KEY ACCOUNT CUSTOMERS ENERGY EFFICIENCY UPGRADE WANTS AND NEEDS

Transcription

1 KEY ACCOUNT CUSTOMERS ENERGY EFFICIENCY UPGRADE WANTS AND NEEDS Interview Debriefing Prepared by: Brenda Breedon and Hanif Sachedina, June 1, 2001 BC Hydro Research Services 1

2 Background: There are many indications that a lot of energy efficiency upgrading is not taking place because of financial constrains. The Sales people have asked Marketing for help in the form of some type of Financial Assistance service. Research was requested to quantify the need for such a service amongst BC Hydro s largest customers and also to determine which, from amongst a number of different financial options, would be the most preferable. BC Hydro Research Services 2

3 Objectives: To determine... Perceptions of their current level of energy efficiency Areas of greatest concern re: EE Perceptions/concerns about energy costs What EE upgrades they ve done and plan to do: what drives their decisions to upgrade; the process they go through to get approval and to get projects done. Their expectations from EE upgrades. BC Hydro Research Services 3

4 Objectives - cont. Barriers to getting EE upgrades approved and completed Where EE upgrades stand in their overall upgrading plans How they budget and pay for EE upgrades now and how they would ideally like to have financing work. Wants and needs from BC Hydro BC Hydro Research Services 4

5 Financial Options Objectives: Which of four different financing options do they prefer and why Which of three different payment options do they prefer and why What are their reactions to a cost/savings example Likelihood more EE projects could go ahead if their chosen option were available BC Hydro Research Services 5

6 Options: Financing Types: Capital Lease Traditional bank loan financing Operating Lease Energy performance contract Payment Options: The cost of the energy upgrade plus borrowing costs invoiced as part of the BC Hydro statement The principal and interest for the energy upgrade is paid to a financial institution The principal and interest for the energy upgrade is invoiced separately by BC Hydro BC Hydro Research Services 6

7 Research Method: Depth interviews with 29 companies and a total of 54 executives: 40 operations/facility managers 12 financial decision makers 2 other management decision makers A total of 25 hours of interviewing (each interview lasted, on average, 30 minutes) Very good participation and a lot of interest BC Hydro Research Services 7

8 The Climate: The timing is right! Guarded optimism about the future: assumption that a change in government will signal an economic upswing. Private sector customers are busier than they have been for awhile (i.e. sales are up!) Most have a long list of retrofit projects they want to do. Their key areas of concern are: HVAC - driven by natural gas price hikes and on controls to cut down on energy waste. BC Hydro Research Services 8

9 The Climate - continued It is assumed that energy prices will continue to rise. Because of gas price hikes, many are already over budget for the year. They are having to cut back on some EE upgrade initiative as a result of this. Some concerns that BC Hydro could be privatized. Those operating in Alberta and Ontario are especially concerned because their Hydro rates in these provinces have more than doubled. BC Hydro Research Services 9

10 The Climate - continued There is absolutely no interest in seeing BC Hydro privatized - they do not feel it would be in their best interest. Those who are currently working with BC Hydro on projects have very good things to say about their sales rep. There was a high level of regard/respect going in that made getting these interviews easy. The level of co-operation was excellent. BC Hydro Research Services 10

11 The Climate - continued All the climatic factors are creating a change in the way that operations people think about EE and upgrades: Old Model: EE is one factor in building retrofitting New Model: because of rising energy costs, EE has become a factor unto itself. That is, the need to be more energy efficient is driving upgrade decision making. BC Hydro Research Services 11

12 Process Transition: Just over half (15 of the 29 companies) are now doing upgrades specifically aimed at improving Energy Efficiency. The rest are just beginning to think about this. THIS IS KEY TO UNDERSTANDING REACTIONS TO THE FINANCIAL PRODUCTS. THOSE WHO ARE FURTHEST ALONG IN THE NEW MODEL ARE THE MOST INTERESTED IN FINANCING HELP. BC Hydro Research Services 12

