In the film “Groundhog Day,” the same events were relived over and over, with everyone oblivious to the repetition, with the exception of Phil Connors, the TV meteorologist assigned to the event. The average energy manager can often feel like Phil Connors, as he sees the same ideas circling around every few years, accompanied by the same discussions and the same analyses, often leading to a wait-and-see conclusion.[pullquote]
When it comes to investing time and money in improving industrial energy productivity, the body of evidence is that efficiency and supply measures deliver multiple benefits. These include reduced energy costs, reduced impact from price volatility, lowered environmental impact and improved energy supply quality. Evidence of collateral benefits is also well-documented. Improved supply quality improves manufacturing processes, which increases yield. Continuous improvement disciplines that any good energy productivity program would demand bring attention to areas of waste, resulting in productivity improvements beyond energy. Not least among these collateral areas are safety improvements that accompany heightened focus on all aspects of processes.
Success stories highlighting some combination of these benefits often trigger management to explore the value of comprehensive energy management and launch an energy opportunity study. Often this is the start of the rerun of “Groundhog Day.” A team is formed, usually with consultants, to conduct a study. Typically they will be given a stack of earlier energy studies which were not implemented. Rather than accept these as reasonably accurate and a useful part of the base, they are deconstructed and reassessed. Sadly this is often done to demonstrate that the new team is smarter than the earlier one. Whatever the motivation, a lot of effort is spent validating or rejecting earlier studies, rather than exploring extended opportunities.
Reasonable benchmarking brings some pretty clear indications from other companies’ experiences across a wide range of industries. An average company can improve its energy productivity by 10% to 15% through simple continuous improvement programs. Reasonable levels of investment with decent returns can push that to 20% to 30%, and a strategic rethink of the way energy is supplied and used may raise that to breakthrough levels above 50%.
Rather than accept these benchmarks at face value, the study team will spend significant effort understanding the detailed differences between the external examples and their own company. In principle, this seems logical. In practice, it often becomes an exercise to maximize the differences and minimize the similarities between the benchmark companies and the focus company. As a result, the performance bar is lowered rather than raised.
The financial analysis typically tends to default to lowered expectations. The value of savings should always be based on the range of future energy cost risks. After all, this was one of the reasons for launching the study in the first place. Anybody close to the energy field at the moment knows the range of future uncertainty is large. At the upper end of the risks, most efficiency programs pay off. At the lower end of risk, this may not always be the case. As discussed in other columns, the usual reaction is to minimize the downside risks and take a rosy view of energy costs into the future.
At the end of this repetition of “Groundhog Day,” it’s likely that the new team’s proposed actions look like slightly modified versions of earlier recommendations. Benchmarking highlights differences and reduced opportunities, suggesting “our” results will be less attractive than “their” results. Cost risks have been adjusted downward, further reducing the potential value.
This conservative view of the potential value is often further diluted during the management review as each piece is pushed to the lowest common denominator. The end result is the perception of a complex long-term energy management and investment program with marginal returns. What lingers is the sense that maybe this might be a bigger deal than we are giving it credit for, so we should revisit it in a year or two. The stage is now set for the next rerun of “Groundhog Day.” Meantime, the company’s competitive risk increases.
Constantly revisiting the same energy questions over again is not only the purview of industry. In fact, what triggered this column was receiving a recent request for proposal on municipal district energy systems. This called for a study of the opportunities, along with the technical choices and risks, and the marketing, institutional, environmental, and regulatory options and barriers to put these systems in place in the United States. To my limited knowledge, these questions have been addressed thoroughly in multiple well-documented studies over the past two decades. Even more importantly, cities in China and Korea and throughout Europe have successfully implemented these approaches reducing the uncertainties for others who follow.
This underlines a common paradox of energy management. Why are energy managers forced to live in a world that keeps asking the same questions, getting the same answers, and yet concluding all that is needed is to ask the same questions again two or three years from now? Sooner or later, someone moves to implementation, gaining rapid and comprehensive competitive advantages and the rest scramble to catch up.