1. Leadership & Change for Energy Efficiency
in Accounting & Management: Management
accounting in a low-carbon economy
THINK.CHANGE.DO
CPA Australia NSW Branch CSR Discussion Group Presentation
24 February 2012

2. Disclaimer
> This presentation presents the views of the authors, and
not the views of UTS, or any other party.
> This presentation is for educational purposes only and
does not contain specific or general advice.
> Please seek appropriate advice before making any
financial decisions.
> Reference list is provided at the end of the presentation

3. Referencing this material
> This material has been developed by UTS Business
School as part of a project funded by the Office of
Environment & Heritage NSW under the Energy
Efficiency Training Program.
> If using this material please acknowledge as follows:
– Benn, S., Brown, D., Brown, P., Crittenden, P., and Krithinakis, A.,
2012. Leadership & Change for Energy Efficiency in Accounting &
Management, CPA Australia NSW Branch CSR Discussion Group
presentation. 24 February 2012. The project is funded by the Office of
Environment & Heritage, Department of Premier and Cabinet, NSW.

4. Interactive Seminar - Aim
> Practical examples of how accountants can show
leadership to deliver business value in the transition
to a low carbon economy
> Highlight the role that you can play in managing risk
and delivering opportunities through energy efficiency
> Encourage you to get more involved with energy
efficiency in your organisation!

5. Interactive seminar - outline
> Background on our Energy Efficiency project
> Energy efficiency business case proposals – critical
success factors
> Practical examples of how accountants can show
leadership to deliver business value in the transition
to a low carbon economy
> Improving the effectiveness of Marginal Abatement
Cost Curves
> Panel session

6. About the project: Leadership & Change
for Energy Efficiency in Accounting &
Management
THINK.CHANGE.DO

7. ‘Leadership & Change for Energy Efficiency in
Accounting & Management’ Project funding
> Office of Environment & Heritage NSW funding
> The „Energy Efficiency Training Program‟ aims to
supports the development and delivery of higher
education courses that enhance energy efficiency
knowledge and practice.
> All project materials will be made available

8. Key Project Partners
> UTS Business School
> Ernst & Young
> Chartered Institute of Management Accountants
(CIMA)
> Westpac
> TAFE NSW, Sydney Institute

9. Project
Overview Training Needs Analysis
Interactive seminars
C-suite webinar Evaluation
Teaching
cases Modular 2-day course
Integrated university
offerings

10. Training Needs Analysis – Key Themes
> Organisational response to energy efficiency needs
to be cross-disciplinary
– Accountant as business partner
> Soft skills as well as analytical/ technical skills are
important
– Communication
– Influencing others
– Partnering
– Change management
– Team building
– Problem solving

11. Energy Efficiency – Critical
success factors
THINK.CHANGE.DO
Patrick Crittenden
Sustainable Business Pty Ltd

12. What is Energy Efficiency?
> Energy efficiency primarily refers to end-use
efficiency.
> It involves delivering equal or greater levels of
“energy services” with less energy supply.
> Energy services include cooling, heating, lighting,
driving motors, operating equipment and appliances.
Dunstan et al. 2011, p.10

13. Electricity generation by fuel type in Australia
Source: Geoscience
Australia 2010 p34

14. The boundary
100 units of
The electricity
energy input supply chain
2 units of light energy
delivered

15. 62 units lost
2 units lost
The boundary
100 units of
The electricity
energy input supply chain
34 units lost
2 units of light energy
delivered

16. The boundary
80% saving in energy
end use delivers
benefits across the
electricity supply chain

17. Key reasons for management accountants to
get involved with energy efficiency
> Rising and fluctuating energy costs
> Carbon pricing
> Compliance with legislation
> Licence to operate
> Your competitors are doing it
> Ethical considerations

18. ‘The Business Case and Beyond’ project
Companies involved:
> Rio Tinto Iron Ore
> Australia Post
> Ron Finemore
> Centennial Coal Co.
Transport
> Downer EDI Mining
> Foster‟s Group > Simplot Australia
> Linfox > Spotless Group
> National Australia Bank > Sydney Water
> New Hope Corporation > The GPT Group
> Newmont Asia Pacific
> Woolworths
Note: These slides on the „The Business Case and Beyond‟ project have been adapted from a
presentation first developed by Patrick Crittenden for the Energy Efficiency Opportunities
Workshops in September 2011.
Case studies and other material on the „The Business Case and Beyond‟ project are available
at www.eex.gov.au.

