Considerations in the estimation of costs and benefits of industrial energy efficiency projects

Many examples exist of industrial energy efficiency projects that are not implemented even though their energy savings would have a payback of less than one year. There are also many examples of projects that show a much less impressive payback but which, in fact, are implemented. The authors suggest that this behavior results from cost and benefit accounting that may be frequently in error. The fundamental thesis of this paper is that, in general: costs and benefits resulting from nonenergy ramifications of energy efficiency projects are often not included in a cost/benefit analysis of energy efficiency projects, although they should be; and total benefits-including both energy and nonenergy savings-that accrue from so-called "energy-saving" projects are significantly greater than those from the energy savings alone. This paper discusses reasons for these "errors", the complexity and fundamental misunderstanding of how energy fits in with decisions affecting other industrial resource issues, the importance of pursuing further efficiency gains, the correct approach to estimating costs and benefits, and understanding the business-management, decision-making process.