Energy Efficiency –Realising the potential                                            THINK.CHANGE.DO   A set of teaching ...
Referencing this material> This material has been developed by UTS Business  School and is supported by the NSW Government...
Using this material> This slide set and notes are intended to be used by  trainers and educators as a resource to develop ...
Disclaimer> This presentation presents the views of the authors, and  not the views of UTS, or any other party.> This pres...
Contents of the slide pack (1 of 2)1. About the project: Leadership & Change for Energy   Efficiency in Accounting & Manag...
Contents of the slide pack (2 of 2)6. Energy efficiency – actions accountants & business   managers can take7. Insights fr...
1. About the project: Leadership & Changefor Energy Efficiency in Accounting &Management                                  ...
‘Leadership & Change for Energy Efficiency inAccounting & Management’ project funding  > Office of Environment and Heritag...
Key Project Partners> UTS Business School> Ernst & Young> Chartered Institute of Management Accountants  (CIMA)> Westpac> ...
ProjectOverview      Training Needs Analysis               Interactive seminars                  C-suite webinar       Eva...
Training Needs Analysis – Key Themes> Organisational response to energy efficiency needs  to be cross-disciplinary   – Acc...
Training Needs Analysis – Key Themes> The rationale for action/ importance of Energy  Efficiency is a fundamental starting...
Training Needs Analysis - Skills  Soft                  Energy Efficiency Fundamentals Skills          Developing the busi...
2. Introduction to the interactiveseminar                                     THINK.CHANGE.DO
Interactive Seminar - Aim> To explore the role that accountants and business  managers play in managing risk and deliverin...
Interactive Seminar - Outcomes> By the end of the seminar you will:   – Learn from others about energy efficiency and the ...
3. Energy Efficiency – BusinessRisks & Opportunities                                  THINK.CHANGE.DO
What is Energy Efficiency? > Energy efficiency primarily refers to end-use   efficiency > It involves delivering equal or ...
Global sources and use of energy                                                             19                   http://w...
Electricity generation by fuel type in AustraliaSource: GeoscienceAustralia p. 34
62 units lost                                                2 units lostThe boundary  100 units of  energy inputThe elect...
The boundary Energy efficiency example    End-use energy   efficiency delivers  benefits across theelectricity supply chai...
Four key business risks that energyefficiency can address>   Cost containment>   Carbon pricing>   Compliance with legisla...
Business risk: Cost containment> Electricity prices are rising> Oil price highly variable              Energy efficiency i...
Source: Geoscience Australia 2010, p. 18
Source: Geoscience Australia 2010, p. 28
Business Risk: Carbon pricing               > From July 2012 - carbon price of               $23 a tonne, 2.5% increase p....
Business Risk: Compliance with legislation > Some relevant current legislation:    – National Greenhouse and Energy Report...
Business Risk: Compliance with legislation(con’t)> Exposure draft ISAE 3410 Assurance Engagements  on Greenhouse Gas State...
Business Risk: Licence to OperateSome stakeholder perspectives:> Investors – Can energy efficiency provide a proxy  indica...
Other business drivers and opportunities> Your competitors are doing it!       See public reports from companies in the  ...
Ethical Reasons (Greenhouse Gas   Emissions)                                                    32Source: Garnaut Climate ...
4. How leading organisations areresponding                                   THINK.CHANGE.DO
Example - The GPT GroupSource: Accessed 6/9/11 from www.gpt.com.au/content.aspx?urlkey=Energy
Example - The GPT Group (con’t)     >   Senior management support                           The GPT                       ...
Example - Linfox AustraliaSource: Linfox Energy Efficiency Opportunities Public Report 2010, p. 17
Example - Linfox AustraliaSource: Linfox Energy Efficiency Opportunities Public Report 2010, p. 17
5. Barriers to energy efficiencyimprovement                                   THINK.CHANGE.DO
Many cost effective energy efficiency                                    projects are available ... But are not           ...
Barriers to energy efficiency improvement in    businessDunstan et al. 2011, p.10
Example – Split incentives in the real estate  sectorSource: WBCSD 2009, p. 12
6. Energy efficiency – actions accountantsand business managers can take                                             THINK...
Energy Efficiency Fundamentals- Establish your energy base case> Not just the level of energy> It is the expected level of...
Establish your energy base case> Estimation methods are similar to cost accounting:   – Regression Analysis   – Modelling/...
It is important to clearly identifyorganisational activities and boundaries> Information „should‟  link with existing  acc...
It is important to clearly identify organisational   activities and boundaries (cont’d)> We are familiar with the value ch...
Energy Base case information> Here are some examples of the type of information  useful for identifying EE opportunities  ...
Developing the business case for an energyefficiency project> Clear identification of the costs and benefits   – Translate...
For example> A building in NT implemented a range of EE projectsTotal Annual Consumption for 04/05 in kWh:   1,605,138Tota...
Hints> Start simply, and do something:   – Find out what is happening in your     organisation   – Review electricity stat...
Some suggested places to start> Revisit your energy accounting system   – http://www.ret.gov.au/energy/efficiency/eeo/resm...
Hints> Organise data to match current  reporting systems   – e.g. batch vs process costing; KPIs> Let people know what you...
Hints (cont.)> Conduct an energy information audit:   – Ensures your organisation captures new     knowledge> Find champio...
Developing the business case for an energyefficiency project > Improved product             > Product quality   quality > ...
Useful information for preparing thebusiness case> Costs are easier to identify than benefits   – Labour, equipment, consu...
