Sustainable Return on Investment
Content
Sustainable Return on Investment
(SROI)
CORPORATE ECO FORUM
2011 Annual Meeting - “Defining Next
Practice in Corporate Sustainability”
J
June
7th, 2011
Stephane Larocque:
Associate Vice-President – HDR Decision Economics
Contents
1. Introduce Sustainable Return on Investment
(SROI)
2 Provide
2.
P
id Examples
E
l off Recent
R
t SROI Projects
P j t
3. Discuss SROI and Sustainability Reporting
4. Explain SROI Methodology
5. Examples
p
of SROI Results/Outputs
p
6. The Client Perspective
7 Interactive Case Study
7.
8. Wrap-Up and Questions
2
Company
• A Leading A&E Firm in North America with a strong Economics
Consulting Practice
g
• Founded in 1917
• > 7,800 professionals
7 800
f i
l
• > 185 locations worldwide
• Completed projects in 50 states and 60 countries
Architecture, Energy, Federal, Private Land
Architecture
Energy Federal Private Land
Development, Resource Management, Transportation,
and Water
3
SROI
Elements of the SROI process have been used to evaluate
the monetary value of sustainability programs and
projects valued at over $10B
Making Sustainable Decisions
Traditional models such as
Lif C l Cost
Life-Cycle
C tA
Analysis
l i
(LCCA) often fall short:
5
Only
y consider cash impacts
p
Do not account for uncertainty
Lack transparency
What is SROI?
It’s best
It’
b t practice
ti in
i Cost-Benefit
C tB
fit Analysis
A l i and
d Financial
Fi
i l
Analysis over a project’s entire life-cycle, augmented by:
Accounting for uncertainty using state
state-of-the-art
of the art risk analysis techniques
Engaging stakeholders directly to generate consensus and transparency
6
SROI = Calculating The Triple Bottom Line
SROI adds to traditional financial analysis the
monetized value of non-cash benefits and externalities
Project’s
Cash Impacts
Capital
Operations &
Maintenance
Productivity
Mobility
Financial
Return
Financial
& Internal
SROI
7
External
Costs &
Impacts
Internal NonCash Impacts
Health &
Safety
Greenhouse
Gases
Criteria Air
Contaminant
Water,
Waste, &
Noise
Decision Metrics
From Both a Financial & SROI Perspective
Net Present
Value
(NPV)
Benefit to Cost
Ratio
(BCR)
Discounted
Payback Period
(DPP)
Internal Rate of
Return
(IRR)
8
Return On
Investment
(ROI)
Examples of Recent SROI Projects
Cli
Client
P j
Project
Department of Defence
SROI on the Fort Belvoir Community Hospital, USAG
Humphreys in Korea and Fort Bliss in Texas, etc.
BNSF, CSX & UP Railroads
Proved the public benefit of dozens of new infrastructure
projects resulting in $200M in grants from TCIF and
another $500M from TIGER and TIGER II
Boston Redevelopment
Authority
The city of Boston used SROI to analyze its portfolio of
ARRA funding projects
Chicago Area Waterway
Chicago
Area Waterway
System
Using SROI to help determine the most sustainable form of
g
p
physical barrier between the great Lakes and Mississippi
river system
Denver Metro Wastewater
Reclamation District
Using SROI to make design & construction decisions on
Denver’s proposed new wastewater treatment facility
Johns Hopkins University
Provided SROI analysis of JHU’s Campus Sustainability
Initiative project in order to secure LEED certification
Department of Energy
SROI analysis of energy and water reduction initiatives at
Argonne National Laboratory Energy Sciences Building in
Chicago
9
Monetizing Sustainability Reports:
Increasing Need
Customers
Shareholders/
Investors
Regulatory
Competition
10
The Changing Landscape
Source: 2008 KPMG Survey of Sustainability Reporting
11
The Bottom Line and Sustainability Reporting
First environmental profit and loss account : GHG’s and water
Preparation for future legislative change in reporting
Goal is decision making integration into business model
Environmental accounting section in annual report
Segmented by activity
Segmented by activity
Reports environmental operating and capital costs
Segmented by business units
S
t db b i
it
Links environmental performance to compensation
Reports supply chain programs and GHG footprint
R
t
l h i
d GHG f t i t
Discloses water‐related risk information in 10‐K
12
The Bottom Line and Sustainability Reporting
Shift to a sustainable business model
“Sustainability is a route to profitability”
Ceres 2010 winner
Integrating annual report and sustainability disclosure
“Sustainability is a route to profitability”
Ceres 2010 runner‐up
Utilize 3rd party auditors
Verify key sustainability performance data
V if k
t i bilit
f
d t
Best practice for sustainability cost savings disclosure
p
y
g
Provides ROI of sustainability initiatives
13
Quantify & Monetize Sustainability
GHG’s
Water
14
CAC’s
Nuclear Energy
SROI Methodology
A Four Stepp Process
“SROI reveals the hidden value in projects.”
