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What is energy efficiency?

Jan. 18, 2021
Whatever your specific definition, Peter Garforth says it needs to be measurable and flexible.

There are many possible answers to the question: what is energy efficiency? The ways this question is answered can deeply change the effectiveness of a corporate energy program on a company’s competitiveness.

About the Author: Peter Garforth

A good place to start is to have a clear understanding of “energy” itself. The site energy as recorded on the utility meters is the most common definition. However, included in energy cost is the conversion and distribution energy that the utilities use to deliver to the plants. In many ways, it makes more sense to consider “source” energy since it is both paid for and its greenhouse gas emissions are included in the company’s carbon footprint.

Balancing the economic, environmental, and technical efficiency goals that are part of any comprehensive corporate energy plan requires energy use to be tracked and forecast in terms of energy content, unit cost, and greenhouse gas emissions content.

In a predominantly manufacturing business, the energy needed to produce a single product is arguably the most logical way to define efficiency with some attention paid to a few nuances. Firstly, the product should clearly be a saleable item. The energy content of any physical waste that needs to be scrapped or reworked is as much waste as the labor content and the physical materials.

The next nuance that must be considered is the range of products. It is rare for a company to make similar products at all its plants. A crucial step is to establish a consensus on how many “saleable product” unit definitions a company will need to track energy efficiency. Too few, and the measure becomes meaningless. Too many and it becomes too complex to assess the impact of long-term efficiency management initiatives. 

Each manufacturer will need to create a range of saleable product categories that reasonably represent the manufacturing portfolio. Whatever choices are made, they should be readily measurable and flexible enough to accommodate the company’s expected future businesses.

Using saleable product as the index for efficiency raises the question as to whether energy cost efficiency should be expressed as a percentage of manufacturing cost or unit revenue. A case can be made for both. Whichever is chosen, it should align with the way the company treats labor and material costs, recognizing that energy is simply an invisible “material.”

A common challenge to this interpretation of energy efficiency is how a major change in the manufacturing process is treated. Changes in process are usually made to reduce production waste, reduce labor and material costs, or increase throughput. Changes may increase or reduce the energy requirements. Either way, process change impacts on unit energy efficiency should clearly be included as an objective benefit or challenge through implementing the change.

In a similar way, production volume has a major impact. Energy efficiency generally increases when sales are high and falls during tougher market cycles. Keeping a consistent and transparent definition of efficiency highlights the need for sustained energy efficiency investments through both good and challenging market conditions.

Each service business will also need to agree on the definitions of saleable products that are relevant to their activities. 

How should a company that makes several distinctive product lines measure its overall energy productivity? At a minimum, the energy manager should routinely provide total energy cost, typically expressed as percentages of the company’s total operating costs and revenues. However, this approach disguises the contribution of each product family. This raises the question as to whether there is a possibility to bundle product-line efficiencies into a meaningful tracking measure of overall energy productivity.

The simple answer is yes! For decades, governments have added the prices of consumer goods and services into meaningful overall cost of living indexes. A similar approach allows the efficiencies of the individual product lines to be combined into an overall corporate energy productivity index. 

Energy Expert

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

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