Sunday, August 24, 2008

Real Energy Savings: Right Here and Now

On online forum recently posed this question:

"Which technologies are likely to have the most cost-effective impact over the next 5 years or so on either climate concerns or energy security (or both)?"

My response:

A wide array of energy-efficient production, monitoring, and consumption technologies already exist. End-use savings are often derived from "mundane" items like insulation and combustion control mechanisms. Ironically, the REAL energy saver is actionable information that inspires organizations to make the energy improvements that they habitually overlook. By "information," I mean:

1. Real-time metrics that clearly connect energy usage with financial performance

2. Investment criteria that effectively link energy and financial variables in a clear "save-or-buy" decision tool-- one that allows organizations to routinely capture cost-effective energy improvement opportunities

3. Information exchanges that allow companies within a supply chain to seek partners that optimize the energy that's "embedded" across stages of value-added

This list could probably be expanded, but the common thread involves the use of management information that improves the detection, evaluation, and implementation of energy-saving initiatives. The opportunities are there-- if they are made evident to people who can make them happen.

You can see the complete discussion here.


Tuesday, August 12, 2008

Energy Management: Two Philosophies, Two Outcomes

Show me a business factor that is low-cost, stable, predictable, and non-controversial, and I’ll show you a factor that is easy to manage. Until recently, fuel, power, and other utilities were a great example of easily-managed inputs. But as we all know, everything about energy is changing: its availability, its cash flow impacts, and the legal and environmental consequences of its use. Energy use is no longer the one-dimensional factor of years past. As energy becomes more valuable, fuels and power become synonymous with wealth.

Against today’s energy landscape, two distinct management philosophies characterize the way energy is managed by industrial or large commercial organizations. For discussion’s sake, I’ll refer to these philosophies as “business as usual” versus “forward thinking.” The two philosophies have powerful implications for business performance.

The business-as-usual philosophy was developed during an era when energy was still cheap and simple to use. Historically, energy consumption was an internal “utilities” issue. Energy procurement decisions had little, if any, linkage to consumption decisions. A utilities agenda could be easily isolated from that of the larger organization. The utility management goal was quite simple: achieve 100% availability and reliability of heating, cooling, and other energy services. Cheap, reliable energy services at the flick of a switch were the mark of excellence in utility management. For the most part, utility managers went unrecognized until some failure in energy systems became evident. This philosophy obviously breeds a conservative mind-set, one that resists change to existing technologies, assets, and procedural routines. The business-as-usual utility manager becomes proactive only as needed to maintain a functional status quo. For a variety of reasons, the business-as-usual approach is alive and well in countless organizations, despite a growing need for flexibility in the face of volatile energy markets.

The forward-thinking organization’s approach to energy recognizes and responds to change. Energy—impacting the organization’s triple bottom line of economics, social responsibility, and environmental impacts—now has consequences for revenue, expense, and risk performance. In the forward-thinking organization, energy decision-making involves staff in operations, maintenance, engineering, finance, procurement, environmental/health/safety, and marketing and product development. Not that these dissimilar professionals are active participants in the boiler room; rather, energy-smart criteria are folded into their standard operating procedures. This organization monitors energy use as well as the evolution of related technologies, regulations, and cash flow opportunities. Rather than clinging to a functional status quo, the forward-thinking organization effectively “connects the dots” between energy and its business performance. In other words, staff are empowered to make choices that use energy to their organization’s best advantage. Goals, accountabilities, and top-level leadership support this vision.

Today’s energy markets impose unprecedented challenges—and opportunities. Business organizations can and do evolve in response to this environment. Show me an organization that clings to the business-as-usual approach to utility management, and I’ll show you an organization that loses opportunities to conserve, invest, and ultimately grow its wealth.


Tuesday, August 05, 2008

Energy Costs: Why is Industry So Slooooooow to React?

It’s no secret that the U.S. industrial sector is struggling with high energy costs. managers react first by chasing lower prices. But what about eliminating waste so they don't have to buy so much in the first place? Corporations seem to pursue these solutions at a snail's pace. Some current data from the U.S. Department of Energy’s Industrial Technologies Program provides some insight on this phenomenon.

The diagram below shows the state-by-state results from the U.S. DOE’s Save Energy Now program. Keep in mind that this activity provides free energy audits (for more information about energy audits, see below). Recipients of an audit get a summary that identifies potential savings. The U.S. DOE does not implement or pay for the actual improvements. Recipients must do that on their own, either by using in-house resources, or by securing the appropriate vendor.

( Click on Image to Enlarge)

Note how, in virtually every state, the volume of implementation is a mere fraction of what’s been identified. Before you conclude that the recommendations were too expensive, please note that the DOE’s program focus is on identifying measures with payback measures under two years. (A completely different discussion is the misguided use of "payback" to measure financial performance). New York State is a notable exception, but this is because the state energy authority (NYSERDA) actually doles out cash incentives to underwrite the cost of improvements.

To me, these results (excepting New York) beg a mighty question: Why so little implementation? Here are my thoughts. Since this is a blog, you can add comments; I wish you would.

  1. First, and to be fair, it takes time for organizations to absorb engineering recommendations and to budget the capital to make them happen. The DOE’s program has only been in place since late 2005. Two hundred audits were conducted in 2006, and 250 more in 2007. People have not had time to follow up just yet, especially when you consider the slow economy, lean payrolls, and the chronic lack of time available to facility staff.

  2. Second, free energy audits don’t inspire a high level of commitment from recipients. With no “skin in the game,” the urgency on the part of facility managers is naturally lower.

  3. Many recipients not only have the resources to secure a proper energy audit, they often times already have. By accepting the DOE’s free energy audit, they are inviting a “new set of eyes” to verify or expand earlier findings. The DOE does not require energy audit recipients to “do” anything with the results…. And even if they did, how exactly would enforcement work?

  4. To make energy improvements, a facility must accommodate change. Meaningful energy solutions require some combination of changes to technology, procedures, and practices. Change poses challenges—even threats—to people whose livelihood is connected to long-standing procedures and priorities. Change requires front line energy managers to practice a certain amount of salesmanship. Sadly, this kind of communication is often not the strength of most powerhouse superintendents or maintenance directors. Many good energy-saving proposals never get off the ground for this reason.

  5. Finally, I think a lot of people are betting on future hand-outs from the government and utility companies. This could be (many think) in the form of cash grants to underwrite improvement costs, or perhaps buyers' consortia that hopefully lower the price of fuel and power. Perhaps I'll share some thoughts about that in a future post.

If energy improvement is a discussion limited to mechanics in the boiler room, it’s a non-starter. Companies successful at energy management are those that develop a business plan with clear goals, criteria for action, and accountabilities for getting the work done. These are organizations that in fact perceive energy as a form of wealth, worthy of the same careful handling as cash currency, and deposits.




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