Facilities and energy managers around the UK let out a collective sigh of relief when the Environment Agency announced that it would extend the window for compliance with the new Energy Savings Opportunity Scheme (ESOS) beyond the original submission deadline of 5 December last year.
ESOS will introduce a mandatory programme of energy audits for larger businesses. The extended deadline for compliance has now passed, but despite this extra time, many businesses found the compliance process more challenging than anticipated. It is likely that the tail end of ESOS compliance will continue dragging on into the summer. But for those businesses that now have the luxury of three years until the next ESOS deadline starts looming again, the question is what should they do next?
The net benefit of the policy to the UK is estimated to be around £1.9 billion between 2015 and 2030. That calculation is based on a very conservative, and many hope very pessimistic, prediction of only six per cent of potential energy saving opportunities identified actually being implemented. Or, to put it another way, the ESOS energy audits are expected to identify energy cost saving opportunities worth in excess of £31 billion.
“Very often new regulation and the need for compliance is perceived as a burden on business: in many cases even the policy benefits are obscured by complaints of red tape or financial cost,” Geoff Smyth, associate director and top technical expert on energy efficiency at the Carbon Trust explains. “But the ESOS regulations are different. They are actually not a burden to business at all. They make clear business sense with minimal disruption.
“But we know that despite the rock-solid case for putting time and resources into improving energy efficiency, many businesses are still missing out. The rationale is obvious, the technologies are proven, the finance for capital projects is available, and yet businesses have a frustrating tendency to focus on revenue generation and domain specialisation rather than minimising unnecessary energy use.”
Under ESOS, there’s no obligation or requirement to implement any of the recommendations. But it is legislation, in so far as qualifying companies must either conduct audits or be covered by ISO 50001, which covers the majority of their energy usage. “Although there is no obligation in our experience, it is worthwhile because very many companies don’t even understand or appreciate how they’re using their energy and how much can be saved,” Smyth continues. “The fact that the legislation requires a director of the company to sign off on the compliance means that those opportunities are being brought to senior management level. Clearly, where there’s a compelling case to invest to save, then that senior manager should be in a position to direct resources to implement the measures.”
The energy audit under ESOS required that 90% of a company’s entire energy use from buildings, facilities, transport usage was accounted for. The audit has to detail, ideally in a lifecycle-costed basis, the quantitative savings available at the facility, or at the building or in their transport fleet. “It’s true to say that for many of these organisations this was the first time that they had been required to review their energy usage,” Smyth adds. “For many, it was a revelation to discover where the energy was being used, the intensity with which it was being used, the cost of that energy for their systems and their processes. For many, they were shocked to discover how they performed against industry standard benchmarks, for instance.
“Very many were pleasantly surprised just how much could be saved through a mixture of behavioural change. Policy strategy, having start-up/switch-off procedures, better staff engagement and motivation. But also through process and system optimisation.”
The key takeaway for the work that the Carbon Trust were involved in was that there was probably around a 20% annual energy cost saving available through cost-effective measures. That equates to payback below four years in many cases.
“For the companies that we engaged with it was a really enlightening process, and I think some of them may have approached it sceptically,” Smyth says. “They may have approached it reluctantly, in so far as it was mandatory legislation. It was something they had to do. They maybe had low expectations in terms of the value that it would bring to their business. But when they’ve seen the bottom line end results - how much they could save and how much would be required to invest to achieve that saving - they were universally pleased. And convinced that they should be paying more attention to managing their use of energy.”
If you take just the Carbon Trust alone, since 2001, they have conducted in excess of 35,000 energy audits in the UK for UK businesses and public sector organisations. That has enabled those companies to invest around £1.6b in more efficient equipment, and that has delivered savings in excess of £5b to those companies.
The business case for action is strong. It’s compelling. It’s proven. Smyth points to some specifics from recent projects that they have supported. A plastics factory recently replaced their ageing six-speed air compressors with a 90kw variable-speed air compressor. It cost them just over £40,000 and delivered annual savings in excess of £19,000. So, a simple payback of just over two years. An engineering company, likewise, put in a smaller 30kw variable speed compressor. It cost them £10,000. And the annual saving was £4,200. So, payback took under two and a half years. Then there is a printing company that replaced their oil-fired boiler with an air-source heat pump. It required a capex of just under £8,000 and delivered an annual saving of £1,600. So, payback in just under five years.
“There’s a range of technologies, a range of paybacks, but many companies simply were unaware that they had options,” Smyth says. “I think that just underscores the importance of getting a good auditor in to review the operation of their existing systems and identify measures.”
