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Does This Government Program Actually Work?

By Aimee Duffy - Jun 9, 2013 at 9:30AM

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A closer look at a Department of Energy program that saves money and creates jobs.

How much does the United States spend every year to power our country's commercial buildings and manufacturing centers? Go ahead, ballpark it.

Fools, its $400 billion. Four hundred billion! That number is huge. But the nice part about huge numbers is that, at least in this case, minor changes can yield savings numbers that are relatively high. That's the goal of the Department of Energy's Better Buildings Challenge. More specifically, the project aims to cut energy use by 20% by 2020.

The program launched in December 2011. Now that it's received and processed a full year of data, let's look at how it's performed and what investors should take away from it all.

The program
The Better Buildings Challenge is geared to create jobs and reduce our energy waste, in turn saving buckets of cash. The goal of the program is to get our country's leading organizations -- be they corporations, universities, or city governments -- to cut energy use in their buildings by 20% over a 10-year period. So who's on board? Maybe some of your best investments.

Southern's (SO -0.12%) Georgia Power subsidiary is a founding partner of Atlanta's Better Buildings Challenge, which aims to reduce energy consumption and water consumption by 20% by 2020. Georgia Power's headquarters in the city are currently in phase one of the program, and the company played a leading role developing the program's energy use audit process.

Alcoa (AA) is a big-time energy consumer, using about 40 trillion BTUs to power 29 industrial facilities every year. Since its baseline year in 2005, the company has reduced its energy use by 12%, including a 1% drop in 2012.

Johnson Controls (JCI -1.95%) is in the business of building efficiency, so it was no surprise when the company joined the initiative this February. It has made some significant commitments, including reducing its energy consumption by 25% in 71 of its U.S. manufacturing facilities by 2019. If you think that sounds ambitious, remember that this company previously reduced energy consumption by 25% between 2002 and 2008.

Sprint Nextel (S) also jumped on board in Febraury, pledging to drop energy consumption 20% by 2017. Sprint is not new to implementing environmentally friendly energy initiatives, currently generating 5% of its energy from renewable sources.

3M (MMM -2.38%) has signed on to reduce energy consumption by 25% in 95 of its plants. The conglomerate has set aside $1 million in each of the past two years to implement energy efficiency projects. It has already managed to drop its energy use 23% from its baseline level in 2005.

These are just a handful of the important players. The program has 110 partners, including the likes of Michigan State University, Kohl's, Intercontinental Holdings, and others, and it encompasses 7,700 buildings and more than 2 billion square feet. You can see a complete list of Better Buildings Challenge partners here.

OK, so is this program snagging headlines for being a complete and utter failure? You decide. The first full year of the Better Buildings Challenge has produced the following results among its partners:

  • Average improvement of energy intensity of 2.5%.
  • Savings of $58 million, or 8.5 trillion BTUs.
  • Equivalent results of pulling 110,000 cars off the road.
  • Improved energy intensity of 10% to 20% in 2,100 buildings.
  • 3,404 jobs created or sustained in Atlanta alone. 

Let's get some clarification on "energy intensity." The term is used to compare energy use and cost savings over time, mostly because different industries measure energy use in different ways. For example, a commercial office building might measure energy use per square foot, while an automobile manufacturer might measure it per vehicle produced. Energy intensity accounts for change over time at a particular building and allows us to compare office buildings with manufacturing facilities.

The Department of Energy's outlook states that if all U.S. commercial buildings and industrial facilities were able to increase their energy intensity by 2.5% every year for 10 years, the total savings would be more than $80 billion annually after that 10th year.

In other words, the program is working.

Bottom line
The investing takeaway here might be a tad obvious. This is a national program with national goals, but all of the savings come at the institutional level. A company that saves on energy costs has more money to put toward growth-oriented acquisitions, invest in R&D, or, ahem, return to shareholders. Yes, many energy-savings programs require monetary investment up front, but many gains are achieved merely by making behavioral changes and pocketing free money. It's time to start looking at our investments from an energy-savings perspective, because that's the perspective that the best businesses are taking as well.

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Stocks Mentioned

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Johnson Controls International plc
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