This is the first in a new series of articles on energy management, where I’ll share ideas from more than a dozen years in the deregulated energy market trenches and more than $40 billion in successful energy commodity transactions.
Today, whether I am talking energy with the C-suite or the “E-suite” (think energy managers and procurement officers) – it doesn’t take long for the conversation to land on the growing complexity of managing energy. Remember when energy was easy? You’d get a bill from the utility and pay it. That was energy management.
Then came natural gas and electricity deregulation; energy efficiency and performance contracting; all things “green”; curtailment programs like demand response; utility incentives; smart meters; and the prospect of a smart grid. And with each of these developments came a spate of new intermediaries pitching their wares, often without ever really having stopped to understand your specific energy challenges or how their solutions might work in tandem with your other initiatives.
I’ve come to learn through many successful engagements that energy management is situational. The best approach is the one that is right for you. The key to getting there is by cutting through the clutter of energy issues, programs and solutions competing for your attention to focus on what matters most: lowering your total energy cost.
And it’s really very simple. Here’s how:
E = P·Q-i
In this clarifying equation, your total cost of energy (E) equals the unit price you pay for energy (P) multiplied by the quantity of energy you use (Q), minus any incentives (i) utilities, ISOs, and other agents may be willing to give you.
And while you likely have been approached by salespeople working their individual piece of this equation, offering you a good price for energy, or ways to help you get more energy efficient, or the opportunity to get you a “free check” for demand response, the key is to put each element of this equation into service of a master energy strategy that maximizes your total benefit. This requires a holistic approach to energy management.
Here’s a good example:
We recently worked with a company with multiple sites across New England. They initially thought their biggest energy challenge was the inefficiency of their rooftop HVAC units. But they had other problems: they didn’t have the capital to invest in new units, and they were paying above market rates for their electricity and gas. By looking together at their energy situation whole cloth, we came to a business solution that turned energy management into a catalyst for profit.
First, we reviewed their energy supply contracts across states and identified a significant opportunity for savings. They happened to still be on the utility paying high rates that we knew competitive suppliers could beat. We put their load up for bid and ran a series of online energy auctions that attracted multiple suppliers and netted the customer a six-figure savings.
Second, while that was a great start, it wasn’t enough to solve their capital equipment problem. So, as part of the procurement, we embedded a fee on their supply bill that would cover energy efficiency project costs.
Third, we worked with local utilities to on-bill finance interest-free loans for new high-efficiency HVAC equipment.
While this may all sound very expensive, the significant success of the initial energy procurement meant that their resulting electricity bills were less than their old ones. And, in concert with the loans, we secured several hundred thousand dollars in utility incentives – free funding – for these projects. In all, the building owner received over $900,000 in efficiency upgrades and is anticipating over $1.5 million in energy savings over the next 5 years, with nominal out of pocket costs. Even better, the company is projecting their energy management initiatives will increase profits this year by 13%.
None of this can happen without the right plan and the right skills to execute it, a plan with a specific batting order of tactics that makes the total benefit equal more than the sum of its parts. For this customer, trying to tackle energy efficiency first – even though that was the obvious pain point – was a non-starter. Only by looking holistically at their energy situation did a breakthrough solution result.
Developing the right plan is one key to success in energy management. Execution is another. I look forward to exploring these and other topics related to lowering your total cost of energy in future articles, and I also look forward to hearing from you about your current challenges, successes and strategies.
Phil Adams is Chief Executive Officer of World Energy Solutions, Inc. (www.worldenergy.com; NASDAQ: XWES), a leading energy management services firm headquartered in Worcester, MA. Phil can be reached at firstname.lastname@example.org or 508-459-8100.