The price volatility of energy influenced both Boston-based AMR Research and Chicago-based Grant Thornton to name energy costs among the top business threats and concerns in 2008. Once considered a fixed cost relegated to overhead, energy is today a precious commodity consumed in production environments, and one more factor that must be considered in optimizing manufacturing processes.
The price volatility of energy influenced both Boston-based AMR Research and Chicago-based Grant Thornton to name energy costs among the top business threats and concerns in 2008. Once considered a fixed cost relegated to overhead, energy is today a precious commodity consumed in production environments, and one more factor that must be considered in optimizing manufacturing processes.
Industry consumes about one-third of all energy consumed in the U.S.
“It’s a form of wealth,” says Christopher Russell, principal with Baltimore-based Energy Pathfinder Management Consulting . “If companies aren’t tracking and monitoring energy the same way they do currency, they’re missing the boat. It’s like walking through the plant with an open money tray, allowing cash to be caught and carried away by the breeze.”
Between September 2001 and September 2005, the price for natural gas delivered to industrial users doubled—but before the end of the year, tripled due to supply disruption caused by Hurricane Katrina. It subsequently spiked and fell repeatedly, then moderated somewhat, but the experience was greatly distressing to most industrial users.
That’s exactly the kind of price volatility that’s igniting management concern.
“If you can predict market prices, you can deal with it,” says Neil Elliott of the American Council for Energy Efficient Economy, based in Washington. “Twenty years ago, companies signed five- and 10-year natural gas contracts.”
Today, six months is considered a contract of long duration, says Elliot, adding, “The impact is huge.”
Expert collaborations
Improved industrial energy efficiency is gathering momentum as a major competitive issue, with the call to focus not merely on dealing with price volatility or a single point of consumption within the plant, but comprehensively.
“Energy efficiency that focuses just on individual components isn’t enough. You need to take in the whole plant,” says Aimee McKane, senior manager of the Lawrence Berkeley National Laboratory’s industrial energy efficiency program. To this end, McKane’s program team is collaborating with the Department of Energy (DOE) and 19 industrial firms to develop an ANSI standard-backed, energy-efficient plant-certification program that will kick off its first pilot this summer.
“The idea is to create standards on how to manage energy efficiency and [establish] transparency regarding energy-intensity reductions certified by third-party validation,” says Paul Scheihing of the DOE’s Industrial Technology Program, which is spearheading the initiative. Bannered as the Superior Energy Performance initiative, the goal is to complete the first pilot this year and broadly launch the program in 2009.
“The connection between the bottom line and energy costs hasn’t always been perceived as linear,” says Vestal Tutterow, senior program manager for the private industry program, Alliance to Save Energy. “There’s a failure to communicate between senior management and technical people chartered with managing utility costs.”
This woeful situation is exacerbated when those tasked with buying equipment such as pumps, compressors, and motors are driven solely by price considerations rather than also considering the life-cycle energy cost of running the equipment. The fact is that more efficient equipment pays for itself many times over compared to cheaper, less efficient models.
Large industrial-energy consumers and forward-thinking companies like Dow, DuPont, 3M, and Frito-Lay are changing their approach to energy management. Often encouraged and assisted by federal agencies like the DOE, counterparts at the state level, and nongovernmental organizations such as Lawrence Berkeley National Laboratories, these and other companies see energy efficiency as key to U.S. competitiveness.
“Even if you peg energy at only 3 percent of overall operational costs in industry,” says Russell, “you have to look at what’s controllable and what’s not.” Excluding true fixed costs, energy becomes a major balance sheet issue. “It represents as much as 50 percent of controllable costs’ impact on profits. If I’ve got 1-percent percent operating margin, a dollar saved due to improved energy efficiency is equal to one hundred dollars in new revenue.”
Improved energy efficiency is a hedge every enterprise can make against both increasing price competition and cost volatility. DOE pegs the total potential savings from improved industrial energy efficiency to be as high as $30 billion annually.
DuPont takes the long view
DuPont, a multinational giant with operations in 70 countries, makes scores of products. Approaching its 200th anniversary, executive management in 1999 convened to consider what was needed to ensure another 200 years of success. Subsequently it declared several goals, including keeping its energy use flat, based on a 1990 baseline, going forward to 2010.
DuPont spent $900 million on energy in 2005.
“That changed energy from a tactic for cutting costs during high energy price periods to a strategic objective tied to DuPont’s core values,” says Bill Bailey, leader of the corporate energy Center of Competency (COC). Even still, “it took three or four years for people to realize that everyone had a role to play,” he says.
Fuel consumption by energy type has remained fairly constant. The chemicals industry makes extensive use of natural gas as a feedstock.
Energy price spikes in 2005 made clear the urgency and difficulty of what the company was attempting to do. It selected 40 of its largest energy-using plants and set year-end targets for them. Year-end targets were developed by newly appointed site energy champions working with engineers, managers, and operators to identify opportunities. The goal: $19 million in energy costs savings.
Some 228 individual projects later, the company netted $28 million in savings.
“Energy efficiency is an operating discipline like safety,” Bailey states. To aid distillation of the discipline, DuPont’s COC developed software tools for conducting plant assessments, identifying “defects,” and quantifying value of improvements.
“We use Six Sigma to find the defect, quantify the value, eliminate the problems, and verify the achievement,” Bailey continues. “There’s a lot of low-hanging fruit, but you have to ensure that it doesn’t grow back. It’s a never-ending battle.”
