An underlying theme of this column to date has been the importance of management focusing on energy productivity rather than just energy efficiency. This is far more than a semantic distinction, so I want to explore what it takes to integrate effective energy productivity solutions. Just to remind ourselves, energy productivity is the overall cost of energy per unit of saleable product.
Any effective strategy to improve energy productivity must be driven by a team structured to integrate the disparate elements that influence overall energy costs. This by no means is an easy challenge. Traditionally, most companies see energy use as a straight line process from buying to consumption. Let’s explore this viewpoint using a manufacturing company as an example.
Energy buyers negotiate contracts with the gas, electrical, water and other energy suppliers based on forecasts of use from manufacturing operations. The manufacturing facilities are built following designs from manufacturing process engineering groups. These facilities in turn are operated by manufacturing teams who frequently have little input into the overall process and minimal communication with the people involved in energy procurement. These three organizational parts — procurement, process design and operations – make key decisions that have long-lasting effects on overall energy productivity, and all too often make those decisions in isolation from each other, under different overriding goals and organizational pressures.
The energy buyers, usually located in the finance team, focus on achieving the lowest average unit price at acceptable supply reliability. This often results in high fixed costs and volume thresholds.
The manufacturing process design and construction teams are usually under pressure to minimize the initial investment consistent with meeting required production volumes. Energy efficiency is frequently a secondary consideration, which at prevailing costs may have been a reasonable approach. However, less-than-optimal levels of energy efficiency may become a major legacy burden if prevailing energy prices rise significantly.
Manufacturing operations are usually focused on running a safe facility that meets production targets within the planned operating and capital budget. Energy efficiency usually becomes an issue only when energy prices rise above planned budget levels and the margins of the business are under pressure. This is typically the moment when the manufacturing teams recommend investments in upgrades to improve efficiency — a time when the company is least likely to be able to afford them.
Looking back at the supply side, newer technology has made a range of distributed generation options viable. Combined heat and power (CHP) engines or turbines can greatly improve primary fuel usage efficiency, and make a major contribution to reducing greenhouse gas emissions. But having both the electricity and heat available on-site might significantly change the design of the process, a fact not always welcomed by the manufacturing process engineering group.
The regulatory and market frameworks for interconnecting CHP units to the wider grid are fraught with anomalies, hidden costs and risks, and their presence is rarely welcomed by the incumbent utility. The tensions that a proposed CHP solution may create are seldom appreciated by the energy procurement team as it risks disturbing existing relationships and negatively affecting other negotiations.
In summary, our traditional disaggregated energy management model drives high-volume energy contacts to achieve low unit costs, encourages manufacturing process design at average levels of efficiency, and fails to allocate sufficient capital and management effort to maintaining high levels of ongoing efficiency. It also fails to reevaluate fundamental energy supply options.
The appropriate management response to this challenge is obvious. The energy teams established within divisions and individual sites must represent the three traditional constituencies of procurement, process design and manufacturing operations.
As each team develops its energy productivity plans, members should be challenged to use the following three priorities:
- Has every reasonable effort been made to maximize efficiency through management, retrofit and new facility design? Have these been evaluated against likely energy price scenarios, and have the maximum opportunities been taken when new facilities are built or major retrofits are made?
- Has the potential to implement new supply solutions including heat recovery, renewable energy possibilities, and combined heat and power been fully evaluated? Have these been evaluated against likely changes in regulatory structures, incentives, energy prices and potential climate-change penalties or incentives?
- Have new and innovative approaches been evaluated to team with current utilities for remaining energy needs in ways that can be of benefit to all parties? Has this been done in the context of possible energy market changes?
This sequence of energy productivity problem-solving is variously known as the “California Loading Order” or the “Trias Energetica” and is a valuable mental checklist for management assessing any proposed energy productivity plan.
Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at email@example.com.