13 Perceived Energy Efficiency Most do not feel that they are as energy efficient as they ought to be. Those who are most likely to consider themselves energy efficient are those who are already working with BC Hydro on some EE initiatives and/or those who are in the process of building new facilities. Those with new facilities see a vast difference in the level of EE new-to-old. Even buildings 5-7 years old need EE upgrades (e.g. in lighting). BC Hydro Research Services 13

14 What they want: Almost everyone says that BC Hydro has the expertise to help them be more energy efficient. Even those who are well into EE projects and/or who appear to have a good working knowledge of how to do EE upgrades are looking to BC Hydro for help and guidance. Every one of the financial people interviewed said that the BC Hydro name on an ops. EE proposal would lend credibility and stand a better chance of being approved. BC Hydro Research Services 14

15 What they want - continued.what THEY WANT MOST IS AUDITS/BUILDING CHECK-UP: Show us where we can be more energy efficient and then help us get there. Note that there is a greater need to understand what can be done than there is to find ways to finance it (i.e. at this stage in the process the emphasis is on what not how ). BC Hydro Research Services 15

16 EE Retrofitting they ve done: Ranges from very little to a lot - a lot of references to past Power Smart program involvement - especially the Quality Lighting Program. What they ve done is working - that is, they are seeing a pay-off in lower electricity bills. Note: There are some great case studies that ought to be shared and used as an incentive to those who are slower off the mark. BC Hydro Research Services 16

17 EE Retrofitting they plan to do... BUT there is a lot of resistance to supplier estimates of potential savings - they are overselling the benefits. While there is a long list of projects they want to do there are some barriers that are slowing them down - not the least of which is that they are already overbudget because of gas price hikes. The incentive for EE upgrades is all about saving money. There are some major disconnects between Operations and Financial Decision Makers. BC Hydro Research Services 17

18 Process for getting EE Upgrades approved: Varies a lot from company to company Varies a lot from private sector to government sector (i.e. the timelines for getting things approved and done by various government agencies and municipalities is much longer: 3-5 years versus 1-2 for the private sector - and getting shorter) Most Ops. Managers have to write formal proposals during annual budget reviews providing rationales and payout times for EE upgrades. BC Hydro Research Services 18

19 Process - continued Current focus is on recommending those projects that are easiest to get approved ( low hanging fruit ). This appears to be lighting upgrades in most cases. Other say they are just plugging the leaks and dealing with problems as they occur because approvals are more likely when there s a recognized problem. BC Hydro Research Services 19

20 Approval Process - continued Most operations people don t have much, if any control over the approval process. Often they are not even at these budget approval meetings. Financial people seem to feel it is part of their role to pare back EE upgrade requests. It is rare that they approve the entire list of proposed upgrades. The trade-offs that are made by finance often seem arbitrary to operations. Ops people tend to feel they are not well supported by finance - they constantly expect us to do more with less. BC Hydro Research Services 20

21 Approval process - continued There have been some bad experiences with accepting supplier estimates of EE savings. But, recommendations made with BC Hydro input give Operations more clout and a greater chance of having recommendations approved. Financial people agree that BC Hydro input enhances credibility but they are still skeptical and have a prove it to me attitude to savings projections (note: case studies help). BC Hydro Research Services 21

22 Approval process - continued Municipalities and other government agencies may be able to get some EE upgrade financing from the federal government. However, the feds are looking for other partners. Thus, having BC Hydro involvement in program planning and execution is seen to provide some help in getting some federal money. The financial options are seen to help this process. BC Hydro Research Services 22

23 Expectations from EE Upgrades All over the map - from as high as 30% reduction to as low as 10%. Payout times also vary - ideally, should be within two years. Some of the most thoughtful are looking beyond upgrades to Cogen, extensive in-house EE training (which they would like to see spearheaded by BC Hydro) with some growing emphasis on Controls. BC Hydro Research Services 23