projects ”
David Lewis, PhD
HDR National Director, Economics & Finance
15
SROI Methodology – Step 1
Structure and Logic Diagrams
16
SROI Methodology – Step 2
Quantifyy Input
Q
p Data Assumptions
p
Quantify
Input Data
Distributions
17
Data
Sources
• Over 8,000 Architects, Engineers, Scientists & Economists
• Meta-analysis of third party research & data
• Financial & insurance markets
• Contingent valuation i.e. willingness to pay surveys
• Bayesian analysis/expert opinion
SROI Methodology – Step 2
Quantifyy Input
Q
p Data Assumptions
p
Example: Cost of CO2 per Incremental Ton ($2011)
Quantify
y
Input Data
Distributions
18
Median
Lower Limit
Upper
pp Limit
$20.87
$7.51
$86.50
SROI Methodology – Step 2
Quantifyy Input
Q
p Data Assumptions
p
Quantify
Input Data
Distributions
Example: Range of Values for CO2
•
Median Value: We used the Interagency Working
Group on the Social Cost of Carbon’s recommended
value for Federal projects
= $
$20.87 USD/ton
•
Low Value: We used $7.51 USD/ton as calculated by
William Nordhaus in his book A Question of Balance:
W i hi th
Weighing
the O
Options
ti
on Gl
Global
b lW
Warming
i P
Policies,
li i
2008
•
High Value: We used $86.50 USD/ton as calculated
by Nicholas Stern in his book The Economics of
Climate Change: The Stern Review, 2006
19
SROI Methodology – Step 3
Risk Analysis
y Process (RAP)
(
) Session
Sample Participants
Client:
Project team
Technical specialists
Financial experts
HDR:
Facilitator
Economists
Technical specialists
Outside Experts:
Costing Experts
Energy Modelers
Architects & Engineers
20
P bli A
Public
Agencies
i & Offi
Officials
i l
SROI Methodology – Step 4
Run the Model and Produce Results
Green Power
Credit
+
Emissions
Savings
GHG
Savings
=
Health & Safety
Total Benefits
Reduced Energy
C t
Costs
Cash Benefits
21
Noise Reduction
Health &
Safety
Non-Cash Benefits
Examples of SROI Results
Fort Belvoir Hospital,
Hospital Virginia – US Army
SROI
Annual Value of Benefits
Energy Reduction
Water Reduction
Greenhouse Gases Savings
Air Pollutants Savings
Savings From Reduced
Water Use
Net Present Value
Return on Investment
Discounted Payback Period
Internal Rate of Return (%)
Benefit to Cost Ratio
Current Design Alternative
$1,284,097
$1
284 097
$1 388 514
$1,388,514
$474,470
$516,241
$80,039
$80,039
$163,461
$177,654
$558,039
$606,492
$8,088
$15,773,620
39.3%
4.6
31 0%
31.0%
4.7
$8,088
$13,798,340
18.0%
7.7
18 1%
18.1%
2.8
FROI
Annual Value of Benefits
Net Present Value
Return on Investment
Current Design
$554,870
$4 353 935
$4,353,935
15.9%
Alternative
$596,193
$1 391 047
$1,391,047
5.5%
Discounted Payback Period 12.9
Internal Rate of Return (%)
14.2%
Benefit to Cost Ratio
2.0
22
25.0
6.8%
1.2
Notes
The total value of the benefits in one year
Cash benefit
Cash benefit
Non-cash benefit
Non-cash benefit
Non-cash benefit
PV Benefits / PV All Costs
Average Rate of Return on Capital Investment
Time in years + discounted cash flow
Discount rate making NPV = 0
PV Benefits / PV Costs
Notes
The total value of the benefits in first year
PV Benefits / PV All Costs
Average Rate of Return on Capital Investment
Time in years to + positive discounted cash
flow
Discount rate making NPV = 0
PV Benefits / PV Costs
Examples of SROI Results
Tehachapi Trade Corridor
Corridor, California – BNSF Railroad
23
Examples of SROI Results
Future Community Hospital
Hospital, El Paso
ITE
SUSTAINABLE TECHNOLOGY /
DESIGN ELEMENT
M
NET PRESENT VALUE
(8.8% NOMINAL
DISCOUNT RATE)
IMPACT
SROI
LOAD SHIFTING TO REDUCE ELECTRICITY COST. I T SAVES
1
THERMAL STORAGE
2
CO-GENERATION OPTION #1 (FULL LOAD
3
C O-GENERATION
SHAVING)
4
HEAT RECOVERY CHILLER
5
ENERGY RECOVERY VENTILATOR
REDUCES ELECTRICAL AND NATURAL GAS CONSUMPTION
6
