According to the International Energy Agency, many companies are using up to 100% more energy than they would if they were best practice energy efficient businesses, says provider of efficient solutions for reducing energy costs and carbon emissions Ensight Energy Solutions CEO Francis Barram.
He notes that after the 2007 and 2008 South African power crisis – and the steep rises in electricity costs that followed – industrial groups moved fast to reduce their energy consumption. However, despite this, few of them are yet to completely transform their businesses to reach optimal or high levels of energy efficiency.
The result is that most large organisations are missing cost reduction opportunities worth millions, he outlines. Barram highlights that examples from his experiences in dealing with mining companies, show that companies often consider their businesses to be energy efficient after taking the more obvious steps to reduce electricity consumption.
“These companies look at the performance of their peers and at fixed electricity prices and, as a result of this, they believe that they have done everything in their power to reduce their costs. However, this is not the case, as when Ensight looks at the needs of specific energy users and patterns within their environments, it can usually identify a range of ways that they can drive down energy costs by 20% or more.”
Barram indicates that because energy accounts for between 15% and 30% of an industrial company’s total production costs, reducing energy use by 50% could significantly increase earnings before interest and tax.
Three Principal Insights
He expands on three insights for starting the journey towards becoming a more energy efficient organisation.
Firstly, he says energy systems are probably inefficient. This is as a result of most businesses running production systems designed about 30 years ago, when power costs were relatively low. Barram notes that it is not unusual to find old equipment in a process plant using water pressure four times higher than necessary to suppress dust, for example. With this as a hidden liability and, as the costs of electricity rises, the cost to the business will rise.
He emphasises the importance of looking at inefficiencies in each system as well as how various systems interact with each other. Explaining, Barram says a simple example is how lighting generates heat which contributes to the overall heat load of the building. This, in turn, affects the energy that the air-conditioning system uses to cool the building. “Whether directly or indirectly, all systems that require energy are in some way or another interconnected.”
Secondly, he says systems are inefficient because energy needs have not been defined. This is the case even in energy-intensive industries, where many organisations have not clearly and comprehensively defined their energy needs. Therefore, without knowing what the energy the company buys will be used for or the physics of the energy needs, it is hard to understand the energy requirements of the total site (not just the plants that make up the site or the systems and equipment comprising the plant).
He indicates that engineers and designers in the past have assumed that all energy needs must be met with high grade energy; the systems, therefore, operate at greater capacity than is required. When energy needs are not clearly defined, systems are oversized and energy systems’ operating parameters are not focused on efficiency, in turn, creating massive waste. When energy needs are efficiently met, massive cost savings are achieved.
Thirdly, he says there will be further price shocks in the electricity market in the next five years, highlighting that, since 2008, South Africa’s electricity costs have soared by around 285% from an average of 19.6 cents per kilowatt-hour (c/kWh) to 75.4 c/kWh for 2015/16.
He says the published data shows that average pricing must rise in real terms over the next few years by more than 50%, and business must be ready for this.
Barram points out that executives can only immunise the business from government energy decisions by reducing reliance on the grid system – for example, by eliminating energy waste, making the operation more energy efficient, and installing alternative sources of energy such as waste gas, solar or alternative fuels.
He concludes that energy inefficiency is a hidden cost that eats away at a business’s bottom line, and that changing that begins by acknowledging that waste exists. “As they understand that energy use is not a fixed cost, organisations can find ways to reduce and manage this cost – in turn, boosting profits for the longer term.”