Building the Business Case – A new method for evaluating energy efficiency projects> There are a number of problems with h...
What is wrong with payback and NPV?Project Scenario:                       A             B             C             D    ...
Mutually Exclusive Projects with Unequal      Lives      In many cases a choice will need to be made between projects that...
Illustrative Example - EAC       Using two projects, Project A has a life of 2 years, and Project B with a life of 3 years...
Illustrative Example – EAC (cont’d)      Step 2   Convert the Net Present Value to an Equivalent Annual Cashflow          ...
The Brown Marginal Abatement Cashflow   Curve (BMACC)> Extends the Marginal Abatement Cost Curves (MACC), such as  the McK...
The Brown Marginal Abatement Cashflow                                    Curve (BMACC) (cont.)     160  better            ...
Controlling performance using budgets andvariance analysisEnvironmental and social performance can be controlled using sta...
Developing an energy budget using multiple    regression     Example: Using multiple regression, Coles has identified that...
Example (cont’d)     Coles wishes to assess the total electricity usage of store 2 using the following     information:   ...
Coles stores’ electricity consumption actualand predicted by regressionSource: RET 2010
Variance Analysis using dollars> Construct an energy budget model   – Probably with some engineering assistance> Apply wel...
7. Insights from ‘The Business Case andBeyond’ Project                                                                    ...
‘The Business Case and Beyond’ projectCompanies involved:                                 > Rio Tinto Iron Ore>   Australi...
The question…  What do you do that helps get   support and resources for   energy efficiency projects?
1. Link your project to business priorities  > Piggyback on whatever is „hot‟ in the    business right now  > Solve an exi...
The GPT Group:530 Collins St Melbourne UpgradeSource: http://eex.gov.au/case-study/the-gpt-group-energy-performance-    co...
The GPT Group:530 Collins St Melbourne Upgrade (cont.)Source: http://eex.gov.au/case-study/the-gpt-group-energy-performanc...
2. Involve the right people You can’t work in silos. Get the rightpeople with different expertise involved.  It is the onl...
Ron Finemore Transport:      Modification of trailers on bulk tipper trucks        Benefits:        > The same amount of p...
3. Communicate with decision makers early   > Use existing communication forums such as     management meetings   > Use th...
4. Identify and manage project risks        Thinking about a project from a risk    perspective helps you reduce the chanc...
5. Consider all business costs and benefits  > Cost reduction                           > Product quality  > Salvage value...
6. Identify funding options > R&D tax breaks > Government funding > Energy performance contracting > Internal energy funds...
Six key strategiesSee: http://eex.gov.au/energy-management/the-business-case-and-beyond/developing-your-business-case-six-...
Some unexpected answers This is what we do to influence our company culture, systems and processes to improve the success-...
1. Monitor, verify and promote success> Budget for monitoring & verification as part  of the the business case proposal> L...
2. Regularly brief management    > Business drivers, risks and opportunities      change – keep managers informed    > Com...
3. Adapt project approval processes    Consider:    > Combining smaller projects into one larger      project    > Establi...
An important message…       Get the technical detail right      (engineering and accounting)                     AND      ...
8. Questions to supportinteractive group work                          THINK.CHANGE.DO
The exercise is to be introduced by        the facilitator/ MC.  Ask participants to spend 5-10    minutes in pairs or tri...
Interactive exercise #1> How is energy efficiency managed in your  organisation?> What are some of the challenges?> What r...
Interactive exercise #2> What role do you play in progressing your company‟s  energy efficiency performance?> How else cou...
9. Next steps                THINK.CHANGE.DO
Where to find helpful information aboutenergy efficiency> All teaching resources are available fromwww.business.uts.edu.au...
Further training options> NSW and Federal Government provide training and  education materials:  http://www.environment.ns...
Where to from here> Some suggested places to start:   – Revisit your energy accounting system      http://www.ret.gov.au/e...
References>   Australia Industry Group 2011. Energy shock: confronting higher prices.>   Bureau of Meteorology & CSIRO. 20...
References>   Dunstan, Chris, Katie Ross, and Nicole Ghiotto. 2011, Barriers to Demand Management: A Survey of Stakeholder...
References>   Productivity Commission 2011, Performance Benchmarking of Australian Business Regulation: Planning, Zoning a...
Appendix> This information may be printed and provided as a  handout rather than presented.
Some sources of competitive advantage from EE: REDUCEDRISKS (from Worrell et al 2003 and Cooremans, 2011)    >   Reduced h...
Some sources of competitive advantage from EE: REDUCEDCOSTS (from Worrell et al 2003 and Cooremans, 2011)   >   Use of was...
Some sources of competitive advantage from EE: REDUCEDCOSTS (from Worrell et al 2003 and Cooremans, 2011)   >   Decreased ...
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Presentation "Energy Efficiency – Realising the potential: A set of teaching resources that educators can use to develop two-hour Interactive Seminars on energy efficiency for accountants and business managers" 9 May 2012

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  • At then end of the presentation we have a comprehensive list.