GROUND SOURCE HEAT PUMP
REDUCES ELECTRICAL AND NATURAL GAS CONSUMPTION
7
SOLAR HOT W ATER
8
SOLAR PHOTOVOLTAICS
9
GEOTHERMAL DIRECT HEATING
.10
HVAC EXHAUST
WIND TURBINES
11
ON-S ITE GREYWATER AND W ASTEWATER REDUCES WATER CONSUMPTION
RECLAMATION, TREATMENT, AND RE-USE ELECTRICAL CONSUMPTION
12
13
14
OPTION
#2
LOAD S HIFTING OF THE FULL ELECTRICITY LOAD FROM THE
($7,519,001)
(FULL LOAD)
(PEAK LOAD S HIFTING OF THE PEAK ELECTRICITY LOAD FROM THE
($9,960,971)
($
,
,
)
ELECTRIC UTILITY TO NATURAL GAS (P EAK S HAVING)
PRODUCES ELECTRICITY AND REDUCES NATURAL GAS AND
$9,451,008
WATER CONSUMPTION
PRODUCES
ELECTRICITY
HOWEVER
INCREASES
WATER
CONSUMPTION
REDUCES NATURAL GAS CONSUMPTION HOWEVER INCREASES
ELECTRICAL CONSUMPTION
RECOVERY
PRODUCES ELECTRICITY
HOWEVER
INCREASES
INCREASES
HEPA F ILTRATION AT ALL AIR H ANDLING REDUCES HOSPITAL
ACQUIRED
INFECTIONS
UNITS IN P ATIENT-C ARE AREAS
INCREASES ELECTRICAL CONSUMPTION
REDUCES HOSPITAL
ACQUIRED
INFECTIONS
HYDROGEN PEROXIDE V APOR CLEANING
HOWEVER
INCREASES
ELECTRICAL CONSUMPTION
INCREASES ELECTRICAL CONSUMPTION
HOWEVER
($2,768,156)
SROI
($1,423,265)
($29,128,501) $11,115,030
FROI
($2,446,650)
($34,064,372)
($14,754,989)
($
,
,
) ($
($11,599,363)
,
,
) ($
($21,409,068)
,
,
)
$5,373,148
$20,496,349
$11,402,984
$758,508
($492,549)
$2,627,693
($66,722)
$2,531,891
$532,460
$7,480,615
$3,314,412
($130,196)
($297,640)
$158,474
($215,818)
($2,658,852)
($3,240,496)
($2,531,472)
($3,776,996)
($1,375,199)
($1,936,041)
($228,491)
($1,512,578)
($1,015,939)
($1,573,125)
($658,058)
($1,857,096)
($768,573)
($3,116,302)
$1,323,187
($3,554,027)
($59,432)
($82,115)
($94,223)
($141,415)
$1,199,726
$929,241
$2,916,764
$2,354,488
$38,151,331
$73,577
$79,618,918
$276,584
WATER CONSUMPTION
REDUCES ELECTRICAL CONSUMPTION HOWEVER INCREASES
ENERGY
($2,277,950)
ELECTRIC UTILITY TO NATURAL GAS
DISHWASHER W ATER RECOVERY AND RE- REDUCES WATER CONSUMPTION HOWEVER
USE
ELECTRICAL CONSUMPTION
DIVERTS WASTE FROM LANDFILL HOWEVER
RECYCLING STATION ON-SITE
24
15
WATER CONSUMPTION
FROI
NET PRESENT VALUE
(4.8% NOMINAL
DISCOUNT RATE)
$121,065,684 $1,966,018
$253,166,523 $4,999,118
S-Curve Diagram
25
Examples of SROI Results
Campus Sustainability Initiative,
Initiative Baltimore - John Hopkins University
RISK ANALYSIS OF SUSTAINABLE INITIATIVES - JHU
AVERAGE RETURN ON INVESTMENT
SROI
77%
27%
100%
MEAN: 11%
MEAN: 43%
18%
57%
16%
90%
15%
14%
14%
13%
12%
12%
11%
80%
Probabilityy of Not Exceeding
FROI
70%
60%
53%
Externalities
Health &
Productivity
11%
50%
37%
30%
20%
6%
10%
43%
42%
41%
40%
39%
38%
37%
36%
10%
10%
9%
9%
8%
7%
7%
40%
51%
50%
48%
47%
46%
45%
44%
34%
31%
5%
19%
0%
0%
10%
20%
30%
40%
50%
Total Return on Investment (%)
26
60%
70%
80%
90%
Scale of Application
Facility
Campus
p
City
27
State & Nationallyy
Interactive Case Study
Denver Metro Wastewater
Reclamation District (MWRD)
28
Metro Wastewater Reclamation District:
The Actual RAP Session in Denver
Partial Participants List
29
Denver Metro Waste Water - Overview
External
Costs &
Benefits
Internal
Non-Cash
Benefits
30
Employee
Health &
Safety
Diversity
Reliability
Green
House
Gases
Criteria Air
Contaminant
Landfill
Waste
Public
Acceptance
Permitting
Other
Soil Erosion
Motorist
Safety
Odor &
Water
MWRD: Alternatives Analyzed
Alternative 3: Diversify into Class A Product With Thermal Drying
at Both Treatment Plants (Distributed Thermal Drying) FROI
Benefits
Costs
1
Proven Performance
Adjustment
Days / Year
2
3
4
5
6
Cost of Freight
Transportation
Reduced Freight
Truck Miles
Increased Revenue
from Class A Biosolids
Increased Energy
Consumption
Average Electricity and
Natural Gas Prices
$ / Mile
Miles / Year
$ / Year
MWh or MmBTU / Year
$ / MWh or MmBTU
7
Benefit of Reduced
