Energy Policy and Return on Investment

 

While we love our contentious politics and passionately favor our pretty candidates, we lose sight of the fact that there is actually some work to do and that the policies that will get that work done are complex, filled with nuance, trapdoors and obstacles.

Politics is well-suited to sound bites, but governance is far more complex than that. We favor Obama’s candidacy not because he knows everything about energy policy or economics — he doesn’t and neither do any of the other candidates. We favor him because he understands that any policy that is actually effective must engage the voters and decision-makers in the private and public sectors and his approach is more likely to achieve that plan of engagement. He is betting that people will accept some ambiguity and mistakes in the pursuit of good governance.

The business case discussed below must present the voter or decision-maker not only with some proposal that is based upon his direct benefits, but all the indirect benefits he/she will receive, the fact that there will be government incentives, and the fact that his/her competitors are getting the benefit of having already subscribed to the new policy. If the decision-maker is not sold on all these factors, he/she won’t do it. His/her job is on the line. Everyone wants to be a hero but nobody wants to risk cutting their employment throat. 

As the following article points out, the largest problem confronting us in changing the energy paradigm is the bean counter. Return on investment (ROI) is a term that is widely used and presumed to mean something. Unfortunately it  doesn’t mean anything except to the speaker. We all mean different things when we talk about whether a project is “worth” doing. That’s where government comes in as the referee.

Good government policy defines the scope of a project, the benefits and the costs in a way that educates people and has them speaking about it in the same way, using terms that are understood by everyone the same way. It is from the higher government point of view that decision-makers in the private sectors can gain a perceptual advantage as they see their place in their industry and their place in the economy as a whole.

Good government policy provides incentives and reliable information for decision-makers to make good decisions not only indiivudally for their own companies, but collectively so that each industry and each company, along with the economy as a wholoe has an opportunity to achieve a stable growth pattern, secure in the knowledge that we remain ahead of teh curve.

Energy policy is part of the larger government role of national security. We can all agree that we want to pursue policies that will increase the likelihood of peace and prosperity, where tax rates are low, tax revenues are high (because of high growth economic activity and productivity) and reducing entangling alliances and policies that might increase the the prospect of an expensive war or distract us from maintaining the value of our currency, while keeping the pressures of inflation checked.

Thus we all know that good national and state economic policy includes effective administration of an energy policy. However in a democratically driven republic with capitalist economic underpinnings nothing works without “consent of the governed.” Cooperation of voters and private sector decision-makers is not merely helpful, it is required. Consent cannot be effectively coerced without most of the rest of the voters or decision-makers subscribing to the policy (peer pressure and reducing the perception of risk because others are doing it). 

Thus the mission of the next administration will be to communicate effectively with the private sector and with voters to change the paradigm of energy production and consumption.

 

  • For example, plug-in hybrids that will provide a range of perhaps 40-50 miles on battery power alone, requires somewhere to plug them in. 
  • If they are plugged in overnight when usage is lowest, then the utility companies get increased revenues and profits, and government should reward the utility companies with credits for participating in the reduction of the carbon footprint of transportation. 
  • But if the cars are plugged in during peak hours, it could be a financial disaster for the utility companies unless they are able to secure cheap energy to absorb the already overloaded hours.
  • This opens the door for wind turbine and solar capture farms in areas that are presently unused, and which would be environmentally unaffected by installation of renewable energy sources. 
  • It opens the door for entrepreneurs to convert existing hybrids to plug in versions and for car manufacturers to offer new vehicles with the hybrid capability to  run on battery alone, run on gasoline, run on diesel and even to run on alternative bio diesel.
  • It opens the door for entrepreneurs to offer home conversion for solar (PV) electricity for powering up those hybrids, golf carts etc. during PEAK times.
  • This in turn opens the door for companies that deliver products and services to businesses and residences to convert to such vehicles, including government society services like police, fire, public transportation etc.
  • The result if properly administrated and orchestrated, is a direct cost savings to all the participants, direct increase in profit for the private sector, direct decrease in major costs for government services, and indirect benefits that are more important at higher levels of government than a particular locale or even state.
  • ALL of this requires an effective leader who gives voice, vision and direction motivated by a desire to produce a benefit to society (everyone) rather than part of a society with merely leads to abuses that are always traced to schemes that are merely masked agendas for transfer of wealth, accumulation of power and the enslavement of the citizenry. 

