Understanding the 3 Energy Cost Drivers. A Guide to Lowering Costs and Increasing Energy Productivity

Transcription

1 Understanding the 3 Energy Cost Drivers A Guide to Lowering Costs and Increasing Energy Productivity

2 Introduction Energy is a major operating expense for most enterprises, yet few energy decision-makers have the tools they need to understand exactly what is driving their monthly energy spend, identify priority energy efficiency investments, and take the actions that will yield the highest returns. To take better control of your energy costs, there are really only three fundamental areas to focus on: CONTRACT BILL DATE How you buy energy 2 How much you use 3 When you use it Doing these three things better means you reduce the size of your energy bill each month while at the same time improving your energy productivity: your ability to make more informed decisions about energy use, reduce the time you spend reporting on and managing energy spend, and shield your business from risk. Each of these cost drivers can be managed independently, but a siloed approach leaves money on the table and exposes your company to unnecessary risk. This book explains the three energy cost drivers in detail and outlines how a data-driven, software-based approach can help you lower costs, reduce waste, and ultimately increase your energy productivity. By addressing these key energy cost drivers, you can reduce the size of your energy bill while at the same time improving your energy productivity. 2 Understanding the 3 Energy Cost Drivers

3 What are the 3 Cost Drivers? How You Buy Energy The way you purchase energy but also pay for the resulting energy you bought matters. Are you sure you secured the best price per kwh or BTU on your contract? Are you exposed to market risk? Have you fully unpacked the different components of your tariff? And even if you did negotiate the best contract, do you know if your utility bills are accurate? Securing optimal contracts and accurately tracking utility bills, tariffs, and costs are the foundation for building budgets and making purchasing decisions. Whether you re in a regulated or deregulated market, understanding your performance against budgets and forecast, particularly during intra-reporting periods, can affect your operations. How Much Energy You Use If the cheapest kilowatt hour is the one you don t use, think about how much the wasted kilowatt hours you are using unproductively are costing you. Do you know where most waste is occurring at your company? Do you know where to start looking? Knowing how much energy is used in any given hour or minute is a leading indicator for identifying potential sources of energy waste and understanding the status of your building(s). And in many cases this has to be accomplished by someone who wears far too many hats, so actionable insights and recommendations of discrete projects to undertake with a clear ROI need to be identified, otherwise they won t happen. When You Use Energy Electricity pricing structures may include peak demand charges, Time of Use (ToU) tariffs, and Transmission System Use of Network (TSUoN) charges that can wreak havoc on your energy budget. In deregulated markets, these charges are often passed through as a separate line item, but even in regulated markets, your demand profile could bump you into a higher rate class. Do you have the visibility you need to know when these peaks occur and strategies for how to avoid them? Are you participating in demand response that pays you for using less energy during times of grid constraint? If you have the flexibility to shift energy consuming activities, this is a huge opportunity for better energy productivity. With a smart demand management approach, energy managers have the visibility to understand when these charges are incurred and can take measures accordingly to shift production schedules or turn off non-essential equipment until the critical period passes. Understanding the 3 Energy Cost Drivers 3

4 Using Data to Tie it Together Here s an example of why the siloed approach doesn t work: in this chart, we see this US-based facility manager has delayed the morning start-up of production equipment by two hours (addressing cost driver #2), resulting in $12,000 in savings. Little did he know that this change in operations set a new peak, costing the facility $17,000 in demand charges (impacting cost driver #3), and also pushed the peak into the peak demand period, underscoring the importance of understanding how you re billed (cost driver #1). Looking at the three cost drivers holistically is ultimately the key to intelligent energy management. And while asking the right questions is a good start, digging into the data and quantifying the opportunities in financial terms is critical. Energy intelligence software (EIS) is a key business decision-making tool because it highlights individual metrics, exposes how the cost drivers interact, and provides tools to identify priority energy management efforts for maximum ROI. Why the Siloed Approach Doesn t Work Implementing a delayed start-up helped increase efficiency, but ultimately drove up overall energy costs by $5,000 for this facility by resulting in a higher peak demand. Demand (kw) Original peak New Peak = ~$17,000 in annual additional costs* 2-hour start-up delay = ~$12,000 in annual savings* a.m. noon a.m. *Based on assumed electricity charge of $0.06/kWh and demand charge of $11/kWh. 4 Understanding the 3 Energy Cost Drivers

