July 11, 2013
The importance of energy management is particularly high in the manufacturing sector, where energy use can have a significant impact on product and operating cost. A standard set of energy management practices, applied to small and medium, as well as large enterprises, can increase organizational performance and profitability.
Editor’s Note: This article originally appeared in the May/June 2013 issue of Green Manufacturer.
Energy management has been shown to be a cost-effective, practical approach to improving energy efficiency across a number of markets and sectors. The importance of energy management is particularly high in the manufacturing sector, where energy use can have a significant impact on product and operating cost. A standard set of energy management practices, applied to small and medium as well as large enterprises, can increase organizational performance and profitability.
A great deal can be learned by studying the global adoption of common energy management practices in the manufacturing sector, new standards for energy management systems, and some best practices in corporate energy management.
Since 2007 the Johnson Controls Institute for Building Efficiency has conducted an annual Energy Efficiency Indicator (EEI) survey1 querying energy management professionals around the world (see Figure 1). The 2012 survey’s 3,500 respondents provided feedback relating to planned and current energy efficiency investments, adoption of energy management practices, and implementation of improvement measures. Almost 400 manufacturers from the U.S., Europe, China, India, and Australia participated in the survey, with 28 percent representing small and medium enterprises (SMEs) with fewer than 500 employees.
Energy efficiency is critical in the manufacturing sector, with 90 percent of SME respondents and 93 percent of large manufacturers stating that energy management was extremely or very important to their organizations.
However, investment plans differ across sectors and globally. China and India lead in energy efficiency and renewable energy investment plans, at 82 percent and 88 percent, respectively. This compares to 55 percent in the U.S. More large manufacturers than SME respondents are planning to invest next year—68 percent compared to 56 percent.
Similarly, large manufacturers have invested in a greater range of improvement measures, including renewable energy and distributed energy generation, smart grid/smart building technology, and demand management. Also, the SME sector requires shorter paybacks for investments, with an average maximum payback period of 2.8 years, compared to large manufacturers which allow up to 3.2 years, on average.
Not surprisingly, a lack of funding to pay for energy improvements was the top barrier to pursuing energy efficiency for SME respondents at 32 percent, compared to only 17 percent for large manufacturers. While cost reduction was the top driver for investment across sectors and regions, 69 percent of large European manufacturers identified greenhouse gas (GHG) reduction as one of their top drivers for investment.
Energy management is an effective tool to use to reduce costs and improve competitiveness while demonstrating leadership and environmental stewardship. Energy management often is implemented in an ad-hoc, bottom-up approach that results in reasonable short-term savings but leaves a lot of opportunity on the table. A more systematic approach to energy management can improve predictability, performance, and profitability. The ISO 50001 Energy Management System standard, released in June 2011, promotes implementation of an organizational system for managing energy similar to what ISO 9001 does for quality and ISO 14001 does for environmental management.
The standard requires manufacturers to develop an energy policy, create meaningful targets and objectives, analyze energy use, implement improvements, and measure and verify results while continuously reviewing and improving policies, plans, and practices. This simple “Plan-Do-Check-Act” approach to continuous improvement, which is already a standard procedure in many manufacturing organizations for improving quality, cost, and other operational metrics, can be applied with equal effectiveness for energy management.
The ISO 50001 standard2 comprises a continuous improvement process and requires senior management to establish, monitor, and improve organizational policies, processes, and practices (see Figure 2).
In this year’s EEI survey, 5 percent of manufacturers had implemented ISO 50001, while 23 percent have plans to implement it in the future. While manufacturers may derive certain financial, regulatory, or reputational benefits from achieving the formal ISO 50001 standard certification, companies can benefit from implementing its core energy management system practices without pursuing certification and what may seem like a significant investment of time and expense.
The U.S. DOE has published an online eGuide for ISO 500013 to help manufacturers implement an energy management system.
Using the ISO 50001 Energy Management System standard as a guide and building on the Institute for Building Efficiency research, Johnson Controls has identified four core and four advanced energy management practices that lead to improved energy management performance and a greater range of investments.
The four core energy management practices are:
These practices provide a solid foundation for making continuous improvements in energy efficiency and capturing initial operational savings opportunities.
1. Set and communicate an energy policy. The foundation of successful energy management requires clear, measurable policies and goals from the top down. Senior leadership should establish accountability; ensure that continuous improvement is a main focus; and establish internal and public goals. It is best if the policy is set by a diversified group of leaders that includes senior stakeholders across the organization.