  • EEP Selling area - http://www.pc.gov.au/__data/assets/pdf_file/0011/108866/09-planning-appendixh.pdf
  • EEP Selling area - http://www.pc.gov.au/__data/assets/pdf_file/0011/108866/09-planning-appendixh.pdf
  • Presentation "Energy Efficiency – Realising the potential: A set of teaching resources that educators can use to develop two-hour Interactive Seminars on energy efficiency for accountants and business managers" 9 May 2012

    1. 1. Energy Efficiency –Realising the potential THINK.CHANGE.DO A set of teaching resources that educators can use to develop two-hour Interactive Seminars on energy efficiency for accountants and business managers 9 May, 2012
    2. 2. Referencing this material> This material has been developed by UTS Business School and is supported by the NSW Government as part of the Energy Efficiency Training Program.> If using this material please acknowledge as follows: – Benn, S., Brown, D., Brown, P., Crittenden, P., and Krithinakis, A., 2012. Leadership & Change for Energy Efficiency in Accounting & Management – Interactive Seminar Training Materials. The project is supported by the NSW Government as part of the Energy Efficiency Training Program.
    3. 3. Using this material> This slide set and notes are intended to be used by trainers and educators as a resource to develop teaching materials on energy efficiency.> Examples of the way in which these materials have been adapted for particular target audiences are available from www.business.uts.edu.au/energyefficiency
    4. 4. Disclaimer> This presentation presents the views of the authors, and not the views of UTS, or any other party.> This presentation is for educational purposes only and does not contain specific or general advice.> Please seek appropriate advice before making any financial decisions.> Reference list is provided at the end of the presentation
    5. 5. Contents of the slide pack (1 of 2)1. About the project: Leadership & Change for Energy Efficiency in Accounting & Management2. Introduction to the interactive seminars3. Energy Efficiency – Business risks & opportunities4. How leading organisations are responding to energy efficiency – Business risks and opportunities5. Barriers to energy efficiency improvement
    6. 6. Contents of the slide pack (2 of 2)6. Energy efficiency – actions accountants & business managers can take7. Insights from „The Business Case and Beyond‟ Project8. Questions to support interactive group work9. Next steps
    7. 7. 1. About the project: Leadership & Changefor Energy Efficiency in Accounting &Management THINK.CHANGE.DO
    8. 8. ‘Leadership & Change for Energy Efficiency inAccounting & Management’ project funding > Office of Environment and Heritage NSW funding > The „Energy Efficiency Training Program‟ aims to support the development and delivery of higher education courses that enhance energy efficiency knowledge and practice > All project materials are publicly available
    9. 9. Key Project Partners> UTS Business School> Ernst & Young> Chartered Institute of Management Accountants (CIMA)> Westpac> TAFE NSW, Sydney Institute
    10. 10. ProjectOverview Training Needs Analysis Interactive seminars C-suite webinar Evaluation Teaching cases Modular 2-day course Integrated university offerings
    11. 11. Training Needs Analysis – Key Themes> Organisational response to energy efficiency needs to be cross-disciplinary – Accountant as business partner> Soft skills as well as analytical/ technical skills are important – Communication – Influencing others – Partnering – Change management – Team building – Problem solving
    12. 12. Training Needs Analysis – Key Themes> The rationale for action/ importance of Energy Efficiency is a fundamental starting point> Application/ approach will vary across: – Public and private sector – Type of industry sector – Firm strategy – Firm culture
    13. 13. Training Needs Analysis - Skills Soft Energy Efficiency Fundamentals Skills Developing the business case for an Energy Efficiency project Extending accounting tools to an Energy Efficiency context Modifying information systems to support Energy Efficiency Budgeting & Finance
    14. 14. 2. Introduction to the interactiveseminar THINK.CHANGE.DO
    15. 15. Interactive Seminar - Aim> To explore the role that accountants and business managers play in managing risk and delivering opportunities through energy efficiency in business
    16. 16. Interactive Seminar - Outcomes> By the end of the seminar you will: – Learn from others about energy efficiency and the role that accountants & business managers can play – Share your own experience – Identify additional actions that you could take to drive energy efficiency improvement in your organisation
    17. 17. 3. Energy Efficiency – BusinessRisks & Opportunities THINK.CHANGE.DO
    18. 18. What is Energy Efficiency? > Energy efficiency primarily refers to end-use efficiency > It involves delivering equal or greater levels of “energy services” with less energy supply > Energy services include cooling, heating, lighting, driving motors, operating equipment and appliancesDunstan et al. 2011, p.10
    19. 19. Global sources and use of energy 19 http://www.newscientist.com/data/images/ns/sreport_ graphic/energy-fuels-mg18725151500.jpg
    20. 20. Electricity generation by fuel type in AustraliaSource: GeoscienceAustralia p. 34
    21. 21. 62 units lost 2 units lostThe boundary 100 units of energy inputThe electricitysupply chain 34 units lost 2 units of light energy Adapted from: National Academy delivered of Sciences 2008, p. 8
    22. 22. The boundary Energy efficiency example End-use energy efficiency delivers benefits across theelectricity supply chainAdapted from: National Academy of Sciences 2008, p. 8
    23. 23. Four key business risks that energyefficiency can address> Cost containment> Carbon pricing> Compliance with legislation> Licence to operate
    24. 24. Business risk: Cost containment> Electricity prices are rising> Oil price highly variable Energy efficiency is effective in reducing the business impact of rising and variable energy costs
    25. 25. Source: Geoscience Australia 2010, p. 18
    26. 26. Source: Geoscience Australia 2010, p. 28
    27. 27. Business Risk: Carbon pricing > From July 2012 - carbon price of $23 a tonne, 2.5% increase p.a > Fixed for 3 years then market-based > Direct liability = Direct costs > Increased costs in the supply chain = flow through impact on your business Energy efficiency is the most cost- effective way of reducing the impact of a price on carbon
    28. 28. Business Risk: Compliance with legislation > Some relevant current legislation: – National Greenhouse and Energy Reporting Act 2007 – Energy Efficiency Opportunities Act 2006 – Renewable Energy (Electricity) Act 2000 – Building Energy Efficiency Disclosure Act 2010 – Energy and Utilities Administration Act 1987 – NSW Water and Energy Savings Action Plans – Competition and Consumer Act 2010 (formerly Trade Practices Act 1974) – And other accounting, reporting, and auditing standards
    29. 29. Business Risk: Compliance with legislation(con’t)> Exposure draft ISAE 3410 Assurance Engagements on Greenhouse Gas Statements> Environmental Claims in Advertising and Marketing Code> ISO and other quality assurance guidelines Legislative compliance associated with energy efficiency and greenhouse related issues is increasingly complex
    30. 30. Business Risk: Licence to OperateSome stakeholder perspectives:> Investors – Can energy efficiency provide a proxy indicator of good management?> Community – Why isn‟t this organisation acting on cost effective opportunities to reduce greenhouse gas emissions?> Regulators – Perceived market failures justify intervention Organisational stakeholders are increasingly aware that energy efficiency has important business, environmental and social benefits.
