They’ve been creeping up on you. Energy costs, that is.
A decade ago, energy was a stable and predictable part of your facility’s operating costs. Not really worth finessing. Occasionally you’d ask one of you engineers or technical people to take a look at it.
Haven’t times changed?
Without getting bogged down in the politics, economics or structural changes in our energy markets (the topic of many, many other articles), let’s take a look at the practical, real-world impacts of energy costs on businesses today:
- East coast wholesale and commercial natural gas prices have surged off the back of multiple gas export hubs in Queensland;
- Industrial power prices have continued to rise year on year due to a range of factors that would have been very hard to predict a decade ago;
- Once quite modest, energy costs have now become a significant parts of manufacturing and resource overall businesses costs;
There is little chance that any political or market events will bring down your energy costs in the medium- (or even long-) term.
With that in mind, it’s time to get serious about taking control of your facility’s energy costs. This article spells out 4 key steps you can take right now to knock at least 10% off your electricity, gas and fuel costs:
- Take stock of your energy situation
- Set business objectives, KPIs and a budget
- Identify opportunities;
- Fund and implement.
Let’s take a look at each of these steps in turn.
1. Take stock of your energy situation
Every business leader knows that information is power. You can’t hope to make economically rational decisions on energy without knowing where and how you are using it and how that use compares to similar plants elsewhere.
An obvious starting point for most businesses (if you have them) is to review your National Greenhouse and Energy Reporting (NGER) reports. These give you a high-level overview of electricity and fuel use over time. These aren’t enough, though. The view is too high level - it tells you how much energy you’re using, but not how it compares to industry benchmarks, or even if you need to be using it at all.
In 2014 three new Australian Energy Audit standards were released for businesses - for Commercial Buildings, Industrial Businesses, and Transport activities.
The Industrial standard AS/NZS 3598.2, in particular, provides a solid foundation for getting a deep understanding of your industrial plant’s energy use. The standards have been designed to provide business outcomes, not just a report to sit on a shelf.
Recommendation: engage a qualified energy auditor to undertake a Detailed (Type 2) AS/NZS 3598.2 energy audit of your facility. This will give you a solid understanding of where and how you are using energy: the first step in making positive changes in your energy use.
2. Set business objectives, KPIs and a budget
This should go without saying, but I’ll say it because I see so many businesses not doing it.
There is a common (and in my view misplaced) view that developing energy savings projects in industry should “just happen”. Whether that’s through your operations, engineering or environment teams, I’ve heard more than one senior manager state the belief that if energy savings are so promising, their teams will put forward projects.
No. No they won’t. They don’t have time, and they aren’t rewarded for it.
Most businesses today are very lean. Staff numbers, especially in technical fields, have been trending down for well over a decade. Consequently, your people are at full stretch keeping your plants running safely with high productivity. Few businesses set KPIs for their teams in energy efficiency or costs. Unsurprisingly, this means there is little activity, unless it’s a side benefit of a project installed for other reasons (reliability, debottlenecking etc.).
At the same time, your busy teams are trying to meet their KPIs on safety, productivity, environmental performance, quality, and so on. Their performance, promotion prospects and bonuses are all tied up with these metrics. That’s great. Do you have energy cost savings on that list of KPIs? Because if you don’t, your teams will not give it their attention.
Recommendation: Set targets (KPIs) and allocate resources (a budget) for energy costs at your facility. The 10% improvement in costs in this article’s title is a modest and achievable target. Engage a dedicated team of people with the right skills to identify and scope energy savings projects in your industry. Treat energy savings like any other business objective and you’ll start to see results.
3. Identify the opportunities
Specific opportunities to reduce energy costs will be very dependent on your industry and the specific plant.
How can you identify good energy savings ideas for screening and evaluation?
If your site was a participant in the (now defunct) Energy Efficiency Opportunities program, you’ve probably been through a detailed process of identifying and costing energy efficiency projects already. The EEO scheme closed in 2014; since then, electricity and gas prices have risen significantly. It’s worth updating the financials of your EEO projects with updated energy costs - you might be surprised how many projects are much more attractive.
Your energy audit results will provide more recommendations for energy savings. You can also undertake an energy benchmarking exercise, comparing your energy audit results with those of similar facilities in Australia and overseas.
Energy savings can also come from improved energy procurement. Take a good hard look at your energy suppliers for electricity and gas. Consider options like a corporate Power Purchase Agreement (PPA) with one or more of the utility-scale renewables projects coming on stream.
Energy switching can be another option. It can be profitable in some instances to move to substitute fuels, especially if you’re in an area with abundant biomass that’s compatible with your plant.
Finally, don’t neglect the potential of new technology. Machine Learning, sometimes called AI, is making incredible inroads into all manner of industries. Resources, energy and manufacturing businesses are behind the curve on this, but I see enormous potential for energy savings, productivity improvements, and reduced waste.
I established the startup Sustainable Data to help bring the power of this new technology to these industries. In some sectors, machine learning can lead to double-digit energy efficiency improvements, all by optimising your operations and making the most of the assets you already have. In other cases, Internet of Things technology will enhance or improve the benefits you can achieve with AI.
Recommendation: Go through a rigorous process of identifying and evaluating energy savings options - efficiency, procurement, and technology. Firmly push the best candidates forward for funding and implementation.
4. Fund and Implement
This is often the toughest hurdle. So often, promising projects are evaluated and put forward for investment, only to be denied funding. This is why you need a specific budget for energy savings projects. Keep up the pressure on your newly dedicated team to not just identify and evaluate options, but to secure funding and manage projects to implementation.
There are a multitude of State and Federal government grants, loan schemes and other programs available to help industrial businesses with their energy costs. Make sure you evaluate these where you’re eligible. In my experience governments are keen to get you on board - it makes their KPIs look good to give you money.
Finally, post-implementation, track your projects’ performance. It’s common for project financials to be quite conservative on the scale of energy savings that can be made. In practice you often will find projects perform better than expected. Use this improved understanding of project performance to improve the accuracy of your future energy savings project projections - this can help future projects get approved.
It’s important to get started and take control of your energy costs.
Contact me for a free initial consultation and I’ll be happy to discuss your specific energy needs and provide a free quote for step 1 - an energy audit.