5 CONTRACT How You Buy Energy

6 Buying energy isn t as simple as paying a monthly bill. Smarter Energy Supply and Utility Bill Management For those in deregulated markets where you have the choice as to where you buy your energy (i.e., electricity, natural gas, or other commodities), energy management doesn t begin once the contract is signed. The decisions you make about how your contract is structured have a substantial impact on your future spend, so it s important to understand those implications and your options before the ink hits the page. In regulated markets, while you might have fewer choices, understanding exactly how you re charged has significant implications for how much you ll spend. In either case, energy supply purchasing is a complex process that factors in many variables your tariff(s) and rate structure(s), market vagaries that determine commodity pricing, your load curve, your overall anticipated consumption for the year, the various cost components of your energy supply, your willingness to trade some budget certainty in exchange for potentially securing more desirable rates, and more. Better energy intelligence can help you understand how various cost components and usage patterns impact your bill, so you can make more informed budgeting (and purchasing, where applicable) decisions for your business. Where to begin? First, ditch the spreadsheets. For most businesses, getting historical data from utility bills and putting it into a format that s usable is difficult. A big portion of operating budget is spent on energy, so it s surprising that this area is still largely managed in spreadsheets. A better way: utility bill management (UBM) software. UBM provides basic visibility into historical energy spend, examines trend data, and then uses that information to inform forward-looking purchase strategies, forecasts, and budgets, removing uncertainty from financial planning. UBM can help energy managers: Accurately budget and plan for the future Identify and resolve individual bill problems and anomalies Compare sites across usage and other key performance indicators, helping you identify outliers and identify priority opportunities for efficiency improvements More easily report on key metrics that are unified in a single cloud-based system of record Streamline compliance reporting, calculating site or portfolio carbon footprint and pushing your information to Portfolio Manager CONTRACT 6 Understanding the 3 Energy Cost Drivers

7 An EIS platform can also manage suppliers, aggregating agreements in one location, helping to manage costs, contracts, and other issues that, when left without order, can be costly. Leverage your energy data to mitigate risk. Developing a strategic plan is important in any energy purchasing process, but the key to a robust plan is robust energy data analytics. Digging into your meter-level interval data helps you understand your load curve and its variations so that it s easy to, for example, accurately implement a block and index purchasing strategy. When it comes to a thoughtful purchasing plan, energy data is much more than just information it s crucial knowledge that is necessary to improve business intelligence and drive a competitive advantage. Lastly, don t be in the dark about your tariff. Whether you re in a deregulated energy market or not, you can get more proactive about how you buy energy by understanding your tariff and exactly how you are billed (in a deregulated market, there are more options but also more complexity, making it all the more important to have checks that guarantee you know your tariff ins and outs). If you operate with multiple sites and commodities, it becomes even more complex. It doesn t happen often, but there are situations in which customers may be on the incorrect tariff. To make sure you are on the right tariff, you have to understand both how you use energy and how you re billed for energy. Energy dashboards and profiling tools will show you the shape of your load curve, but unless you connect the data with billing information about how you re charged, then the information isn t very actionable. Real-time data connected to your specific tariff, coupled with the historical data from your bills, can create a good vision for what an optimal tariff structure should look like for your business. Energy data is much more than just information it s crucial to improving business intelligence and driving a competitive advantage. CONTRACT Understanding the 3 Energy Cost Drivers 7

