How do you measure efficiency?

According to Energy Expert Peter Garforth, how you measure can significantly affect your success.

By Peter Garforth

When compared with the other two large energy users, transportation and buildings, industry has done by far the best job in managing energy. It has managed to globalize good energy practices better than any other sector, and on an indexed basis, there’s less than a 20% spread in energy use between the North American and the European averages. This spread widens to 40% or higher for transportation and as much as 150% higher in homes and buildings. There’s a certain irony that the sector that has clearly done the best job in energy efficiency has such a struggle to define what it means.

This was brought home to me recently in discussions with a major manufacturer with excellent energy management teams and processes. As part of its ongoing improvement process, the question of how energy productivity should be measured and reported was reexamined. That should be easy enough to define, right? Wrong!

One of the most common criticisms of energy management professionals is that they overcomplicate the topic and make it hard for non-experts to get engaged. It’s the engagement of the financial and business leadership that often makes the difference between a great program and the rest. To address the question of what should be a basic tracking index, we looked at a single plant with a pretty straightforward continuous material conversion process for a three-year period.

The CFO also tends to want to see the “real numbers,” also known as cash.

– Peter Garforth

During that period, the total energy use, measured in MWh equivalent, had dropped by 3%. On the surface, not a bad result, but hardly the stuff of headlines. But total energy usage doesn’t mean very much if the volume of production isn’t considered. Factoring it in, the plant energy use in kWh equivalent per unit of production had dropped by 1%, raising a reasonable challenge over the degree of improvement. Efforts to explain that the somewhat reduced volume tends to have this effect might fall on deaf ears.

The CFO tends to want to see the “real numbers,” also known as cash. In this case, the total energy costs rose by 10% at the same time the usage went down 3%. This tends to overwhelm the mildly positive usage story. Even worse, when expressed per unit of production, energy costs rose 13%. From my experience, similar percentage increases in materials, healthcare or labor costs would have people scrambling. For some reason this rarely happens with energy. When examined in terms of the market value of the product, the energy costs per million dollars of sales also rose, but by a much more modest 6%.

So, even in this very modest and simple example, we can variously define energy productivity over this snapshot of 36 months in a range of a 3% improvement to a 13% decline. The energy professionals among us understand the reasons and the interplays, but all too often lack the measurements and expertise to communicate them in ways that elicit rational long-term decisions, supported by clear priorities and decision-making criteria. Until this happens, the numbers that should be tracked and managed might be somewhat of a lottery and differ from site to site.

In the next months and years, life for the energy manager will get even more challenging as managing greenhouse gas becomes the next measurement challenge.

Back in our plant, unlike the total energy use, which decreased by 3%, the associated greenhouse gas emissions increased by 2%. This highlights the error of the commonly held view that energy efficiency and greenhouse reductions are in lockstep. The emissions index in kilograms of CO2 equivalent for each unit of production rose by a similar 2%, whereas the emission index in tons of CO2 equivalent per million dollars of sales fell by 4%. So, depending on how it’s presented, the greenhouse gas performance ranged from a 4% reduction to a 2% increase. This is before we start factoring in the financial losses and gains from emissions trading.

Even after decades looking at this question, I don’t have a simple answer. Regardless of which efficiency index you choose, a case can be made why it’s not a good measure. At the same time, if you try to communicate the holistic complexity of energy productivity, and increasingly, greenhouse gas emissions, the very audience that needs to be at the table becomes disengaged. Then we default to management by crisis — not the best way to build long-term energy productivity.

This is definitely an area where I would appreciate your view on the apparently simple question: “What is industrial energy efficiency and how do we measure it?”

Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at garforthp@cs.com.

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