Transportation O&M
Benefit of Incremental
Revenues from Biosolids
$ / Year
Y
$ / Year
Y
8
Incremental Capital
Costs
Cost of Increased
Energy Consumption
Other Incremental
O&M Costs
Capital Replacement
Costs
$
$ / Year
$ / Year
$
Cost of Thermal Drying
q p
and O&M
Equipment
$ / Year
10
Discount Rate
%
FROI
32
9
Alternative 3: Diversify into Class A Product With Thermal Drying at
Both Treatment Plants (Distributed Thermal Drying) Internal SROI
33
Alternative 3: Diversify into Class A Product With Thermal Drying at
Both Treatment Plants (Distributed Thermal Drying) SROI
1
Benefits
Proven Performance
Adjustment
Costs
Days / Year
2
3
Accident Cost per
Freight Truck Mile
Reduced Freight
Truck Miles
($/truck mile)
Miles / Year
5
4
GHGs: Diesel
Conversion Factor
CACs: Diesel
Conversion Factor
Reduced Diesel
Consumption
Gallons
Tons / Diesel Gallons
7
8
9
GHGs
Conversion Factor
Incremental Energy
gy
Consumption
CACs
Conversion Factor
Tons / MWh or MmBTU
MWh or MmBTU / Year
Tons / MWh or MmBTU
6
Tons / Diesel Gallons
Reduced GHG’s from
Diesel Consumption
Reduced CAC’s from
Diesel Consumption
Tons / Year
T
Tons
/ Year
Y
Increased GHG’s from
Energy Consumption
Increased CAC’s from
Energy Consumption
Tons / Year
Tons / Year
11
10
From Alt 3 ISROI
% difference
Dt/year
From Alt 3 ISROI
$ / Year
$ / Year
Social Cost of CACs
$ / Ton
$ / Ton
12
Reduction in Land
Application
Benefit of
Diversification
(Reduction in GHGs)
Social Cost of GHGs
Tons / Year
From Alt 3 ISROI
Biosolids Sent to Landfill
Base Case
Benefit of Improved
Safety (Truck
Accidents)
Net GHGs Impacts
Benefit of
Diversification
(Reduction in Tipping
Fees)
$ / Year
CO2E Emissions Avoided by
Displacing Fertilizer
Production
Net CACs Impacts
Tons / Year
13
Social cost of CO2
$ / Ton
Tons CO2E / Tons of fertilizer
From Alt 3 ISROI
Benefit of Improved
Public & Stakeholder
Acceptance
$ / Year
From Alt 3 FROI
Benefit of
Incremental
Revenues from
Biosolids
From Alt 3 FROI
Benefit of Reduced
Transportation O&M
$ / Year
From Alt 3 FROI
Cost of Thermal
Drying Equipment
and O&M
Cost of GHGs
Increase
Cost of CACs
Increase
$ / Year
$ / Year
$ / Year
$ / Year
14
Discount Rate
%
GHGs
SROI
34
- Carbon Dioxide (CO2)
- Methane (CH4)
- Nitrous Oxide (N2O)
CACs
- Sulphur Dioxide (SO2)
- Nitrogen Oxides (NOX)
- Particulate Matter (PM)
- Volatile Organic Compounds
(VOCs)
Biosolids Optimization: Preliminary Results
35
Biosolids Optimization: PV of Benefits & Costs Categories
36
S-Curves: NPV, Alternative 3
The Net Present Value of Alternative 3: Diversify into Class A Product
With Thermal Drying at Both Treatment Plants (Distributed Thermal Drying)
(20 Year Study Period)
FROI
ISROI
100%
SROI
-$129
-$113
-$136
90%
-$120
Probability of Not Exceeding
-$141
-$143
-$126
-$145
-$126
-$128
-$146
-$127
-$128
-$127
$
-$129
-$147
$
-$128
-$129
-$130
-$149
-$150
-$125
-$126
-$127
$
-$147
-$155
-$125
-$127
-$145
-$160
-$124
-$126
-$144
0%
-$130
-$131
-$136
-$140
-$135
-$130
Total NPV (Millions)
37
-$124
-$125
-$143
10%
-$123
-$125
-$142
20%
-$123
-$124
-$142
30%
-$122
-$124
-$141
40%
-$122
-$123
-$140
50%
-$121
-$123
-$140
60%
-$121
-$122
-$139
70%
-$120
-$122
-$138
80%
-$119
-$121
-$137
-$112
-$120
-$110
-$100
So Why Use SROI?
38
It’s a proven Cost-Benefit Analysis based approach to making
planning & budgeting decisions
It fully incorporates non-cash benefits and externalities into the
decision making process
It provides a full range of possible outcomes using state-ofthe-art risk analysis techniques
It helps generate consensus by being both interactive and
transparent
It is an invaluable tool to help organizations secure funding,
generate
t public
bli support,
t generate
t internal
i t
l approval,
l etc.
t
Questions?
