A recurring frustration for the industrial energy manager is the habit of using current energy costs as the sole basis for assessing an energy efficiency investment. This simplistic and short-sighted view tends to kill a large number of efficiency upgrades and results in a complete loss of the multiple collateral benefits of improved energy productivity. The total of these added values may well be far greater than the simple immediate cost savings. We need a more sophisticated decision making process when judging energy productivity investments.
The first, most obvious added value is that improved efficiency reduces future costs risks from increasing energy prices. The easiest way to capture this is to aggregate on future high and low energy price risk profiles and judge whether the investment meets reasonable minimum returns. It is astonishing that even this simple approach to capturing the risk management value is a relatively rare decision-making criterion.
Next on the value list is reducing cost risk from future legislation to limit carbon emissions. Again, capturing this risk mitigation value is simply a case of aggregating possible future carbon costs and evaluating their impact on the possible returns. Obviously there is no certainty that these carbon costs will happen, but that should stop us estimating the value of risk insurance.
Improved energy reliability is a common outcome of many commercial and industrial energy productivity investments. This may simply be the result of more modern, better controlled systems using less overall energy. It may also come from changes in on-site energy supply systems. Improved resilience of manufacturing or commercial operations in the event of grid or gas network failures needs to be valued.
Quantifying reliability value requires estimating a number of things. First, the current likelihood of operational interruption and the possibility of its growth in the future due to weather or grid deterioration need to be understood. An estimate of the cost of failure in terms of lost production and other disturbances completes the estimate of the potential costs of energy unreliability. The improved reliability that is a collateral benefit of the energy efficiency measures can now be factored in using a sensible combination of risk factors and avoided costs.
It is not uncommon for an energy solution that avoids just one operational interruption in its lifetime to pay for itself many times over. Naturally, it also delivers its efficiency value day after day. If there has been recent energy-related interruption of operations, reliability may well have higher perceived value. Judicious timing of the investment request might well influence the decision.
|Peter Garforth heads a specialist consultancy based in Toledo, Ohio and Brussels, Belgium. He advises major companies, cities, communities, property developers and policy makers on developing competitive approaches that reduce the economic and environmental impact of energy use. Peter has long been interested in energy productivity as a profitable business opportunity and has a considerable track record establishing successful businesses and programs in the US, Canada, Western and Eastern Europe, Indonesia, India, Brazil and China. Peter is a published author, has been a traveling professor at the University of Indiana at Purdue, and is well connected in the energy productivity business sector and regulatory community around the world. He can be reached at email@example.com.
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There is a growing body of evidence that consistently implemented energy-efficiency programs have a measurable effect on productivity. In commercial operations this may come from improved lighting including increased use of daylight, improved air quality, individual control of workspace conditioning, and energy-efficient office equipment. Productivity improvements of 10% and higher are not uncommon. In manufacturing, focused heating and cooling of workstations and appropriate lighting, along with modern energy-efficient tools and equipment can increase line speeds and yields.
Quantifying the collateral benefits of productivity will require some effort to get appropriate benchmark and research data. It is often best tested in a single plant or even on a single line in a controlled experiment, backed by an agreement to proliferate across the company if the productivity benefits can be proven. A good example of this was a chain retailer that tested daylighting in a few stores. They found these stores had higher sales per square foot, and spread the energy-saving daylighting measures to all their stores. Clearly, the increased sales had far greater value than the saved electricity.
Plants with effective long-term energy management practices also tend to have higher levels of safety. The reason for this is the subject of some debate. Good safety comes from consistent leadership and unrelenting attention to detail, along with a willingness to invest to avoid future risks. Good energy productivity comes from essentially the same characteristics. Quantifying this linkage is not easy, but, at a minimum, data should be gathered to support the potential benefit.
Simple comfort is one of the most undervalued benefits of energy efficiency. We see this in our own homes. How many of us delay replacing old windows or upgrading insulation because they cannot be justified purely based on reductions in the utility bills. Finally, for whatever reason, the upgrades are made. In a matter of days the reduced outside noise, improved interior sound quality, lack of drafts, and the evenness of heating and cooling are valued far more than energy costs savings. The industrial and commercial equivalent results in improved employee satisfaction and reduced turnover and absenteeism.
This is by no means a complete list of the collateral benefits of energy efficiency investments. Some are easily valued, but others require a little more creativity to include in the decision-making process. Improving our skills in capturing all the energy values will pay off if even one manufacturing interruption due to poor energy management investment decisions is avoided.