There are a number of competing priorities for capital dollars faced by today’s multi-site retail and restaurant operators. For companies still developing their capital planning strategies, HVAC investments often struggle to compete with other potential investments as it is one of those areas that is “out of sight, out of mind”…at least until it’s a problem. Burton Energy Group has helped a number of leading companies turn the corner from a reactive “break-fix” model to a more proactive asset replacement mentality. Our experience shows us that once a company begins even a limited proactive asset replacement program and takes the time to measure the true impact, they will recognize the business case and continue to grow the program until reaches a steady-state, replacing at least 1/15th of their portfolio of assets annually. Why is this the case?
Here are a few arguments for prioritizing investment in a proactive HVAC replacement program:
- Positive NPV: If you believe a substantial portion of your sites will close in the next few years, this argument isn’t for you. However, for those who consider at least a 5-10 year horizon on their business, the case for proactive HVAC replacements is a compelling investment opportunity to bring to your CFO. Proactive HVAC projects are completed at a much lower $/ton than reactive replacements and the selected HVAC units have energy saving features that are often not available when replacing units in an emergency. Those cost advantages, coupled with reduced store closures and lower temp cooling costs, make the overall cost of proactive asset replacements much lower than a reactive approach. Simple payback analysis is insufficient to quantity the return, but with a more complex risk-adjusted comparative NPV model like the one developed by Burton and used by our clients, the proactive case is a clear winner.
- Reduced Repair and Maintenance Cost: With the mandated efficiency upgrade of 2023 and refrigerant changeover of 2024, the major equipment manufacturers have retooled their product offerings across all commercial HVAC lines. As a result, obsolete parts and refrigerants are no longer manufactured and are becoming sparse as contractors continue to use up the remaining inventory. Major repair costs have increase by as much as 30% YOY due to the shortages while also increasing the time it takes to get units back up and running.
- Energy Savings: Most companies have already upgraded lighting with lower wattage LED tubes and fixtures across their portfolios. With that completed, HVAC has become the highest area of energy usage for most buildings. New units are 20-40% more efficient than older units being replaced. To make a substantial impact on energy usage and cost, HVAC efficiency is the next big area to address to deliver portfolio-wide energy savings and to enable participation in demand response programs.
- ESG Impact: The energy savings impact on GHG emissions is a start, but for larger multi-site operators, fugitive emissions from refrigerant leakage are also a huge challenge for those looking to chart a path to achieve net zero carbon goals. With the new refrigerants now being used in HVAC systems having a much lower GWP (global warming potential), the energy savings plus the fugitive emissions impact make HVAC investment a solid contributor to achieving your GHG goals.
Armed with these compelling arguments along with others that may be unique to your business, give Burton an opportunity to analyze your current program and demonstrate our expertise on building the business case and cost-effectively executing a proactive HVAC replacement program for you.
