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How to manage energy: Plan
The planning stage of the energy management process has two main aims. The first is to better understand an organisation’s energy use. The second is to form a plan that uses this knowledge to improve energy performance. The basic steps included in the planning stage are illustrated in Figure 5.
The first time through this process, an energy manager may choose to simplify the planning stage. It is important to remember that the energy management process is cyclical, and more in-depth planning can be carried out in subsequent iterations of the process.
To begin to improve an organisation’s energy performance, certain parameters need to be measured or estimated. These parameters feed into an energy review, the outputs of which should include energy management targets and objectives. These can influence the organisation’s energy performance objectives as well as its strategic business planning.
An organisation’s energy policy serves as a reference document for the implementation of an EnMS, and contains the organisation’s high-level mission statements regarding energy. It should be a concise document tailored to an organisation’s size and the nature of its business. The energy policy acts as the guiding document for managing energy.
The energy policy should use the information gathered in other phases of the planning stage to outline the organisation’s current energy performance, future targets and the processes required to achieve these targets. The policy should be regularly adjusted to reflect any progress made in an organisation’s energy performance.
Monitoring and targeting
The process of M&T is a fundamental part of energy management. It enables organisations to develop an in-depth understanding of their energy use, identify their areas of significant energy consumption, and establish targets for efficiency improvement.
By monitoring the normal pattern of energy consumption, effective M&T can also alert an organisation to any irregularities in energy consumption that may occur.
Monitoring can be broken down into several steps, including performing an energy review, establishing an energy baseline, and calculating Energy Performance Indicators (EnPIs).
The basics of these steps are described here. More detailed explanation is given in the Data analysis section, below.
The energy review should give a breakdown of energy use within an organisation through the analysis of past and present energy consumption data. A successful energy review should lead to the:
- identification of energy consumption patterns, including peak consumption periods
- correlation of energy consumption to its driving factors
- identification of the most energy intensive areas and/or processes
- forecasting of future energy consumption
- identification and prioritisation of cost-effective energy savings opportunities.
Also, it can be used to establish an organisation’s energy baseline.
The energy baseline is the initial reference point to which future energy consumption data can be compared. It uses the data collected during the energy review to establish the current level of an organisation’s energy consumption.
Energy baselines can be established at various levels:
- whole organisation
- a building or industrial site
- a process or piece of equipment (in order to determine energy savings)
- an individual energy efficiency opportunity.
An energy baseline can be used to:
- identify and help understand the reasons for fluctuations in energy consumption
- identify energy performance indicators (EnPIs – described below)
- estimate energy savings achieved through the implementation of an EnMS.
An effective baseline should cover energy use over a representative period of time (e.g. over a year) and take into account all major variables that might affect a process or piece of equipment such as its age and maintenance status.
Similarly, a benchmark enables energy managers to compare energy performance between internal operations or with other organisations (for example those with buildings of similar size or carrying out similar processes). Benchmarks can also help to set appropriate future targets.
Energy Performance Indicators
Energy Performance Indicators (EnPIs) are essential for monitoring and measuring energy performance. They are metrics by which an organisation can relate its energy requirements to the various driving factors that have an impact on that consumption. The use of an EnPI will provide a straightforward quantitative relationship between energy consumption and one of its driving factors.
They are defined as the energy consumption per unit of an activity metric.
EnPI = energy consumption / activity metric (driving factor)
Examples of factors that influence energy consumption include a process output, outside air temperature, time, staffing and occupancy levels, and building characteristics.
“It is largely recognised that whilst 20% of office staff tend to feel too hot, 10% will always feel too cold with 70% generally being ‘about right’. Without a corporately agreed Energy Policy setting out formally what the band for the company heating and cooling should sit within, Facilities Managers will inevitably be left with no option but to respond to the whims of those at the extremes of the group rather than, more sensibly, fixing temperatures for the largely silent majority... and recommend short sleeved shirts for the former and fleeces for the latter.” -Chartered Energy Manager
Targets and objectives
Organisational energy objectives and targets are determined by the data collected through monitoring. The objectives should be detailed, qualitative, and describe the goals for organisational energy use. These should be included in the energy policy document. Energy targets should be specific, quantifiable representations of the organisation’s energy objectives. Timetables for the achievement of these targets and objectives must also be determined.
A formalised energy strategy is based on the information collected through the monitoring and targeting process, and is recorded as an action plan. It describes the various actions required to meet the objectives and targets set out in the energy policy. A range of stakeholders (such as energy managers, senior management team members, various line managers and financial managers) will need to collaborate on the document, explaining the procedures, resources and tools required.
