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Why manage energy?
There are a range of drivers that motivate organisations to manage their energy use. Efficient use of energy helps to maintain competitive advantage and opens up many other opportunities.
The majority fall into one of the following categories:
- reducing energy costs and minimising risks
- complying with policies and regulatory frameworks
- improving organisational effectiveness, and
- improving corporate social responsibility.
Reducing energy costs and minimising risks
One of the main reasons for businesses to manage their energy consumption is the financial benefit, including reduced exposure to price-related risks. According to the US Energy Information Administration (EIA), real end-use prices of electricity and fossil fuels (natural gas, oil products, coal) in the United States have become increasingly volatile in the past 20 years (see Figure 3 below). Similar trends have been experienced in other regions over this time period, including Europe.
Security of energy supply has risen to the top of the political agenda in many countries. In order to mitigate energy price risks and increase security of supply, many countries have prioritised minimising demand through increased energy efficiency as well as diversifying their energy supply mix.
At the business level, energy management provides many opportunities for organisations to minimise their exposure to these risks.
Increased energy efficiency can reduce the amount of energy an organisation uses as well as the associated energy costs. This can have a major impact on competitive pricing of products and services, and thereby the financial position of the organisation. Energy management can also help organisations be more adaptable and resilient to change.
Complying with policies and regulatory frameworks
The need for a worldwide transition to a low carbon and more energy efficient economy has led to the introduction of a wide range of energy policies and regulatory frameworks. These apply at all scales, from city-wide initiatives to regional frameworks and international agreements.
An example of an international level policy is the European Union’s Energy Efficiency Directive (EU EED). Under the Directive, all 28 Member States are required to use energy more efficiently at every stage of the energy chain, from generation to distribution to final consumption. This directive applies not only at the Member State scale, but also indirectly to individual organisations. Under Article 8 of the Directive, there is a mandatory requirement for large private sector organisations of each EU Member State to conduct energy audits at regular intervals. In the UK, this has been implemented through the Energy Savings Opportunity Scheme (ESOS), an energy efficiency assessment and energy savings identification scheme.
At the national level, many countries have introduced their own energy management-related legislation:
- China’s Top-10,000 Programme affected approximately 17,000 of the country’s organisations; from large industrial and transportation organisations to public buildings. The programme has set mandatory national targets for energy use and carbon dioxide emissions. To meet these targets, participants were required to implement various measures, including setting up energy management systems, reporting energy consumption data and carrying out audits.
- The UK’s Climate Change Act 2008 established the world’s first legally binding target for reducing greenhouse gas emissions (80% reduction by 2050 compared to 1990 levels). To reach this target, the UK will pursue many decarbonisation routes, including encouraging organisations to invest in low carbon technologies and reduce their energy demand.
International energy standards
International energy standards have been developed to help organisations improve their energy performance, comply with legislative requirements and take advantage of financial incentives. Examples include ISO 50001 ‘Energy Management Systems – Requirements with guidance for use’, an internationally recognised standard for good energy management practice, and ISO 50002 ‘Energy Audits – Requirements with guidance for use’, which sets good practice methods for carrying out energy audits.
Implementing these standards helps organisations follow industry good practice and presents an opportunity for organisations to lead on the future development of new standards. Implementation also sends a proactive corporate message to customers and the supply chain.
For more on standards, see How to manage energy.
Improving organisational effectiveness
Efficient use of energy can be a commercially valuable objective in itself, helping an organisation reduce energy costs and exposure to price volatility. It can also have positive implications for other non-energy aspects of business operations, such as productivity levels, health and safety, and equipment performance. By identifying energy-inefficient practices and equipment, and making adjustments accordingly, a business can improve its operational effectiveness, process productivity, and overall competitiveness. Improvements in energy efficiency can result in a more productive working environment and improved staff morale and comfort. For instance, a review of office building lighting can reduce energy consumption whilst also improving light quality. This leads to better working conditions, which can increase employee productivity.
Reducing unnecessary use of equipment or machinery can save energy. It can also improve overall safety in an industrial unit or office building, through reducing time spent in hazardous environments or reducing the risk of equipment damage. Continual assessments of energy intensive processes and equipment can also reduce the frequency of maintenance and help to extend the operational lifetime of equipment and machinery. For example, ensuring that building heating, ventilation and cooling (HVAC) systems are commissioned and controlled appropriately, so they work in concert instead of struggle against one another, may extend the lifetime of HVAC machinery by reducing unnecessary use.
Improving corporate social responsibility
Putting in place a system to manage energy use can be an aspect of an organisation’s corporate social responsibility initiative. It is an opportunity for an organisation to demonstrate good practice to both customers and shareholders. Successful energy management can benefit the wider reputation of an organisation, raise its profile and help the organisation gain a competitive advantage in the market.