‘Indirect’ energy: A holistic view of industrial energy use, impact, and cost

June 9, 2022
Peter Garforth says your company must manage an increasingly comprehensive understanding of energy consumption.

The Russian invasion of Ukraine is triggering a global rethink of the world’s energy systems. This is taking place in parallel with the underlying need to vastly reduce the use of fossil fuels to reduce the impact of climate change.

Sourcing energy from politically sensitive areas is being rapidly reduced. Infrastructure to source from more friendly areas is being rapidly upgraded. Programs to dramatically cut fossil fuel use through both efficiency and added renewable supply, including solar, wind, biofuels, green hydrogen, and geothermal, are being fast-tracked. System-wide investments in information management combined with thermal and battery storage will increasingly be used to optimize energy supply and use.

Energy prices have surged in the past few months. Spot prices of natural gas in the United States have more than doubled from their recent lows; in Europe it is trading at roughly four times U.S. levels. The price of diesel and gasoline are tracking the doubling of oil prices. Shifts in carbon pricing have been no less dramatic. In the face of both price and strategic supply risks for natural gas, even coal prices are seeing significant increases. Of course, these shifts in primary fuel and carbon prices cause dramatic impacts on electricity prices.

For the industrial energy user, the themes are familiar — efficiency and price. Less familiar is the speed and scale of the recent changes, and the likelihood of abrupt and unexpected price and supply reliability swings for years to come.

To effectively prioritize efficiency measures, the first step is to have a comprehensive understanding of all the energy the company uses, and of course, the associated GHG emissions.

The real energy content of electricity is between two and three times the metered delivery due to fuel conversion and distribution losses. In a similar way, the real energy content of natural gas includes a distribution component before arriving at the meter. These energy overheads obviously carry GHG emissions that will show up in the energy costs in many parts of the world.

About the Author: Peter Garforth

There is a wide range of a company’s energy use, carbon footprint, and cost that is rarely systematically understood, tracked, and managed. This is the embedded energy and carbon in all the supplies and services the company uses to run its business. The typical heavy hitters for a manufacturer will be raw materials, major sub-assemblies, and transportation.

Increasingly, a company’s efficiency program will manage this comprehensive understanding of its energy use. Reducing the company’s indirect use of energy is a major dimension of energy efficiency.

Taking this more holistic view of energy use, impact, and cost will almost certainly reprioritize efficiency investment priorities. As an example, on-site/near-site renewable supply is really an efficiency measure to avoid conversion and distribution losses and GHG overhead, with the added value of having nearly free fuel. Similarly, actively investing in reducing the energy footprint of a significant vendor is really an efficiency measure to avoid indirect energy use, impact, and cost. Creating this integrated and interactive picture of the company’s direct and indirect energy use and carbon impact is a pre-requisite to developing a cost-effective and flexible energy efficiency program.

At the same time, the major shifts in political priorities associated with energy will have substantial and unpredictable impacts for the company’s energy efficiency investments. The accelerated scale-up in efficiency and fossil fuel elimination will redefine the availability and costs of various technical options. In the medium term, the trend is likely to be reducing investment costs, bringing more options into the frame.

The rapid realignment of energy supply chains to reduce the political and market risk in the current primary fuel supply will likely put short- to medium-term upward pressure on today’s utility, fuel, and carbon prices, whether direct or indirect. This will enhance the value of accelerated investments in efficiency measures of all types. Energy competiveness will hinge on managing efficiency and price. New is the scale, scope, and speed of the world’s energy transformations.

This story originally appeared in the June 2022 issue of Plant Services. Subscribe to Plant Services here.

Energy Expert

This article is part of our monthly Energy Expert column. Read more from Peter Garforth.

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