8 Look at where the cost drivers intersect. It s often where the cost drivers intersect that can provide the best insight into how to lower overall spend. Here s a quick example. In the chart below, the blue line shows peak consumption. Looking at energy consumption alone (in blue), a diligent energy or facility manager would reasonably assume that the peaks set during the second half of January cost the company the most money. But how does the picture change when you overlay real-time energy prices (green)? The conclusion is very different: the relatively lower peak of 1,700 kilowatts on the 7th of January (when a large swath of the United States was gripped by the Polar Vortex winter storm and energy prices skyrocketed) actually cost thousands more than the 2,000 kw peaks later in the month. Spend vs. Consumption During the 2014 U.S. Polar Vortex When real-time energy prices are overlaid on top of consumption data, it paints a very different picture for why January s energy bill was so high compared to if you looked at consumption data alone. Hourly Consumption Hourly Spend $3, Hourly Spend (USD) $2,500 $2,000 $1,500 $1,000 $ Hourly Consumption (kw) $0 4-Jan 9-Jan 14-Jan 24-Jan 29-Jan 0 CONTRACT 8 Understanding the 3 Energy Cost Drivers

9 BILL How Much You Use

10 The cheapest kilowatt is the one you don t use. A Data-Driven Approach to Energy Efficiency Energy efficiency as a practice is nothing new, and it s common knowledge that using less typically energy saves you money and can make your operations more productive. But before rushing into that next big capital-intensive upgrade, consider thinking about energy efficiency with these objectives in mind. Plan better to stretch your money. Bidding adieu to energy-hogging equipment is a tried and true approach to driving down overall energy consumption, but how do you know where the hogs are? Visibility into your real-time energy consumption can help you pinpoint what facility or piece of equipment is using the most energy, but more importantly, what is costing you the most amount of money. Don t guess. Identify the biggest culprits and allocate your time and money there for maximum impact. Use data to change actions. Understanding which activities drive energy waste can motivate people to change, either voluntarily or through new policies. For example, John A. Logan College (JALC), has a building dedicated to vocational training with an energy intensive automotive department. By taking a close look at the facility s real time energy metering data, college staff saw that two large air compressors were being left on overnight. Now the class just comes in and turns them on in the morning, and the cleaning staff is instructed to turn them off at night if they find them still running, explains Tim Gibson, JALC s Coordinator of Sustainability and Building Systems. That s a great example of easy behavioral change... the kind of change that starts to shift the overall mentality on our campus. Focus on improving productivity, not simply using less. The point of energy efficiency is not just to use less; efficiency by definition is about working smarter, not harder. To do this, it s important to understand the various drivers that ultimately determine how much energy you consume. If you re a commercial property facility, your occupancy level will drive energy consumption. If you re a manufacturing facility, demand for your product will determine how hard your systems run. Using more in these cases definitely is not a bad thing it means your building is full or more people are buying your product. The trick is to compare your energy consumption to the norm of a metric that matters most to you: kw per square foot (or metre) or kw per widget produced. Without pairing other data inputs, like production and occupancy, you re looking at energy bills in a vacuum. BILL 10 Understanding the 3 Energy Cost Drivers

11 Use software to scale your impact. Just about every part of a business from HR to finance to sales relies on robust software applications to promote scalability and drive efficiency. Those involved with energy decisions should, too. Keeping tabs across multi-site or 24x7x365 facilities is especially daunting for individuals or small teams. Jerry Palermo, Energy Manager for Grand Prairie Independent School District, was devoted to using less, so much so that he used to drive around to the different schools in the middle of the night or during vacations to ensure everything was shut down properly, but he knows that s not a scalable solution. "We have 39 educational facilities. I m one person," Jerry acknowledges. It s a lot easier to log into a web-based application from the comfort of his home, identify which buildings are running high outside of operations hours, and focus his efforts there. Get the person that signs the check in your corner. Energy efficiency is the gift that keeps on giving. The trick is to make sure the people with budget authority know and understand the value you re providing. Energy intelligence software puts energy savings in the language that CFOs care about most: money. EIS includes pre-packaged analytics and reports that automatically capture trends and tracks performance against key performance indicators. Set it to automatically land in the CFO s inbox, or use the charts and reports for that quarterly review. Just about every part of a business relies on robust software to promote scalability and drive efficiency. Energy managers should, too. BILL Understanding the 3 Energy Cost Drivers 11

