By Paul Baier
Vice President of Sustainability Consulting, Groom Energy
Why do so many companies fail to capitalize on the abundant opportunities to save money through improved energy purchasing and efficiency?
One reason may be the lack of high-level positions for energy management at many companies. This is a practically a “no brainer” because the position can often pay for itself in four to five months. Sustainability leaders should advocate for this role either within their own group or at the corporate level.
Opportunities to save money are everywhere. In our consulting work we consistently see opportunities to reduce overall energy spend by 5 percent to 15 percent through projects with a two to three year payback period. This is serious money for companies with energy budgets approaching $50 million, and starts to really add up for firms in the $500 million range.
A typical project may improve energy purchasing practices or increase energy efficiency. For example, one organization realized $4 million in savings with renegotiated contracts for electricity. Another saved $200,000 per year through implementation of a demand response program. Yet another found $350,000 through lighting upgrades and incentives. Finally, a wholesaler reduced its electricity use in its frozen warehouses by 80 percent after converting to LED lighting.
Generating savings need not require a capital investment. Zero capital projects exist as well. One retailer, for example, saves $60,000 per year at each of its distribution warehouses by adjusting the temperature set points for its frozen and refrigerated warehouse to be cooler at night and warmer during the day when electricity rates were 50 percent higher. This same retailer saves $15,000 annually by recharging its electrical forklifts at 6 p.m. instead of 3 p.m., as was previously the custom, in order to take advantage of reduced electricity rates.
Why aren’t other companies exploiting these kinds of opportunities? There are many reasons, such as:
- There is often a prevailing attitude that “savings” projects are “deferred maintenance” with dubious returns and should only be done when absolutely necessary.
- Incentives at the corporate and local levels are often misaligned (e.g. production targets vs. overall energy spend).
- Getting capital requests “through the system” often requires strong internal selling skills and determination to get things done, which may be lacking for some energy project requests.
- Operations engineers are often overwhelmed with keeping operations (production lines, warehouses, offices) running and do not have the time, inclination, expertise or the proper incentives to look for and implement energy savings initiatives.
- Lack of knowledge in the CFO’s office about the opportunity
A lack of energy accountability, another contributing factor, is very common. Who owns the company’s energy budget? It’s surprising how often this question results in a “blank stare” when posed to companies we consult. They often have executives responsible for revenue, overall budgets and managing health care costs, for example, but not for corporate energy expenditures.
This lack of energy ownership can cost companies millions. In many cases, senior management does not realize how much they’re spending on energy across all sites, or that energy is often second only to health care in terms of overall cost growth.
At the local level, a lack of ownership leads to huge waste. For example, at one very large manufacturing facility, certain machines and operations were needlessly left running during the third shift, yet no one “owned” the responsibility for determining when the machines could be shut off, costing the company $40,000 in energy in one month.
Energy accountability, visibility, and corporate management are the first steps to pursuing these changes and realizing the potential savings. A corporate-level energy manager — typically a director-level, but can be vice president-level if energy spend is large enough — who works with senior management and a cross-functional corporate energy management team is essential. Corporations, especially outside of energy intensive industries, such as steel, are increasingly starting to establish these positions.
- Establish a corporate-level director of energy management with responsibilities for driving improved energy purchasing and consumption practices. For highly decentralized organizations, this role will be a corporate services function for the line.
- Increase CEO and CFO education about the total dollar amount of corporate-wide energy spend. The CFO should especially be pushing their organizations hard for projects that increase energy efficiency.
- Drive energy spend visibility by calculating energy spend for the overall corporation, its lines of business, and individual facilities and plants.
- Include energy spend in quarterly operations reviews
- Establish an energy management cross-functional team that meets at least quarterly.
Revenue growth for many companies in this current economic environment is very difficult. Enhanced margins can be achieved through energy reduction, which begins with corporate visibility and an empowered, corporate energy manager
Elisa Wood is co-author of “Energy Efficiency Incentives for Businesses 2010: Eastern States,” available at www.realenergywriters.com.