Defeat barriers to energy cost control

April 24, 2007
Use communications and incentives to overcome “The Competitor Within", advises Christopher Russell in this month's Energy Saver column.

Human, technical, financial and organizational capacities all contribute to the ability to build wealth through energy management. These capacities are crucial in a globally competitive economy that has no patience for waste and inefficiency.

Barriers to energy management are rooted in the very complexity of modern organizations — much like a competitor that resides within your production facility. Communications and incentives are key to overcoming these barriers. They include:

Misunderstanding the concept. “Energy efficiency” is easily confused with other activities. Enlisting an energy marketer to purchase fuel usually helps even out energy price fluctuations, but has no impact on efficient energy use. To advance energy efficiency, make sure that finance people perceive it as an opportunity to reduce expenses, build revenues and control risk.

Lack of awareness by staff and management. Staff doesn’t connect energy choices with money. For example, compressed air leaks are often overlooked because “air is free,” but it takes five horsepower of electricity to generate one horsepower of compressed air. (See "Energy savings are often disguised as problems").

Fear. Does admitting the need for efficiency improvements become evidence of ineffective job performance? Many plant personnel think so.

Complacency and denial. It’s easy for top managers to be lulled into complacency about energy and other support functions with which they’re unfamiliar. Why would a 35-year-old general manager question a powerhouse superintendent with 20 years on the job? Territorial relationships are barriers to energy efficiency, especially when tenured staff say “this is the way we’ve always done it.”

Lack of cross-departmental cooperation. The chemical manufacturer’s  first priority is to make product and get it out the door. Every box on the personnel chart has a job description, accountabilities and incentives — all tied to production. Also, departments often compete against each other in the budget process. For example, energy efficiency projects might be expensed from the maintenance budget, but the savings accrue to the production budget. Unless top management assigns responsibility, energy efficiency is a duty on the blank space on the personnel chart — where there are no boxes.

Outdated accounting techniques. Many industrial facilities still have only one utility meter for an entire plant. In this situation, traditional accounting practices treat plant-wide energy as an overhead cost, which is then allocated across departments according to their numbers of workers or square feet of space. Any department’s cost of energy waste is distributed to all departments. Even worse, this system is a disincentive to taking the initiative to improve energy efficiency, because the results will be diluted by the artificial costs allocation. Improper energy costs allocation may distort financial decisions such as product pricing, income and tax declarations, production mix, compensation, bonuses and capital investment. But today’s advanced energy metering technologies can monitor actual consumption by substations within a facility, improving department managers’ abilities to control energy costs.

Restrictive budget and fiscal criteria. A manufacturer’s budget and finance functions can impose procedural barriers to energy efficiency initiatives. Operating budget strategies may simply trend each line item from year to year. The manager that saves energy this year risks getting a reduced budget next year. Low-bid or least-cost purchasing requirements may be imposed by front-office procurement personnel without thorough consultation with operations staff. This leads to purchases based solely on upfront costs, ignoring energy and other operating costs over the life of the asset.

Lack of management accountability. The rotation of management often prevents the hard decisions from being made. “Not on my watch” is often the response to improvement proposals that won’t pay off until after the current manager’s tenure is over.

Lack of resources. Because of limited time, money and skills, and with management accountability sometimes tied to short-term results, deferred maintenance is the norm. To “save money,” some companies release well-compensated, skilled workers, especially from non-core activities like energy support. The remaining, less-capable staff is ill-prepared to seek, promote and maintain energy system improvements.

The most durable barrier may be the business culture. Few corporate leaders, if any, “save” their way to the top. Their bias is for short-term revenue gains. This is evident in capital budgeting decisions, where growth-oriented projects are favored over expense-reduction initiatives. Decision-makers that dismiss energy efficiency overlook opportunities to grow revenue through redirecting energy waste to more productive purposes.

The primary tool for combating energy waste is the facility-wide energy assessment. It quantifies and prioritizes savings opportunities. It becomes a blueprint — a business plan — for building wealth.

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