    31. 31. Other business drivers and opportunities> Your competitors are doing it!  See public reports from companies in the Energy Efficiency Opportunities program to compare your performance www.energyefficiencyopportunities.gov.au See the Carbon Disclosure Project www.cdproject.net
    32. 32. Ethical Reasons (Greenhouse Gas Emissions) 32Source: Garnaut Climate Change Review 2008, p. 88
    33. 33. 4. How leading organisations areresponding THINK.CHANGE.DO
    34. 34. Example - The GPT GroupSource: Accessed 6/9/11 from www.gpt.com.au/content.aspx?urlkey=Energy
    35. 35. Example - The GPT Group (con’t) > Senior management support The GPT Group have > Appropriate resourcing put the right > Data measurement and reporting systems in > Staff recruitment and training place to deliver > Performance management system results. Energy Efficiency is considered an opportunity to create a competitive advantage.Source: http://eex.gov.au/energy-management/the-business-case-and-beyond/industry-case-studies/
    36. 36. Example - Linfox AustraliaSource: Linfox Energy Efficiency Opportunities Public Report 2010, p. 17
    37. 37. Example - Linfox AustraliaSource: Linfox Energy Efficiency Opportunities Public Report 2010, p. 17
    38. 38. 5. Barriers to energy efficiencyimprovement THINK.CHANGE.DO
    39. 39. Many cost effective energy efficiency projects are available ... But are not being implemented …Source: McKinsey & Company, 2008. Why is this so?
    40. 40. Barriers to energy efficiency improvement in businessDunstan et al. 2011, p.10
    41. 41. Example – Split incentives in the real estate sectorSource: WBCSD 2009, p. 12
    42. 42. 6. Energy efficiency – actions accountantsand business managers can take THINK.CHANGE.DO
    43. 43. Energy Efficiency Fundamentals- Establish your energy base case> Not just the level of energy> It is the expected level of energy, for an expected level of activity> Expected Energy = Fixed Energy + Variable Energy * Activity> How is this different from estimating „predetermined overhead rates‟? – Units are different ($ and kilowatt-hours or Giga Joules) – Energy complies with the laws of thermodynamics (unlike people)
    44. 44. Establish your energy base case> Estimation methods are similar to cost accounting: – Regression Analysis – Modelling/ simulation (like input/ output analysis) – Short term metering – Long term metering> Engineering models and equipment are used, so work with a specialist – e.g. Consider the effect of weather on demand for energy
    45. 45. It is important to clearly identifyorganisational activities and boundaries> Information „should‟ link with existing accounting structures> Base line review is likely to reveal opportunities, which will justify further expenditure as opportunities become known Source: RET 2008
    46. 46. It is important to clearly identify organisational activities and boundaries (cont’d)> We are familiar with the value chain approach, and the benefits of linking resources consumption with activities> Figure of generic value chain (Porter, 1985) sourced from Cooremans (2011)
    47. 47. Energy Base case information> Here are some examples of the type of information useful for identifying EE opportunities Source: RET 2008
    48. 48. Developing the business case for an energyefficiency project> Clear identification of the costs and benefits – Translated into NPV, IRR, Payback etc – Opportunity cost> Identifying direct costs and cost savings may rely on engineering analysis, as well as cost analysis – e.g. A process change effect on your base case and on demand for labour> All costs and benefits should be included – Information value, strategic value
    49. 49. For example> A building in NT implemented a range of EE projectsTotal Annual Consumption for 04/05 in kWh: 1,605,138Total Annual Consumption for 05/06 in kWh: 1,597,135Naive Energy Saving in kWh: 8,003> Linear regression was used to control for differences in weather (the base year had a cool summer)Total Annual Consumption for 04/05 in kWh: 1,775,546Total Annual Consumption for 05/06 in kWh: 1,597,135Energy Saving in kWh: 178,411Difference is a 10% saving vs a 0.5% saving in energy
    50. 50. Hints> Start simply, and do something: – Find out what is happening in your organisation – Review electricity statements for different facilities – Review energy supply contracts
    51. 51. Some suggested places to start> Revisit your energy accounting system – http://www.ret.gov.au/energy/efficiency/eeo/resmaterial/esmg/Pages/default.a spx> Set up a register and systems to identify and manage energy efficiency opportunities – http://www.ret.gov.au/energy/efficiency/eeo/resmaterial/csm/Pages/default.as px> Obtain subsidised energy audits (for some NSW firms) – http://www.environment.nsw.gov.au/sustainbus/energyauditing.htm> Visit our website – http://www.business.uts.edu.au/energyefficiency
