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To Bundle or Not to Bundle?

Dec 3

Written by:
12/3/2012 2:30 PM  RssIcon

A recent article posted to one of my LinkedIn groups generated a heated discussion. The article, titled Rotten Fruit: Why Picking Low-Hanging Fruit Hurts Efficiency and How to Fix the Problem, suggests that companies often complete easy, high-return efficiency projects such as lighting retrofits, but stop there. They do not proceed with more expensive retrofits that would also save a lot of energy but are not as quick to return their investment. The author, Auden Schendler, argues that companies should bundle efficiency projects with the highest and fastest returns with those that have lower or slower returns in order to get more projects approved and completed.

The responses to the article from members of the Energy Efficiency Professionals LinkedIn group were varied. Some agreed that bundling is an effective strategy, while others disagreed stating that companies should go for the “low-hanging fruit” first, and then continue looking for and implementing additional projects that make economic sense. What follows is a summary of the pros and cons of bundling energy efficiency projects as discussed by the group.

Pros of Bundling Efficiency Projects:

  1. Bundling makes projects with a lower/slower financial return more attractive because it combines them with higher/faster return projects so that the total return is more palatable to executives.
  2. Bundling can help companies reach their carbon reduction goals faster by combining “deep” efficiency projects such as replacing boilers and furnaces with lighting retrofits.
  3. Bundling will help companies justify energy projects even if the price of energy stays low. (Many argue that companies will not significantly invest in energy efficiency retrofits until the price of energy is much higher—or until a carbon tax is implemented.)
  4. New financing options such as on-bill financing and Property Assessed Clean Energy (PACE) programs make bundling more attractive. Many of these programs require quite a bit of paperwork that might be too much for a small project, but worth it for a bundle of several projects.

Cons of Bundling Efficiency Projects:

  1. If companies complete high/fast return projects first, they can use the returns from those projects to fund additional energy efficiency projects.
  2. Bundling can have poor return on investment results if the energy consultant is motivated by selling highly marked up equipment. If bundling, companies should be careful to separate oversight of the project from equipment purchases.
  3. Bundling can result in funding projects with a negative net present value (NPV) or internal rate of return (IRR), when that money could be better used elsewhere.
  4. Bundling can cause the delay of high/fast return projects until the whole package of projects can be completed, resulting in unnecessary waste.
As several people pointed out in this discussion, the argument about bundling is moot in many cases because many companies have already plucked the low-hanging fruit. They have already completed the easy, high/fast return retrofits. For those companies, the question is will they continue to look for and implement additional energy efficiency projects that take longer to recoup their investment? Or will they pat themselves on the back and put energy efficiency on the back burner?

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