There are many reasons why electric utilities companies should be concerned about reducing their environmental footprint. Aligning with tightened government regulation, lowering costs through increased energy efficiency, responding to volatile commodity prices, and meeting consumers’ demands for businesses to go green are all strong motivators to adopt internal energy management initiatives. As the suppliers of energy, utilities providers are often more intensely scrutinized for their own internal energy and environmental practices. In the U.S., where utilities often use “dirty” energy such as coal, this is especially true. However, as both producers and industrial consumers of energy, utilities companies are uniquely placed to help lead changes in energy efficiency, and thereby realize significant financial benefits and increased resilience to supply shocks. As utilities make strides with their own energy efficiency programs, they will be in a position to collaborate with other industries and policy-makers to advance energy efficiency.
Energy Efficiency Equates to Cost-Savings
Ultimately the development of renewable energy sources must be the way we generate energy in the future. However, there are a number of serious barriers that are preventing widespread adoption of renewable technologies. Cost and impracticability are at the top the list, and renewables are not yet able to be scaled up for enterprise level use. Simply creating incentives for green initiatives is not enough to transform an entire market either. Right now companies seem less interested in specific green initiatives like carbon reduction and more prepared to leverage energy management programs for cost reductions that can be linked to profitability.
Most industrial companies realize the link between energy efficiency and operational efficiency. By reducing variable costs associated with energy consumption, companies can effectively mitigate the risk of long-term volatility in energy markets. Until renewable forms of energy are in wide-spread use, companies need to optimize energy efficiencies to reduce their overall footprint. It is imperative for companies to realize the benefits of an integrated energy management system; the cost-savings and the reputation of being a more sustainable company.
Implementing an Energy Strategy Requires Cultural Change
While many business leaders see the value in driving energy efficiency, they also often mistakenly believe that energy management requires a big capital investment. This can be a major hang-up for companies that are already dealing with tightened budgets. Contrary to this way of thinking, DuPont has found that more than 40% of total energy efficiency improvement opportunities can be achieved through minor, low cost, continuous energy improvement projects that are grounded in corporate culture change. Energy reduction can be considered part of the cost “portfolio.” Because efficient use of energy has not been utilities’ major focus, companies can make significant gains with a “block and tackle” strategy of addressing the minor, low cost efficiency opportunities.
The most successful companies realize that long-term energy efficiency is dependent on a larger cultural shift. Just achieving quick wins in terms of energy cost-savings and lowered risk does not equate to long-term sustainability. However, the cultural shift that allows for these quick wins also lays the groundwork to deploy other energy management technologies and a holistic energy management system, which paves the way for innovation in the future. Companies must understand the impact energy and materials have on their business and view their consumption as a strategic issue.
Creating a culture of sustainability through a comprehensive energy management system involves not just identifying certain parts of the business to focus on, such as the supply chain, to reduce consumption, but looking at the organization’s energy consumption holistically. Operational and financial benefits will be incremental if companies evaluate energy efficiency initiatives without the understanding that efficiency is part of a larger strategic platform. Additionally, if energy management is not elevated in importance within the organization it will never compete with other operational improvement initiatives. To ensure the necessary allocation of resources, it is crucial to get buy-in from top leadership.
Unfortunately, utilities companies have an uphill battle when trying to frame energy consumption as a strategic issue. Currently, the regulatory environment has not created an incentive system that maximizes the societal value of a unit of energy. Most regulated utilities operate on the concept of cost-plus, which nearly guarantees a margin for utilities companies, no matter what the cost to consumers. In other words, utilities are not incentivized to reduce cost or their own energy consumption unless they are in a truly competitive environment. However, it is crucial for utilities to understand that this model will soon go away and consumers are beginning to demand more sustainable businesses. Even if the model does not change in the immediate future, utilities companies will continue to miss out on the important cost-savings that energy efficiency provides as well as the reputational benefits.
What Is Needed for a Successful Energy Management System?
An energy management system is highly dependent on change – both in terms of employee behavior and management processes. This is the first step in developing a culture that values - and drives - energy efficiency. An effective system requires commitment and active engagement from top leadership. The most sustainable and energy efficient cultures are those where leaders actively demonstrate the cultural values. For example, management should weigh the energy efficiency of a plant as heavily as they do how to attract and retain current customers. In the end, it is the culture and core values of an organization that dictate many business priorities. If companies cultivate the right culture, their business priorities will align with greater energy sustainability and operational efficiency.