    52. 52. Hints> Organise data to match current reporting systems – e.g. batch vs process costing; KPIs> Let people know what you are doing and make data transparent
    53. 53. Hints (cont.)> Conduct an energy information audit: – Ensures your organisation captures new knowledge> Find champions in each major facility and department and let them loose with some decision making rights
    54. 54. Developing the business case for an energyefficiency project > Improved product > Product quality quality > Increased reliability > Greenhouse gas in production reductions > Improved > Safety temperature control > Improved reputation Include all business costs and benefits to increase the chance of success
    55. 55. Useful information for preparing thebusiness case> Costs are easier to identify than benefits – Labour, equipment, consultants etc> To assist in the identification of benefits, we have provided a checklist: – The 6 key drivers of EE discussed in the beginning of the presentation – a list of benefits identified in reviews of the literature (Worrell et al 2003; Cooremans, 2011) • See additional slides at end of presentation
    56. 56. Building the Business Case – A new method for evaluating energy efficiency projects> There are a number of problems with how some organisations evaluate energy efficiency projects – Exclusion of relevant cost and benefits • Lack of education • Difficulty in assessing – Not making the link between the project and the firm‟s strategy (Cooremans 2011) – Risk of project is not assessed/ presented well • Using firm-level hurdle rates (rather than risk adjusted) • Consider best vs worst case – Using payback period as a key decision tool
    57. 57. What is wrong with payback and NPV?Project Scenario: A B C D EInitial Investment $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000Life of project (years) 10 10 15 15 15First year cash profit $ 25,000 $ 25,000 $ 25,000 $ 17,500 $ 17,500Yearly growth rate for cash profit 0% 0% 0% 5.0% 5.0%Hurdle Rate 15% 8% 15% 15% 8%Payback Period (years) 4.00 4.00 4.00 5.20 5.20Net Present Value (NPV) $ 25,469 $ 67,752 $ 46,184 $ 30,289 $ 101,037Equivalent Annual Cashflow(EAC) $ 5,075 $ 10,097 $ 7,898 $ 5,180 $ 11,804
    58. 58. Mutually Exclusive Projects with Unequal Lives In many cases a choice will need to be made between projects that have differing lives. The Equivalent Annual Cashflow method (EAC) Equivalent annual cashflow (EAC) is the calculation of an annuity value having the same term, rate of return and net present value as the project that it represents. To determine the Equivalent Annual Cashflow (EAC) of a project: 1. Calculate the NPV of the project‟s cashflows. 2. Divide the NPV by the annuity factor relating to the time in years and the relevant Discount Factor to determine an annual cashflow figure. That is, the EAC of a project is calculated by dividing the NPV of the project by the annuity factor, relevant to the project life and the company‟s cost of capital (refer to the calculation of the „PMT‟, i.e. Payment, function using Excel).Source: Pazmandy, G. and Brown, P. J. (Ed), 2008.
    59. 59. Illustrative Example - EAC Using two projects, Project A has a life of 2 years, and Project B with a life of 3 years. The company‟s cost of capital is 10%. Cash flows are as follows: Project A Project B Initial Cost -$4,800 -$8,200 Annual After Tax Cash Inflows: Year 1 +$3,000 +$3,500 Year 2 +$3,000 +$3,500 Year 3 +$0 +$3,500 Cost of Capital 10% Solution to Illustrative Example - EAC: To select the most profitable project, they will need to be transformed to a uniform time period to enable the comparison to be effected. Step 1 Calculate the Net Present Value of the Project Project A Project B Project Net Present Value = +$406.61 +$503.98 The above NPVs are not comparable as Project A is for 2 years, whereas Project B has a 3 year life. To enable the comparison, the NPV has to be converted to an Equivalent ANNUAL amount.Source: Pazmandy, G. and Brown, P. J. (Ed), 2008.
    60. 60. Illustrative Example – EAC (cont’d) Step 2 Convert the Net Present Value to an Equivalent Annual Cashflow amount using the PMT (Payment) function in Excel or the formula • Equivalent Annual Cashflow = NPV/ Annuity PV Factor • Project A has a useful life of 2 years – The Annuity PV factor for 2 years is 1.7355 – Therefore: 406.61 / 1.7355 = 234.29 • Project B has a useful life of 3 years. – The Annuity PV factor for 3 years is 2.4869 – Therefore: 503.98 / 2.4869 = 202.66 Project A Project B Equivalent Annual Cashflow = $234.29 $202.66 Using the EAC method, Project A has the higher positive EAC and would be accepted in preference to Project B. Note that this is consistent with the decision made using the lowest common multiple time period method.Source: Pazmandy, G. and Brown, P. J. (Ed), 2008.