The key components of the energy strategy include:
- setting clear roles and responsibilities for those involved in the energy management process
- prioritising action items and measures
- setting specific timetables
- specifying the processes for procuring energy and equipment
- specifying the processes for releasing funds and resources for energy efficiency projects
- promoting behavioural change activities and encouraging staff members to participate in energy management training courses, and
- taking into account any mandatory policies and financial incentives.
It is vital that the organisation’s senior management team stays informed of current and proposed energy related policy developments, and that the most up-to-date legislation and developments are incorporated into the EnMS. Adherence to regulation should be factored into both the energy policy and the EnMS as a whole.
Getting senior management support
Senior management support is crucial for successful energy management. It demonstrates that energy management is considered to be a key priority within an organisation. Support is one of the major drivers for making energy performance change last. Strong leadership from board-level directors and senior managers can motivate all employees to be actively involved in the process and understand the role they play within it. Additionally, senior management support allows for substantial, company-wide changes to be implemented through the approval of resource use (for example: funding, employees, facilities).
Most UK companies have energy bills that are around 5% of total organisation costs. However, many companies are primarily concerned with maintaining output, turnover and profit, even though energy is one of the most controllable costs.
Making a business case
To convince senior managers of the merits of energy management, a robust business case must be made. This can be based on the energy strategy, and should include elements such as the potential energy saving measures and investments identified through monitoring and targeting, as well as the possible routes to implementation. Additional emphasis should be given to the opportunities for continual cost savings as operating costs are reduced, which could benefit the business’ bottom line. A good understanding of the organisation’s objectives is useful to demonstrate the positive contribution energy management can make in meeting those objectives.
The proposal needs to be clear, comprehensive and written in a way that is suited to the target audience. For non-energy management experts, the business case should be presented in concise and simple terms. Headline proposals should also be backed up by a more comprehensive document describing the technical and financial details of the project or initiative.
A convincing business case should give a satisfactory answer to each of the following fundamental questions:
- Why is energy management useful and important?
- Which energy saving measures should be prioritised?
- What will the benefits be?
- What are the projected energy savings (preferably expressed in monetary terms)?
- How much will it cost to implement?
- What is the payback period?
- What are the associated risks?
- What is the timetable?
- What other resources, such as people or equipment, may need to be allocated by the senior management team?
Successful case studies of other similar organisations can be a good source for potential energy saving opportunity ideas, including associated benefits and costs. Contacting independent consultants or Energy Services Companies (ESCos) may provide initial valuable information on potential energy saving measures and ways to finance them.
Potential low (or even no) cost energy saving opportunities identified by the initial energy review and strategy can make the business case more appealing to senior managers.
The identification of all the pertinent risks is an essential element of a credible business case. Senior managers will want to understand the factors that may have a negative impact on the implementation of a project and that could also affect other aspects of the business. Three of the most significant risks while implementing an energy management project can often be:
- exceeding the proposed budget
-reduced production output or services capacity due to pausing operations for a longer period than initially planned
- expected benefits not being realised due to the underlying energy use not being properly understood from the outset.
The biggest hurdle to justifying energy efficiency within an organisation is that in most cases, energy projects do not increase revenues or generate direct income, but instead reduce energy bills and lengthen asset life. Many organisations do not record the amount of money that has been saved due to investing in energy efficiency, and board members and financial directors may be more accustomed to evaluating projects that have direct financial benefits. It is therefore important to be able to estimate (in financial terms) the difference between energy consumption costs before and after the implementation of energy management projects.
For many organisations, energy savings represent direct bottom line profits, whereas the same amount of investment in other areas is likely to incur taxation and other financial reductions before the net profit is realised.
It can be useful to establish appropriate comparisons to illustrate potential energy savings. For instance, if an organisation has a £1m annual energy bill and saved 20%, that represents £200,000 per year. One question to consider is the extra turnover the company would need to generate a profit of £200,000. For a company making a 5% margin, £4m of extra turnover would be needed.
The main outcome of a successful business case should be the allocation of all necessary resources: funds, staff, facilities etc. Ideally, a ring-fenced investment budget will be created for the implementation of energy management projects.
Financial appraisal tools
Depending on the size of the organisation and the scale of the required investments, the financial appraisal of any of the identified projects could vary from simple payback period (SPP) calculations to the use of more advanced and complex financial tools such as discounted cash flow (DCF) techniques, which include net present value (NPV) and internal rate of return (IRR). Life Cycle Cost Analysis (LCCA) is especially recommended for capital intensive projects. LCCA takes into account the costs and, in particular, the benefits that may occur over the whole lifetime of a project. It is a more reliable and complete method than SPP to evaluate whether an investment will be financially profitable over the long term.