24 Financing Process doesn t seem to be working all that well: almost no one in Ops. is getting the funds they ask for to do EE upgrades. While financial products from BCH might help there are some territorial issues between Finance and Ops. that would need to be sorted out in order to provide any new ways to finance. Desired way is to keep this in house and owned. BC Hydro Research Services 24

25 Reactions to various types of financing options Some of the operations people couldn t say - felt this would have to come from Finance. However, most showed a preference for some sort of Energy Performance Contract. Key words are guaranteed savings and cash flow neutral. Some resistance to operational leases by Finance who feel it would lower their control. BC Hydro Research Services 25

26 Financing options - continued A strong sense that there needs to be a range of options offered and then some tailoring to meet the needs of each customer. A lot of skepticism about guaranteed savings but the BC Hydro name/reputation would help. Some concerns about BC Hydro simply acting as a broker for the suppliers (who they don t totally trust) this only works if BC Hydro is prepared to actually hold the paper. BC Hydro Research Services 26

27 Reactions to Payment Options Either as part of their BC Hydro statement or invoiced by BC Hydro separately. Desire for a separate invoice has to do with a desire not to have their current Hydro statement any more complicated. Also a feeling that their bill would have to be higher (a lot of skepticism about the cash flow neutral concept - they feel there s a catch in this somewhere). BC Hydro Research Services 27

28 Reactions to example Finance charges can be structured to equal the energy savings that have been projected following implementation of the energy-saving measures - Example: Total finance cost = $100,000 Energy savings = $20,000 a year Finance payments = $20,000 x 5 years Year Six = + $20,000 additional cash flow BC Hydro Research Services 28

29 Reactions to the example Works for some but not others. For some, six years is too long to see additional cash flow. For others, a 20% savings seems either to high or too low. But the idea that BC Hydro would work up a model for financing that was specific to their needs and that they could present to management is very appealing. BC Hydro Research Services 29

30 The Bottom Line: 24 out of 29 (83%) of companies say they would probably proceed with more EE upgrades if a financing model tailored to their specific needs (and with paper held by BC Hydro?) can be developed. AND 26 out of 29 want to be apprised of financial product development if it does proceed. They recommend that we proceed with caution. Several are prepared to help us pilot financial initiatives. BC Hydro Research Services 30

31 What else they want from BCH Even more important than Financing help is our expertise in determining where they can save. Thus, they are asking for audits, case studies, benchmarking, etc. A return to the Power Smart programs of the past such as BIP. Teaching/coaching/workshops on how to use less energy within existing infrastructure Cogen help. New EE product info. Ability to buy from BCH outside the province. BC Hydro Research Services 31

32 Summary of key Findings In a climate where energy costs are rising, the need for EE upgrades is growing. But, it s early days. Many ops. people are not sure how best to maximize energy efficiency and they are looking to BC Hydro for help. Although most have identified a long list of EE upgrades they d like to do, there are huge budget issues. As a result, no one is doing the amount of upgrading they d like to. BC Hydro Research Services 32

33 Summary - continued Having BC Hydro participation in support of EE upgrade recommendations is a key want. Our name provides credibility to decision makers who are somewhat distrustful of equipment vendors. BC Hydro s willingness to help with financing would lead to more EE upgrade projects being approved and implemented - probably in the range of 10-30% more work undertaken in most of these large companies. BC Hydro Research Services 33

34 Summary - continued The specific financing details would need to be tailored to meet the needs of every customer. It is important to understand that financing is only one piece of the puzzle. A far more compelling piece is help in defining what all they can/should do to be more energy efficient: Help me figure out what all we should be upgrading and then help me get it approved, financed and implemented. BC Hydro Research Services 34

35 Summary - continued While there is no doubt that financial assistance will help, this could take awhile as the approval process is long and tends only to happen at budget time once a year. And, they need an audit first. BC Hydro Research Services 35