HDR Practice Group Leader for SROI:
Stephane Larocque
Or
[email protected]
“Doing the right thing is good. Doing the right
thing for the right reason and with the right
te t o is
se
even
e bette
better.”
intention
39
(SROI)
CORPORATE ECO FORUM
2011 Annual Meeting - “Defining Next
Practice in Corporate Sustainability”
J
June
7th, 2011
Stephane Larocque:
Associate Vice-President – HDR Decision Economics
Contents
1. Introduce Sustainable Return on Investment
(SROI)
2 Provide
2.
P
id Examples
E
l off Recent
R
t SROI Projects
P j t
3. Discuss SROI and Sustainability Reporting
4. Explain SROI Methodology
5. Examples
p
of SROI Results/Outputs
p
6. The Client Perspective
7 Interactive Case Study
7.
8. Wrap-Up and Questions
2
Company
• A Leading A&E Firm in North America with a strong Economics
Consulting Practice
g
• Founded in 1917
• > 7,800 professionals
7 800
f i
l
• > 185 locations worldwide
• Completed projects in 50 states and 60 countries
Architecture, Energy, Federal, Private Land
Architecture
Energy Federal Private Land
Development, Resource Management, Transportation,
and Water
3
SROI
Elements of the SROI process have been used to evaluate
the monetary value of sustainability programs and
projects valued at over $10B
Making Sustainable Decisions
Traditional models such as
Lif C l Cost
Life-Cycle
C tA
Analysis
l i
(LCCA) often fall short:
5
Only
y consider cash impacts
p
Do not account for uncertainty
Lack transparency
What is SROI?
It’s best
It’
b t practice
ti in
i Cost-Benefit
C tB
fit Analysis
A l i and
d Financial
Fi
i l
Analysis over a project’s entire life-cycle, augmented by:
Accounting for uncertainty using state
state-of-the-art
of the art risk analysis techniques
Engaging stakeholders directly to generate consensus and transparency
6
SROI = Calculating The Triple Bottom Line
SROI adds to traditional financial analysis the
monetized value of non-cash benefits and externalities
Project’s
Cash Impacts
Capital
Operations &
Maintenance
Productivity
Mobility
Financial
Return
Financial
& Internal
SROI
7
External
Costs &
Impacts
Internal NonCash Impacts
Health &
Safety
Greenhouse
Gases
Criteria Air
Contaminant
Water,
Waste, &
Noise
Decision Metrics
From Both a Financial & SROI Perspective
Net Present
Value
(NPV)
Benefit to Cost
Ratio
(BCR)
Discounted
Payback Period
(DPP)
Internal Rate of
Return
(IRR)
8
Return On
Investment
(ROI)
Examples of Recent SROI Projects
Cli
Client
P j
Project
Department of Defence
SROI on the Fort Belvoir Community Hospital, USAG
Humphreys in Korea and Fort Bliss in Texas, etc.
BNSF, CSX & UP Railroads
Proved the public benefit of dozens of new infrastructure
projects resulting in $200M in grants from TCIF and
another $500M from TIGER and TIGER II
Boston Redevelopment
Authority
The city of Boston used SROI to analyze its portfolio of
ARRA funding projects
Chicago Area Waterway
Chicago
Area Waterway
System
Using SROI to help determine the most sustainable form of
g
p
physical barrier between the great Lakes and Mississippi
river system
Denver Metro Wastewater
Reclamation District
Using SROI to make design & construction decisions on
Denver’s proposed new wastewater treatment facility
Johns Hopkins University
Provided SROI analysis of JHU’s Campus Sustainability
Initiative project in order to secure LEED certification
Department of Energy
SROI analysis of energy and water reduction initiatives at
Argonne National Laboratory Energy Sciences Building in
Chicago
9
Monetizing Sustainability Reports:
Increasing Need
Customers
Shareholders/
Investors
Regulatory
Competition
10
The Changing Landscape
Source: 2008 KPMG Survey of Sustainability Reporting
11
The Bottom Line and Sustainability Reporting
First environmental profit and loss account : GHG’s and water
Preparation for future legislative change in reporting
Goal is decision making integration into business model
Environmental accounting section in annual report
Segmented by activity
Segmented by activity
Reports environmental operating and capital costs
Segmented by business units
S
t db b i
it
Links environmental performance to compensation
Reports supply chain programs and GHG footprint
R
t
l h i
d GHG f t i t
Discloses water‐related risk information in 10‐K
12
The Bottom Line and Sustainability Reporting
Shift to a sustainable business model
“Sustainability is a route to profitability”
Ceres 2010 winner
Integrating annual report and sustainability disclosure
“Sustainability is a route to profitability”
Ceres 2010 runner‐up
Utilize 3rd party auditors
Verify key sustainability performance data
V if k
t i bilit
f
d t
Best practice for sustainability cost savings disclosure
p
y
g
Provides ROI of sustainability initiatives
13
Quantify & Monetize Sustainability
GHG’s
Water
14
CAC’s
Nuclear Energy
SROI Methodology
A Four Stepp Process
“SROI reveals the hidden value in projects.”
