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Cutting Costs in the Face of Rising Utilities

May 27, 2014 By Agiimaa Kruchkin and Ian Buchanan

Agiimaa Kruchkin and Ian Buchanan

Rising energy prices are encouraging commercial building operators to invest in sustainable energy practices and related systems.

Businesses and consumers alike are feeling the heat from rising utility costs, but commercial buildings in particular, such as hospitals, shopping centers and offices, have been taking a significant hit considering they account for about one-fifth of domestic energy consumption. While the utilities price index, published by the Bureau of Labor Statistics, has increased in line with the improving economy, commercial building energy consumption has also been on a steady upward trend. Even before the recession, energy consumption of commercial buildings grew a whopping 69.0% from 1980 to 2009. Based on projections from the Energy Information Administration, it is estimated to grow another 22% from 2009 to 2035.

With the index expected to grow an annualized 2% through 2017, businesses will increasingly be looking for ways to cut costs, including through sustainable energy practices. These efforts to cut costs coincide with the LEED certification program that encourages building owners to conserve energy, improve indoor air quality and reduce water consumption, which can ultimately help them save money. Pinpointing effective solutions for reducing energy use is challenging, though, so IBISWorld identified four ways to dramatically lower energy use and costs: energy management control systems, window and door installation services, HVAC system construction and maintenance, and solar panel installation. The following assessments of key trends in these markets will help buyers make informed purchasing decisions.

Energy Management Control Systems

The average commercial building wastes roughly 30% of the energy it consumes, with the US Department of Energy (DoE) pointing to lighting as the largest source of electricity consumption in commercial buildings. This wasted energy is largely the result of inefficient use of heating, ventilation and air conditioning (HVAC) and lighting. With energy management control systems, users can reduce energy consumption by monitoring and controlling HVAC and lighting usage. These systems use sensors and specialized software to provide real-time information regarding energy use. They can identify and alert users when adjustments are needed to optimize the efficiency of HVAC units and lighting, and they can also be set up to make adjustments automatically. Alternatively, some energy management control systems focus on specific aspects of a building’s energy consumption, such as its lighting. Building lighting control systems vary in complexity, ranging from simple timed shut-off switches to advanced networks of sensors and controls that can automatically adjust brightness levels based on the amount of ambient light present.

Due to rising utilities prices, demand for energy management control systems has been rising and is expected to continue its trend as businesses seek ways to reduce utility costs. Although expanding demand is forecast to place upward pressure on the price of these systems, growth will be tempered thanks to falling installation costs for these systems. Improvements in wireless technology are increasingly reducing the amount of wiring needed for installation. As such, the price of energy management control systems is expected to rise at an annualized rate of just 1.5% over the three years to 2017. Buyers that require multiple systems can generally secure discounts or favorable terms on maintenance when making a bundled purchase from a single supplier.

Window and Door Installation Services

The DoE estimates that roughly one-third of cooling costs are attributable to heat transferred through windows. So by installing energy-efficient windows, businesses can both limit the amount of solar heat coming through windows during hot seasons and trap that heat indoors during colder seasons, effectively reducing cooling and heating costs. Businesses can also install energy-efficient doors, which prevent cold air drafts and provide insulation.

As businesses and homeowners look to reduce energy in light of increasing utility costs, demand for energy-efficient windows and doors is on the rise, especially combined with recent expansion in construction and home improvement activity. This growth in demand for energy-efficient window and door installation services is giving suppliers greater pricing leverage and pushing up prices. As such, IBISWorld expects the price of window and door installation services to grow at an annualized rate of 2.0% over the three years to 2017. As with energy management systems, higher-volume purchases may secure lower prices, but buyers looking for an even cheaper (albeit less efficient) option can at least tint their existing windows for reduced energy costs in the summer.

HVAC System Construction and Maintenance

HVAC systems are the second-largest source of energy consumption in commercial buildings. Installing new energy-efficient HVAC systems can significantly reduce energy costs. Replacing an existing system can be a costly process, though, so businesses can instead decrease their energy costs by performing proper maintenance on their existing HVAC systems. A study by The New Buildings Institute found that poorly maintained HVAC systems lead to inefficiencies that result in increased energy usage of up to 60.0%. Providers offer HVAC construction and maintenance services that can retain proper airflow, prevent leaks and reduce overexertion of fans and pumps. Consequently, businesses can reduce their energy costs by simply performing regular preventative maintenance.

Over the three years to 2017, greater investment in buildings and structures is forecast to fuel increases in the value of construction, pushing it up an annualized 7.2%. This expansion indicates a growing number of buildings and facilities that will require HVAC systems. As a result, IBISWorld forecasts demand for HVAC system installation and maintenance to increase, driving up the price of these services at an annualized rate of 4.2% over the period. To help lock in lower prices, buyers seeking regular maintenance on their new or existing HVAC systems can sign long-term contracts with suppliers.

Solar Panel Installation

Although only about one percent of US energy currently comes from solar installations, this share represents an increase from just three years ago thanks in part to government-backed initiatives and incentives. By 2030, SunShot Initiative, a national collaborative under the DoE, projects that share to hit 14% as government initiatives continue to help push down the prices of solar-generated power and related systems. On April 17, 2014, the Obama administration announced a $15 million Solar Market Pathways program aimed at helping state, local and tribal governments install solar panels and other infrastructure to help reduce greenhouse gases, energy consumption and costs. The government’s push toward solar power, combined with the White House’s plans to encourage federal agencies to adopt sustainable practices, will continue to drive demand for solar panel installation services in the three years to 2017.

Despite the anticipated expansion in demand, IBISWorld expects solar panel installation prices to fall at an annualized rate of 3.7% during the three-year period due to the government incentives. Furthermore, the costs of solar panels and their components have dropped more than 60.0% since 2010, making sustainable energy solutions even more affordable. In light of rising utilities prices, solar panels are growing ever more attractive to value-conscious building operators.

The increasing utility costs anticipated over the three years to 2017 will continue to incentivize businesses to adapt sustainable practices; however, growing prices of many energy-saving services make it especially important to act soon. To facilitate the movement toward upgraded and greener buildings, the DoE plans to provide up to $4.0 billion in loan guarantees for renewable energy companies. By using the energy-saving products and services discussed in this report, businesses will be better equipped to manage rising utilities costs while reducing their environmental footprint.

Agiimaa Kruchkin is a lead business research analyst at IBISWorld. She holds bachelor’s degrees in international business and Latin American studies from Pepperdine University, and a certificate in conflict management from Straus Institute of Dispute Resolution. Agiimaa can be reached at agiimaak@ibisworld.com, and the research featured in this article can be found at www.ibisworld.com.
 
Ian Buchanan is a business research analyst at IBISWorld. He holds a bachelor’s degree in economics and a minor in business from University of California, San Diego. Ian can be reached at IanB@ibisworld.com and the research featured in this article can be found at www.ibisworld.com.



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