Greg Pflum was hoping to lure a new plant to the BASF facility he oversees in Wyandotte four years ago when he got an unwelcome reminder about the importance of energy costs.
High Michigan energy prices made the site uncompetitive, said Pflum, the vice president and general manager of BASF Corp.’s Midwest Regional Hub. “I want to grow our business, (so) we have to be competitive.”
The plant would have brought 100 jobs to Wyandotte. Instead, BASF decided to build it outside of the United States.
It’s one dramatic example of the role energy costs play in business decisions, and why they are leading companies across Michigan are taking steps to reduce the amount of energy used in industrial and office facilities.
At the BASF facility Pflum runs, recent energy-saving measures have played a part in the addition of about 100 new jobs a year, he said, estimating energy accounts for about 5 percent of overall operating costs.
Pflum’s team is keeping costs down by:
Last year, when a BASF facility in Southfield Pflum oversees needed a new roof, crews installed a polyurethane material that has reduced building energy use by 5 percent to 10 percent, he said.
In Wyandotte, a new steam operation, used to heat buildings and power manufacturing, is estimated to save about $1 million a year, Pflum said.
“It doesn’t take long to justify the investment,” he said.
Across the state, office furniture maker Steelcase Inc. also has an eye on energy savings.
“In the office furniture industry, we compete on sustainability,” said John DeAngelis, energy and special project manager for the Grand Rapids company. “It’s important to our customers.”
In early 2016, Steelcase gained significant energy savings by relighting a 1-million-square-foot distribution center in Kentwood.
That one project reduced the company’s global energy bill by 2 percent, DeAngelis said.
“For a company with operations all over the world, that’s a huge impact,” he said. “We saved hundreds of thousands (of dollars). It paid itself back in less than two years.”
The relighting allowed Steelcase to zone areas of the facility — meaning it can light some areas and shut down or reduce lighting in areas where it isn’t needed.
Steelcase did a similar project at its Caledonia wood plant, where desktops and cabinets are produced. A wireless control system allows Steelcase to turn lights down or off — even from offsite.
“We constantly change the layout of our plants,” DeAngelis added. “You can control those lights without having to make any physical changes (to the way they’re configured).”
Steelcase also uses energy-efficient LED lighting and controls in its office buildings and asks security staff on night rounds to double as energy auditors — making sure fans and TVs are off.
Another Michigan company leading the way in energy-use reduction is Gibraltar’s HyCAL Corp. The company won a Governor’s Energy Excellence Award for its 18-month conversion of a 1950s-era portion of the former McLouth Steel site to a modern, energy-efficient factory.
“This was just a metal building with holes in it,” said HyCAL General Manager Steve Swan, whose company will produce high-strength steel for auto industry. “We did a complete renovation and basically turned it into a new building.”
The $15 million renovation on the 550,000-square-foot factory included new siding, roofs and insulation, as well as installation of energy-efficient doors and 650 LED lights. By making the building airtight, HyCAL eliminated the need for heating units.
“We are using the heat from our process to heat the building,” Swan said. “Before, it was all going outside.”
Swan, who estimated that 30 percent of HyCAL’s operating costs go to energy, said those costs would have been 10 percent higher without the renovations.
“By spending money now, we’re (reducing) cost later,” he said.
That mindset is in place across the state, as businesses look to shift available dollars from energy bills to other parts of their operations, said Dan Scripps. Scripps is president of the Institute for Energy Innovation, a nonprofit that aims to makes a business case for energy savings, and vice president of the Michigan Energy Innovation Business Council, a trade group that includes including wind, solar and other companies.
“We see significant savings in energy efficiency,” Scripps said. “It means businesses are more competitive at the end of the day.”
Companies are finding savings in everything from using better HVAC systems and energy-efficient lighting to using increasingly affordable renewable energy. Solar panels, for example, cost 1 percent of what they did 25 years ago, he said.
Some companies are forging deals with utilities to reduce their power use during peak times.
“If you’ve got some flexibility in when you use energy, that can be a huge savings,” Scripps said.
Businesses may take their industrial operation offline for 15 minutes or shut down office air conditioning for a short time — or temporarily allow utilities to reduce their power supply. Not only do companies realize savings when not using power, but utilities also provide them a lower rate throughout the year for cooperating.
Utilities benefit because reduced power load demand means they don’t have to fire up another generation station, Scripps said.
They also benefit because of a 2008 law that requires them to hit energy-use reduction targets, said Dave Walker, a public utilities engineer for Michigan Public Service Commission, which regulates utilities.
Adds Patricia Poli, manager of MPSC’s Energy Waste Reduction Section, “They entice customers with rebates. The customer gets a discount, and the utility gets to claim the savings. If it delays the need to build a power plant, because you’re offsetting increases in demand, everyone benefits.”
To assist businesses seeking to improve their energy-inefficient buildings, the State of Michigan passed the Property Assessment Clean Energy act in 2010, also known as PACE. However, few companies have taken advantage of it so far.
“It’s been slower than I hoped,” said Andy Levin, president of Detroit-based Lean and Green Michigan, which administrates the program for 32 local governments and 22 counties. “It’s just getting started.”
Businesses that do an energy audit on a building may opt not to fix leaks, because of the cost and a long payback time, he said.
Through the PACE program, a business can get a loan for up to 20 years that is secured by a special tax assessment on the building. Lenders feel more secure, because failure to pay the assessment can lead to foreclosure.
“If you don’t pay them, the county sheriff is going to come take your hotel,” Levin said.
If the project cost is $250,000 or more, a contractor has to guarantee energy savings will be greater than cost, Levin said. If the savings fall short, that contractor has to write a check or fix the problem, he said.
While businesses have completed only a handful of PACE projects — about $3 million to $4 million worth — they’ve run the gamut from a manufacturing facility to a beer distribution operation to apartment buildings.
“We’ve had every kind of energy efficiency (upgrade) — windows, bay doors, wall insulation, roof insulation,” Levin said. “Almost everyone includes lighting — LED lighting.”
Levin said he expects the program to include more than $100 million in projects annually once it catches on.
“It’s going to be very big,” he said.
Two recent projects are an overhaul of The Whitney restaurant in Detroit, housed in a 19th century mansion, and an office building in Clinton Township. They are the first PACE projects to be financed in Wayne and Macomb counties, and both were financed through Levin Energy Partners as program administrator, Petros PACE Finance LLC as the lender, and Newman Consulting Group as the coordinator/developer.
Pension funds and private equity funds are supplying the money for PACE projects, said Bob Mattler, who recently started Green Portfolio Solutions LLC of Bloomfield Hills to arrange such deals.
“It provides an owner the ability to upgrade his building with nothing out of his pocket,” he said. “If you can save 25 to 30 percent or more on your electric or gas bill, you can pay off the loan with those savings.”
Building owners can get an interest rate of 5 percent to 7 percent and are not prohibited from selling the building, he said. The assessment is assumed by the next owner.
“Here in Michigan, we have so many old buildings, and we always need capital to improve them,” Mattler said.