How to rethink energy consumption targets without risk to the business

Peter Garforth explores how to decouple growth from energy use.

By Peter Garforth

The assumption that economic growth goes hand in hand with growing demand for primary energy is deeply ingrained. It has been an underlying “truth” that has driven energy policy since the start of the industrial revolution. It is still an oft-cited basis for political decisions around energy supply choices and infrastructure investments.

A closer look suggests challenging this assumption is long overdue. Data from the last decade or two indicates that energy management targets could be set at far more challenging levels, settings far more aggressive than are normally the case.

Since 2000, the U.S. economy has grown by about 75%, while its total energy consumption has remained essentially flat. The use of conventional thermal fuels – oil, nuclear, coal, and gas – has actually reduced over these sixteen years by about 6% accompanied by a comparable increase in renewable supply. Obviously, there are many moving parts on national statistics like these. However, at a minimum they should trigger a company to ask some deeper questions to understand how its energy use has evolved relative to the business as a whole.

The Copenhagen region is often cited as an example of energy management innovation. Since 1990, the population has stayed essentially flat and the region’s economic growth has nearly doubled, while the greenhouse gas emissions have dropped by a half. This has been accompanied by low unemployment levels relative to surrounding areas and countries, and an enviable reputation for innovation and livability.

A recent assessment of a major global manufacturer, with headquarters in the United States, showed a similar picture. While their revenues had doubled in the past decade, their energy use for each product manufactured had dropped by more than 30%, which contributed to their competitiveness during the upheaval of the recession and sustained global price pressures.

Another factor to keep in mind is that performances like those of the United States or the Copenhagen region are averages. This means that the highest performing sectors and players will have results far above these averages.

Faced with overwhelming evidence that we are seeing a decoupling of economic growth from energy growth, the energy manager needs to rethink the targets for the company’s energy management plan.

This rethink should start with evaluating at least the last ten years of the company’s energy performance. At a minimum, this should include an assessment of the energy use and cost as a percentage of sales and profit. If product mix has remained reasonably similar for the years, energy use as a percentage of output will also be relevant.

If these initial indicators are showing gains of anything less than 25%, this could be a sign of substantial missed opportunity. Looked at in another way, this is an indicator of readily accessible competitive advantage.

The next obvious part of the rethink is to put the company’s energy performance in context. How did it compare with national and regional averages as whole? Most countries also have reasonable information for industry overall which provides another basis for comparison. A little more digging may yield comparative data for the specific sector the company competes in. It is also not that uncommon to find individual case studies that may allow general or specific comparisons.

Armed with these comparisons, the energy manager can use this background to support the next step – the reassessment of future targets. This entails addressing a number of “what if” questions. The most obvious would be to understand the effect on profit and competitiveness if the company’s energy performance were closer to the national, regional, or industry averages. Even more telling would be to quantify the benefit if the company’s energy performance were at the higher end of the comparisons.

The next most obvious questioning would be around the risk to the business if the leading competitor were to raise their energy performance dramatically. This question could be asked in two ways. The first would be under today’s market conditions of pricing and regulation. The second would be under possible future conditions that may include higher energy prices or complying with more costly energy-related legislation.

As these questions are being posed and answered, it is always tempting to precondition the answers by what seems feasible. While understandable, this tends to be self-limiting. The company’s internal experience can be a barrier to objectively assessing past performance and future risks and opportunities. While difficult to do, the “what if” questions should be answered without undue focus on the apparent feasibility of any particular action plan.

The energy manager now has the ammunition to propose possible medium- to long-term energy management goals, which will start the journey to develop energy action plans and approving the necessary resources to achieve them.

The data from the wider world is increasingly showing us that the hard line between economic growth and energy use is being broken. Does the energy plan for your company reflect that new reality?

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