Experts estimate most companies can find potential energy efficiency improvements by simply altering policies and behavior—without capital investment—by 30 percent to 40 percent. The issue is whether there’s the will to reap it. And it always requires top executive commitment and leadership.
“It’s not rocket science; there’s a lot of low-hanging fruit,” says Rich Wells, Dow Chemical Co.’s VP for energy.
In 1995, Dow set “aspiration goals” focusing on three issues: environmental stewardship, safety, and energy. With energy, it sought a 20-percent efficiency improvement in 10 years. Using Six Sigma techniques allowed the company to exceed its goal with a 22-percent improvement by 2005. The company’s cumulative improvement between 1990 and 2007 was 38 percent, representing a $5-billion savings on a $1-billion investment.
Dow achieved this success with projects both big—such as adding cogeneration capacity—and small, such as fixing leaky steam systems. “You start with something that seems small, but with plants all over the world, it ends up having a big impact,” Wells says. Dow has reset its goal on an additional 25 percent improvement by 2015.
Tackling the elephant
Limiting energy use is complex in that it’s not always clear how best to address it. Many companies don’t even cover the basics like turning off lights and equipment when they’re not needed. Says Tutterow, “A good starting point is changing behavior. There’s a lot of no-cost or low-cost opportunity.”
That’s why automation and equipment vendors are working hard to improve the energy efficiency of their products.
Moreover, Emerson Electric , one of the world’s largest manufacturers of industrial motors, is promoting federal legislation stipulating higher motor efficiency ratings. “Emerson sees that as the least-resource-intense approach for getting the greatest end result,” says Rob Boteler, a director of marketing for the St. Louis-based company.
Everyone agrees that the “first step is to understand consumption,” says Tutterow, although, admits Paul Scheihing of The Federal Department of Energy, “Many companies don’t even know how much energy they’re using.”
Scheihing is the technology manager of DOE’s Industrial Technology Program (ITP). ITP launched its Save Energy Now initiative in 2005 to provide education and training on best practices; certification of private industry professionals; free three-day onsite energy assessments; and free, downloadable software tools for enabling self-assessments.
“Our three-day assessments offers a list of energy-saving opportunities that are presented to management,” he says. “Many people inside the plant know there are opportunities, but our assessments are seen as unbiased and are used to convince management to take action.”
The process industries are the major industrial consumers of natural gas as a feedstock.
The program did 200 onsite assessments the first year and found more than $500 million in potential savings. It’s also trained and certified more than 500 qualified professionals who are listed on its Web site and available to help companies in their energy-efficiency improvement initiatives. Further, it’s trained nearly 4,000 company employees in energy management practices and principles, of which “more than half have undertaken projects on their own,” Scheihing says.
DOE recently awarded grants to 19 states to extend its assessment and energy measurement initiatives for improving industrial energy efficiency.
“The California Industrial Energy Efficiency Program is within the state’s energy department,” says Donald Kazama, the program’s energy services manager and recipient of one of the 19 grants. “Our program was started in 2004 to help businesses stay in California rather than move offshore or to Mexico.”
Kazama’s team has conducted plant assessments on its own, resulting in $15 million in annual savings, and has provided training to hundreds. The DOEgrant will help extend its work.
Metering the big picture
“We track energy use at every site, and use that in our corporate metrics [to determine] if improvements are achieved. Sub-metering within a plant is very important,” says Steven C. Schultz, corporate energy manager and leader of 3M ‘s worldwide energy efficiency effort.
St. Paul-based 3M is recognized as a worldwide leader in innovation. It also has been a leader in energy use improvements since 1973, and earning the Environmental Protection Agency’s (EPA) Energy Star Award for its achievements the last four years in a row.
Sub-metering of equipment prompts more buy-in from production people, Schultz says. “If they’re not being charged accurately for what they’re using, the incentive to improve isn’t as great. We emphasize that energy is a raw material that should be looked after and optimized like any other raw material.”
3M actually monitors 200 sites, and that close effort resulted in a $26-million savings in 2006.
Some of the most promising areas for increased energy efficiency have been outlined by the U.S. Department of Energy.
Power measurement and system sensing for inefficiencies is of growing interest to manufacturers and solution providers. Sensicast Systems , Needham, Mass., has bundled turnkey wireless sensing and monitoring solutions ideal for retrofitting existing industrial operations, while Schneider Electric moved into power metering with its acquisition in 2005 of Power Measurement and its PowerLogic ION suite. The PowerLogic ION Enterprise Energy Management (EEM) system can monitor and extract information from disparate sources for populating dashboard KPIs accessible to operations and executive management.
In addition to metering usage, other areas to focus on include waste heat and energy recovery; boiler, steam, and cooling system improvements; low-cost best practice improvements; and increased energy source flexibility.
ASNI has your back
“Within Dow Chemical, we view our participation in the Superior Energy Performance program as part of our role in advocating energy efficiency conservation among all industrial firms,” says Joe Almaguer, Dow global energy efficiency conservation leader, and one of the principal industrial participants in the DOE ANSI-standard plant certification program.
Until 2007, DuPont achieved much of its energy improvements without significant capital investment. This past year, senior management earmarked 1 percent of the corporate capital investment budget to energy programs.
“We told them we’d only spend it on projects that could yield 25 percent to 30 percent ROI,” explains DuPont’s Bailey. “We did 23 projects, investing $32 million—and got a $33-million ROI. That’s continuing annual ROI. We view it as generating cash for the bottom line: It’s money that can be invested in new and better equipment to make more products.”