19. The question…
What do you do that helps get
support and resources for
energy efficiency projects?

20. 1. Link your project to business priorities
> Piggyback on whatever is „hot‟ in the
business right now
> Solve an existing problem through your
„energy efficiency project‟
> Use compliance requirements to drive
change

21. The GPT Group:
530 Collins St Melbourne Upgrade

22. The GPT Group:
530 Collins St Melbourne Upgrade (cont.)

23. The GPT Group:
530 Collins St Melbourne Upgrade (cont.)

24. 2. Involve the right people
You can’t work in silos. Get the right
people with different expertise involved.
It is the only way to build a credible
business case for a project .

25. Ron Finemore Transport:
Modification of trailers on bulk tipper trucks
Benefits:
> The same amount of product is transported with 74
fewer truck trips/annum, resulting in 72,000 avoided
truck kilometres travelled
> 38,000 litres of fuel saved per annum
> Shared financial benefits for the customer and Ron
Finemore Transport
> Reduction in greenhouse gas emissions of 103
tonnes CO2e-/per annum
> Benefits to the community through fewer truck
movements.

26. 3. Communicate with decision makers early
> Use existing communication forums such as
management meetings
> Use the right „business speak‟
> Use clear and focused messages and
questions

27. 4. Identify and manage project risks
Thinking about a project from a risk
perspective helps you reduce the chance of
unforeseen things happening…it demonstrates
that you have thoroughly thought the project
through

28. 5. Consider all business costs and benefits
> Cost reduction > Product quality
> Salvage value > Greenhouse
> Maintenance gas reductions
benefits > OH&S
> Deferred
CAPEX > Corporate
> Productivity reputation

29. 6. Identify funding options
> R&D tax breaks
> Government funding
> Energy performance contracting
> Internal energy funds

30. Six key strategies

31. Some unexpected answers
This is what we do to influence our
company culture, systems and
processes to improve the success-
rate of future projects…

32. 1. Monitor, verify and promote success
> Budget for monitoring & verification as part
of the the business case proposal
> Leave room to deliver more than you
promise
> Make sure the right people know what has
been achieved and keep it on record

33. 2. Regularly brief management
> Business drivers, risks and opportunities
change – keep managers informed
> Communicate information about what your
competitors are doing (or not!)
> Use relevant graphs and statistics – for
example, how well you are tracking towards
targets

34. 3. Adapt project approval processes
Consider:
> Combining smaller projects into one larger
project
> Establishing an internal fund for energy
efficiency projects
> Adding questions on energy impacts to
capital expenditure approval processes

35. An important message…
Get the technical detail right
(engineering and accounting)
AND
Develop strategies to
“win friends and influence people”
(getting support and resources for
anything
is a political process!)

36. Practical examples of how accountants can
show leadership to deliver business value in
the transition to a low carbon economy
THINK.CHANGE.DO
Dr. Paul J Brown
UTS Business School

37. Practical examples of how accountants can show leadership to
deliver business value in the transition to a low carbon economy
> Outcome of our Training Needs Analysis
> Establishing your base case
> Applying the control cycle to Energy Efficiency
– Energy budgeting and control
> Building the Business Case
– Brown Marginal Abatement Cashflow Curve

38. Training Needs Analysis – Key Themes
> Organisational response to energy efficiency needs
to be cross-disciplinary
– Accountant as business partner
> Soft skills as well as analytical/ technical skills are
important
– Communication
– Influencing others
– Partnering
– Change management
– Team building
– Problem solving

