Your energy strategy needs updating

Most industrial energy management programs aim to deliver some mix of cost reduction, carbon footprint reduction, and reliability. The changing structure of the power market affects all of these in many interconnected ways.

The cost structure of power is changing, too. A higher percentage of a facility’s electricity bill is fixed, reflecting investments the utilities are making to accommodate a more diverse generating mix along with the decreasing cost of traditional fuels and the zero cost of wind and sunshine. The view that reduced electricity use will reduce costs in about the same ratio as efficiency is gained is losing validity.

Not unlike what we’ve seen in telecommunications, the marginal cost of electricity is trending downward. This is a trend that is likely to accelerate. In the past, we would reduce phone bills by making fewer calls, while today we dig deeply into the contractual structure to look for economies. With power, it is no different. The overall cost is increasingly driven by contracted capacity, peak use, and time-of-day charges and conditions. The impact of the absolute amount of power used, while obviously important, is becoming a smaller part of the cost puzzle.

A company’s carbon footprint reflects an interplay of three broad factors. First, there are greenhouse gas emissions that result from the chemistry of the company’s industrial process itself. Strategies to minimize greenhouse gas emissions will be specific to the industry and product concerned. The remaining two factors are directly related to the company’s use of energy. The first of these results from the direct use of fossil fuels on-site and in company vehicles. The bulk of these are from natural gas and fuel oil consumed in the plant. The second results indirectly from the use of electricity and varies dramatically from site to site according to the local utility’s generation mix.

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In the past 20 years, it was common for the indirect emissions from electricity use to account for the majority of a company’s total carbon footprint. Electricity is also typically more expensive than natural gas or fuel oil on an energy-content basis. So, an energy-efficiency program that prioritized reducing electricity use conveniently met both cost and greenhouse-gas reduction goals. It’s often easy, too, to cut electricity consumption with many small measures implemented as an integrated whole.

As the grid moves to a lower-carbon generating mix, an energy manager’s priorities will need to change to meet carbon reduction targets. Already this has happened quickly in some cases. For example, Ontario has eliminated all coal use, ramped up wind and nuclear power use, and now has an emission index less than a quarter the level it was a decade ago. Going forward, direct emissions will account for a much greater portion of a site’s carbon footprint. This forces the thermal side of a plant’s energy use to the forefront – not always the easiest area to tackle.

The relatively rapid reshaping of the power system is creating a new environment for energy managers. Achieving the balance among between cost, carbon, and reliability performance will be much more nuanced, occasionally conflicting and interactive. Technically, there will be greater focus on thermal efficiency, an area that typically needs a longer view, is more capital intensive and can be harder to “sell” to senior management.  Managing the interface between physical operational performance and power contract conditions will be essential.

Within one company, energy plans may be significantly different from site to site to meet the same overall goals. Arguably, the biggest challenge for all of us will be to reset our preconceived assumptions as to the appropriate priorities for an effective energy-management plan.

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