Energy Management in Business

The Manager's Guide to Maximising and Sustaining Energy Reduction

Kit Oung

• Publisher: Routledge
• Year: 2016
• Print ISBN:
  9781032837383
• eBook ISBN:
  9781317143673
• Topic: Business
• Subtopic: Business General
• Index: Business

The business benefits of lower energy consumption are clear: lower energy costs, energy tax avoidance, selling excess CO2 credits, immediately adding savings to the bottom line and improved competitiveness. However, with a need to focus on day to day business management activities, implementing energy reduction programmes stretches the capabilities and know-how of responsible managers. Kit Oung's Energy Management in Business is an expert's guide to energy reduction. It covers four important aspects of managing energy: strategy for successful implementation, available tools and techniques, generating sustainable quick wins and active management involvement. This book offers distilled practical concepts with real life case studies chosen to build insight, and illustrate how managers and engineers can relate to a broad range of energy reduction opportunities. We take energy for granted, like the air we breathe. We need to engage employees with energy management in two ways. In a more general sense, for those using energy for normal working practices, awareness and behaviour change are key. For those with more direct influence over energy using systems, engagement is also fundamental. Energy Management in Business places the process firmly in the context of commercial and industrial business practice. The book is an excellent companion for any organisation seeking ISO 50001 certification and a reduced energy consumption, as well as those that simply wish to better understand the options, strategies and risks that every business now faces.

PART 1
Strategy

In this global economy, businesses are continually striving to reduce their cost base, increase their profit margins and create value for their customers whilst meeting tough health, safety and environmental regulations in order to compete. To achieve this objective, many businesses are going leaner by implementing lean practices, complex quality control, 5S, kaizen, gemba, 6 Sigma, total production maintenance (TPM), Toyota manufacturing systems (TPS), energy efficiency, waste reduction, resource efficiency etc.

In theory, implementation of any of the above chosen techniques would represent a great opportunity to reduce costs and compete in the market. Within a lean organisation, managers and engineers invariably have multiple job functions and responsibilities, each requiring different skill sets and demands for attention. Managing energy is one of the tasks demanding the attention of a manager.

Managers know the importance of managing energy use by the business successfully. Several surveys found that 60 per cent of managers and senior executives recognise the need for, and importance of, energy efficiency and its contribution to their business: overall strategy, product development, investment planning and brand management (Ipos MORI, 2006; Enkvist and Vanthournout, 2007). For a significant majority of businesses, the primary cause of climate change is the emission of carbon dioxide (CO₂) as a result of using energy.

On a global scale, if all companies and individuals implement simple energy reduction projects between now and 2020, it would half the projected growth of energy demand, and keep CO₂ abatement levels at 450ppm – the generally accepted level to prevent a rise in global temperature. At a total cost of US$170 billion this would save 135 quadrillion BTU per year (64 million barrels of petroleum per day), providing an average return on investment of 17 per cent (Farrell and Remes, 2008).

1
We Need to Reduce Energy Use

In the majority of businesses, the primary purpose is to generate profit whilst simultaneously increasing return on investment and creating positive cash flow. In a manufacturing business, this is accomplished by converting raw material into saleable products and services. Almost all of these processes will involve the use of some, if not all, of the available forms of energy: electricity, fuel, steam, compressed air, cooling water, oxygen, nitrogen and water.

An efficiently managed and effective business would, ideally, produce products or services using the least amount of energy. In a competitive business environment, most manufacturing plants are far from running optimally, which is easy to ignore when they are working adequately. They may be working adequately, but if kept unchecked will cost a lot more than they should, reducing profit margins.

As an example, for a business operation with a 10 per cent gross profit margin, for every £1 saved on energy costs the business would have to sell an equivalent of £10 to make the same £1 of gross profit. Wasting £1,000 a year would thus need £10,000 worth of sales to achieve the same profit.

From a business perspective, the real reasons behind managing energy consumption and its efficiency consist of five major elements, listed below in order of priority and integrated into the entire business value chain. All five components are interrelated and none can be isolated from the others:

1. Economics.

2. Business drivers.

3. Operations management.

4. Environmental protection.

5. Competitive advantage.

The principal purpose of a business entity is to make money. Thus economics, business drivers and operations management are listed before environmental protection. From a business perspective, energy savings must, first and foremost, be considered for business survival and business longevity.

A business must first have a good and fundamentally sound business plan and business vehicle. It must then be able to successfully operate this process safely, economically and to generate a profit. If this cannot be achieved, the business is not healthy and will be at risk of closure in a short period of time.

Economics

McKinsey and Co. predicts that global energy demand is likely to grow at a rate of 2.2 per cent until 2020. Europe’s demand, consuming 17 per cent of the global energy supply, will grow at a slower rate of 1.2 per cent until 2010 (Bressans et al., 2007; Hartmann et al., 2008). With a growth of energy efficiency estimated at 1 per cent until 2020 (Hartmann et al., 2008), a ‘business as usual’ scenario means that the demand for energy outweighs the rate of energy efficiency by approximately 1.2 per cent.

With the average cost of bringing new oil wells online having risen by 100 per cent over the past decade (Dobbs et al., 2011), the implication is that global energy prices will continue to rise and will remain volatile, peaking in the winter seasons. It is estimated by many energy economists that energy prices are likely to remain high for some years to come.

Some business analysts place a lot of emphasis on the meaning of energy consumption vs. GDP as an indicator of efficiency. Such data is widely available from the internet. However, the use of such figures for comparative studies needs some degree of caution for several reasons.

• While all costs used to generate economic figures are in a single currency, energy expenditure is not a true indicator of energy efficiency, and the cost of energy is different for different countries.

