Energy Economics and Corporate Profitability

Abstract

Are the short payback projects the best investments for your corporation? Not necessarily so, especially if your firm normally requires large capital outlays and has historically experienced poor margins. Surprisingly, even though energy costs frequently are a small part of operating costs, they are the fastest rising part, and capital spent to control its impact may also represent the best long-term investment. But how can you decide just how important the project would be to the future profitability and financial well being of the firm?

The focus of the method presented is the economic measure of long-term profit planning. Simple formulas are presented to put your own firm in perspective. The conclusion is that our current lethargic attitudes about energy conservation and planning come from using economic measures that do not accurately reflect the future earnings capabilities and cash flow generating characteristics of industrial firms. An action plan is presented for energy managers showing the steps to get management recognition and acceptance of the situation.