2. Track and analyze energy data. Many energy management practices and goals start with an understanding of a company’s past, present, and expected energy use. To set baselines, goals, and shape an action plan, an organization needs to document actual energy use across the enterprise.
Energy data analysis can be a powerful tool for communicating progress to senior leadership and finding deficiencies at a detailed level. Energy use trends can help manufacturers identify the best practices and validate various energy management projects.
3. Audit facilities. Reviewing a facility’s systems, processes, and equipment helps a manufacturer establish an energy-use baseline and identify potential energy improvement projects. A plant’s evaluation should include an assessment of the energy systems’ performance, as well as an identification of opportunities to reduce energy use. The main steps include assembling an audit team, planning and developing an audit strategy, completing the audit, and producing a final report.
4. Measure and verify energy savings. Once a baseline has been established and energy data has been tracked and analyzed effectively, the energy savings resulting from improvement projects should be compared against goals and policies. The comparison should be of both financial and environmental performance.
The four advanced energy management practices are:
These practices require additional resources and commitment from the organization’s leadership but provide the basis for more structure.
1. Create an action plan. An energy action plan should be viewed as a living document that evolves, based on an organization’s current vision and goals. The plan should be detailed enough to capture best practices across the organization, while identifying owners for each of the action steps.
The creation of an action plan is only the beginning. Implementation of the plan across an organization is necessary to make progress and meet goals.
2. Benchmark energy performance. Benchmarking performance between or among facilities is a good way to identify improvement opportunities and best practices. A useful, seldom-used practice is to compare energy performance data with other companies’, often those of a similar size and industry. Several options are available to manufacturers to better understand their position at a regional or global level, such as performance metrics and established practices that have qualified as the best in a given industry. The U.S. Environmental Protection Agency’s (EPA’s) ENERGY STAR for Industry program provides energy performance indicators (EPIs) that help to measure performance and compare results to other organizations.
3. Staff an energy management team. Establishing an energy management team shows a commitment to making informed energy decisions and leveraging internal expertise. These teams are responsible for planning and implementing energy improvement projects; measuring and tracking energy data; and communicating policy, goals, and results with senior leadership and the company as a whole.
4. Dedicate a capital project budget. Energy management investments often have to compete with other capital projects for limited funding. While energy improvement projects offer a good return on investment at low risk, often they are given a lower priority than projects that expand plant capacity, increase productivity, or improve quality. Establishing a dedicated pool of capital to fund energy projects that meet certain financial and environmental criteria is one way of overcoming this barrier.
According to the EEI survey, about half of all organizations, both large and small, have implemented the core practices (see Figure 3). Slightly fewer than half of large organizations have implemented the advanced practices compared to only about a third of the SME organizations. Only 25 percent of the organizations have implemented six or more of the practices.
A number of notable examples of industrial energy management exist that include both the core and advanced best practices.4 One example of a company effectively setting and communicating an energy policy is Dow Chemical Company. Industrial energy use, at $3 billion per year, accounted for 40 percent of the company’s costs.
Starting with high-level continuous improvement tools and then replicating their deployment across business units, Dow improved its manufacturing energy intensity, measured in BTUs per pound of product, by more than 40 percent since 1990—saving $24 billion in the process. Dow also dedicated a significant capital fund to invest in efficiency projects that met its investment criteria.
Another company, Diversey Inc. (now part of Sealed Air), set a goal to reduce carbon emissions by 8 percent from 2003 to 2013. The company invested almost $20 million in facility improvement and product restructuring. It also developed a detailed, enterprisewide action plan that balanced return on investment with the cost per ton of reduced emissions to maximize the financial return on the projects.
The key to starting an effective continuous improvement process is laying the critical foundation, such as establishing an energy policy, performing energy analysis, and conducting facility audits. Over time manufacturers can implement benchmarking, develop enterprisewide action plans, and dedicate energy teams and capital budgets to achieve additional energy savings and performance.
The U.S. EPA’s ENERGY STAR for Industry program is a great resource for those just starting down the path of industrial energy management or looking to reach the next level. The agency’s Guidelines for Energy Management5 covers a wide range of energy management practices in detail and provides useful tools to help with implementation.
Manufacturers can also access an Energy Program Assessment Matrix to evaluate the maturity of their internal practices against the Guidelines for Energy Management.
Whether a manufacturer plans to implement and certify its energy management system to the ISO 50001 standard or just add a bit of structure to existing efforts and activities, it can improve organizational performance and profitability by implementing a continuous energy improvement process.
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