Managing Energy's Complex Riddle

IndustryWeek (Alpern) - With energy prices ever more volatile, and the potential for emissions regulations growing, more companies are focusing on energy management and controlling their costs.

U.S. industry accounts for more than a third of the nation's energy consumption, but it also represents a wealth of energy-efficiency opportunity. According to a recent McKinsey report, various industrial processes such as more efficient operating equipment could save a combined $447 billion through present-value investments of $113 billion, the majority of which would require paybacks of fewer than two-and-a-half years.

But few companies are doing an effective job of managing their energy, experts say.  "CEOs today can tell you exactly what they're spending on IT, how much they're spending on healthcare and where those costs are going and what the trend is," says Jeff Drees, president of the building automation business unit of Schneider Electric. "But ask them about energy and they have no idea. Yet energy is just as controllable."

Understanding the Cost
So why haven't more companies instituted aggressive energy management programs? There are several significant barriers, starting with substantial upfront investments and the fact that energy management isn't necessarily a top priority for many companies. There are also hundreds of different opportunities fragmented across thousands of devices, making instituting a comprehensive initiative a daunting task, especially for manufacturers that aren't operating with the same resources as many larger corporations. However, several companies that shared their experiences with IndustryWeek said the most significant initial barrier to controlling energy costs is simply understanding how to measure it.

Shorter Timeframes
Even with the support of top executives, the effects of the global economic recession on the industrial sector mean thinner margins, tighter budgets and a demand for quicker return on investments. One of the problems chemical manufacturer Huntsman found when instituting its energy management initiative was that so many of the projects suggested by consultants and the Department of Energy required investments that stretched into 2013. "These were great projects, with some calling for two- or three-year paybacks," says Steve Barre, director of energy optimization at Huntsman. "But in this economic environment, a two- or three-year payback project just isn't going to fly. We were looking at a payback period more like months than years."
A McKinsey study noted that 73% of users will disregard energy-efficient investments with a payback time longer than two years.

Measuring Success
In many ways, energy management is still in its infancy when it comes to benchmarking. Companies might be able to measure how they've reduced their consumption from previous years, but the deeper, more revealing perspective would be to compare their consumption with a competitor. Obviously proprietary information makes this a touchy subject in many industries. Few companies are willing to provide third parties with sensitive information.

But according to Schneider Electric's Drees, that missing dimension will be felt more strongly in the coming year if Congress or the Environmental Protection Agency passes emissions regulations on greenhouse gases.
"You need to be able to compare how you're running BTUs per square foot," says Schneider Electric's Drees. "And you're going to want to be able to compare what your consumption has been to produce a product. If someone across the street from you is running at 30% fewer emissions, even if you think you have a good plan in place, you're going to get taxed."


Sustaining Momentum
When the oil shock of two summers ago sent the cost for energy soaring, many companies responded by implementing their first energy management initiatives. Some were successful, but many others, says Johnson Controls' Harris, were reactive by nature and not sustained..."Maybe it's hard for a lot of executives to understand, but energy management isn't sexy," says Dow Chemical's May. "It doesn't seem very captivating at first. It's not the next great innovation. It takes commitment and believing that through a series of small, concerted efforts, it can add up to significant savings."