Value of Alternative Energy


There has been much talk over the last several years on the move away to fossil fuels and to alternative energy sources as a good measure for the environment. With respect to hospitals, who consume much electricity, there can also be a positive economic impact. Specifically, the use of solar power for electricity could cut down on operating costs, and if efficient enough, could even generate energy to be sold.

How would a company decide if such a capital investment would be feasible? One of the best ways is to use a decision tree model using cost effectiveness analysis (CEA).  One sets up the model for the current energy situation with appropriate costs including contingencies for critical energy demands such as bad weather, natural disaster, large accidents with casualties, etc.  Then on the model one sets up another branch of the decision tree where alternative energy is used, i.e. solar. One can also build into the model the cost of the capital investment and by using a Markov type model we could see how it operates over time, and what kind of cost savings is incurred, if any.

Of course, there is a value for publicity and marketing using such energy sources, which could increase demand for use of the facility in the community depending upon their preferences.

Nevertheless, CEA can give a clearer picture as to the economic feasibility and the justification for capital expenditure needed to implement such a plan.

If your objective is to provide the best decision-making for your organization and take a global view of your business, expanding your sights beyond ROI, and educating other decision-makers, Cost Effectiveness Analysis can make your organization more competitive and more profitable.