Green Retrofits: Not Expenses but INVESTMENTS

If you think hard economic times mean you should hold off on investing in those energy-saving green retrofits for your building, think again. So say Tom Carpenter and Joshua Pearce in an op-ed published in Canada’s The Globe and Mail (“Put green into your bottom line,” Feb. 17).

Carpenter, senior manager of the Queen’s University Institute for Energy, and Pearce, assistant professor of Mechanical and Materials Engineering at Queen’s University, advise that investing in energy conservation measures (ECMs) should be viewed as comparable to investing in financial instruments like savings bonds, since both provide a healthy return. And they point out that green investments actually trump financial investments by returning not only financial benefits but environmental ones, and because the savings they generate are tax-free. “The cost of such improvements,” they write, “should therefore be seen as an investment where the return usually begins immediately and often continues indefinitely.”

They say what’s needed is for decision makers to take the long view and realize that the payback on retro-greening projects increases over time:

If a building retrofit costs $1,000 and saves $200 per year in energy costs, it will pay for itself in five years. Most people wouldn’t like the seemingly long payback time. But if the retrofit is, for example, a furnace upgrade and lasts for 10 years, then it will earn an average of 16 per cent per year, which is a far greater return than most options. If the retrofit is improved insulation and is expected to last 25 years, then the average return per year for each of those 25 years will be 19 per cent.

. . . . Many organizations, however, still demand such investments pay for themselves in a single year. If the cost cannot be recouped in one budget cycle, the opportunity is ignored.

Yet, even a three-year-payback policy is short-sighted because, as the examples show, the real opportunity to profit on the investment does not end after 36 months. If a new piece of equipment has an anticipated 20-year lifespan, then even if it takes, say, 12 years to pay back the upfront cost, there is still room for a healthy 20-year average-annual return of more than 5 per cent on the money spent. And some ECMs come with guarantees they will last for 15, 20 or 25 years.

Of particular interest to readers of Just Venting, or to anybody with a stake in commercial HVAC, is the point that Carpenter and Pearce make about the special relevance of these “green investment” projects to large institutions:

These opportunities are available to everyone, including small businesses and homeowners, but they are especially relevant to large institutions such as universities and hospitals that have both physical plant responsibilities and endowments that they need to invest for maximum return.