Monday, January 28, 2008

The Seven Steps to Successful Industrial Energy Management

1. Top management must demonstrate its clear and durable intent to progressively improve the energy performance of the entire organization. Management should also declare amnesty and hold individuals blameless for past choices that caused energy waste.

2. Develop energy-use profiles at the facility level. Benchmark and regularly track the volume of energy that the facility “should” use. Devise simple, clear metrics for this purpose.

3. Identify and remove organizational disincentives to changing the habits and procedures that lead to energy waste. Ensure that the costs of energy use, and the benefits of increased efficiency, are distributed across all departments.

4. Establish leadership, accountabilities, and a protocol for effectively remediating lapses from optimal energy use.

5. Regularly document and communicate energy’s contribution to business performance. Use business language instead of technical language to accomplish this.

6. Seek, encourage, and reward ongoing innovation for harvesting wealth from energy use.

7. Make energy-smart criteria integral to every-day operating, engineering, and procurement decisions. If energy cost control is still perceived as a distraction, then the organization has yet to create the incentives to truly manage energy risk.

For another perspective, see The Seven Deadly Sins of Energy Cost Control.


Monday, January 21, 2008

Energy Costs: It’s All About Prices …Isn’t It?

If energy gets too expensive, look for a lower price, right? In states with deregulated utility markets—that is, where people have a choice of suppliers—this is exactly what many consumers do. And this is what they should do. But is this enough?

For reference, a number of entries to this blog discuss the opportunities to save money by reducing energy waste. Just a few of those entries include:

Energy Savings: See What You’re Missing!

What CAN you save? What WILL you save?

How Waste Raises the “Price” of Energy

The point is, if you want to reduce your energy costs, price is only a partial solution. Even the most hard-nosed procurement officers eventually come to grips with this fact. Consider the elements that determine price of natural gas purchased in a NYMEX strip (10,000 MMBtu):

(Click on image to enlarge)

About seventy-five percent of the cost is for the commodity itself, a cost that is market-driven. That’s what the supplier pays for it. Add on 15 percent for transportation (or basis), which covers the cost of getting the gas from its point of production to its point of use. Certain fees are statutory and therefore non-negotiable. Finally, that leaves the supplier’s profit margin. If you wanted, you could beat up the supplier over that. But what do you get for your troubles? Something like five percent of five percent.

There’s a lot more savings to be achieved by reducing the volume you need to buy. On average, large energy consumers can find 10 to 15 volumetric savings opportunities. The links offered above are a starting point.


Tuesday, January 15, 2008

Energy Efficiency Assistance Programs in 2008

As 2008 gets underway, a number of states, provinces, utilities, and trade associations are gearing up a variety of programs to help their commercial constituents get a handle on energy costs and carbon emissions. The timing for this is good: the economic penalty to a business that refuses to control energy waste goes up as energy prices increase (which they are) and as interest rates decline (which they are).

My only concern is with well-intentioned program designers who are not learning from the past. A number of earlier industrial energy efficiency programs fell flat for reasons that now seem deceptively obvious:

Lack of two-way dialogue. Many energy programs in the past came off as arrogant (“Stop doing what you’re doing and do what we tell you.”) These programs not only pre-supposed the solutions, but expected all of industry to come at once for help. Today’s efficiency proponents need to better understand what businesses currently need, energy-related or otherwise. Strategic challenges include competitive cost pressures, workplace safety, regulatory compliance, asset reliability, and a chronic shortage of time. Efficiency proponents need to describe how energy efficiency helps to alleviate these and other business challenges.

Lack of facility-wide understanding. Just because you send a maintenance engineer to an energy workshop doesn’t mean that the rest of his or her organization gets the same message. Those steam, motor, and compressed air workshops—as good and as necessary as they are—do nothing to address the behavioral and procedural barriers to creating durable change. The traditional engineer-to-engineer dialogue needs to be supported by an executive-level dialogue—one that answers the question “What’s in it for me?”

Lack of context. Energy costs are not the only challenge that executives face. Energy program proponents are one of many voices competing for executive attention. Companies are likely to respond individually, over time, to the promotion of energy efficiency. A company’s progress in becoming energy-efficient will depend on competing priorities both outside the firm (economic conditions) and inside the firm (management crises/issues). Barring the need to offset acute energy market disruption, like that experienced during the hurricane season of 2005, programs that promote business-sector energy efficiency can expect to accumulate results over a period of years, not months.

