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What does energy savings mean

to business?
Jan 14, 2015

2014 proved to be exciting for the energy scene in the UK. On one hand,
large organisations are required to report on their greenhouse gas emissions
(Mandatory Greenhouse Gas Reporting) and carry out energy assessment
(Energy Savings Opportunity Scheme) covering at least 90% of their total
energy consumption. Companies not complying with the mandatory
assessments and reporting will be fined and named and shamed.
On the other hand, politicians are asking energy companies to freeze their
energy tariffs, OFGEM requesting the Competition and Markets Authority
(CMA) to investigate allegations of over anti-competition and excessive
profiteering. With four of the large electricity generation capacity shut,
National Grid (28 Oct 2014) announced a low risk of a black out this winter –
assuming the temperature this winter is no lower than last year. Having said
that, the report did not preclude the possibility of grey outs (partial black
outs) if a severe winter is experienced in the UK.
This is a perfect opportunity to revisit the long forgotten, yet, freely available
source of energy: energy savings. Research suggests that we possess
technologies and capabilities to use 72%[1] less energy and up to 25%[2] of
these can be saved without major capital costs and changes to business
practices. However, according to the International Energy Agency (IEA), we
are only achieving an energy efficiency of slightly less than 1%[3] per annum.
As such, there is a large scope to save energy and it brings benefit to the
environment, individuals, organisations, and the country as a whole. On the
surface, this article appear to be “preaching to the converted”. If you were to
read with an open mind, it may contain new insights to add to your energy
saving arsenal.

Environment

change in land use. there are no more. There are some controversies on the implication of increasing CO concentrations in the atmosphere.[4] Here lies the real issue: there is only one planet earth and all resources we consume comes from the planet. In addition. the environmental benefits of energy savings is widely known: reduction in CO emissions. ocean acidification. There are also some who critique the involvement of NGOs and government in financing and/or appointment of scientific personnel that directly or indirectly influencing the findings. showing this as a matter of fact. One thing is for certain: no one or body is critiquing the fact that we are consuming more energy. Business Survival . Other say the data. Some say the evidence speaks for itself and the effect of climate change is real and observable. When it runs out. There are reams of data. accumulation of greenhouse gases. climate extremes. (2) more of the existing energy sources is available for the future. taking into consideration of historical trends. official or otherwise. and nitrogen and phosphorus consumption. ozone depletion.[5] Thus.Due to the wide coverage on media. the other planetary resources having a role to regenerate energy sources are at risk too: biodiversity loss. and the pressure groups at every climate related conferences. schools. is not so clear. saving 25% energy (1) reduces the quantity of CO emitted to the atmosphere. leading to a rise in CO concentration in the atmosphere. (3) allows CO accumulation to stabilise. What is less commonly known is that we are consuming resources available on this planet at a rate of 1. fresh water. and (4) allows planetary scientist more time to better assess on the effect of CO and develop methods to adapt to climate change.5 planet. This is an unchallenged fact. we are consuming planetary resources 50% faster than it can be regenerated. Yet.

One key factor in business survival is compliance with the laws of the land. The average natural gas price has increased by 163% in the last 10 years. please see A balanced view to ESOS compliance. . the most recent being Energy Savings Opportunity Scheme (ESOS). For a review of ESOS. the average electricity price has gone up by 216%. What can the UK learn from Australia when it comes to energy efficiency?and Can ISO 50001 be achieved in 12 Months? Figure 1 shows the natural gas and electricity prices between 2003 and 2014. In the same period.