39. Training Needs Analysis - Skills
Soft Energy Efficiency Fundamentals
Skills
Developing the business case for an Energy Efficiency project
Extending accounting tools to an Energy Efficiency context
Modifying information systems to support Energy Efficiency
Budgeting & Finance

40. Energy Efficiency Fundamentals:
Establish your energy base case
> Not just the level of energy
> It is the expected level of energy, for an expected
level of activity
> Expected Energy = Fixed energy + Variable Energy * Activity
> How is this different from estimating „pre-determined
overhead rates‟?
– Units are different ($ and kilowatt-hours or Giga
Joules)
– Energy complies with the laws of thermodynamics
(unlike people)

41. Energy Efficiency Fundamentals:
Establish your energy base case (cont.)
> Estimation methods are similar to cost accounting:
– Regression Analysis
– Modelling / simulation (like input /output analysis)
– Short term metering
– Long term metering (important for energy
management)
> Engineering models and equipment are used, so
work with a specialist
– e.g. consider the effect of weather on demand for energy

42. For example
> A building in NT implemented a range of EE projects
Total Annual Consumption for 04/05 in kWh: 1,605,138
Total Annual Consumption for 05/06 in kWh: 1,597,135
Naive Energy Saving in kWh: 8,003
> Linear regression was used to control for differences
in weather (the base year had a cool summer)
Total Annual Consumption for 04/05 in kWh: 1,775,546
Total Annual Consumption for 05/06 in kWh: 1,597,135
Energy Saving in kWh: 178,411
Difference is a 10% saving vs a 0.5% saving in energy

43. Hints
> Start simply, and do something:
– Find out what is happening in your
organisation
– Review electricity statements for different
facilities
– Review energy supply contracts

44. Some suggested places to start
> Revisit your energy accounting system
– http://www.ret.gov.au/energy/efficiency/eeo/resmaterial/esmg/Pages/default.a
spx
> Set up a register and systems to identify and manage energy
efficiency opportunities
– http://www.ret.gov.au/energy/efficiency/eeo/resmaterial/csm/Pages/default.as
px
> Obtain subsidised energy audits (for some NSW firms)
– http://www.environment.nsw.gov.au/sustainbus/energyauditing.htm
> Visit our website
– http://www.business.uts.edu.au/energyefficiency

45. Hints
> Organise data to match current
reporting systems
– e.g. batch vs process costing; KPIs
> Let people know what you are doing and
make data transparent

46. Hints (cont.)
> Conduct an energy information audit:
– Ensures your organisation captures new
knowledge
> Find champions in each major facility and
department and let them loose with some
decision making rights

47. Controlling performance using budgets
Environmental and social performance can be controlled using standard MA
technology such as budgets, in the same way as economic performance is
controlled
Project evaluation budget: Economic, social and environmental impacts of possible
projects are identified and considered during project evaluation. This involves
doing a forecast and budget, and consideration of the strategic value of each
project.
Formal budget: Once projects have been selected, a formal budget is prepared, this
includes who is responsible for which tasks.
Project enacted: The project is enacted, and data is collected to allow management to
track progress
Variance analysis: At intervals (monthly, quarterly, yearly), the budget is compared to
actual results using variance analysis. Variances are investigated and action taken
to enhance performance.

48. Developing an energy budget using multiple
regression
Example: Using multiple regression, Coles has identified that total energy usage is
distributed between three main activities with the following activity drivers:
Kwh per Activity Activity Activity Driver
52,121 Fixed Usage -
558 Lighting Selling area (m2)
852 Refrigeration Volume Cool with no doors(m2)
922 Refrigeration Volume Frozen with doors (m2)
719,103 Air conditioning No entrance air lock
Therefore, the multiple regression model is:
Total Electricity Usage (kwh) = 52,121 +
558 x Selling area (m2) +
852 x Cool with no doors (m2) +
922 x Frozen with doors (m2) +
719,103 x No entrance air lock
Example based on: Department of Resources, Energy and Tourism (RET). 2010. Energy Efficiency
Opportunities: Representative Assessment Guide.

