Russell IETC 2014

THE ROLE OF PROFESSIONAL RISK In Implementing Industrial Energy Improvements

Christopher Russell, Principal Energy PathFINDER .com (443) 636-7746

2014

CHRISTOPHER RUSSELL…

•  Principal, Energy Pathfinder Management Consulting, LLC •  Visiting Fellow, American Council for an Energy Efficient Economy •  Energy Manager for Howard County, MD, 2010-2012 •  Director of industrial programs, Alliance to Save Energy (1999-2006) •  Author: “The Industrial Energy Harvest” •  MBA, University of Maryland •  Master of Arts – Urban Studies, University of Maryland •  B.A., McGill University

Connecting the dots between energy choices and business success.

2 ©2014 Energy PathFINDER.com

“The beginning of knowledge is the discovery of something we do not understand.”

-- Frank Herbert 1920-1986

Author of “Dune”


Background: Industrial Energy • One third of the US energy pie, 12.5% of GDP • Efficient use offsets need for regional utility infrastructure

investment • No energy, no production, no revenue • Cost of doing business (tax deduction) • Energy managers in the cost bulls-eye • Spend money to save money?


U.S. Department of Energy, Advanced Manufacturing Office). 2012. Manufacturing Energy and Carbon Footprint, NAICS 31-33). Washington, DC: DOE http://www1.eere.energy.gov/manufacturing/resources/footprints.html 5

Industrial Energy: Gross to Net


Risks …and Opportunities •  Technical risk • Accountability risk • Measurement risk •  Investment risk • Management risk


Methodology • Casual distillation of 80 interviews of industrial energy

practitioners & experts, 2012-14

• No hypothesis– only a review of evident trends


“Opportunity is missed by most people because it is dressed in overalls and looks like work.”

-- Thomas Alva Edison 1847 - 1931

American inventor and businessman


Technical Risk •  Fugitive energy: destroys physical assets • Real time energy data = pulse on operations •  Failure to M&V = accepting risk of failure • Monetize energy + non-energy benefits • No energy assessment? IAC database


Industrial Assessment Database http://iac.rutgers.edu/database/ 15,000 Energy assessment results:

Recommendations, costs, savings Sort by plant size, type and location

©2014 Energy PathFINDER.com 11 11

Accountability Risk • Competing priorities: output comes first •  Invisibility: no performance metrics for energy • Reluctance to change what’s not broken • Energy waste = small percent of expenses • Delegation to unempowered staff. • Bias for hardware over soft/human issues • Energy choices: shaping cash flows for years, decades • Energy manager: Inside or outside hire? • Convert recommendations into implementations • Map the decisions: coordinate with/support other agendas


Measurement Risk • Quantify: energy savings, investment rates of return, participation/support

•  Ill-chosen metrics? Failure to measure? • Good metrics:

• Easy to collect on an ongoing basis • Easy to understand •  Link to staff accountabilities

• Subject of regular management discussion?


Investment Risk • Profit = retained earnings = capital.

Capital has to go somewhere… Compare investment options?

• Common justification = short payback • Benchmark = return on invested assets



Payback vs. Rate of Return

Management Risk • Energy management: conceived in isolation •  Top management support? Yeah, but… • Sideways, incremental victories • Departmental affinities, complementarities • Departmental turf issues • Budget stand-off? • Monetize: cost, benefits, cost of doing nothing • Document, communicate, celebrate


Energy Management è Change è Risk & Reward?


Hig

h

YIE

LD

BUSINESS PLAN: PLAN-DO-CHECK-ACT •  Monetize energy position •  Document costs to do/not do •  Seek mutual affinities SYSTEMATIC VALUE HARVESTING

COMPONENT APPROACH •  Driven by breakdowns, rebates •  Compete for capex •  Address symptoms, not root causes FEAST OR FAMINE PROJECT HUNTING

Low

Y

IELD

EMPHASIZE BEHAVIOR, PERSONAL CHOICE •  Authority? Moral suasion? •  Accountability? Burn out? SPRAY & PRAY

DON’T MANAGE ENERGY •  Minimal change, low hassle factor •  Absorb energy price, tech risk DENY & DEFLECT

Low RISK High RISK

“Change is not compulsory… [but then] neither is survival.”

-- W. Edwards Deming 1900 - 1993

American statistician, professor, author, lecturer and consultant


ENERGY PATHFINDER .COM CHRISTOPHER RUSSELL [email protected]

@ENERGYpathfndr

THANK YOU!

Documents

Russell IETC 2014