Energy Solutions Outsourcing Helps Energy Consumers Face an Increasingly Uncertain Energy Future

Rick Sievertsen | Feb 10, 2003

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As a corporate energy manager, your primary energy service provider just filed for bankruptcy, your local utility provider is failing to make earnings projections and several of your traditional energy suppliers are exiting the trading business. Your job is on the line to continue to minimize energy costs and consumption. What can you do to overcome the potentially career-limiting energy challenges about to overwhelm you? The answer is Energy Solutions Outsourcing (ESO).

From consolidating, auditing and paying utility bills to managing utility and open market energy procurement to evaluating and implementing energy efficiency improvements, comprehensive energy management is a process impacting many areas of the organization. ESO treats all aspects of energy as a process to be managed in a centralized, cohesive fashion.

Although Accounting typically deals with the review and payment of utility bills, Procurement may be responsible for buying the lowest cost energy while Engineering or Facilities Management is responsible for the energy that is consumed. The fact that these individual functions might be segregated at the individual plant level as well further inhibits an organizations ability to develop a cohesive approach to energy management.

ESO involves integrating energy information, energy supply and energy demand opportunities into a common set of solutions that minimize the impact of energy on the firm’s bottom line. Only by managing energy as a process, rather than a series of independent events, can an organization can be assured they are paying the least amount of money for the least number of units consistent with their reliability requirements.

ESO begins with developing a baseline of information across the organization – data covering utility consumption and costs as well as information regarding the type and duration of existing energy supply contracts. Consolidate information on facility operations including square footage, facility layout, hours of operation and the existence of alternate energy sources like alternate fuel systems and back up generation is also needed before a truly comprehensive picture of an organization’s energy portfolio can be defined.

Once a baseline is established, it is important to review the baseline and target where the greatest energy cost reduction and energy efficiency improvement opportunities exist before taking a blanket approach to energy audits and tariff reviews at all sites. By utilizing benchmarking information to target the areas of greatest potential, opportunities can be investigated and implemented more efficiently, wasting little time reviewing opportunities with little or no potential.

It is important to review energy supply and energy demand opportunities simultaneously to assure that opportunities in supply area are not negated by adverse impacts on the demand side and vice versa. And given the complexity of currently available utility tariffs, open access and ever

changing equipment technology, it is advisable that large energy consumers align themselves with a partner that has both the experience as well as the time to adequately review all available opportunities and identify the best overall package of energy related products and services that directly matches the energy consumer’s needs.

It is not sufficient to evaluate current rates and tariffs against historic consumption patterns to arrive at a decision about whether or not a facility is on the correct utility rate structure. An entity should instead weigh potential changes that could be made in their energy consumption patterns against new and existing utility rate structures to increase the number of available energy supply options. Changing the way energy is consumed may qualify a facility for energy supply options that weren’t previously available. An integrated approach to reviewing the “what-ifs” of integrated energy supply and demand solutions is the only way to assure optimal results.

To assure the best overall strategy, it may be beneficial for an energy consumer to align with an energy service provider with no direct affiliation with utilities, energy suppliers or equipment providers to eliminate any conflict of interest that arises if the party identifying the best overall solution also stands to gain from the products sold within that solution. By aligning with a partner that is vendor neutral, an energy consumer can be more confident that the best combination of utility supply sources and utility consumption technologies will be identified and implemented on the consumer’s behalf. Having the local utility, energy supplier or lighting/HVAC supplier review a site for opportunities is a bit like letting the fox guard the chicken house – if there is a product sale to be made it will be made irrespective of whether that product provides the optimal energy solution for the client.

Due to the highly complex and volatile nature of utility markets, it is important for an energy consumer to identify a partner that will proactively review changing markets and identify opportunities as they hit the market – not months after the fact. By hiring an energy auditor or tariff review specialist to provide a one time review, an energy consumer is only realizing a snapshot of opportunity. A true partnership is established when an entity is assigned the task of energy optimization on an on-going basis with continual review of performance.

A true energy partner will utilize all the available resources an energy manger has available like utility rebates, specialized tariffs, tax rebates and incentives and specialized financing to deliver the best alternative. Bottom line, a partner should focus on what they would do if they were in the energy consumer’s shoes and had fiduciary responsibility over consumer energy expenditures.

The benefits of energy outsourcing come from a number of areas. Savings in the energy information management area include bill error correction and tax rebates and incentives which generally can exceed 1% of the annual cost of energy. Energy supply savings come from changing tariffs or more aggressively negotiating energy contracts as well as from changing the load pattern to qualify for more attractive rates. Energy supply savings can exceed 5% of the annual cost of energy. Energy efficiency incentives can be capital oriented (change-outs to more efficient equipment) or simple operations or maintenance improvements that reduce expenditures without the need for capital. Gross savings from energy systems upgrades can exceed 20% of the annual cost of energy.

The key to achieving maximum benefits from ESO is to first get an organization to align their internal processes associated with energy. From paying and auditing utility bills to negotiating utility rates and commodity pricing to reviewing and enhancing equipment, energy must be viewed as a process, rather than a set of individual activities, to achieve optimal results. By aligning with an energy service provider that can efficiently and effectively benchmark utility costs and consumptions across an entire organization and then target those energy cost reductions and efficiency improvements with the greatest potential benefit before proceeding with facility audits or tariff reviews, an organization is assured an efficient energy review and evaluation process. Once the opportunities with the greatest potential have been identified, it is important to proceed with any analysis keeping in mind the impact of any solution on both the supply and demand aspect of energy. Placing a focus on energy, treating it as a process to be proactively managed and implementing opportunities on a concerted, comprehensive basis will result in substantial cost savings which flow directly to the bottom line creating wins for everyone involved.

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Comments

Hi Rick. Well done summary of how the integrated approach in energy is as important as other corporate bottom line processes.
While I do believe in a level of independence, I also know that some of the best ideas for savings comes from innovative suppliers of the technologies.
If we don't recognize the value of approaching a energy reduction opportunity a number of different ways and just think the consultant know best and will then get three competative quotes on a spec, we lose the real opportunities to use everyone in the solution equation.
As well the energy consumption must now link to the environmental consequences of the firms actions. Whether they buy emission credits or follow ISO 14000 , they must look at the triple bottom line.
Using ESCO's and incorporating renewable energy sources are all consistent withthe well explained stretegy you described.