How To Use Energy Management Systems to Track Power and Negotiate Better Prices

Anthony Mauer | Oct 03, 2002

Power costs can be modeled using classic supply and demand theory. Electricity is a commodity that must be used simultaneously as it is produced – it cannot be economically stored for future use. For this reason, energy demand must be forecasted very accurately. Any significant excess of supply will significantly reduce the price on the spot market and any circumstances where an electricity provider is required to provide more power than it is able to supply will cause it to purchase power on the spot market. Power available on the spot market is priced at a significant premium, many times the cost of producing the power, and many times the average retail price received from the end user.

This potential for extreme market volatility is causing all providers and users of energy to focus on managing demand to avoid the pitfalls of doing business on the spot market. Energy providers are partnering with their largest users to assist with peak-period usage management and to identify methods of reducing/controlling peak demand in order to avoid the potentially catastrophic financial impact of buying power on the spot market. The largest commercial customers of the energy provider have incentives to manage peak usage and not exceed certain thresholds, as prices for peak hour energy usage beyond those thresholds ratchet up in a volatile fashion, resembling the volatility of the spot market.

The commercial customer bears a significant economic risk if they exceed critical thresholds. In order to reduce these risks, the customer must have a plan to limit utilization instead of incurring spot market pricing. By having a plan to shut down non-essential assets, or switch to alternate energy sources such as generators, the end user can avoid spot market risks. Enterprise Energy Management (EEM) systems can provide all of the information necessary to prepare such a plan and can monitor real-time usage, alarming when plan execution is necessary.

The foundation of an EEM system is an integrated set of control systems, meters, monitoring devices and data points. The database and software portion of an EEM system should include the following capability:

  • Store mountains of information and retrieve that information very quickly for analysis purposes
  • Maintain a real-time load profile
  • Provide sophisticated usage information for activity-based costing down to the lowest metered level
  • Incorporate reference data from external sources (a reference module) such as utility bills, schematics, contract utility rates, process information, weather information and live information feeds from the internet
  • Generating billing for individual users and departments

The Foundation
In order to begin to understand the demands for energy throughout a business and manage the usage effectively, it is necessary to capture the utilization information at the sub-meter level. In many cases, individual machines require a dedicated meter in order to measure and report usage at the lowest level of material energy usage.

In addition to monitoring energy usage at the lowest level of material usage, large operations environments should have control systems in place to allow for automatically or remotely switching to alternate sources of energy during peak demand periods. In addition, the control system could remotely shutdown equipment when it is left on during non-business hours and for remote power-interruption in the event of a peak-demand emergency. Of course, power interruption would only occur during execution of a well thought out peak energy conservation plan.

The EEM system foundation also includes data points that can help analyze usage, measure the rationality of usage and compare current usage to other similar periods (with respect to weather, production rates, etc.). It is essential to have as many relevant data points as possible in order to monitor usage on a real-time basis and make objective observations and management decisions in a dynamic fashion.

The Database and Software
The database of an EEM system should be a real-time database capable of capturing, and analyzing many data points and storing the data accurately in a very efficient manner. The database should be able to manage the stored data in a distributed fashion to allow endless historical archiving. In addition, data retrieval rates should be very fast to facilitate real-time analysis.

The EEM system software must be capable of maintaining a load profile and comparing that load profile to process data or other relevant reference data. This capability allows management to analyze usage relative to the activities that drive energy usage and identify illogical trends in usage relative to these activities. The load profile is compiled from historical data within the EEM database; it is used as a base line to adjust current energy needs and can be used to predict future requirements. This load profiling must have the capability to create an up-to-the-minute picture of a facility’s energy usage by month, week or day. The load profile should be down to the lowest sub-meter level. A load profile is also used to identify inefficient processes and identify non-critical loads that can be shed or shifted to avoid peak demand charges. Last, but not least, the load profile is critical to the energy contract negotiation process and it can be used to verify compliance with utility contracts. Exhibit A is an example of a profile trend.

Sophisticated usage reporting capability is a requirement of any EEM software. The application must be able to produce energy costs down to the lowest metered level for cost accounting purposes throughout the manufacturing environment and for allocating costs to administrative departments. The reporting capability should apply to real-time information and historical information. This gives management the information they need to identify consumption patterns, set benchmarks and compare current consumption to prior periods. Usage inefficiencies can be identified real-time with this reporting capability.

In addition to reporting on activity captured from all monitoring devices, the EEM software should include a reference module with the capability of incorporating other data relevant to management and analysis. The reference module can include data from many disparate sources. Utility bill information, fed electronically from the provider, can facilitate automatic reconciliation of billed usage. Billing inaccuracies will be identified very easily using this process. Exhibit B is an example of invoicing and analysis that can be prepared using an EEM system.

Facility schematics (from the CAD drawings of the facility) are valuable for correlating meter data with physical locations, enabling operations and security personnel to pinpoint illogical usage; for example, usage at points in a building that are not occupied. Storing utility contract rates is necessary in order to accurately determine costs for allocation purposes and for reconciling the energy invoices from the provider. Historical weather data and a live feed from the Internet can be correlated with energy usage to improve the accuracy of load profiling and to enhance real-time analysis. Real-time spot-market energy prices can be monitored via an Internet feed in the resource module, making this critical information available to managers facing a peak demand crisis.

The benefits of an EEM system are not just focused on large companies with astronomical energy usage. Small companies are benefiting from installing EEM systems as well. The knowledge provided by an EEM system can help a small company understand exactly what drives the company’s energy usage and unnecessary energy usage can be isolated. Information included in the company’s load profile can improve its negotiating position when making energy purchasing commitments. On average, if the company can save 5% of it’s energy costs by using an EEM system, the payback on such a system is less than 12 months.

The energy market-pricing model rewards companies that plan and manage their energy utilization. Conversely, a company that fails to manage its’ utilization will bear the astronomical cost of purchasing excess energy at spot market prices. Energy utilization planning, management and control can yield significant savings for large and small companies alike. Regardless of size, energy costs are a significant percentage of many companies’ operating costs. Implementing an EEM system is the most efficient and effective way for a company to monitor and control these costs, thereby minimizing them.

A complete EEM system will provide all of the necessary usage and cost information required to make intelligent management decisions and minimize energy costs. Such a system will enable management to identify usage reduction opportunities, negotiate optimal prices for energy, and plan for alternate energy source utilization in order to avoid spot market costs. Integrated with a sophisticated control system, EEM systems can actually shed or shift excess energy usage in order to avoid peak usage spot market rates. All businesses with significant energy costs should deploy an EEM system. In many cases, the payback period will be less than one year.

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This article appears to be overly ambitious in content. The title promises an analysis of how to track power and how to negotiate better prices. The content ends up defining the scope and rationale for an EEM system.