Electric Rates and the Cost of Inaction

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How expensive are problems? Have you given thought to the idea that not taking action could be a LOT more expensive than the cost of a solution? Lets take a moment to review the issues:

In 2006, the Michigan Public Service Commission stated that:

  • By 009, growing demand will cause electric generation and transmission capacity in the Lower Peninsula to be insufficient to maintain reliability standards.
  • Demand growth, coupled with the retirement of some of Michigan's base load power plants, will necessitate the addition of 1 or 2 new base load power plants by 2014.

Many other states are faced with similar problems.

2009 Events:

  • April 17th- Obama administration declared that CO2 and 5 other industrial gases threaten the planet, setting the stage for regulation of carbon emissions.
  • December 7th- EPA announced that six gases including CO2 and methane are dangerous to the environment and the agency would begin developing regulations to reduce those emissions. This announcement effectively tells Congress that if it doesn't regulate these gases, it will.

These efforts are in response to the theory of Global Warming, the belief that man-made pollutants in the atmosphere act as a sort of "greenhouse effect", causing heat to build up that can have a number of potentially harmful side effects, including more frequent and severe heat waves (causing more heat related illnesses and death), depleted water resources, melting of polar ice caps and glaciers, increased air pollution, and crop damage.

If we do not take action, we will be faced with higher and higher utility costs. By improving energy efficiency in a way that cuts the amount of electricity you consume, you automatically gain the benefit of producing fewer greenhouse gases and reducing your potential carbon cap and trade costs.

Let's look at a sample building in the Detroit metro region. It is a 29,792 square foot multi-tenant office building and produces 285 metric tons of CO 2 equivalent (MtC02e / year) each year. By taking action to improve efficiency, they can save over $ 20,000 per year on utilities with simple payback in less than 3 years. This improves energy efficiency by over 30% and reduces greenhouse gas production by over 81 tons. When the tax advantages of improving energy efficiency are figured in, the cost of doing an upgrade comes to a whopping $ 0.19 per square foot.

Estimating that they can get financing at 6.5%, waiting and including it in next year budget creates a $ 13,258 loss in savings. Even if they could get financing at 4.5%, the break even point is only 2.4 months, after which a delay becomes more expensive. Remembering that the energy cost savings last for the life of the equipment, well beyond the point where savings paid for the upgrade, this could mean as much as $ 172,000 in cash flow to the owners. The total cost of inaction in this case would be over $ 215,000.

We all need to sit back and think about our costs of inaction.

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Source by Richard Buzard

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