A second crucial element to shifting workplace culture is ownership by line management. Over the course of DuPont’s experience, we have found that responsibility for energy efficiency must be felt across the organization. A company cannot localize the burden of energy efficiency to one part of the organization and expect success. What ensures long-term sustainability of workplace culture is an integrated approach that relies on integration of core values to the company’s business strategy and processes. To implement an effective energy management system, the entire structure of the organization must be involved in the process, from employees, to line managers, all the way up to top management.
A successful energy management system is also dependent on setting measurable goals and metrics. The most successful companies will set short and long term energy efficiency goals in order to measure progress at different intervals. Instituting a process for performance management, including measurement, is key as accurate metrics allow for data-driven decision-making. Not only that, data helps company leaders provide justification for actions and initiatives. All employees should understand the goals and how their daily activities impact energy efficiency.
As a best practice, businesses should consider creating a Center of Competency to provide additional structure to an energy management system. The Center should “own” the corporate energy management system and use their centrality to disseminate best practices across the company. A Center of Competency connects leaders responsible for energy at the site-level to other senior leaders in the company both at other sites and at the corporate level.
Finally, training must underpin any energy management system. Training employees to understand how energy efficiency improvements impact the bottom line is critical. A better understanding of how industrial equipment consumes energy is vital for electric utilities providers. Educating employees on how to calculate energy usage and identify process improvements for the areas they manage will allow for shared ownership over energy efficiency efforts. The goal is to empower employees to start identifying opportunities they can own to add to the energy efficiency program.
The Next Step: Industry Collaboration
Ultimately, as individual companies across various industry sectors realize energy efficiency in their own operations, the goal is to have these business leaders and specialists come together to address the worldwide energy challenge. By shifting the cultures of individual utilities companies, the sector as a whole will slowly follow as sustainability becomes a point of parity. At this point, significant change to energy supply and consumption will start to happen at the industry level, which is where we can see the biggest impact on energy consumption and efficiency. Large, industrial companies tend to have the largest environmental footprints due to the amount of energy they consume and the resulting environmental output. The biggest gains in energy efficiency will be made at the industry level vs. by consumers or businesses on their own.
Electric utilities companies, as both producers and consumers of energy, are in a particularly unique position to drive the energy changes that are needed. They are able to have an impact on energy practices as large consumers of energy as well as producers of energy that is consumed by industry peers. What is needed is collaboration between the private sector, government and policy bodies and consumers. Such was the case with the US Army, in response to a legislative mandate to reduce energy cost by 30% by 2015.1 At the army installation at Fort Knox, for example, the Army was able to reduce absolute energy use by 58% through a utility energy service contract.
The Bottom Line
Implementing an energy management system provides an array of benefits and is a critical step in creating a culture of sustainability. It facilitates compliance with tightened government regulation, lowers costs through increased energy efficiency, mitigates risk of volatile commodity prices and provides significant reputational benefits. An energy management system also lays the foundation for ongoing improvements in sustainability, ensuring that initial cost-savings and benefits are not simply incremental. To ensure that an energy efficiency initiative is fully integrated into the whole of the company’s structure and processes, utilities companies must focus on leadership, empowering line management, setting measureable goals and metrics, building a Center of Competency and providing sufficient training.
In the short term an energy management system will help address a corporation’s energy consumption. In the long term, the solutions to drive worldwide energy change will hinge on many different facets – advanced technologies, developing renewable energy sources, collaboration between the private sector, government, and consumers. Utilities, as an energy producer and consumer, will play a critical role in changing energy consumption globally.
About the Author
Christopher A. Smith is a Global Leader of the Energy Efficiency practice for DuPont Sustainable Solutions, one of the fastest growing divisions at DuPont and a recognized global leader in operations management consulting. Christopher has worked directly with clients across a range of industries, including aerospace and aviation, chemicals, energy and utilities, manufacturing, mining and metals processing, oil and gas, pulp and paper, and transportation. He is currently responsible for global business strategy and profitability as well as hands-on strategic counsel to a broad client base of Fortune 500 executive teams around the world.
1 Lachman, Beth, et al. “Making the Connection: Beneficial Collaboration Between Army Installations and Energy Utility Companies” Rand Corporation 2011