projects ”
David Lewis, PhD
HDR National Director, Economics & Finance
15
SROI Methodology – Step 1
Structure and Logic Diagrams
16
SROI Methodology – Step 2
Quantifyy Input
Q
p Data Assumptions
p
Quantify
Input Data
Distributions
17
Data
Sources
• Over 8,000 Architects, Engineers, Scientists & Economists
• Meta-analysis of third party research & data
• Financial & insurance markets
• Contingent valuation i.e. willingness to pay surveys
• Bayesian analysis/expert opinion
SROI Methodology – Step 2
Quantifyy Input
Q
p Data Assumptions
p
Example: Cost of CO2 per Incremental Ton ($2011)
Quantify
y
Input Data
Distributions
18
Median
Lower Limit
Upper
pp Limit
$20.87
$7.51
$86.50
SROI Methodology – Step 2
Quantifyy Input
Q
p Data Assumptions
p
Quantify
Input Data
Distributions
Example: Range of Values for CO2
•
Median Value: We used the Interagency Working
Group on the Social Cost of Carbon’s recommended
value for Federal projects
= $
$20.87 USD/ton
•
Low Value: We used $7.51 USD/ton as calculated by
William Nordhaus in his book A Question of Balance:
W i hi th
Weighing
the O
Options
ti
on Gl
Global
b lW
Warming
i P
Policies,
li i
2008
•
High Value: We used $86.50 USD/ton as calculated
by Nicholas Stern in his book The Economics of
Climate Change: The Stern Review, 2006
19
SROI Methodology – Step 3
Risk Analysis
y Process (RAP)
(
) Session
Sample Participants
Client:
Project team
Technical specialists
Financial experts
HDR:
Facilitator
Economists
Technical specialists
Outside Experts:
Costing Experts
Energy Modelers
Architects & Engineers
20
P bli A
Public
Agencies
i & Offi
Officials
i l
SROI Methodology – Step 4
Run the Model and Produce Results
Green Power
Credit
+
Emissions
Savings
GHG
Savings
=
Health & Safety
Total Benefits
Reduced Energy
C t
Costs
Cash Benefits
21
Noise Reduction
Health &
Safety
Non-Cash Benefits
Examples of SROI Results
Fort Belvoir Hospital,
Hospital Virginia – US Army
SROI
Annual Value of Benefits
Energy Reduction
Water Reduction
Greenhouse Gases Savings
Air Pollutants Savings
Savings From Reduced
Water Use
Net Present Value
Return on Investment
Discounted Payback Period
Internal Rate of Return (%)
Benefit to Cost Ratio
Current Design Alternative
$1,284,097
$1
284 097
$1 388 514
$1,388,514
$474,470
$516,241
$80,039
$80,039
$163,461
$177,654
$558,039
$606,492
$8,088
$15,773,620
39.3%
4.6
31 0%
31.0%
4.7
$8,088
$13,798,340
18.0%
7.7
18 1%
18.1%
2.8
FROI
Annual Value of Benefits
Net Present Value
Return on Investment
Current Design
$554,870
$4 353 935
$4,353,935
15.9%
Alternative
$596,193
$1 391 047
$1,391,047
5.5%
Discounted Payback Period 12.9
Internal Rate of Return (%)
14.2%
Benefit to Cost Ratio
2.0
22
25.0
6.8%
1.2
Notes
The total value of the benefits in one year
Cash benefit
Cash benefit
Non-cash benefit
Non-cash benefit
Non-cash benefit
PV Benefits / PV All Costs
Average Rate of Return on Capital Investment
Time in years + discounted cash flow
Discount rate making NPV = 0
PV Benefits / PV Costs
Notes
The total value of the benefits in first year
PV Benefits / PV All Costs
Average Rate of Return on Capital Investment
Time in years to + positive discounted cash
flow
Discount rate making NPV = 0
PV Benefits / PV Costs
Examples of SROI Results
Tehachapi Trade Corridor
Corridor, California – BNSF Railroad
23
Examples of SROI Results
Future Community Hospital
Hospital, El Paso
ITE
SUSTAINABLE TECHNOLOGY /
DESIGN ELEMENT
M
NET PRESENT VALUE
(8.8% NOMINAL
DISCOUNT RATE)
IMPACT
SROI
LOAD SHIFTING TO REDUCE ELECTRICITY COST. I T SAVES
1
THERMAL STORAGE
2
CO-GENERATION OPTION #1 (FULL LOAD
3
C O-GENERATION
SHAVING)
4
HEAT RECOVERY CHILLER
5
ENERGY RECOVERY VENTILATOR
REDUCES ELECTRICAL AND NATURAL GAS CONSUMPTION
6
GROUND SOURCE HEAT PUMP
REDUCES ELECTRICAL AND NATURAL GAS CONSUMPTION
7