12 When You Use It DATE

13 Not all kilowatts are created equal. Demand Response and Demand Management One of the unique things about electricity is that supply and demand need to maintain a steady balance: too much demand = blackouts, too much supply = economic losses and a bunch of waste because electricity can t be stored costeffectively in large amounts. Because of the delicate balance, when you use energy represents both a value and a cost. Here are two ways to take advantage of when you use energy. Unlock new revenue with demand response. At the macro level, when the grid starts buckling under increased demand (e.g., extended periods of keeping building occupants comfortable in heat waves or snow storms), utilities and grid operators have a few options: 1) risk a blackout (not a popular option), 2) buy electricity on the open markets (expensive), 3) fire up the next peaking power plant (if there is one that s not already running), or 4) dispatch a demand response network. Demand response is a proven, dependable strategy for utilities and grid operators who need to maintain the important supply and demand balance, and has been around in many forms for decades. Today, demand response programs offer large energy users substantial payments in exchange for their operational flexibility, i.e., their willingness to use less energy in response to market signals and has become a go-to energy management strategy (and revenue stream) for millions of large energy users worldwide. Good energy intelligence software supports all types of demand response and provides real-time visibility into demand response dispatch performance, including the financial impact of participation. Through demand response, participants are compensated year-round simply for being on call, regardless of whether they are called upon to reduce. Participants use the additional revenue they earn from demand response in many ways, including as a funding mechanism for energy efficiency investments. Avoid costly demand charges. On the flip side, to keep the grid in its general steady state of balance, transmission and distribution entities can charge you for additional strain your individual facility puts on the grid. In deregulated markets, these demand charges can be passed through in your energy bill, and in some markets like the US, increase your total payment by 30%. In regulated markets, demand charges can bump you into the next rate class and cost you thousands. Armed with real-time visibility into your energy consumption, energy managers can take financial advantage of their flexibility in demand response earning money while saving potentially thousands of dollars from energy bills by slight changes to when they use energy. With respect to peak demand management, here are three simple ways to achieve results. DATE Understanding the 3 Energy Cost Drivers 13

14 Understand how you re billed. Are peak demand charges passed through or are you going to pay a flat rate no matter what? Are you on the cusp of a specific rate class? Would one 15-minute interval bump you to that next level and cost you thousands? Priority #1 in managing peak demand starts with understanding not just how much you use at peak, but how much you re charged for using it. Lots of energy dashboards will show you when you set your peak demand, but energy intelligence software connects energy consumption with a robust tariff engine so that you re making decisions based on the financial impact and lets you decide whether to shift production schedules, turn off non-essential equipment, or take a less energy intensive approach until the critical period passes. Be proactive about your peaks. If you re waiting for your utility bill to tell you when you ve experienced peak demands, then you re already behind. With real-time energy monitoring, you can set an alert to give you advance warning if you re about to set a new peak so you can take the necessary steps to avoid it. Be prepared with a mitigation strategy. If you get the alert, you need a strategy in place to safely and effectively dial back. Demand response participants can simply leverage the energy curtailment plan they have laid out to use during dispatches. Facilities that are able to reduce energy during times of grid constraint can earn substantial payments through demand response. DATE 14 Understanding the 3 Energy Cost Drivers

15 Conclusion Managing your energy line item isn t easy, but the goal of energy intelligence software is simple: to provide stakeholders across the enterprise energy manager, chief engineer, sustainability officer, or CFO the visibility they need to understand what drives overall energy spend, the information they need to identify priority investments and take action, and the data to validate that their investments are delivering the value they expected. 1 IDENTIFY PRIORITIES WORK ORDER TAKE ACTION 3 GET VISIBILITY IMPACT EFFORT CFOs and energy managers alike need visibility to understand what drives energy spend and information to identify priority investments and take action. 2 Understanding the 3 Energy Cost Drivers 15

16 About EnerNOC EnerNOC, Inc. is a leading provider of energy intelligence software (EIS). EnerNOC unlocks the full value of energy management for thousands of customers worldwide by delivering a comprehensive suite of software applications and professional services that help users buy energy better, manage utility bills, reduce energy consumption, participate in demand response, and manage peak demand. For more information, visit P14350 (rev. 9/15) EnerNOC, Inc. All rights reserved.