial organisations may accept if
they are particularly enlightened.
Local authorities are also very good at making funding available
to energy saving projects, recognising that such schemes will save
money for the public purse in the longer term. Such schemes help
public bodies to meet the initial outlay that is required to upgrade
equipment and control systems, overcoming one of the main
barriers to investment in efficiency.
Most commercial organisations have the capital available to
make this sort of investment but their priorities are different – and
to some extent those priorities are understandable. A plc will have
shareholders to answer to, and the majority of these will be
financial institutions that are looking for a good return on their
investment, caring little for mundane matters such as energy
consumption.
In addition, private companies tend to change premises more
frequently than public bodies so there may be less incentive to
invest in the long term efficiency of the building.
It is becoming increasingly clear that the UK is going to struggle
to achieve the reductions in carbon emissions we are committed to
under the Kyoto Protocol. If we fail to do so, much of the blame can
be laid at the door of those short-sighted businesses that do not
give enough priority to life cycle costing. It will also reflect on the government’s failure to motivate the commercial sector sufficiently.
This is an area where the government should be playing an important role, and where it took its eye off the ball in the run-up to the election. Like financial directors, politicians are inclined to look
to the short term where votes are concerned and, let’s face it,
energy efficiency isn’t very sexy. However, with a full term ahead,
there is no excuse – now is the time to look at existing measures
and how they can be improved.
One obvious example is the carrot and stick approach of the
Climate Change Levy (CCL) and Enhanced Capital Allowances (ECAs) for energy saving equipment. This was certainly a step in the right direction, but the stick isn’t heavy enough and the carrot isn’t sweet enough.
Before we will see any real impact on how businesses approach
energy efficiency and whole life costing, energy prices need to rise
– either the basic cost of energy or the penalties imposed on energy
consumption through initiatives like the CCL. At the same time, the
carrot element should offer greater benefits than are currently
available through the ECA scheme.
For instance, the loan scheme available through the Carbon Trust
for smaller businesses would achieve a lot more if it were extended
to larger companies.It could also be extended to the public sector – but current treasury rules do not permit this.
The same principles apply to the EU Energy Trading Scheme, which is being applied to major energy users. At the moment, the penalties for exceeding emissions targets will not affect companies enough to provide a major incentive. Equally,carbon prices need to be higher
so that companies with surplus carbon allowances to sell can turn their commitment to saving energy into a profitable revenue stream.
The Carbon Trust estimates that energy efficiency in buildings can deliver about half of the carbon-emissions savings required under the Kyoto Protocol. It also recognises that around 50 percent of the
country’s carbon emissions are produced by UK businesses and the public sector. So there is a huge incentive to save energy in these areas. If it won’t go willingly, the private sector needs to be coerced into following the excellent example of the public sector.