    61. 61. The Brown Marginal Abatement Cashflow Curve (BMACC)> Extends the Marginal Abatement Cost Curves (MACC), such as the McKinsey MACC, which we have seen used in practice> Different (better) to other MACCs because: – Uses Equivalent Annual Cashflow, not NPV or payback – Includes a risk distribution – Includes unique colour coding scheme – Includes other information> Creative Commons licence
    62. 62. The Brown Marginal Abatement Cashflow Curve (BMACC) (cont.) 160 better Brown Marginal Abatement Cashflow Curve (BMACC) 140Equivalent Annual Cashflow* or Project F Strong Strategic alignment 120 Medium Strategic alignment 100 Weak Strategic alignment 80 60 40 or Project A 20 6 yr life 2 yr life 3 yr life 4 yr life 5 yr life 6 yr life 7 yr life 1 yr life 0 Project A Project B Project C Project D Project E Project F Project G -20 -40 -60 worse GHG Emissions Abatement (per year)# Source: Brown, P. J., Brown Marginal Abatement Cashflow Curve (BMACC), UTS Business School, URL: http://www.business.uts.edu.au/energyefficiency/project-material.html
    63. 63. Controlling performance using budgets andvariance analysisEnvironmental and social performance can be controlled using standard Management Accounting technology such as budgets, in the same way as economic performance is controlledProject evaluation budget: Economic, social and environmental impacts of possible projects are identified and considered during project evaluation. This involves doing a forecast and budget, and consideration of the strategic value of each project.Formal budget: Once projects have been selected, a formal budget is prepared, this includes who is responsible for which tasks, the setting of targets and reward structures.Project enacted: The project is enacted, and data is collected to allow management to track progress.Variance analysis: At intervals (monthly, quarterly, yearly), the budget is compared to actual results using variance analysis. Variances are investigated and action taken to enhance performance.
    64. 64. Developing an energy budget using multiple regression Example: Using multiple regression, Coles has identified that total energy usage is distributed between three main activities with the following activity drivers: kWh per Activity Activity Activity Driver 52,121 Fixed Usage - 558 Lighting Selling area (m2) 852 Refrigeration Volume Cool with no doors(m2) 922 Refrigeration Volume Frozen with doors (m2) 719,103 Air conditioning No entrance air lock Therefore, the multiple regression model is: Total Electricity Usage (kWh) = 52,121 + 558 x Selling area (m2) + 852 x Cool with no doors (m2) + 922 x Frozen with doors (m2) + 719,103 x No entrance air lockAdapted from RET 2008
    65. 65. Example (cont’d) Coles wishes to assess the total electricity usage of store 2 using the following information: Selling area (m2) = 3500 Cool with no doors (m2) = 650 Frozen with doors (m2) = 340 No entrance air lock = False (0) Calculate the total electricity usage for the Coles Gisborne branch. Total Electricity Usage (kWh) = 52,121 + 558 x 3500 + 852 x 510 + 922 x 310 + 719,103 x 0 = 2,872,401 kWh Therefore, if energy costs were expected to be 20c per kWh for the next year, the budget for store 2 would be: $545,092 (2,725,461*0.2)Adapted from RET 2008
    66. 66. Coles stores’ electricity consumption actualand predicted by regressionSource: RET 2010
    67. 67. Variance Analysis using dollars> Construct an energy budget model – Probably with some engineering assistance> Apply well known variance analysis formulaeEnergy Price Variance = Actual kWh*(Actual Price – Standard Price)Energy Variance = Standard Price*( Actual kWh – Budgeted kWh)> Standard price is your budgeted price
    68. 68. 7. Insights from ‘The Business Case andBeyond’ Project THINK.CHANGE.DO Note: These slides on the project „The Business Case and Beyond‟ have been adapted from a presentation first developed by Patrick Crittenden for the Energy Efficiency Opportunities Workshops in September 2011. The project was funded by the Australian Government, Department of Resources, Energy and Tourism. Case studies and other material on the „The Business Case and Beyond‟ project are available at www.eex.gov.au/energy-management/the-business-case-and- beyond/.
    69. 69. ‘The Business Case and Beyond’ projectCompanies involved: > Rio Tinto Iron Ore> Australia Post > Ron Finemore> Centennial Coal Co. Transport> Downer EDI Mining> Foster‟s Group > Simplot Australia> Linfox > Spotless Group> National Australia Bank > Sydney Water> New Hope Corporation > The GPT Group> Newmont Asia Pacific > WoolworthsAdapted from: www.eex.gov.au/energy-management/the-business-case- and-beyond/
    70. 70. The question… What do you do that helps get support and resources for energy efficiency projects?
    71. 71. 1. Link your project to business priorities > Piggyback on whatever is „hot‟ in the business right now > Solve an existing problem through your „energy efficiency project‟ > Use compliance requirements to drive change Adapted from: www.eex.gov.au/energy-management/the-business-case- and-beyond/
    72. 72. The GPT Group:530 Collins St Melbourne UpgradeSource: http://eex.gov.au/case-study/the-gpt-group-energy-performance- contracting-for-cogeneration-and-energy-efficiency-initiatives-at-530- collins-st-melbourne/
    73. 73. The GPT Group:530 Collins St Melbourne Upgrade (cont.)Source: http://eex.gov.au/case-study/the-gpt-group-energy-performance- contracting-for-cogeneration-and-energy-efficiency-initiatives-at-530-collins-st- melbourne/
    74. 74. 2. Involve the right people You can’t work in silos. Get the rightpeople with different expertise involved. It is the only way to build a credible business case for a project .