49. Example (cont’d)
Coles wishes to assess the total electricity usage of store 2 using the following
information:
Selling area (m2) = 3500
Cool with no doors (m2) = 650
Frozen with doors (m2) = 340
No entrance air lock = False (0)
Calculate the total electricity usage for the Coles Gisborne branch.
Total Electricity Usage (kwh) = 52,121 + 558 x 3500 + 852 x 510 + 922 x 310 +
719,103 x 0 = 2,872,401 kwh
Therefore, if energy costs were expected to be 20c per kwh for the next year, the
budget for store 2 would be: $545,092 (2,725,461*0.2)

50. Source: Australian Government: Department of Resources, Energy and
Tourism, 2011, Energy Efficiency Opportunities: Representative Assessment
Guide

51. Variance Analysis using dollars
> Construct an energy budget model
– Probably with some engineering assistance
> Apply well known variance analysis formulae
Energy Price Variance = Actual kwh*(Actual Price – Standard Price)
Energy Variance = Standard Price*( Actual kwh – Budgeted kwh)
> Standard price is your budgeted price

52. Developing the business case for an
energy efficiency project
> Clear identification of the costs and benefit
– Translated into NPV, IRR, Payback, EAC etc
– Opportunity cost
> Identifying direct costs and cost savings may rely on
engineering analysis, as well as cost analysis
– e.g. a process change effect on your base case
and on demand for labour
> All costs and benefits should be included
– Information value, strategic value

53. Building the Business Case - BMACC
> There are a number of problems with how some
organisations evaluate energy efficiency projects
– Exclusion of relevant cost and benefits
• Lack of education
• Difficulty in assessing
– Not making the link between the project and the firm‟s
strategy
– Risk of project is not assessed/ presented well
• Using firm level hurdle rates (rather than risk adjusted)
• Consider best vs. worst case
– Using payback period as a key decision tool

54. Information useful in preparing the business
case
> To assist in the identification of benefits, we have
provided a checklist:
– the six key drivers of energy efficiency discussed
earlier in the presentation
– a list of benefits identified in reviews of the
literature (Worrell et al 2003; Cooremans, 2011)
• See additional slides at end of presentation

55. What is wrong with payback and NPV?
Project Scenario: A B C D E
Initial Investment $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000
Life of project (years) 10 10 15 15 15
First year cash profit $ 25,000 $ 25,000 $ 25,000 $ 17,500 $ 17,500
Yearly growth rate for cash profit
0% 0% 0% 5.0% 5.0%
Hurdle Rate 15% 8% 15% 15% 8%
Payback Period (years) 4.00 4.00 4.00 5.20 5.20
Net Present value (NPV) $ 25,469 $ 67,752 $ 46,184 $ 30,289 $ 101,037
Equivalent Annual Cashflow
(EAC)
$ 5,075 $ 10,097 $ 7,898 $ 5,180 $ 11,804

56. Mutually Exclusive Projects with Unequal
Lives
In many cases a choice will need to be made between projects that have
differing lives.
The Equivalent Annual Cashflow method (EAC)
Equivalent annual cashflow (EAC) is the calculation of an annuity value
having the same term, rate of return and net present value as the project
that it represents.
To determine the Equivalent Annual Cashflow (EAC) of a project:
1. Calculate the NPV of the project‟s cashflows.
2. Divide the NPV by the annuity factor relating to the time in years
and the relevant Discount Factor to determine an annual cashflow
figure.
That is, the EAC of a project is calculated by dividing the NPV of the
project by the annuity factor, relevant to the project life and the company‟s
cost of capital (refer to the calculation of the „PMT‟, i.e. Payment, function
using Excel).
Source: Pazmandy, G. and Brown, P. J. (Ed), 2008, Readings in Business Analysis, 2nd Edition, McGraw Hill Custom Publishing.

