Survey results reveal cost reduction strategies

Learn what large companies do to manage their energy costs in this month's Energy Saver column by Contributing Editor Christopher Russell.

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Large energy consumers took a blow to the chin in the wake of the 2005 hurricane season. Fuel shortages and the resulting price spikes forced many companies to seriously think about reducing their energy consumption. State, federal, and non-governmental (NGO) organizations stepped up their provision of information and assistance programs. Facility managers were encouraged to obtain energy assessments that track their energy consumption and outline potential improvements. Web sites allow visitors to download “how-to” information about the technologies and procedures that reduce energy waste. But this begs the question: How do companies currently manage their energy costs?

The Alliance to Save Energy asked this question in an Internet survey conducted in November 2005. The Alliance (www.ase.org) is a non-profit coalition of business, government, consumer, and environmental leaders that promotes energy efficiency worldwide to benefit the economy, environment, and energy security. The Alliance translates energy efficiency into opportunities to improve business performance.

The Alliance survey asked: “Which of the following best describes the energy cost-reduction strategy taken by your organization (or the organizations you observe)?.” The choices were:

  • Do nothing: pay the fuel bill on time to avoid late fees;
  • Price-shop: find the lowest fuel prices available;
  • OPEX projects: pursue occasional, low-cost (non-capital) projects when time and resources permit;
  • CAPEX projects: select strategic, capital (hardware) projects that improve plant performance; or
  • Business plan: Follow a multi-year business plan that budgets for projects and staff training, and identifies energy-smart standard operating procedures.

Some interesting observations about current energy management practices emerge from the survey results: 86% of end users indicate the use of proactive strategies — that is, doing more than just shopping for low cost fuel.

Passive cost control strategies — just paying the fuel bill on time, fuel switching, or shopping for a lower-priced fuel — are far more likely to be pursued by institutional end users (e.g., campuses, healthcare, museums, etc.; 26%) than by manufacturing end users (9%).

The survey wasn’t scientific in that it wasn’t based on a random sample of the total population of industrial facilities. The sample frame was limited to the more than 4,000 readers of the Alliance’s industrial information newsletter (www.steamingahead.org), which implies that the average respondent’s interest in energy efficiency is somewhat greater than that of a representative from the broader population of industry. One-hundred large energy-user responses were compiled. The vast majority were from the U.S.

The results show that 33% use CAPEX projects, 30% use business plans, 23% OPEX projects, 8% price shop and 6% do nothing. Further breaking down the results, of the 100 respondents, 73 were manufacturing end users. Of those, 37% use CAPEX projects, 27% use business plans, 26% OPEX projects, 5% price shop and 4% do nothing. For the 27  institutional end users   who completed the survey, the breakdown of the results was 37% use business plans, 22% use CAPEX projects, 15% use OPEX projects, 15% price shop and 11% do nothing, according to the ASE survey results.

Most respondents have no functional relationship with the Alliance to Save Energy other than being the recipient of a semi-monthly e-mail newsletter that provides energy management information.

One question (unanswered here) regards the veracity of survey responses. It’s quite possible for an organization to have competing perceptions of “energy cost control” under one roof.  Finance people, for example, may perceive it solely as a procurement issue. This is at odds with engineers, who often focus on capital projects. Facility directors may focus on operations and maintenance (O&M) aspects to the exclusion of all others. What’s worse is that these department directors often compete for internal resources to pursue their vision at the expense of others’. A survey of energy management strategy can easily generate varied responses within companies as well as across industries.

This survey’s results suggest companies with an interest in energy cost containment pursue a strategy that is more proactive than simply switching fuels or shopping for the lowest price. Specifically, 86% of survey respondents seek to proactively control their energy consumption and waste.

How do these companies prefer to achieve those savings? Responses are almost equally split among three basic approaches: 1) occasional low-cost projects, 2) strategic capital investments; and 3) multi-year business plans that organize people, procedures, and investments. The merits of those strategies are discussed on the Alliance’s website: www.ase.org/section/topic/industry/strategies.

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