    75. 75. Ron Finemore Transport: Modification of trailers on bulk tipper trucks Benefits: > The same amount of product is transported with 74 fewer truck trips/annum, resulting in 72,000 avoided truck kilometres travelled > 38,000 litres of fuel saved per annum > Shared financial benefits for the customer and Ron Finemore Transport > Reduction in greenhouse gas emissions of 103 tonnes CO2e-/per annum > Benefits to the community through fewer truck movements.Adapted from: http://eex.gov.au/case-study/ron-finemore-transport-increasing-payload-capacity-on-bulk-tipper-trucks/
    76. 76. 3. Communicate with decision makers early > Use existing communication forums such as management meetings > Use the right „business speak‟ > Use clear and focused messages and questions Adapted from: www.eex.gov.au/energy-management/the-business-case- and-beyond/
    77. 77. 4. Identify and manage project risks Thinking about a project from a risk perspective helps you reduce the chance of unforeseen things happening…it demonstrates that you have thoroughly thought the project through
    78. 78. 5. Consider all business costs and benefits > Cost reduction > Product quality > Salvage value > Greenhouse > Maintenance gas reductions benefits > OH&S > Deferred CAPEX > Corporate > Productivity reputationSource: Worrell, E., Laitner, J., Ruth, M., & Finman, H., 2003
    79. 79. 6. Identify funding options > R&D tax breaks > Government funding > Energy performance contracting > Internal energy fundsSee: http://eex.gov.au/energy-management/the-business-case-and-beyond/developing-your-business-case-six-strategies/consider-a-range-of-funding-options/
    80. 80. Six key strategiesSee: http://eex.gov.au/energy-management/the-business-case-and-beyond/developing-your-business-case-six-strategies/consider-a-range-of-funding-options/
    81. 81. Some unexpected answers This is what we do to influence our company culture, systems and processes to improve the success- rate of future projects…
    82. 82. 1. Monitor, verify and promote success> Budget for monitoring & verification as part of the the business case proposal> Leave room to deliver more than you promise> Make sure the right people know what has been achieved and keep it on recordSee: http://eex.gov.au/energy-management/the-business-case-and-beyond/influencing-company-culture-systems-and-processes/monitor-verify-and-promote-successful-projects/
    83. 83. 2. Regularly brief management > Business drivers, risks and opportunities change – keep managers informed > Communicate information about what your competitors are doing (or not!) > Use relevant graphs and statistics – for example, how well you are tracking towards targetsSee: http://eex.gov.au/energy-management/the-business-case-and-beyond/influencing-company-culture-systems-and-processes/regularly-brief-management-on-energy-risks-and-opportunities/
    84. 84. 3. Adapt project approval processes Consider: > Combining smaller projects into one larger project > Establishing an internal fund for energy efficiency projects > Adding questions on energy impacts to capital expenditure approval processesSee: http://eex.gov.au/energy-management/the-business-case-and-beyond/influencing-company-culture-systems-and-processes/streamline-and-adapt-project-approval-processes/
    85. 85. An important message… Get the technical detail right (engineering and accounting) AND Develop strategies to “win friends and influence people” (getting support and resources for anything is a political process!)
    86. 86. 8. Questions to supportinteractive group work THINK.CHANGE.DO
    87. 87. The exercise is to be introduced by the facilitator/ MC. Ask participants to spend 5-10 minutes in pairs or triads discussing the questions.
    88. 88. Interactive exercise #1> How is energy efficiency managed in your organisation?> What are some of the challenges?> What results have been achieved?
    89. 89. Interactive exercise #2> What role do you play in progressing your company‟s energy efficiency performance?> How else could you contribute to progressing your company‟s energy efficiency performance?
    90. 90. 9. Next steps THINK.CHANGE.DO
    91. 91. Where to find helpful information aboutenergy efficiency> All teaching resources are available fromwww.business.uts.edu.au/energyefficiency> NSW and Federal Government provide training and education materials. – For example, see:www.environment.nsw.gov.au/www.energyefficiencyopportunities.gov.au
    92. 92. Further training options> NSW and Federal Government provide training and education materials: http://www.environment.nsw.gov.au/sustainbus/greenskills/eneftraining. htm> NSW government has also provided information on where to access training. See: https://www.training.nsw.gov.au/programs_services/funded_apl/ssp/gs bi.html
    93. 93. Where to from here> Some suggested places to start: – Revisit your energy accounting system http://www.ret.gov.au/energy/efficiency/eeo/resmaterial/esmg/Pag es/default.aspx – Set up a register and systems to identify and manage energy efficiency opportunities http://www.ret.gov.au/energy/efficiency/eeo/resmaterial/csm/Page s/default.aspx – Obtain a subsidised energy audit (for some NSW firms) http://www.environment.nsw.gov.au/sustainbus/energyauditing.ht m
    94. 94. References> Australia Industry Group 2011. Energy shock: confronting higher prices.> Bureau of Meteorology & CSIRO. 2010. State of the Climate.> Benn, S., Brown, P., Brown, D., Crittenden, P., and Krithinakis, A., 2011, Leadership & Change for Energy Efficiency in Accounting & Management: Training Needs Analysis, Version 1.0, September 2011, Report for the Office of Environment and Heritage NSW.> Brown, P. J. 2012, Brown Marginal Abatement Cashflow Curve (BMACC), UTS Business School, URL: http://www.business.uts.edu.au/energyefficiency/project-material.html> CIMA. 2010. Accounting for climate change. How management accountants can help organisations mitigate and adapt to climate change, September 2011 http://www.cimaglobal.com/Documents/Thought_leadership_docs/cid_accounting_for_climate_change_feb10.pdf> Cooremans, C, 2011, Make it strategic! Financial investment logic is not enough, Energy Efficiency, vol. 4, No. 4, pp. 473 – 92> Crittenden, Patrick and Helen Lewis 2012, The Business Case and Beyond, report developed for the Australian Government Department of Resources, Energy and Tourism, accessed April 2012, < http://eex.gov.au/energy- management/the-business-case-and-beyond/ >.> Crittenden, Patrick and Helen Lewis. 2011. „Accelerating the uptake of energy efficiency in industry - a case study of the Australian energy efficiency opportunities program‟, pp. 795-805 in Energy efficiency first: The foundation of a low- carbon society, European Council for an Energy Efficient Economy 2011 Summer Study, Belambra Presquîle de Giens, France.> Department of Resources, Energy and Tourism (RET) 2008, Energy Savings Measurement Guide. Canberra.