5% direct cost savings.Figur e 1: Average UK of natural gas and electricity price between 2003 and 2014. the organisation would need to sell 25% more products or services! There is another driver for energy savings: the impact of energy through its supply chain. the capital cost is going to continue to rise as commercially available sources of fossil fuels are depleted. This means that a 25% energy reduction could result in a 2. As many carbon footprint studies have shown. the energy component of each individual company relative to the total in its supply chain . Incidentally. to make the same marginal profit. medium and large consumers and Industrial electricity prices in the EU for small. medium. The energy cost for many organisations in the UK is typically 10 – 15% of its total operating cost. With the average cost to build new oil wells and refinery risen by 10 folds over the last decade[6].Source: Adapted from Department of Climate Change’s Industrial gas prices in the EU for small. large and extra large consumers (both dated 25 Sept 2014).

an annual rise of energy price by 2. OFGEM predicts that the excess capacity for UK is in the region of 2 – 3%. there is no risk of black outs and grey outs. Every time . Having said that.2 trillion private sector investment (ultimately paid for by the consumer). the risk of black outs and grey outs increases.[8] To bring in new electricity capacity is also not a matter of months.is rather small. Country Benefits Due to the lack of planned investments in power plants in the late 2010s. Even if money is no object and the UK Government commissions new power plant now. Assuming also that each organisation passes their cost savings to its customer. ensure it is affordable to all are not compatible. assuming there is no natural. If any of these incident occurs. It takes several years before new capacity can be brought online in a safe.[7] In plain English.2013. if no energy savings are made. this means that. the net effect of a 2. climatic changes and/or catastrophic failures in the network. and UK should have 2 – 3% excess capacity over the next few years. accelerated plant closures due to end-of life assets. efforts to build environmentally friendly energy sources and at the same time.5% could wipe out an entire supply chain as they are no longer able to sustain the cost of its operations. environmentally secure and compliant manner. Conversely. In the case of Walkers Crisps.5% savings to the end-customer. it only generate useful power by late 2019.5% savings in each organisation would be 12. energy it consumes accounts for 30% of its supply chains’. Assuming an organisation has a raw material manufactured by five companies in its supply chain. as in the winter of 2011 . The UK needs to decarbonise the power network by bringing down the CO emissions from over 500 g/kWh to less than 50 g/kWh by encouraging €1.

Private sectors do not invest unless they can make a profit. there are more time to carefully identify and assess feasibility in an environmentally sustainable and financially sound manner. Thirdly.2 trillion on an ad hoc panic manner. In addition. In the case where the organisation are among the first movers in energy savings. Personal Gains For each individual. no organisations wants to invest in countries with frequent brown outs and black outs. Even a small action or tiny progress . the benefits of energy savings are three-fold. Organisations with lower operating cost are better equipped to tolerate and absorb demanding customer demands and cost uncertainties. That would means that the UK could tolerate hasher winters without black outs and grey outs. It would also mean that rather than investing €1.[9] A 25% energy reduction would immediate release 25% of currently utilise capacity. It creates jobs and gives people more options to remain in employment.the energy companies declares a profit. By taking an active role to save energy and the benefits it entail can lift the moods and attitude of people. as many psychologist and sociologist would attest to the effect of small wins. Secondly. energy savings could also provide the competitive edge against its competitor. Firstly. there is a public outcry about excessive profiteering and immoral executives in the energy companies and government promising interventions to curb profits. The existence of the two conflicting energy policies has devalued utility companies by more than 50% of its value since Jan 2009. organisations can have a more profitable operations and remain open for business. Thus. energy savings help to create a sustainable environment that attracts business investments. It also creates a new sector of specialist energy savers and gives an alternative option for employment. keeping people in employment.

