For many companies, energy use has long been a “black box.” Historically, energy costs were low and there were not many tools to gather detailed information on energy use. This meant there was little need for corporate executives to crack open that box to find out how energy impacts their bottom line, and how it can be better managed.
More recently, several factors have been pushing energy out of the technical world of the boiler room into the harsh scrutiny of the boardroom. Suddenly, energy management is a strategic issue. Why?
Energy market uncertainty due to global markets:
Oil markets have long been global, natural gas markets are trending that way, and electricity markets are becoming continental. This exposes every company to global energy risk and uncertainty, including volatile prices and unreliable supplies. Managing energy use and increasing energy efficiency will reduce one’s risk exposure.
Energy efficiency is a competitive advantage:
The price of energy is outside your span of control. So, focus on what you can control: managing energy use and energy efficiency. This gives you more flexibility in choices, making your company more competitive.
Energy is a key stakeholder concern:
While most industries once had only to be concerned about the price of energy, they now need to be increasingly conscious of energy’s environmental impacts, such as greenhouse gas (GHG) emissions. While much there is much uncertainty around future regulatory schemes for GHGs, many companies now manage their emissions as part of corporate strategy. Increasingly, environmental positioning and sustainability are important to a strong corporate brand, making the company more attractive to customers as well as the best employees. Managing GHG emissions includes measuring your carbon footprint, generating or purchasing energy from renewable or low-carbon sources, and developing an understanding of the range and cost of mitigation and adaptation options.
Even as the risks associated with energy have increased, there is now also a greater range of tools available to the C-suite for managing energy impacts.
• Measurement tools: You can’t manage what you don’t measure. And in recent years, there has developed a flood of new information tools to help members of senior management pry the lid off that energy “black box” and look inside.
In a surprisingly large number of cases, energy bills get sent directly to accounts payable staff, who pay the bill and file it. Having a mechanism to review and summarize energy consumption and costs in a way that can be presented to senior management is a good first step towards reducing them.
Buildings constructed a decade or more ago might have just one electrical meter and one electrical bill. Easily retrofitted sub-metering now allows management to get a more accurate picture of the energy costs of each product, process or part of the building. This applies equally to electricity, natural gas supply, and even the flow of heat from a central boiler. Understanding energy use on a per-unit basis helps establish more accurate input costs, which leads to better-informed decisions to reduce energy costs and carbon outputs. It also leads to wiser thinking around life-cycle costs for equipment, rather than just capital costs.
• Energy-efficiency innovations: Just as cars, refrigerators and other consumer goods have become more efficient in recent years, a lot of R&D has gone into improving energy efficiency of industrial equipment, ranging from computer servers to boilers, as well as buildings themselves. These innovations have widened the energy use gap between older in-use inefficient products, technologies and buildings, and today’s energy-efficient innovations. This creates a strong business case to replace old solutions with current technology to capture the energy cost savings for years to come. Upgrading and replacing equipment is now less of an operational decision and more of a strategic decision, having to do with payback times and other strategic issues related to reduced energy consumption and environmental footprint.
• Standards for Continuous Improvement: Newly developed standards provide a tool for identifying best practices as well as increasing the transparency of energy management strategies. The ISO 50001 standard for Energy Management Systems, for example, outlines a continuous improvement (CI) framework and comprehensive management systems approach for energy, which aligns with similar standards for environment (ISO 14000), quality (ISO 9000), and health and safety. Companies that use a CI process or which have existing ISO certifications will see the value to extending these systems to energy.
• Changing behaviours: Replacing equipment is only one avenue for effective energy management. The fastest payback is achieved when there is little or no capital cost in order to achieve a net energy savings. Companies seeking energy efficiency opportunities often overlook operating methods and behaviours. Methods include increasing awareness and operator training as well as shifting energy use to off-peak periods.
External management consultants
• Strategic Thinking: Management consultants use an approach to energy management that aligns energy management activities with overall corporate strategy. This helps companies build a plan of action appropriate to their needs, and is supported at the highest levels within the organization. Management consultants can help identify and articulate the key issues that drive energy management strategies.
• Facilitation: Detailed information helps senior management make decisions on capital spend, retrofit vs. new purchase, products, energy-efficient buildings and the like. However, much of the information they need is locked up in silos within the organization. In many cases, people at an operational level have ideas on reducing energy costs, but have never been asked for their insights, or rewarded for offering them. Management consultants can help facilitate this, through their ability to walk the shop floor and relate to line personnel, and then enter a boardroom environment to explain their findings in terms relevant to senior management.
• Technical Advice: Consultants frequently provide both management and technical advice. Energy management is supported by a range of technology solutions including not just energy equipment itself but also information technology. Management consultants who specialize in energy management can provide a range of technical analysis from modeling energy use and identifying opportunities, to assessing feasibility and developing implementation plans. Where more detailed technical advice is needed, a management consulting perspective helps bridge the gap between the technical knowledge base and the organization’s purpose.
• Organizational Analysis: Managing energy effectively requires the right organizational structure, and an approach that aligns with organization’s culture and particular norms. A small, entrepreneurial organization may need a different strategy than a large, conservative one. An external perspective on the role of organizational behavior and structure helps build a successful energy management program.
• Change Management: Making the necessary alterations from business-as-usual involves change- management skills, and in many cases management consultants are in a good position to facilitate this, through developing effective communications, engagement and training strategies.
Energy market uncertainty is one of the reasons why energy efficiency is emerging as a means of competitive advantage. This means that more companies now see energy as a strategic issue, requiring attention of top executives. Several key strategies and tactics can help manage energy. Management consultants can be a valuable resource for helping executives with strategic thinking, change management, technical advice, organizational analysis, and accounting and financial knowledge, to achieve measurable results from a strategic focus on energy management.
David Anders is the strategic energy services lead with Golder Associates in Toronto; Carl Friesen is principal with Global Reach Communications Inc. in Mississauga, Ont.; and Rodney McDonald is president of the McDonald Sustainability Group Inc. in Toronto. For more information about the Canadian Association of Management Consultants, visit www.cmc-canada.ca.