The opportunities presented by energy for cost reduction and risk management with relatively modest investments are well documented in most industrial and commercial sectors. Thousands of exhibitions and symposia, millions of PowerPoint slides and acres of newsprint reinforce this positive message. In recent years this message is getting more attention, triggering internal energy productivity assessments and external benchmarking. These invariably indicate attractive risk-adjusted returns for energy-related investments.
Against this background, it’s reasonable to ask why so few organizations invest in systematic energy productivity planning, management and investment. There are many combinations of reasons; some rational, some less so. There is one particularly insidious obstacle that is all too often overlooked and deserves a few minutes in the spotlight. It’s a barrier thrown up at the early stage of evaluating changes in energy strategy. It can be so effective it will stop an energy efficiency initiative before it gathers any inertia or even serious evaluation. It is what I call the “We tried that 20 years ago…” syndrome.
The result of just about any analysis of energy productivity opportunity compared to benchmarks yields risk-adjusted rates of return at least in the 10% to 15% range, using best-in-class performance benchmarks and current or near-term energy costs. If future energy and carbon pricing uncertainties are included, these returns are unchanged on the lower end and dramatically higher on the upside. Further, the lower end of return is pretty much guaranteed as long as the facility in question is likely to stay in business for a few years. This is true of most energy investments. If they are well designed and well managed, their benefits are highly predictable. So how does the “WTT20YA…” syndrome work to slow down or stop these moving forward?
These days, the new look at energy is often triggered by a new set of eyes. It could be a new employee or consultant who brings a different energy experience from elsewhere. Increasingly it can be a question from a business or financial manager reacting to the increased general publicity over energy and climate change. It can be an employee with a passion for environmental issues. The common thread is that the trigger is from outside the traditional organizations that either have purchased energy or managed facility and process energy efficiency.[pullquote]
These groups typically have decades of experience trying to manage energy productivity against a company and national attitude that assumed unlimited supply, eternal low costs and acceptable environmental effects. This background has been hardly conducive to creative and sustained management of energy efficiency. It’s common for these traditional groups over the course of their careers to have made just about every recommendation to improve energy productivity, only to see them delayed, diluted or rejected by management that considered energy a peripheral non-strategic issue.
The changing risk patterns around energy and climate change legislation are pushing it up the strategic ladder in many companies. However, all too often the energy reassessments are done by external consultants, internal experts and business and financial teams. At some point, they’re referred to the traditional groups for their opinion. Not unreasonably, the first reaction is “We tried that 20 years ago, and it was rejected, so why are we looking at it again?” Even worse, if the recommendations had been tried and had failed for whatever reason, the barrier will be even higher. In most companies, these groups are rightly seen to be the experts, and involvement of others may be seen as intrusive or even threatening. These cautious or negative reactions from the internally respected teams frequently carry enough weight to stall a renewed look, ultimately resulting in the non-competitive use of energy and potential exposure to high future risks. Recognizing this risk exists goes 90% of the way to resolving it.
These groups need to be involved as early as possible in the assessment and design of any new energy management approaches. Management needs to clearly communicate that they are open to new thinking and approaches, even if the newness is reevaluating old ideas that were formerly rejected. They equally need to communicate that they recognize not all good ideas were listened to in the past, but new times and new risks can change future decisions. Last, but not least, it must be clear that if the “WTT20YA…” syndrome is just an excuse for inaction or fear of new challenges, this isn’t acceptable.
Good leadership can bring the outstanding ideas and experience of decades to today’s new energy challenges. At the same it can bring new personal and professional enthusiasm to teams all too often ignored or sidelined in the past.
Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at [email protected].