Embedded & Lifecycle Energy Costs

A major energy challenge is to identify manufacturers’ embedded energy costs. Managers at each stage of manufacture may overlook energy waste because “energy is only two, three or five percent” of production costs. But the prices of final products must absorb these layers of energy inputs. For example, the direct energy cost for assembling an appliance might be only a few dollars—and a very small fraction of its retail cost. But in the big picture, there was energy consumed in mining the appliance’s iron ore, copper, and bauxite; in metal treating; in rubber and glass manufacture; in powerhouse fuels for the facilities that make plastics, paints and dyes; and in energy feedstocks, which are energy commodities consumed directly as product ingredients. Any waste of energy in the manufacture of these intermediates, disguised in the cost of inputs, eats up profit margins at every step. In effect, consumers are “taxed” for any waste committed at all stages of the manufacturing process. This is true for appliances, consumer electronics, toys, processed food and many more goods.

A product’s energy lifecycle describes its total energy impact, including all stages of its manufacture through the end of its operating life and includes its eventual disposal. Historically, if industry had any interest in energy consumption, it ended when products were finished and shipped. Today, however, because consumers are increasingly concerned with the energy consumed by their appliances, cars and homes, manufacturers should be, too. And at the end of a product’s useful life, its disposal must respond to growing concerns about environmental impacts.

The lifecycle energy concept outlines the opportunities to create superior product value—beginning with the elimination of energy waste in manufacturing, and continuing through energy efficiency benefits conveyed to the consumer. Innovative technologies tie together all the stages of the energy lifecycle. Industry’s opportunity is to harness the same innovation that goes into its products and apply it to their energy use.

Manufacturers can partner with their suppliers to map their energy intensity to strategically squeeze out avoidable costs. Technology research and development (R&D) is crucial, but so is parallel development of human skills to manage energy use by large organizations. Companies are always partnering to achieve economies in distribution and inventory, so why not in energy management? The information technology exists, and it can be done.

Corporate Energy Strategy from the U.S. Environmental Protection Agency

Industrial energy management literature has become a veritable smorgasbord of technical how-to reference material (see the U.S. Department of Energy's BestPractices). This body of work will satisfy technical minds, but it is of little interest to corporate decision-makers who busy themselves with strategy, vision, and stakeholder communications.

Is energy not a strategic issue? The U.S. EPA thinks it is. "Energy Strategy for the Road Ahead: Scenario Thinking for Corporate Executives and Corporate Boards" was released this year to fill a chronic void. This concise, 36 page (easy reading) document identifies strategic business risks and responses to energy challenges both today and tomorrow. With this document as a platform, corporate leaders have some guidelines for addressing energy issues in strategic terms.

At the heart of this document are four scenarios for the future of industrial energy consumption. Any MBA will tell you that scenarios are wonderful planning tools for identifying challenges and lining up resources in response. A group of 20 commercial and industrial executives collaborated to develop the energy scenarios for this publication. Their vision includes:

(1) The Same Road: how to prepare for a world in which the business sector's level of concern for energy and the environment stays pretty much as it is today.

(2) The Long Road: where the future balance of economic, political, and energy dominance as we know it today becomes radically different. Industry undergoes a reactive transition to this rebalancing and sustains painful changes along the way.

(3) The Broken Road: a scenario where catastrophic political and/or market shocks finally inspire energy-smart (albeit belated) choices by industry.

(4) The Fast Road: this describes the challenges and opportunities that arise when pursuing a proactive political and economic fast-track toward global energy and environmental optimization.

This document is a must-read for any organization that aspires to having a useful energy risk-management strategy. While you're there, be sure to check out the extensive corporate energy management guidelines that the U.S. EPA has produced throughout this decade.

Betsy-- sorry it took me so long to get this one posted.

The Challenge for Canadian Hydros

Greetings from Vancouver, where I’m scheduled to speak tomorrow at BC Hydro’s Power of Business conference. The title of this event alone is indicative of the evolution of thinking that industrial energy consumers need to meet today’s energy challenges. With my presentation, I hope to take this thinking a step further. I will describe energy as wealth—or specifically, a form of “cash” that underpins every transaction conducted inside and outside the facility fence. Energy, like any other form of wealth, is worthy of investment, preservation, and growth through strategic wealth management.

This perspective is the key to harmonizing the very different approaches to energy management that are evident within industrial organizations. The engineering community focuses squarely on hardware and projects, almost invariably using “simple payback” as a measure of energy success. The finance team, meanwhile, concerns itself energy commodity markets, seeking the best price it can.

Relatively few organizations harmonize these activities. This blog has offered the make-or-buy strategy for achieving such a holistic approach. The key to achieving this coordinated strategy lies in delegation—energy management is not exclusively for the engineer, a procurement director, an operations lead, or a financial controller. Instead, all of these decision-makers will play a role.

Credit BC Hydro’s conference for evolving the perception of energy and its role in business performance. I look forward to meeting tomorrow’s attendees, although I suspect that technical people will far outnumber the financial decision-makers. Our challenge across all of North America is to “democratize” the energy management role so that all industrial stakeholders understand how they can contribute to managing the wealth that their energy consumption represents.

Evaluating the Payback of an Energy Audit

This morning, a Canadian visitor to my blog sought the "payback on an energy audit." Interesting question. In fact, the payback on an energy audit itself is always zero. Zip.

Payback measures apply to the actual improvement measures that the audit recommends. Just because you have the energy audit report on your desk, doesn't mean you have saved anything. All energy audit recommendations remain unfulfilled until they are actually implemented. In other words, an energy audit provides only the road map of how to "get you there." It does not do the "driving." You can measure payback only on the measures you implement.

"Why are My Energy Bills Still So High?"

My good friend and mentor Mike Pappas is the world's best at divining the root causes of an organization's failure to tackle its energy waste. I described to him a large manufacturing facility that has been pondering energy management options for months now. Internal discussions among staff revealed general support for the IDEA of pursuing energy management, but when it comes down to DOING something, it is resisted as a distraction from their "normal" duties.

According to Mike, therein lies the disconnect. These people perceive energy management as something separate from-- and not integral to-- their daily operations.

These same people see safety (e.g. lock-out-tag-out procedures) as part of standard operating procedure. Can't energy be the same?