SOLAR HOT W ATER
8
SOLAR PHOTOVOLTAICS
9
GEOTHERMAL DIRECT HEATING
.10
HVAC EXHAUST
WIND TURBINES
11
ON-S ITE GREYWATER AND W ASTEWATER REDUCES WATER CONSUMPTION
RECLAMATION, TREATMENT, AND RE-USE ELECTRICAL CONSUMPTION
12
13
14
OPTION
#2
LOAD S HIFTING OF THE FULL ELECTRICITY LOAD FROM THE
($7,519,001)
(FULL LOAD)
(PEAK LOAD S HIFTING OF THE PEAK ELECTRICITY LOAD FROM THE
($9,960,971)
($
,
,
)
ELECTRIC UTILITY TO NATURAL GAS (P EAK S HAVING)
PRODUCES ELECTRICITY AND REDUCES NATURAL GAS AND
$9,451,008
WATER CONSUMPTION
PRODUCES
ELECTRICITY
HOWEVER
INCREASES
WATER
CONSUMPTION
REDUCES NATURAL GAS CONSUMPTION HOWEVER INCREASES
ELECTRICAL CONSUMPTION
RECOVERY
PRODUCES ELECTRICITY
HOWEVER
INCREASES
INCREASES
HEPA F ILTRATION AT ALL AIR H ANDLING REDUCES HOSPITAL
ACQUIRED
INFECTIONS
UNITS IN P ATIENT-C ARE AREAS
INCREASES ELECTRICAL CONSUMPTION
REDUCES HOSPITAL
ACQUIRED
INFECTIONS
HYDROGEN PEROXIDE V APOR CLEANING
HOWEVER
INCREASES
ELECTRICAL CONSUMPTION
INCREASES ELECTRICAL CONSUMPTION
HOWEVER
($2,768,156)
SROI
($1,423,265)
($29,128,501) $11,115,030
FROI
($2,446,650)
($34,064,372)
($14,754,989)
($
,
,
) ($
($11,599,363)
,
,
) ($
($21,409,068)
,
,
)
$5,373,148
$20,496,349
$11,402,984
$758,508
($492,549)
$2,627,693
($66,722)
$2,531,891
$532,460
$7,480,615
$3,314,412
($130,196)
($297,640)
$158,474
($215,818)
($2,658,852)
($3,240,496)
($2,531,472)
($3,776,996)
($1,375,199)
($1,936,041)
($228,491)
($1,512,578)
($1,015,939)
($1,573,125)
($658,058)
($1,857,096)
($768,573)
($3,116,302)
$1,323,187
($3,554,027)
($59,432)
($82,115)
($94,223)
($141,415)
$1,199,726
$929,241
$2,916,764
$2,354,488
$38,151,331
$73,577
$79,618,918
$276,584
WATER CONSUMPTION
REDUCES ELECTRICAL CONSUMPTION HOWEVER INCREASES
ENERGY
($2,277,950)
ELECTRIC UTILITY TO NATURAL GAS
DISHWASHER W ATER RECOVERY AND RE- REDUCES WATER CONSUMPTION HOWEVER
USE
ELECTRICAL CONSUMPTION
DIVERTS WASTE FROM LANDFILL HOWEVER
RECYCLING STATION ON-SITE
24
15
WATER CONSUMPTION
FROI
NET PRESENT VALUE
(4.8% NOMINAL
DISCOUNT RATE)
$121,065,684 $1,966,018
$253,166,523 $4,999,118
S-Curve Diagram
25
Examples of SROI Results
Campus Sustainability Initiative,
Initiative Baltimore - John Hopkins University
RISK ANALYSIS OF SUSTAINABLE INITIATIVES - JHU
AVERAGE RETURN ON INVESTMENT
SROI
77%
27%
100%
MEAN: 11%
MEAN: 43%
18%
57%
16%
90%
15%
14%
14%
13%
12%
12%
11%
80%
Probabilityy of Not Exceeding
FROI
70%
60%
53%
Externalities
Health &
Productivity
11%
50%
37%
30%
20%
6%
10%
43%
42%
41%
40%
39%
38%
37%
36%
10%
10%
9%
9%
8%
7%
7%
40%
51%
50%
48%
47%
46%
45%
44%
34%
31%
5%
19%
0%
0%
10%
20%
30%
40%
50%
Total Return on Investment (%)
26
60%
70%
80%
90%
Scale of Application
Facility
Campus
p
City
27
State & Nationallyy
Interactive Case Study
Denver Metro Wastewater
Reclamation District (MWRD)
28
Metro Wastewater Reclamation District:
The Actual RAP Session in Denver
Partial Participants List
29
Denver Metro Waste Water - Overview
External
Costs &
Benefits
Internal
Non-Cash
Benefits
30
Employee
Health &
Safety
Diversity
Reliability
Green
House
Gases
Criteria Air
Contaminant
Landfill
Waste
Public
Acceptance
Permitting
Other
Soil Erosion
Motorist
Safety
Odor &
Water
MWRD: Alternatives Analyzed
Alternative 3: Diversify into Class A Product With Thermal Drying
at Both Treatment Plants (Distributed Thermal Drying) FROI
Benefits
Costs
1
Proven Performance
Adjustment
Days / Year
2
3
4
5
6
Cost of Freight
Transportation
Reduced Freight
Truck Miles
Increased Revenue
from Class A Biosolids
Increased Energy
Consumption
Average Electricity and
Natural Gas Prices
$ / Mile
Miles / Year
$ / Year
MWh or MmBTU / Year
$ / MWh or MmBTU
7
Benefit of Reduced
Transportation O&M
Benefit of Incremental
Revenues from Biosolids
$ / Year
Y
$ / Year
Y
8
Incremental Capital
Costs
Cost of Increased
Energy Consumption
