Tuesday, May 29, 2007

Superior Energy Performance

Are we about to see a breakthrough in promoting U.S. industrial energy efficiency? Maybe. Most of the right pieces seem to be falling in place.

First, here’s a bit of background: For the past 10-15 years, U.S. industrial energy “policy” has been the result of scattered initiatives, each coming from an equally scattered collection of government agencies and trade associations. For example, we have seen the U.S. Department of Energy, with support from certain national labs, lead the development of technology research and development. The task of engaging corporate leaders with an energy efficiency message has been largely adopted by the U.S. Environmental Protection Agency. Meanwhile, the National Association of Manufacturers has steadfastly demanded more production of traditional fossil fuels, while taking an agnostic position regarding the potential for energy efficiency. At best, these players have lacked coordination. At worst, they have found themselves at odds with each other.

From this history emerges a new initiative that actually attempts to coordinate these disparate players. “Superior Energy Performance” is being developed from its inception as a voluntary effort that is shaped BY industry FOR industry. Perhaps the website describes it best:

This partnership is addressing the current need for a consistent, performance-based framework that fosters continuous progress in industrial energy efficiency. The proposed framework provides a mechanism to help individual companies assign greater value to energy efficiency improvements, independently verify resulting energy savings, receive public recognition for achievements, and "raise the bar" for industrial energy efficiency overall.

This is worth watching. The key to success is making sure that industry embraces continuous energy improvement as standard operating procedure. If this is perceived as a “project” to be wholly passed off to the engineers while everyone else carries on business-as-usual, then it’s dead in the water. The good news is that the major policy players are sitting at the same table. Wish them luck.


Tuesday, May 22, 2007

Quarterbacks of Energy

As a long-time fan of American football, I remember watching some great quarterbacks supported by less-than stellar teammates. Think of the Redskins’ Sonny Jurgenson during the 1960s, the Saints’ Archie Manning during the 1970s, or the Broncos’ John Elway during much of the 1980s. Without a proper complement of skill players, those great quarterbacks could not single-handedly carry the team through a full season.

I see the same happening with energy managers in industry. Companies will put the energy burden squarely on the shoulders of one person, as if that individual can do it all. How can one person control energy costs when consumption reflects the daily decisions made by operations, maintenance, engineering, and finance staff? The energy manager might get great ideas from workshops, conferences, trade press, and professional networks, but no one else from the facility is picking up the same messages. The energy manager easily becomes a maverick, swimming against the tide of a facility’s disinterest (or worse).

This underscores the need for the facility’s top management to demand results through teamwork. A major hurdle to overcome is the interdepartmental rivalries usually fueled by competition for budget dollars. Energy managers must somehow overcome the “silos” of departmental authority. For example, it’s not uncommon for a procurement director refuse to pay $10,000 for an energy audit that will identify many times that amount in potential savings.

The key is for the energy manager to demonstrate to other department managers “what’s in it for them” should they participate in a facility-wide energy management effort. The successful energy manager’s agenda becomes a hub from which win-win solutions are distributed to the departmental silos. Those silos then become spokes connected to the energy manager’s hub. The management team then works collectively, creating a whole value that is greater than the sum of the parts.


Wednesday, May 16, 2007

Armstrong Energy Council Advances the Productivity Frontier

I just wrapped up two days at Armstrong’s Energy Management Council in Chicago. Armstrong is a leading provider of energy system and service solutions for energy consumers. Their ongoing challenge is to serve clients that are equally challenged to balance the factors of time, risk, and money as they seek solutions to today’s dynamic energy markets.

The Council is an opportunity for energy managers from the food processing and pharmaceutical industry—many of whom are actually competitors—to share information about new technologies and practices. This forum allows peers to validate new applications that are otherwise backed only by sales materials. Attendees walk out of the Council with improved knowledge of what will work, what won’t work, and what’s still yet to be verified. This applies not only to technology, but to management practices and communications that are needed to get things done.