H. Naucler. Allwood. all UK and EU corporations implement energy efficiency and reduce energy consumption by 25% without major capital expenditure. 2008. JM. “Reducing energy demand: What are the practical limits?”. [1] Cullen. J Environ Sci & Technol. somehow. McKinsey & Company. board member of Energy Managers’ Association. He is the author of Energy Management in Business: The Manager’s Guide to Maximising and Sustaining Energy Reduction (Gower) and Energy Audits: The Key to Delivering Real Energy Reduction (BSI). it is not common practice. (2) immediately save 25% from our energy costs or 2. In next month’s post. JM. There are many issues in the way of organisations wanting to save 25% of its energy consumption. What countries can do about cutting carbon emissions? McKinsey Quarterly. 45(4). and Riese.can lift the outlook of each individual person. (4) people are happier and more productive as a result. we (1) prolong the supply of fossil fuels. 2011. pp17111718 [2] Enkvist PA.2. While the benefits are rather common sense. and Advisory member of 2degrees Network. T. As the saying goes. An abridged version of this article appeared in 2degrees Network as “Energy efficiency: It's common sense so why isn't it common practice?” and in nqa Insight as “What does saving energy mean to UK plc?” Kit Oung is an experienced energy manager at Energy Efficien:ology. . we will examine the key issues and how organisations can address them. J. (3) releases 25% energy capacity and stay away from black outs and grey outs.5% off our operating costs. happy people makes good quality products or provides good quality services. That’s killing four birds with one stone: by each saving 25% of its own energy consumption. No. The result multiplies. Bringing common sense into common practice If. and Borgstein.

14(2): 32. and water needs. and personal gains. Steffen W. 2013. Oppenheim.. [9] Atherton. 2014. [8] Atherton. [6] Dobbs. et. EU and UK energy policy under severe stress. 26 March 2014. O. al. Leading from the emerging future: From ego-system t eco-system economies. country. et. Thompson. commerce and industry could also save 25% of its energy consumption with . 26 March 2014. Electricity capacity assessment report 2014. McKinsey & Company. OFGEM. International Energy Agency: Paris.. food. [5] Rockström J. R. J Ecology and Society. 2014.[3] Energy Technology Perspectives 2008. 2014. P. Noone K. In theory. A presentation by Peter Atherton of Liberum Capital at the Houses of Parliament. EU and UK energy policy under severe stress. J. and Kaufer. K. business survival. C. Resource revolution: Meeting the world’s energy. material. November 2011. 2009. A presentation by Peter Atherton of Liberum Capital at the Houses of Parliament. San Francisco: Barrett-Koehler Publishers. F.. McKinsey Global Institute. 2015 We explored four win-win reasons why energy reduction is essential for the environment. P. 2008 [4] Scharmer. 30 June 2014. Planetary boundaries: Exploring the safe operating space for humanity. al. Bringing discipline to energy saving Jan 14. [7] Kolokathis. 2011..

e. The biggest cost component is typically human resources and raw materials. For example. People do it for a variety of reasons ranging from the need to cut cost to adding additional comfort that the equipment purchased will do the work.relative low effort. Very often. In practice. 2. treats energy as a relatively unimportant fixed cost and relegates the energy savings task to junior employees. 3. Adding margins for comfort in equipment specification. the group of people that have the most knowledge about its business and full authority to direct the organisation’s efforts. this is a major stumbling block. The lack of senior management support and guidance. Senior managers paying little attention to energy savings initiatives. energy cost is between 5 – 15% of the organisations total operational cost.Many senior managers also expects the junior employees or external service provider to navigate the organisations political and social structures. operations. etc. the senior engineer. owners. maintenance. equipment salesman and equipment manufacturer. This is a very big tasks and one that senior managers expect magic to happen. and manage energy upwards into and including the activities of senior managers. Senior management. i. Maintenance team wants to asset to stop for good quality maintenance. have differing interest and drivers on the success of the company. On average. purchasing coordinator. Leaving junior employees to fight upwards for authorities and resources. we are achieving less than 1% energy savings year-on-year. 4. There are many reasons for this poor results in energy savings: 1. finance. 5. disarm all technical and non-technical barriers. utilities. Different job functions in an organisation have differing interest on the company asset. Adding margins for “errors” is a very common phenomenon. Implementing poorly conceived opportunities for improvement. coupled with the need to create quick results led many junior employees . Designers. Inter-departmental conflicts also extends into who “owns” and/or “is responsible for” energy savings. the engineer could specify for a 15 kW pumping duty but the actual installation ends up more than twice the size by the rounding up and safety margins of consecutive people approving the sizing. For example. engineering manager. operations team wants to run the asset as long and possible.

