Achieving Corporate Commitment for Energy Management

December 16th, 2009

By: Peter Rowles

Corporate commitment is the key ingredient to a successful energy management program. It is not enough to just implement some energy efficiency projects, most organizations will need to dramatically change their culture in order to achieve and sustain meaningful results. This requires commitment. A wise old engineer once described to me the difference between commitment and involvement. He said it is like having bacon and eggs for breakfast – the chicken is involved but the pig is committed.

How do you convince senior executives that energy management is worthy of corporate commitment? A good first step is to define the size of the energy related expenditures within your organization. You can’t manage what you can’t measure. How much does the company spend annually on electricity, natural gas, fuel etc.? What is the percentage of this expenditure relative to sales or controllable operating costs? How much money is spent annually maintaining energy assets such as boilers, chillers, rooftops, lighting etc.? How much money is spent annually on capital upgrades or replacement of these same systems? How much labour time is already devoted to management energy and energy assets, including:

Accounting staff to enter utility invoices, do accruals and prepare budgets;
Purchasing staff involved in energy, service and equipment procurement; and
Operations and maintenance staff dedicated to operating energy assets.

This type of analysis is not to be confused with an energy baseline – that comes later. These numbers when added up provide an idea of the size of the “energy business” within your organization’s business. Once you define the size, the next step is commitment of adequate resources to manage this energy business. A good rule of thumb would be to allocate 3 to 5% of the annual energy related expenditure towards energy management. This would include appointment of an Energy Manager or Champion as well as internal and/or external resources dedicated to assisting in procurement, accounting and energy efficiency.

Getting corporate commitment will not come without the expectation of benefits. The expected benefits will include reduced operating costs, increased productivity, increased profitability, reduced environmental footprint, improved employee awareness and improved customer image. All of these contribute towards the long-term sustainability of the corporation and its value in the eyes of its shareholders. These expectations should take the form of concrete targets, objectives and timelines for the energy management program.

There should also be corporate policies and procedures put in place to guide and enable the energy management program towards achieving its goals. It is critical at this point to define if and to what extent capital will be made available to fund projects. Questions such as “Will projects be funded internally or by third party financing” need to be addressed as well as the financial criteria that will be used to evaluate energy projects. These need to be clearly understood by the energy management team before any project development work is initiated. There is no sense in spending money on energy audits and studies, if there is no commitment to fund the projects. Under these circumstances, the approval process can take years. By the time funding is approved, the original energy audits and the studies have to be re-done.

In many cases, there is a disconnection between, what the energy management team feel are the required financial criteria and how the CFO actually analyses the investments. In my experience, the operators are wasting time developing relatively small projects focusing on quick paybacks (less then 2 years) while the CFOs are more interested in entertaining larger projects/programs with a minimum Return on Investment (ROI). Projects aggregated into larger programs and evaluated based on ROI, using a life cycle cost benefit analysis (LCCBA), are more likely to get approved at the executive level.

In summary, the essential steps to establishing corporate commitment for energy management are:

Defining the magnitude annual energy related expenditures;
Setting goals and objectives;
Allocating adequate resources to manage energy;
Documenting policies and procedures; and
Establishing financial parameters for capital investment in energy management projects.

Once corporate commitment is in place, the next step is developing a strategic energy plan, which I will highlight in the next article. I’ll end off with a quote on commitment from the great Vince Lombardi: “The harder you work, the harder it is to surrender.”

Peter is entrepreneurial energy engineer with over 20 years of experience in the energy industry. Peter is responsible for new business developments for Energy Advantage Inc. in British Columbia.