This event indicates the potential to improve productivity through collaboration and information sharing. Perhaps you’ve seen the business press that describes American industry’s inability to maintain the productivity gains that it enjoyed through the 1990s. We’ve reduced the number of labor hours per dollar of production to its bare minimum. I think the opportunity now is to better coordinate the efforts of people that remain. The Armstrong Energy Management Council is one forum that permits this kind of collaboration. I hope to see a lot more.


Wednesday, May 09, 2007

Energy At-Risk: Make or Buy?

A thought came to me today at the Industrial Energy Technology Conference in New Orleans. The energy that an organization consumes is either put to work or lost to a variety of causes, many of which are avoidable. Unavoidable losses are best attributed to the laws of physics and thermodynamics. Perhaps another blog out there will explain those phenomena better than I can. Let’s focus instead on the avoidable part, which I will call “energy at-risk.”

From a business perspective, think of energy at-risk as the quantity of energy that an energy-consuming organization can either make or buy. This figure illustrates the concept:

Click on image to view

At the root of this argument is the fact that energy performs work. Purchased fuel must first be converted to heat and power, which are in turn converted into work. The conversion process always sustains some energy loss, but some proportion of these losses (the energy at-risk) can be contained with varying degrees of effort. Therefore, an energy-consuming organization has one of two choices for the at-risk portion of their energy consumption. They are:

Buy it. The organization decides it can do nothing about energy waste (because managers “have no money, time, accountability,” etc.) and consequently it will need buy more energy than it will actually use, because it has chosen to forfeit its energy at-risk.

Make it. Alternatively, the organization can implement efficiencies that allow the recapture of energy waste so that it can be re-applied to useful purposes. By “recapture,” we mean anything that reduces energy conversion losses.

The organization can use make-or-buy analysis to handle energy at-risk. The business concern now is to consistently monitor the cost to purchase energy versus the cost of saving it. Hopefully, the organization has conducted an energy assessment that indicates the cost and savings potential of energy improvement recommendations. When it’s cheaper to save a unit of energy than it is to buy it, then the make-or-buy decision should be pretty easy to make.


Tuesday, May 01, 2007

About Energy Audits: An Open Letter to Procurement Directors

Dear Director:

You, better than anyone else in your organization, know how energy costs have become higher and more volatile. If you are in a jurisdiction with deregulated power utilities, you know the extra burden that comes with choosing energy providers. Most of your peers have adopted portfolio management strategies for buying energy in today’s volatile energy markets.

But after a few years of utility deregulation, your peers are finding that there’s more to energy costs than “price.” Facility managers everywhere are examining the quantity of energy they consume. Many are changing way they use their current energy-using assets. Behavioral and procedural changes are underwriting the cost of new, energy-efficient hardware.

How do they do it? The process starts with an energy audit. Think of an energy audit as a thorough, facility-wide investigation of energy inputs, uses, and losses. At the very least, an energy audit itemizes improvement recommendations by describing the cost, savings, and payback attributable to each. An energy audit is a roadmap to potential savings. You can't manage what you don't measure.

Very often, the task of securing an energy audit falls on the shoulders of procurement directors like yourself. Good procurement directors always negotiate the best possible price for their purchases. You can do this with energy audits, too, if you assume that an energy audit is a commodity… in other words, you must believe that all audits are the same, regardless of the skill and experience of the audit team, the amount of time put into the effort, and the degree that the audit team collaborates with site staff.

So here’s the take-away message about an energy audit: Don’t look at it only as a cost. If you do, you can certainly save money by not securing the audit in the first place. This is a very high risk strategy, because each dollar saved by avoiding an energy audit can cost many more dollars in energy waste.

Is an energy audit crucial to business competitiveness? It depends: you don’t need it if you (1) can always pass all your costs on to your customers, (2) can always boost your sales to make up for smaller profit margins, and (3) are immune to regulatory compliance and scrutiny from shareholders, and employees. Then there’s retailers like Wal-Mart, who that insist that you reduce your production costs. Remember that those retailers have sharp procurement directors, too.


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