Some believe that these are related to the organisational dynamics and structural issues. no one studied them. the projects may be poorly defined or have not taken into consideration of other organisational or operating requirements. 6. Organisation are unable to progress with energy efficiency initiatives because they are chasing perfectionism. These issues are very common in commerce and industry. . For some. and are left it “as is”. Alternatively. Stuck in a perpetual cycle of perfectionism. Economist Intelligence Unit[2]. Harvard Business Review Analytical Services[1]. Some technological solutions may have its return on investment affected by other opportunities. It also means that organisations’ efforts to maximise energy savings while minimising investment cost is hampered. The five aspects to managing energy Very frequently. and Cranfield Business School-Financial Times[3] found broadly similar insight into the reason why organisations are slow is saving energy. the junior employee. get stuck in a psychological need to be very accurate in their calculation or constantly making minor tweaks on the action plan. fearful of making the wrong decisions and/or incurring the wrath of senior management. Careful analysis of these issues can reveal how these issues could be resolved. these issues are also poorly understood and passed off as organisational politics and/or incompetency. Continual conflicts results in things do not get done in a manner that is beneficial to the whole organisation.to focus purely on technical opportunities which does not involve or need inputs of other employees. assessed how to go about unpicking these issues. However.

To disarm the barriers faced by organisations and accelerate energy savings require a different model: the five aspects of managing energy.Source: Data adapted from Cranfield Business School-Financial Times study. The six bullet points described in the previous section are merely manifestations on the issued top managers described as barriers.Fig ure 1: Top reasons organisation are not investing in energy savings. . The Cranfield-FT survey found six of the nine reasons for organisations’ sluggish attitudes and uptake on energy savings are due to internal issues.

a significant majority of boardrooms do not talk about energy.Figure 2: Five aspects of managing energy.[5] As a result.[4] Over time. over 90% of all organisational issues arise because of the systems and structural processes people put in place. these conscious decisions fades into forgotten memory. . Of those that do. with a select few having more than 30 initiatives on one go![6] Top management in an organisation needs to define and take the helm for a set of coherent action plans to address energy savings. 74% of them also finger point themselves for the emphasis on shortterm financial gains and under-emphases its long-term fiduciary duties. remain unchallenged and accepted as facts. Without this. Applying a good management system Six of the nine barriers shown in Figure 1 has its root in poor leadership or the management team giving lip service to energy savings. According to Edwards Deming. the middle management and business units won’t and fragmentation begins. Only 22% of directors surveyed agreed that they fully understand their business’ strategies and is completely aware of how their business creates value. two-thirds of them have more than 10 different focus.

using a consistent and unified ways of working to bring about continual energy savings.Central to this is the application of a good governance. There are many management systems available: John Kotters’ Change Management. Any good management system have several built-in features that bring to the fore issues that need to be addressed. the same ways of working can be extended to include additional quality features (ISO 9001). For those seeking external assurance. additional energy features (ISO 50001). Choosing the right tool and techniques at the right time and place . additional environmental features (ISO 14001). Organisation need to understand the fundamental principles of management systems. These are:  Use consistent language  Whole firm involvement  Allocate responsibilities and resources early  Challenge established assumptions  Integrate into daily operations  Utilise appropriate performance measurements  Integrate into life cycle  Continual improvement  Set stretched but achievable objectives Together. A good and thorough understanding of these features embedded in all good management systems allow organisations to have a consistent and unified ways of working. these features brings focus and structure for senior managers to be actively involved. etc. Robert Kaplan and David Norton’s Balance Scorecard. Edwards Demings’ Plan-DoCheck-Act just to name a few.