The challenge for energy efficiency proponents is to initiate an assistance relationship with interested facilities. Fortunately, energy efficiency can be combined with other issues that top managers will more readily notice. Energy agencies should anticipate partnering with other policy groups, including those that represent economic development, environmental compliance, or disaster preparedness. The efficiency proponents’ biggest opportunity may be to collaborate with allied policy groups. Together, they can shape comprehensive assistance initiatives that truly motivate businesses to take action.


Wednesday, January 09, 2008

The Energy Independence and Security Act of 2007: An Energy Manager's Summary

The Energy Independence and Security Act of 2007 was signed into law on December 19, 2007. A stroke of the president’s pen provides what the Alliance to Save Energy calls “the most sweeping energy efficiency legislation ever enacted.” Here’s a summary of what this legislation means for commercial and industrial energy managers.

If your agenda is to improve business performance by reducing energy waste, the new law gives limited and indirect help. Managers in the industrial (manufacturing) sector can look to Sections 451 and 452. In brief, Section 451 directs the U.S. Environmental Protection Agency to create an inventory of industrial sites that are suitable for generating electricity from current fossil fuel-burning processes. It also authorizes (but does not yet appropriate) up to $200 million per year for the next several years to be used as grants to incentivize construction of such power generation capacity.

Section 452 authorizes (but does not yet appropriate) a climbing scale of funding—from $184 million in FY08 to $208 million in 2012—to support research, development and deployment of “energy efficiency” in energy-intensive industries, which interestingly includes “data centers.” This R&D funding leads to the continued development of much-needed technology and hardware. What's missing is a complementary R&D effort on the "human" side of energy management, which entails an evolution in thinking about the procedures, behaviors, and accountabilities we apply in using these technologies.

Because the federal government is the single largest energy consumer in the U.S., it is the focus of the entire Subtitle C (Sections 431-441). In brief, these sections set energy reduction goals and even attempt to prescribe how to do it—for example, Section 432 directs federal agencies to create energy manager positions, calls for periodic energy use evaluations, and the development of scorecards to track progress. Of particular interest is Section 434’s direction that all utilities will be metered at the building level. Energy Star guidelines are to be used for leasing of space for federal use, while “High-Performance Green Building Standards” are to be used for “analysis, guidance, and training,” but apparently there’s nothing there to compel action on the part of facility managers.

What will the newly-ratified energy bill accomplish? The industrial provisions are designed to entice, but not compel, certain actions on the part of industry. The RD&D spending will support a lot of national lab and university-based activity, which may eventually result in industry’s adoption of advanced, efficient technologies. What the bill does not, and CANNOT do, is compel industry’s uptake of these products. Those are investment decisions, and they remain the private prerogative of corporate decision-makers.

The federal energy management provisions, you may have noticed, have more teeth to them in that they require specific actions on a specific timetable. Time will tell just how much these ambitious goals are adhered to in practice. Private sector facility managers may want to keep an eye on the implementation of federal agency energy management plans. Some useful lessons about goal setting, measurement and evaluation are certain to emerge.


Wednesday, January 02, 2008

How Energy Managers Partner with the Front Office

If you are a successful energy manager, it’s probably because you harmonize your agenda with your organization’s core mission. In other words, you demonstrate how your efforts contribute to operating income, hours of availability, reliability of operations, or other key metrics that are important to your top management. Because of your communication skill, the front office understands how energy management reduces risk, time, and expense. In effect, they perceive you as a partner in their business success.

The following, which is drawn from Industrial Energy Management from the Top Down, suggests how an energy manager should approach partnering with his or her top management:

1. Define the partnership. Participants need to understand what they are committing to by pursuing energy management. Partners should understand how trade-offs among risk, time, and money are achieved to generate results.

2. Develop and speak a common language. Energy managers tend to be technical while top managers are increasingly non-technical. Translate your work into their language. If, for example, your operating margin is five percent, the dollar you save through energy management has the same impact on income as bringing in $20 of revenue.

3. Emphasize intersecting goals. Energy management goals won’t always match those of the core business. But there are opportunities to intersect your energy agenda with top management’s goals. Cash flow, plant reliability, product quality, carbon reduction—these and other management hot-button issues can be directly supported by energy management efforts.

4. Set expectations and achieve results. Your partnership with top management will put plans and milestones in place that define success and recognize the steps and resources needed to reach mutually beneficial goals.

True partnerships share risks and benefits. Those risks and benefits cannot be expressed without regular monitoring and verification of energy performance. This is why (and we’re saying it again) energy management is a process, and not simply a project. You can’t manage what you don’t measure. There is no finish line if there is no indication of a starting point.


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