Alternative energy - we've heard a lot about it over the years. Now, with the Obama Administration and its focus on renewable energy sources, we will be hearing a lot more. Stimulus dollars are starting to flow and billions of dollars will be targeting the alternative energy sector. Being a consumer of alternative energy has always been an effective way to show good corporate citizenship, but most companies cannot function on alternative energy alone. Plus, at least for now, alternative energy can cost up to 25 percent more than natural gas and fossil fuel-generated electricity.
To discuss the importance of alternative energy in the site-selection process - both for today and in the future - Area Development asked four very experienced site selection consultants to share their insights on this evolving topic: Bob Hess (NKF Consulting), Dean Uminski (Crowe Horwath LLP), Mark Sweeney (McCallum Sweeney Consulting), and Jim Colson (AngelouEconomics).
AD: What are the biggest overall energy-related concerns regarding site location and facility planning today?
Colson: The availability of a reliable source of energy. This often entails ensuring a redundant source of supply and measuring reliability metrics. The cost of energy is a factor in every location decision, but much more so based on the consumption profile of the company.
Uminski: I agree. Cost reduction is a big concern with many of my clients. Cost measures can include pollution-control investments, energy conservation, operational efficiencies for all types of buildings, environmental laws, and reduced waste.
Hess: The fundamentals of site selection remain intact when it comes to energy, regardless of the energy source or use - capacity, reliability, redundancy, and of course cost. Layered on top of these fundamental variables are new and emerging issues around carbon emission standards, energy efficiency, LEED rating and processes, and the ability to achieve long-term cost savings with "greening" of the assets - all under the business imperative of sustainability and doing more with less.
Sweeney: As Hess said, reliability is important, generally because of the sensitivity of equipment in virtually any operation, including manufacturing (especially process), distribution (advanced material handling equipment), and even office (critical for reliable communication equipment).
But reliability has taken on new depths for some clients, with greater interest in the source/type of their generation (for example, percent coal, percent nuclear, percent hydro, percent alternative, etc). This has been primarily for contributing to assessment of short- and mid-term reliability, and for mid- to long-term pricing.
AD: What are the pros and cons of going with alternative energy, or having a high percentage of alternative energy in your energy consumption portfolio?
Colson: Being viewed as a good corporate citizen by going "green" is important to the board of directors and to the customer and, more often than not, is a stated corporate value. Additionally, while the capital investments associated with installing alternative energy devices and conservation equipment is often higher than traditional sources, the savings ultimately offset the up-front costs. It is often assumed that the amortization for these types of projects is 15-20 years, but the availability of tax credits and other offsets can significantly accelerate this schedule.
Uminski: From an environmental standpoint, the largest benefit I see is that solar-, wind-, and water-related power does not produce any emissions, and no valuable resources are used up with renewable resources power generation. However, Colson mentioned cost, and federal and state reporting regulations can be time-consuming and costly.
Colson: While the costs can be offset by rebates and credits, a sufficient grid system needs to exist to provide a reliable source of power. This challenge is being addressed, but still can place limitations on the applicability of renewable energy sources for some companies.
Sweeney: I believe the positives are primarily in public relations, which include general public image building, customer positioning, supplier positioning/qualifying, political capital, employee motivation/satisfaction, etc. Of course, as an entity on the planet, there is the expected long-term benefit of better planet stewardship. The primary negative is cost - it is generally understood that most alternative energy sources cost more than fossil or nuclear, although long term they should tend to grow closer. In addition, some prospects will still have some concerns about maintaining the high reliability they have grown to expect from current supplies.
Hess: There is also the recruitment factor. Some executives are concerned that they will not be able to recruit young talent because these prospects ask leadership what the company is doing to be green. I heard this perspective at the World Economic Forum in Tianjin, China last September.
AD: Which cities/MSAs do you believe are greenest when it comes to using alternative energy?
Colson: Cities that get the most mention in pursuing the implementation of an alternative energy policy are Portland, San Francisco, Boston, Seattle, Austin, and Minneapolis. Each of these cities, and certainly many more, have established programs that focus on the use of alternative energy sources, transportation policy supporting mass transit, conservation programs, and "green sensitive" design policies.
Hess: Seattle and San Francisco are also among the cities with the most "Energy Star" buildings. Also included are Los Angeles; Houston; Washington, D.C.; Dallas-Fort Worth; Chicago; Denver; Minneapolis-St Paul; and Atlanta. Iowa has a very strong program with respect to incentives for wind and solar as does Texas. Several states make sense for clean coal and coal-to-liquid including Illinois, Wyoming, and West Virginia. I am very impressed with Portland's initiatives in this area.
Uminski: A number of states have initiated policies in the last nine months regarding alternative energy activity. There are also regions that have specific initiatives such as the Midwest Greenhouse Gas Reduction Accord. Nine Midwest governors and two Canadian premiers have signed this agreement, with the goal of reducing the amount of greenhouse gas emissions coming from this region. They have a working group that discusses such issues as CO2 management, a smart power grid, and low-carbon corridors.
Sweeney: An emerging concern is the presence/extent of alternative energy sources. Some firms are not satisfied with a company adopting renewable portfolio standards (where x percent of their sourcing is alternative energy) because people know that firms are meeting this by investing in midwestern wind farms or western solar farms, but not actually getting any of that electricity back to their home areas. This is good from a national energy perspective, but clients - for a variety of public relations and concerned stockholder relations - are very recently showing more interest in using electrons that are generated with alternative energy. This may not always be practical or sustainable, because some areas of the country are not well-suited for generating alternative-based energy.