But when it comes to highlighting the key saver, Smyth points to lighting. “The biggest one that we’re seeing across all sectors, and certainly including engineering and manufacturing, would be the deployment of LED lighting,” he says. “That really has come of age and is now fit for purpose across all sectors. A glass manufacturing company installed LED lighting for a capex of £11,000, saving £6,000 annually; a payback in about 1.8 years. A paper carton manufacturing company invested £61,000 and will enjoy annual energy savings of £30,000. Payback in two years. The deployment of LED lighting is probably the number one technology across all business sectors currently.”
Energy intelligence
To be effective, energy management efforts must be combined with efficient operations to drive long-term financial growth. To achieve this, it is important to discover the common obstacles in reaching energy management objectives, and learn the best practices for achieving these goals.
A variety of industry forces are driving the need among industrial companies for a comprehensive energy management system, but it’s profitability that’s ultimately motivating much of this activity. Organisations are realising that sustainability initiatives alone can’t drive profitability. They’re finding that energy management efforts must be combined with efficient operations in order to effectively drive long-term financial growth.
However, two key challenges, lack of visibility into key performance indicators (KPIs) and a legacy manufacturing IT environment, are preventing many companies from achieving their financial and operational goals.
Investing in energy intelligence software, which includes data collection, visualisation software, and analytical tools, is one way in which organisations are beginning to address their challenges. In many cases, this software supplements existing and planned manufacturing operations management (MOM) software and automation investments.
However, these technologies traditionally neglect to collect and manage energy data in context of operations, so many companies are beginning to deploy energy intelligence strategies to gain insight into the role of energy within their operations, from procurement through production.
In addition to operational insights, the data generated by this technology is being used to provide improved clarity for buying and production decisions and to help justify energy efficiency projects. However, energy data alone can’t drive success. The information generated by this technology must be paired with the right energy management processes and organisational leadership capabilities. By uniting all these elements, firms can begin to develop a more holistic and effective strategy that turns energy data into actionable operational insights.
Macroeconomic trends such as global population growth and GDP expansion certainly are driving the need for cleaner, more cost effective energy sources. These trends are prompting individual companies to target energy projects aimed at reducing consumption and improving sustainability.
In addition, although financial growth is a top business objective for executives in the coming year, according to a survey from LNS research, companies aren’t necessarily tying sustainability and energy management programmes to this goal directly.
Instead, sustainability and energy management programmes more often are tied to profitability improvements and energy usage reductions.
Top sustainability objectives include reducing the total cost of operations and reducing energy consumption. The overriding goal for energy management is also reducing the total cost of operations. Executives also want to align their energy programmes and operations with corporate sustainability objectives.
Companies face a variety of challenges in reaching these objectives, but the top issues cited by executives were both related to technology. Chief among these is the disparate systems and data sources. Purpose-built applications often are implemented piecemeal by individual divisions or business units, so systems lack cohesion and strategic purpose. Another challenge is that energy metrics are not measured effectively. The proliferation of disparate systems makes it difficult to share data across the enterprise and make measurable improvements.
Energy intelligence software is making it easier for companies to achieve their sustainability and energy management objectives by delivering data across the enterprise. What’s more, this information is being delivered to role-based decision makers in real time with analytics. It brings together energy and production data so it’s possible to view energy consumption by process or product, and even allocate energy costs to the bill of materials.
However, technology investment alone isn’t enough. Companies must align and optimise key resources, people, processes and technology. Instituting a few best practices such as seeking support from senior leadership, taking advantage of existing energy management programmes, taking a next-generation approach to manufacturing software and using role-based KPIs. While more environmentally-conscious decisions will be expected by stakeholders over time, the operational and financial benefits of energy intelligence software warrant enough evidence to take action now.
Where next?
The expectation is that having carried out these audits, companies will not view that as job done. Smyth feels that for too long companies have paid lip service to energy. “If you look at the escalation in energy prices over recent years, it’s in the interest of businesses to be proactive, to invest to save, and to manage down,” he continues.
“As we’re seeing, alas, all too often recently, many companies are citing high energy costs as their reasons for either closing down facilities in the UK or relocating. There’s not much at a macro level that businesses can do in relation to the cost of energy. But there’s a lot that most businesses can do in terms of how they procure their energy and in terms of how they use that energy.
“No company should be sitting waiting for legislation to catch them up and mandate them to do this; they should be incorporating it into good business practice. If they’re not measuring their energy, then they can’t manage it, and if they’re not managing it, then they’re wasting energy.”
That’s something that the Carbon Trust spell out to all companies that they audit; the cost of inaction. “When we identify the cost-saving opportunities within that business, we turn it round another way and say, ‘For every month, for every year, that you fail to act on the recommendations within this report, that is costing your business X thousands of pounds per month for absolutely no economic value’.”
Smyth says that when it’s spelled out in stark terms, companies do take action because they want to be competitive. They want to be profitable. They want to have an edge on their competition. With a low-risk opportunity, such as investing in more efficient technology and equipment, why would companies not do it?