57. Illustrative Example - EAC
Using two projects, Project A has a life of 2 years, and Project B with a life of 3 years. The
company‟s cost of capital is 10%. Cash flows are as follows:
Project A Project B
Initial Cost -$4,800 -$8,200
Annual After Tax Cash Inflows:
Year 1 +$3,000 +$3,500
Year 2 +$3,000 +$3,500
Year 3 +$0 +$3,500
Cost of Capital 10%
Solution to Illustrative Example - EAC:
To select the most profitable project, they will need to be transformed to a uniform time
period to enable the comparison to be effected.
Step 1 Calculate the Net Present Value of the Project
Project A Project B
Project Net Present Value = +$406.61 +$503.98
The above NPVs are not comparable as Project A is for 2 years, whereas Project B has
a 3 year life. To enable the comparison, the NPV has to be converted to an Equivalent
ANNUAL amount.
Source: Pazmandy, G. and Brown, P. J. (Ed), 2008, Readings in Business Analysis, 2nd Edition, McGraw Hill Custom Publishing.

58. Illustrative Example – EAC (cont’d)
Step 2 Convert the Net Present Value to an Equivalent Annual Cashflow
amount using the PMT (Payment) function in Excel or the
formula
• Equivalent Annual Cashflow = NPV/ Annuity PV Factor
• Project A has a useful life of 2 years
– The Annuity PV factor for 2 years is 1.7355
– Therefore: 406.61 / 1.7355 = 234.29
• Project B has a useful life of 3 years.
– The Annuity PV factor for 3 years is 2.4869
– Therefore: 503.98 / 2.4869 = 202.66
Project A Project B
Equivalent Annual Cashflow = $234.29 $202.66
Using the equivalent annual cashflow method Project A has the higher
positive EAC and would be accepted in preference to Project B. Note
that this is consistent with the decision made using the lowest common
multiple time period method.
Source: Pazmandy, G. and Brown, P. J. (Ed), 2008, Readings in Business Analysis, 2nd Edition, McGraw Hill Custom Publishing.

59. BMACC
> The Brown Marginal Abatement Cashflow Curve
> Extends the MACCs, such as the McKinsey MACC, which we
have seen used in practice
> Different (better) to other MACCs:
– Uses Equivalent Annual Cashflow, not NPV or payback
– Includes a risk distribution
– Includes unique colour coding scheme
– Includes other information
> Pending Creative Commons licence

60. BMACC (cont.)
better
160
Brown Marginal Abatement Cashflow Curve (BMACC)
140
Equivalent Annual Cashflow*
or Project F Strong Strategic alignment
120 Medium Strategic alignment
100 Weak Strategic alignment
80
60
40
or Project A
20
2 yr life 3 yr life 4 yr life 5 yr life 6 yr life 7 yr life 1 yr life
0
Project A Project B Project C Project D Project E Project F Project G
-20
-40
-60
worse GHG Emissions Abatement (per year)#
Source: Brown, P. J., Brown Marginal Abatement Cashflow Curve (BMACC), UTS Business School, URL:
http://www.business.uts.edu.au/energyefficiency/project-material.html'

61. Where to find helpful information about
energy efficiency
> NSW and Federal Governments provide training and
education materials.
– For example, see:
www.environment.nsw.gov.au
www.energyefficiencyopportunities.gov.au

62. Panel Discussion
THINK.CHANGE.DO

63. Thank you
> Thankyou for sharing your insights
> Please complete the evaluation form. Consider:
– Are there any „energy efficiency‟ related actions
you plan to take following this seminar?
– Can we follow up with you next year as part of our
evaluation?
> Please discuss with us any further ideas you have
about the project

64. Contact Details
Professor Suzanne Benn
Professor of Sustainable Enterprise
UTS Business School
Suzanne.Benn@uts.edu.au
Ph +61 2 9514 3621
For further information and updates on the Leadership &
Change for Energy Efficiency in Accounting &
Management project go to:
http://www.business.uts.edu.au/energyefficiency

