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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