• Countries with many heavy industries will skew the energy expenditure and GDP figure. Some examples of such industries are refineries, LNG plants etc.

• GDP is only one of two economic figures driving growth. The other figure is the rate of productivity improvement. On average, this rate is approximately 2 per cent per annum. This means that on average, even when there is no change in GDP people will find better ways, more efficient ways or new ways to generate the same economic output with 2 per cent less input.

Present projections indicate that there will be a shortfall of oil in the latter half of the twenty-first century. The long-term value of fossil fuel resources will continue to increase as scarcity increases. This cycle will continue to spiral upwards unless a new source of energy is found, so the inevitable solution is to preserve and prolong reserves that are presently available. Energy efficiency and sustainability will become more important.

Several economic instruments have been developed and used in most of the first world countries. Two of the commonly used instruments are taxation (levy) and carbon cap-and-trade (emissions trading). In some countries these schemes are voluntary, while in others they are mandatory. The careful utilisation of these instruments can and will benefit business operations by generating additional monetary benefits and reducing the cost of production. Coupled with good and sustainable energy reduction initiatives, this can enhance the returns of a project – a ‘bonus’ for the investment.

If the investment is not technically and economically feasible on its own but is feasible after considering these economic instruments, these investments should only be sanctioned after careful planning and further detailed studies to reduce any risk and/or uncertainty associated with the project.

In addition, despite the western media ‘naming and shaming’ China and India for ‘burning more fuel’, China and India are able to be energy efficient and less dependent on fossil fuel. They have become the two largest exporters of certified carbon credits, providing over 60 per cent of global demand (The Economist, 2009; Business Line, 2011). In effect, China and India control the carbon credit price. As more and more businesses buy carbon credits, the availability of carbon credit will become scarce and the carbon credit prices will go up.

Business Drivers

In the modern-day business environment, assisted by high-speed internet connections and high-powered computers, many companies are now embarking on internet speed business, mass customisation and customer value addition. Competition for market share and business survival means that companies are constantly finding and implementing world-class manufacturing processes, alternative methods and adapting to constant change in a business environment.

Prices for commodity products are determined by the balance between supply and demand. Globalisation and fluctuations in market demands coupled with less reliable production asset performance and margin erosion from reducing market prices have and will continue to push investors towards demanding higher shareholder value. It is paramount to deal with these high expectations. This may require actions such as:

• Reducing manufacturing costs.

• Reducing losses and wastage.

• Improving productivity.

• Improving cost accounting.

• Increasing plant flexibility etc.

Managers very frequently ask ‘Why do I need to reduce energy?’ Energy consumption has an impact on business performance. A better question would be ‘What is the value to me and my business if my total operational cost for energy is 10 per cent to 30 per cent lower than my competitor’s?’

An inefficient and ineffective utility plant operation will cause the plant to operate at a high cost. It also has an impact on the performance of the entire business entity, ranging from operating margins, earnings per share, premium pricing and economies of scale. Figure 1.1 shows a range of business impacts from an inefficiently operated boiler.

Energy savings opportunities may come from:

• Reduced expenditure on energy – e.g., by reducing consumption, changing tariff or fuel type;

• Reduced maintenance cost – e.g., following improved utilisation of plant and optimisation in operation;

• Savings in other costs – e.g., water charges, water treatment costs where demand is reduced;

Figure 1.1 Impacts of an inefficient plant operation to businesses

• Reduced capital expenditure – e.g., where increased efficiency avoids the need for additional plant or capacity or makes possible the sizing of any replacement plant;

• More productive use of labour where staff are released for other duties – e.g., automated control systems;

• Increased productivity where working conditions are improved – e.g., improved temperature levels, airflow etc.

Case Study 1.1 shows an example of an energy reduction project having other non-energy benefits for the business.

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CASE STUDY 1.1 ENERGY AND NON-ENERGY BENEFITS FROM IMPROVING STEAM BOILER

A manufacturing plant has two boilers. Each boiler is of similar capacity and is operated in modulating mode. Both boilers have variable speed drives (VSDs) modulating the combustion air requirements according to the steam demand. However, the equipment used to send signals to the VSD for modulating the combustion air fan is the original ‘Cam and Link’* controls for natural gas and air. Although the boiler plants have energy efficient equipment installed, the overall system, and hence its efficiency, is still governed by the old control systems.

The simultaneous modulation of both boilers coupled with the inability of both boilers to perfectly meet the steam requirement led to a boiler control

Figure 1.2 Boiler 1 and boiler 2 steam outputs

‘hysteresis’ – i.e., these controls caused both boilers to ramp up and down even when there was no change in real plant steam demand. This is shown in Figure 1.2. Over the period of monitoring, there is no change in average steam demand on the site. However, each boiler is modulating up and down as a mirror image of each other.

This continuous control conflict increases the wear and tear on the boiler control systems. It also causes extra thermal stress on the boiler shell and tube due to the constant intermittent introduction of ‘cold’ water into the boiler and the resultant water carry over. Historically, the boilers have had several tubes replaced over a three-year perio...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• List of Case Studies
• About the Author
• Foreword
• Acknowledgements
• Prologue
• Introduction
• PART 1 STRATEGY
• PART 2 TOOLS AND TECHNIQUES
• PART 3 AVOIDABLE ENERGY LOSSES
• PART 4 MANAGEMENT
• Epilogue: Managing Energy in Real Companies
• References
• Appendix A Examples of Questions Asked for Energy Benchmarking
• Appendix B Day-to-Day Items that Inform Consultants of Plant Performance
• Appendix C Energy Maturity Matrix
• Appendix D Further Reading
• Index