 

Thus the business case discussed below must present the decision-maker not only with some proposal that is based upon his direct benefits, but all the indirect benefits he will receive, the fact that there will be government incentives, and the fact that his competitors are getting the benefit of having already subscribed to the new policy. If the decision-maker is not sold on all these factors, he/she won’t do it. His/her job is on the line. Everyone wants to be a hero but nobody wants to risk cutting their employment throat. 

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Sales & Marketing: Why ROI Calculators are a Formula for Failure

Financial justification tools face three major challenges: Prospects don’t believe their output; facilities managers are not financially trained; and sales reps are not trusted to explain the numbers.

Rebates, ITCs, projected energy costs, NPV… Finance is not a shallow subject, but most people barely get their toes wet before they drown. Just ask three CFOs to explain “return on investment.” You’ll soon be gasping for air, even if you thought you knew what it meant.

When it comes to sustainability, for-profit corporations still do more talking than buying. Without a business case, few projects end up getting past the “nice idea” stage.

This is as true for chiller plant controls as it is for a utility-class wind farm. Capex approvers need convincing that sustainability goes beyond saving polar bears, and isfiscally the right thing to do for their company.

Take energy efficiency as an example, performance contracts aside. Unless a sales rep can get C-level executives to think about energy as a manageable P&L line item, instead of as a fixed expense, the rep will be going out the way they came in — empty-handed. No business case, no deal.

Point of failure

Who prepares the business cases for your proposals? Unless you can find a way to keep your finance department out of doing it, this is a bottleneck in the sales process. Thus the popularity of ROI calculators.

Does your company use an ROI calculator?
Post a comment and share your experience.

Sales reps who open up an ROI calculator are likely to experience a vague sense of dread. The facilities manager doesn’t really understand or believe the result — accounting isn’t their profession, after all — but they provide the numbers and nod politely.An attempt to explain the results is likely to embarrass the sales rep — accounting isn’t their profession, either — but they try. The prospect does more nodding, and grows more skeptical.

So, companies say they have tools to calculate payback, reps say they use them, and prospects say they understand the results. The marketing department, who spent plenty to have the ROI tool developed, hears neutral feedback or nothing at all. They don’t know the tool is ineffective and has fallen into disuse.

Soon, though, the tool is out of date. The state grant expires, the latest energy bill changed the depreciation rules again, or energy costs have outpaced the projections. Even a spreadsheet that is still valid is not trusted beyond a few months after it was created.

What’s the formula?

In companies where I’ve seen ROI tools succeed, there have been common traits. First, these typically are larger companies with multiple products, so they have more than one ROI tool. One or two people with financial backgrounds are assigned to researching, building, and maintaining the tools. They take pride in their product.Second, each tool is designed to allow the prospect and sales rep to produce a believable business case. That means believable for the customer even if it’s not as favorable to the vendor. When it’s readable and believable, it has a chance of showing up in the C-level decision maker’s e-mail. All assumptions and constants are footnoted with credible sources, and none of them are locked. If the prospect wants to reduce the power factor or increase the number of cloudy days, let them. It’s their ROI.

Finally, train sales reps and give them a support line. Try as you may to make the user interface simple, it’s still Excel and it’s still complex. Webinars are effective at teaching sales reps how to use these tools, especially in a third-party sales channel — and the recording of the webinar stays around for reference. Reps then need to know who to call for help whenever they get stumped in front of a prospect.

To close a business-to-business sale, you need to demonstrate the cause-and-effect relationship between investing in your product and achieving a business goal. In the C-suite, there’s nothing as powerful as a good ROI tool in the hands of someone who is comfortable using it.

 

One Response

  1. […] Livinglies’s Weblog wrote an interesting post today on Energy Policy and Return on InvestmentHere’s a quick excerpt While we love our contentious politics and passionately favor our pretty candidates, we […]

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