Tips for creating a corporate energy plan

May 10, 2007
Seek a fine compromise between precision and usefulness when creating your corporate energy plan, says Peter Garforth in this month's Energy Expert column.

Advice about effective corporate energy plans always puts a high priority on quality of energy data, measurements and targets. A solid baseline of energy use and costs, supported by accurate ongoing measurements and clear targets for every level in the company is a key prerequisite for success. More recent advice is to look at energy use and costs as a productivity index based on the company’s overall business, products and services.

At first sight, this doesn’t seem to be a huge challenge, and typically, relatively simple indices are proposed as a plan is developed. In the case of a large manufacturing company I’m working with, energy productivity is defined in two ways. For the CEO, it is total energy costs as a percentage of both the cost of goods sold (COGS) and as a percentage of sales revenues. A similar definition is used for the heads of major business units. This index is easy to communicate, easy to understand and probably appropriate – at this level. Energy is just one more cost item alongside materials, labor and other business expenses.

At the next layer of granularity, an index is needed by major product lines. In this same company, this index was generically defined as energy costs and energy use, in megawatt-hours equivalent, for each unit of saleable product. The guideline was to select a measure of “saleable product” precise enough to be meaningful but not so detailed as to break down minor differences in a family of products.

Like all tracking indices, there will be a compromise between precision and usefulness. As an example, in the program I sponsored at Owens Corning, the unit of saleable production for roofing was one square, or 100 sq.ft. This was convenient, but ignored that different thicknesses and styles of shingle had different energy contents. It proved to be a good measure, as the processes were more or less comparable in most of the plants, and the energy differences among product variations were small enough. My recommendation is to rapidly identify the businesses where a simple energy index is reasonably reliable, and assign targets and develop local action plans accordingly.

But even a product line with small variations might mix in-sourcing and outsourcing for the same products. This immediately throws any index purely based on delivered product and direct energy use all over the map. The obvious, but probably wrong way to account for the effect of sourcing is to eliminate the outsourced products from the count. This approach ignores that energy is in the price of the third-party production. Another approach is to find a way to capture the vendor’s energy content, either by standard estimates or by requiring the vendor to identify embedded energy. This is rarely done, but as energy costs become more important, it’s likely to happen more frequently. Either way, a professional energy plan will need to find a way to incorporate sourcing energy variations.

At my current client company, a large central research facility is a high energy user. In the spirit of simple indices, the plan initially adopted energy use per square foot. This rapidly proved to be an oversimplification, and a blended index is being developed that combines the approximate effect of area, employees and ratio of office to lab space. Again, a balance had to be found between adopting a sufficiently general, convenient and simple measure and one that would be useful enough to allow credible year-on-year comparison of energy performance.

In my experience, the parts of the business that need a somewhat more complex energy index to track productivity become the reason to slow down the entire energy management program. My recommendation is to keep the high-level indices focused firmly on dollar productivity, and at product-line levels, keep indices to an absolute minimum of complexity needed to track energy performance in a statistically reliable way, recognizing some may need a higher degree of complexity than others.

The choice of indices and goals need only be as precise as needed to change management approaches. In contrast, individual technical projects and programs will need their own detailed milestones and implementation measurements. Too often, I see corporate teams trying to do a reconciliation of these hundreds or even thousands in individual projects to match up to overall goals. As time goes by, capturing, assessing and reporting energy data may ultimately get to a level where this kind of bottom-up reconciliation is feasible, but in the early years, changing the management culture around energy measured by consistent indices is more effective than an understandable, but potentially misplaced, desire for precision.

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

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