Why is it hard to get decarbonization projects away?
The main issue, as far as I can see, comes down to big rocks and small levers.
Regulators want us to understand what risks and opportunties affect our businesses, and work out mitigation pathways.
This isn’t new, especially to Operations Researchers. We’ve had the tools to model alternatives, outcomes and preferences to support decision makers for decades.
What stops us from taking action is that most models don’t capture all the variables that matter.
Let’s take one of the biggest issues. Getting capital.
You run a company and if you invest in machinery you get your money back in 2 years – a 2-year payback.
So it seems rational to ask that every project you approve has a 2-year payback or less – or a better use of money is to invest in your core business.
Almost every energy saving project has a 5-year payback. So it doesn’t clear that hurdle.
One way of solving this is for an energy services company to finance the project and have savings pay for the capital – a no brainer you would think – except there are balance sheet implications and long-term obligations. So that’s complicated.
Plus – define savings. You’ll have to bring in a financial engineer.
Oh and by the way – that payback equation – it’s bad maths. You need to look at NPV to work out if it’s worth investing or not really.
In the last 10 years the one technology that’s flown off the shelves is LED lighting. It’s met the two-year payback requirement but do you know what really sealed the deal?
It made products look good. I remember a bathroom supplier telling me that it made their stuff sparkle. Get your product to boost sales and the pitch is much easier.
Getting projects away is not about modelling and optimization. It’s about attitudes, beliefs, values, forecasts, preferences, risks and most of all, leverage.
Making a plan is the easy bit.
Getting a big enough lever to move huge rocks requires a bit more preparation and thinking.
Handcrafted insight 