Other Incremental
O&M Costs
Capital Replacement
Costs
$
$ / Year
$ / Year
$
Cost of Thermal Drying
q p
and O&M
Equipment
$ / Year
10
Discount Rate
%
FROI
32
9
Alternative 3: Diversify into Class A Product With Thermal Drying at
Both Treatment Plants (Distributed Thermal Drying) Internal SROI
33
Alternative 3: Diversify into Class A Product With Thermal Drying at
Both Treatment Plants (Distributed Thermal Drying) SROI
1
Benefits
Proven Performance
Adjustment
Costs
Days / Year
2
3
Accident Cost per
Freight Truck Mile
Reduced Freight
Truck Miles
($/truck mile)
Miles / Year
5
4
GHGs: Diesel
Conversion Factor
CACs: Diesel
Conversion Factor
Reduced Diesel
Consumption
Gallons
Tons / Diesel Gallons
7
8
9
GHGs
Conversion Factor
Incremental Energy
gy
Consumption
CACs
Conversion Factor
Tons / MWh or MmBTU
MWh or MmBTU / Year
Tons / MWh or MmBTU
6
Tons / Diesel Gallons
Reduced GHG’s from
Diesel Consumption
Reduced CAC’s from
Diesel Consumption
Tons / Year
T
Tons
/ Year
Y
Increased GHG’s from
Energy Consumption
Increased CAC’s from
Energy Consumption
Tons / Year
Tons / Year
11
10
From Alt 3 ISROI
% difference
Dt/year
From Alt 3 ISROI
$ / Year
$ / Year
Social Cost of CACs
$ / Ton
$ / Ton
12
Reduction in Land
Application
Benefit of
Diversification
(Reduction in GHGs)
Social Cost of GHGs
Tons / Year
From Alt 3 ISROI
Biosolids Sent to Landfill
Base Case
Benefit of Improved
Safety (Truck
Accidents)
Net GHGs Impacts
Benefit of
Diversification
(Reduction in Tipping
Fees)
$ / Year
CO2E Emissions Avoided by
Displacing Fertilizer
Production
Net CACs Impacts
Tons / Year
13
Social cost of CO2
$ / Ton
Tons CO2E / Tons of fertilizer
From Alt 3 ISROI
Benefit of Improved
Public & Stakeholder
Acceptance
$ / Year
From Alt 3 FROI
Benefit of
Incremental
Revenues from
Biosolids
From Alt 3 FROI
Benefit of Reduced
Transportation O&M
$ / Year
From Alt 3 FROI
Cost of Thermal
Drying Equipment
and O&M
Cost of GHGs
Increase
Cost of CACs
Increase
$ / Year
$ / Year
$ / Year
$ / Year
14
Discount Rate
%
GHGs
SROI
34
- Carbon Dioxide (CO2)
- Methane (CH4)
- Nitrous Oxide (N2O)
CACs
- Sulphur Dioxide (SO2)
- Nitrogen Oxides (NOX)
- Particulate Matter (PM)
- Volatile Organic Compounds
(VOCs)
Biosolids Optimization: Preliminary Results
35
Biosolids Optimization: PV of Benefits & Costs Categories
36
S-Curves: NPV, Alternative 3
The Net Present Value of Alternative 3: Diversify into Class A Product
With Thermal Drying at Both Treatment Plants (Distributed Thermal Drying)
(20 Year Study Period)
FROI
ISROI
100%
SROI
-$129
-$113
-$136
90%
-$120
Probability of Not Exceeding
-$141
-$143
-$126
-$145
-$126
-$128
-$146
-$127
-$128
-$127
$
-$129
-$147
$
-$128
-$129
-$130
-$149
-$150
-$125
-$126
-$127
$
-$147
-$155
-$125
-$127
-$145
-$160
-$124
-$126
-$144
0%
-$130
-$131
-$136
-$140
-$135
-$130
Total NPV (Millions)
37
-$124
-$125
-$143
10%
-$123
-$125
-$142
20%
-$123
-$124
-$142
30%
-$122
-$124
-$141
40%
-$122
-$123
-$140
50%
-$121
-$123
-$140
60%
-$121
-$122
-$139
70%
-$120
-$122
-$138
80%
-$119
-$121
-$137
-$112
-$120
-$110
-$100
So Why Use SROI?
38
It’s a proven Cost-Benefit Analysis based approach to making
planning & budgeting decisions
It fully incorporates non-cash benefits and externalities into the
decision making process
It provides a full range of possible outcomes using state-ofthe-art risk analysis techniques
It helps generate consensus by being both interactive and
transparent
It is an invaluable tool to help organizations secure funding,
generate
t public
bli support,
t generate
t internal
i t
l approval,
l etc.
t
Questions?
HDR Practice Group Leader for SROI:
Stephane Larocque
Or
[email protected]
“Doing the right thing is good. Doing the right
thing for the right reason and with the right
te t o is
se
even
e bette
better.”
intention
39
