Don't refuse shelter from the coming energy storm

Dec. 17, 2007
Energy Expert Peter Garforth questions why so many companies still refuse shelter in the midst of a brewing energy storm.

Last month’s column about how hard it is to share energy productivity best practices caused some interesting reactions.

Predictably, one was from a company selling a technical solution for efficient steam management, intensely frustrated that they couldn’t sell a $360,000 investment that would save the client more than $1 million per year. The customer’s rationale for not moving forward was that the results seemed too good to be true. Strangely enough, this response is so common that it must be seen as normal.

My advice is that they stop trying to get the customer to accept the benefits of such an investment, and change the conversation to one of management accountability.
It would sound something like this: “Can you explain why it’s good business to leave $1 million of cost reduction on the table when your industry faces some of the toughest global competition in history? It seems an odd way of fulfilling your duty as a company officer. Even more confusing is that this cost reduction would be based on proven approaches and would be paid back in four months. What other investments is the company making that yield a risk-free 300% return on investment? As part of an integrated energy management plan, the value of energy productivity would probably enhance your operating profit by at least 30% within three to five years. In the interests of your shareholders, how can you ignore it?”

This might not be the best approach for our reader to get an order, but it’s increasingly the nature of questioning from shareholders, directors and customers. Senior officers will need better answers than they have had in the past.

The second reaction came from a Danish engineer, recalling his youth in the 1960s at the height of the Cold War. As a 10-year-old, he was told, in the case of a missile attack from the neighboring U.S.S.R. and easterb bloc countries, to just lie down – there wouldn’t be enough time to seek meaningful shelter.

At the time, Western Europe’s economy was rapidly growing and desperately needed more energy, and the only convenient place to get it was from the U.S.S.R. and its allies. This scenario was a key factor in Europe’s early focus on energy efficiency and supply security. At the same time, acid rain, largely from power generation, was devastating the rivers and forests of northern Europe, further underlining the urgent need for more rational use of energy.

Yet another reaction came from a process engineer working in a major global U.S. manufacturing company. He emphasized the need for a holistic approach and added, “New technology is great and will always be welcome, but why do we (politicians/decision-makers/engineers) have to procrastinate and why would we not do what's appropriate in the present time?” When we are on a burning platform, a readily available, proven solution would seem a far better option than a perfect solution that might develop in the future.

The past few weeks have seen crude oil prices close to $100 per barrel, caused as much by changes in the dollar exchange rate as by oil market fundamentals. The conventional wisdom is that high prices and volatility are here to stay. The most recent Intergovernmental Panel on Climate Change reports on climate change are raising the political likelihood of significant action to more aggressively mitigate greenhouse gas emissions.

The recent elections in Australia were won by a new government professing plans to formalize Australia’s national commitment to mandatory greenhouse gas targets. This is clearly not the only reason, but is an interesting comment on the power of the climate debate in a country where it was a non-issue a few years ago.

The three key factors that need to come together to produce the perfect energy storm are coalescing rapidly in North America: high energy prices and fears they’ll head higher; politically challenging energy supply sources; and fear of major environmental effects. In a recent survey of U.S. State Electricity Regulators, the most important issue was environmental concerns, followed by electricity costs and availability of generating capacity. A short two years ago, this same group didn’t even list environmental concerns among its top five issues.

As each month passes, the role of the corporate energy manager is becoming clearer. They must urgently develop workable strategies to simultaneously manage energy cost, price volatility, rapidly changing technology, environmental impact and reliability in an uncertain regulatory framework, and with many colleagues and even bosses who remain skeptical of the need for such an integrated approach. Not the easiest task in the world, but one that is becoming increasingly important and in demand.

Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at [email protected].

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