65. References
> Bureau of Meteorology & CSIRO. 2010. "State of the Climate ".
> Cooremans, C, 2011, Make it strategic! Financial investment logic is not enough, Energy Efficiency.
> Dunstan, Chris, Katie Ross, and Nicole Ghiotto. 2011. "Barriers to Demand Management: A Survey of Stakeholder
Perceptions." Prepared for the Australian Alliance to Save Energy by the Institute for Sustainable Futures, University of
Technology, Sydney.
> Geoscience Australia. 2010. "Australian Energy Resource Assessment." Commonwealth of Australia.
> International Energy Agency. 2011. "World Energy Outlook ”.
> Linfox Energy Efficiency Opportunities Public Report 2010. Accessed from
www.linfox.com/~/media/Documents/PDF/Linfox_EEO%20Act%20PR%202010%20Appendix%20small.ashx
> Pazmandy, G. and Brown, P. J. (Ed), 2008, Readings in Business Analysis, 2nd Edition, McGraw Hill Custom Publishing.
> Porter, M. E., 1985, Competitive advantage. New York: Free.
> Department of Resources, Energy and Tourism (RET). 2011. "Continuing opportunities. Energy Efficiency Opportunities
program - 2010 report. A look at results for the EEO program 2006 - 2010." Australian Government Department of
Resources, Energy & Tourism (RET).
> Department of Resources, Energy and Tourism (RET). 2008. Energy Savings Measurement Guide.
> Sustainability Victoria. 2010. "Energy Efficiency Best Practice Guide Lighting.”
> The GPT Group Sustainability Report. Accessed 6/9/11 www.gpt.com.au/content.aspx?urlkey=Energy
> Total Environment Centre. 2010. "Demand management and energy policy development: A case study of New South
Wales.”
> World Business Council for Sustainable Development (WBCSD). 2004. "Facts and trends to 2050.”
> World Business Council for Sustainable Development (WBCSD). 2009. “Transforming the Market: Energy Efficiency in
Buildings.”
> World Economic Forum. 2010. "Energy Vision Update 2010. Towards a more energy efficiency world.".
> Worrell, E., Laitner, J., Ruth, M., & Finman, H., 2003, Productivity benefits of industrial energy efficiency
measures, Energy, 28(11), 1081–1098.

66. Developing the business case for an energy
efficiency project
> Reduced Cost > Reduced Risk
> Improved > Greenhouse gas
temperature control
> Increased reliability reductions
in production > Improved reputation
> Improved product > Safety
quality
Include all business costs and
benefits to increase the chance of
success

67. Some sources of competitive advantage from EE: REDUCED
RISKS (from Worrell et al 2003 and Cooremans, 2011)
> Reduced hazardous waste
> Reduced dust emissions
> Reduced CO, CO2, NOx, SOx emissions
> Increased facility reliability
> Reduced wear and tear on equipment/ machinery
> Decreased liability
> Legal risks
> Carbon and energy price risks
> Disruption of energy supply
> Commercial risk

68. Some sources of competitive advantage from EE: REDUCED
COSTS (from Worrell et al 2003 and Cooremans, 2011) (cont.)
> Use of waste fuels
> Reduced product waste
> Reduced waste water
> Materials reduction
> Increased product yield
> Improved equipment performance
> Shorter process cycle time
> Reduced dust emissions
> Reduced CO, CO2, NOx, SOx emissions
> Reduced wear and tear on equipment/ machinery

69. Some sources of competitive advantage from EE: REDUCED
COSTS (from Worrell et al 2003 and Cooremans, 2011) (cont.)
> Decreased liability
> Reduced need for personal protective equipment
> Improved lighting
> Reduced turnover, absenteeism and health costs
(improved worker morale, reduced noise, improved
air quality and temperature control)
> Reduced needs for engineering controls
> Lowered cooling requirements
> Reductions for labor requirements
> Delaying or reducing capital expenditures
> Additional space