The Department of Energy and Climate Changes’ (DECC) Energy Efficiency Strategy documents[8] four key barriers towards wide adoption of energy efficiency and energy audits. a lot of service providers also calls their service offering by many combinations on naming conventions. diagnostic. “smart”. “green”. By inference. the use and promotion of energy-efficient technologies are only achieving a fraction of its potential. This has created a lot of confusion by organisations on what is the exact scope and deliverable in an energy audit. In addition. Some common naming conventions other than an assessments are: audits. kaizen. Institutions and associations form lobby groups to speed up implementation and diffusion of technologies. Two of the four barriers has it root in varying methods and naming conventions in identifying opportunities for improvement. etc.As external stakeholders have little influence over the numerous organisational issues having an impact on energy saving. the attention has been to focus on creating energy efficient technologies. treasure hunt. assessment. Universities and technological organisations chased to the most efficient products. A significant majority of the general public and organisations – concerned with their own business activities – are less well versed in energy and in technology. Phrases like “high efficiency”. many of the languages and terminologies used are very scientific/engineering in nature. examination. and “eco” are merely “black boxes” to make the organisation more energy efficient. “premium”. Surveys by the International Energy Agency reported that less than 1% savings has been achieved year on year. . Governments and NGOs constantly come up with policy sticks and carrots to mandate energy efficient technology uptakes. [7] As a side effect of technology-focused energy savings. the price comparison of energy audits. review. survey. However.

The bigger. there is a technical ability to reduce energy consumption by up to 73%.[9] In addition. up to 25% of the savings can could save without major capital costs and changes to business practices[10] and can be found in eight opportunities: 1. a typical figure of 5% . Operate equipment to match demand 6. and frequently more challenging. Using the right tool at the wrong time. In the UK.15% comes to mind. Turn off when not required 5. Good maintenance 2. Size equipment to match demand 4. The important thing is to match the right tools at the right time and place. Insulation 8. benchmarking. There is no right way or wrong way to choose the tools: energy accounting. energy cost represents the third or fourth largest portion of their operating costs. cost component are human resources and raw materials. Using information to convert energy consumption from “fixed cost” to “variable cost” For many organisation. auditing. Heat recovery In order to maximise the energy savings potential and minimise investment cost. . could mean that the organisation either (1) does not get the necessary information to make investment decisions or (2) cost the organisation significant amount of money for the information needed. Installing correctly 3. or performance contracting. senior managers need to identify and use the right tools and techniques at the right time. Idle time 7.Based on available tools and techniques.

product improvements. a commodity that varies with the organisation’s business activity. Armed with a list of recommendations.) benefits can be gained from the implementing energy saving recommendations. etc.g. and also (2) the alien-like languages used in energy savings. many senior managers conclude that energy is a “fixed” cost. quality. lowering cost of capital. . low-cost supply chain. throughput. it presents an opportunity to examine the phenomenon and begin to understand where energy in used. To counter this phenomenon. attracting top talents and investors. For organisation whose energy consumption don’t vary with its business activity.  Implementing recommendations and/or incorporating energy efficiency become a compliance activity rather than an opportunity.) and non-tangible (e. market share. scheduling. value for clients. lower staff absenteeism. staff motivation.[11] Corporate target and initiatives to save energy become fragmented and lack lustre. More than 50% of organisations do not have corporate objectives and tasks related to energy. Such a mentality creates two major issues:  Senior manager delegates the task of energy to lower level employees. brand reputation. These additional tangible (e. senior managers also need to take into account the other benefits energy savings can bring to the organisation. maintenance.Coupled this with the believe that (1) managing energy is something regulation “apply to them” rather than an important “part of operational management”.g. etc. less than 20% of the senior management take full advantage of the financial benefits from saving energy in the organisation. organisations need to view energy as a variable cost. better work environment. Energy baselines allows the organisation to view energy in proportion to its business activity and show that implementing energy saving recommendations changes the baseline. In addition. choosing to concentrate on other more pressing business.