    95. 95. References> Dunstan, Chris, Katie Ross, and Nicole Ghiotto. 2011, Barriers to Demand Management: A Survey of Stakeholder Perceptions, research report prepared for the Australian Alliance to Save Energy by the Institute for Sustainable Futures, University of Technology, Sydney.> Geoscience Australia 2010, Australian Energy Resource Assessment. Commonwealth of Australia.> Hoffman, A. 2010, Carbon Strategies: How leading companies are reducing their climate change footprint, The University of Michigan Press.> International Energy Agency 2011, World Energy Outlook .> Linfox 2010, Energy Efficiency Opportunities Public Report 2010, viewed April 2012, www.linfox.com/~/media/Documents/PDF/Linfox_EEO%20Act%20PR%202010%20Appendix%20small.ashx> McKinsey & Company 2008. An Australian Cost Curve for Greenhouse Gas Reduction, McKinsey & Company, Melbourne.> Newell, Graeme, John MacFarlane, and Nils Kok 2011. Building Better Returns. A study of the Financial Performance of Green Office Buildings in Australia. Research by the University of Western Sydney Australia and the University of Maastricht Netherlands in conjunction with Jones Lange LaSalle and CBRE for the Australian Property Institute and the Property Funds Association of Australia.> National Academy of Sciences 2008. What You Need to Know About Energy. viewed April 2012, < http://www.nap.edu/catalog.php?record_id=12204>.> Pazmandy, G. and Brown, P. J. (Ed) 2008, Readings in Business Analysis, 2nd Edition, McGraw Hill Custom Publishing.> Porter, M. E., 1985, Competitive advantage. New York: Free.
    96. 96. References> Productivity Commission 2011, Performance Benchmarking of Australian Business Regulation: Planning, Zoning and Development Assessments, viewed April 2012, < http://www.pc.gov.au/projects/study/regulationbenchmarking/planning/report >> Reinaud, Julia, Amelie Goldberg, and Vita Rozite 2012, Policy Pathway on Energy Management Programmes for Industry: Gaining Through Saving, OECD/IEA and IIP, Paris.> Sustainability Victoria 2010, Energy Efficiency Best Practice Guide Lighting, viewed April 2012, < http://www.resourcesmart.vic.gov.au/documents/BP_Lighting_Manual.pdf>> RET 2008, Energy Savings Measurement Guide. Australian Government Department of Resources, Energy & Tourism (RET), Canberra.> RET. 2010. Energy Efficiency Opportunities: Representative Assessment Guide, Australian Government Department of Resources, Energy & Tourism (RET), Canberra.> RET 2011. Continuing opportunities. Energy Efficiency Opportunities program - 2010 report. A look at results for the EEO program 2006 - 2010. Australian Government Department of Resources, Energy & Tourism (RET), Canberra.> The GPT Group 2011, Sustainability Report 2011. Viewed September 2011, www.gpt.com.au/content.aspx?urlkey=Energy.> Total Environment Centre 2010. Demand management and energy policy development: A case study of New South Wales.> World Business Council for Sustainable Development (WBCSD) 2004, Facts and trends to 2050.> World Business Council for Sustainable Development (WBCSD) 2009, Transforming the Market: Energy Efficiency in Buildings.> World Economic Forum 2010. Energy Vision Update 2010. Towards a more energy efficiency world.> Worrell, E., Laitner, J., Ruth, M., & Finman, H. 2003, Productivity benefits of industrial energy efficiency measures, Energy, 28(11), 1081–1098.
    97. 97. Appendix> This information may be printed and provided as a handout rather than presented.
    98. 98. Some sources of competitive advantage from EE: REDUCEDRISKS (from Worrell et al 2003 and Cooremans, 2011) > Reduced hazardous waste > Reduced dust emissions > Reduced CO, CO2, NOx, Sox emissions > Increased facility reliability > Reduced wear and tear on equipment /machinery > Decreased liability > Legal risks > Carbon & energy price risks > Disruption of energy supply > Commercial risk
    99. 99. Some sources of competitive advantage from EE: REDUCEDCOSTS (from Worrell et al 2003 and Cooremans, 2011) > Use of waste fuels > Reduced product waste > Reduced waste water > Materials reduction > Increased product yield > Improved equipment performance > Shorter process cycle time > Reduced dust emissions > Reduced CO, CO2, NOx, SOx emissions > Reduced wear and tear on equipment, machinery
    100. 100. Some sources of competitive advantage from EE: REDUCEDCOSTS (from Worrell et al 2003 and Cooremans, 2011) > Decreased liability > Reduced need for personal protective equipment > Improved lighting > Reduced turnover, absenteeism and health costs (improved worker morale, reduced noise, improved air quality and temperature control) > Reduced needs for engineering controls > Lowered cooling requirements > Reductions for labor requirements > Delaying or reducing capital expenditure > Additional space

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