Organisations who lacks accountability creates an environment where office politics proliferates. Group think and office politics sets in. It is also about the way the organisation addresses the issue of trust. If you don’t like to be treated in certain ways. and inattention to every aspects of organisation health. no golden chalice and certainly no silver bullet. they are consigned to the shelves and doomed to become “just another initiative”. corporate objectives and targets become vague. then don’t do it to others. people is central for energy savings to occur. People within the organisation prioritise facing face and avoids accountability and responsibility. Without active efforts to design and facilitate the smooth implementation of energy saving recommendations. the underlying assumptions about each other’s roles and responsibilities. and if not careful drives the opposite behaviour than intended. avoidance of accountability. Bring it all together The multiplier effect brings all four aspects together. become meaningless. Engaging them wrongly could also mean that nothing gets implemented. lack of commitment. It is all about applying common sense: do onto others what you’d expect others to do to you. fear of conflict. .Bringing people in the quest for energy saving As with all organisational initiatives. There is no secret formula in engagement. Senior leaders and management teams have a large role to play in setting the style of employee engagement. Engaging employees can be mean that they are cooperative to facilitate energy savings initiatives. Without authenticity in people engagement. At the heart of authentic engagement is about how each person in the organisation relate to one another.

Senior management who actively participates in making energy savings work creates an environment where ideas for energy savings continues to be found. Kit Oung is an experienced energy manager at Energy Efficien:ology. Harvard Business Review Analytical Services. and Advisory member of 2degrees Network. [1] The future of energy. Harvard Business Review: Massachusetts. and energy consumption compared to their competition. quality output. The key is to focus on being competent in each of the five aspects to tap into synergistic effects. organisation who applies the four aspects described also achieve benefits in other areas of the business: EBITA. board member of Energy Managers’ Association. October 2013. senior managers need to understand the five aspects at play. growth in enterprise value per book value. . In addition. An abridged version of this article appeared in 2degrees Network as “Bringing discipline to energy saving initiatives”. This is also an opportunity to continually review and renew the organisations efforts in energy saving: to learn from things that didn’t do well and to find better ways for implementation. He is the author of Energy Management in Business: The Manager’s Guide to Maximising and Sustaining Energy Reduction (Gower) and Energy Audits: The Key to Delivering Real Energy Reduction (BSI). and in nqa Insight as “Breaking down barriers to energy savings”. General consensus from various researchers indicates that organisations who are competent in all aspects of managing energy saves two time more energy or achieves their target at half the time. For organisations to be successful in maximising and sustaining energy reduction. lower injuries. 2013 [2] Sustainability insights: Learning from business leaders. growth in net income per unit sales. The Economist Intelligence Unit.

P.R. 2014. [9] Cullen. and Borgstein. Reducing energy demand: What are the practical limits?. 2011. S. S. McKinsey Quarterly. 2004. 45(4). November 2012. [7] Energy Technology Perspectives 2008. The energy efficiency strategy: The energy efficiency opportunity in the UK. D. October 2014. August 2014. London: Simon & Schuster. McKinsey Quarterly. Allwood. 2008 [8] Department of Energy and Climate Change. Bringing discipline to your sustainability initiatives. 2014. [4] Covey. Harvard Business Review. International Energy Agency: Paris. pp1711-1718 [10] Enkvist. H. Cranfield University School of Management and Financial Times. [6] Bonini. Naucler. Bringing discipline to your sustainability initiatives. April 2008 [11] Bonini. Jan 2015. Where boards fall short. S. and Swartz. JM. [5] Barton. 2012. J Environ Sci & Technol. The 8th habit: From effectiveness to greatness. JM. and Swartz. M. S. T and Riese J. 2015. and Wiseman. S. What countries can do about cutting carbon emissions. . McKinsey Quarterly. August 2014.[3] Combining profit and purpose: A new dialogue on the role of business in society.