Improving energy efficiency is one of the most cost-effective strategies a company can use to manage rising energy costs and growing concerns over greenhouse gas emissions.
Introducing strong and robust energy management systems and ways to identify performance improvements can drive significant cost savings, competitive advantages and mitigate against energy price volatility. Companies that have an in-depth knowledge and understanding of their energy use and systems to manage it, have demonstrated increased productivity, better staff engagement, and reputational benefits. This is reflected in their share value and attractiveness to institutional investors.
In this section
Why energy is becoming core business
Energy is an essential business input and often constitutes a significant and growing line item of company operating expenses. The cost of energy is projected to continue to rise due to many factors, a number of which are beyond the control of most businesses. These include infrastructure costs to transmit and distribute energy, commodity prices, exchange rates and geopolitical factors. The introduction of a carbon price will place further upward pressure on energy prices and improve returns on energy efficiency investments.
For many businesses, energy may comprise a small percentage of operational costs. However, energy is often the key source of greenhouse gas emissions. A reduction in energy use is often the primary means by which an organisation can reduce its greenhouse gas emissions.
Without an effective management system, inefficiencies in the business can go unnoticed and opportunities to improve energy use (and reduce emissions) may not be acted upon. Unnecessary energy expenditure erodes profits and performance.
Benefits of energy management
Businesses can realise many benefits through effective ongoing energy management. Implementation of the systems and processes to achieve best practice in energy management can build business value by:
- Unlocking significant savings – Organisations that have taken a strategic approach to energy efficiency often find project opportunities with attractive payback periods and ongoing reductions in energy expenditure.
- Reducing exposure to future energy price increases – Many Australian businesses have already felt the impact of rising energy costs. Energy efficiency improvements offset these costs, making energy-efficient organisations less vulnerable to future price increases. Energy efficiency improvements deliver ongoing financial benefits. The return on investment for these projects improve as energy prices increase.
- Improved risk management – The business risks associated with rising energy prices and inefficient energy use include reputational risks, price volatility and operating cost risks, supply chain risks, energy security and climate change risk. Effective energy management is a core component of an effective risk management strategy.
- Improving productivity – Businesses are increasingly recognising the link between energy performance and business productivity. Understanding energy use as a function of output and other performance metrics can identify productivity improvements through reduced resource consumption. Improvements in energy productivity are often accompanied by improvements in material use, water use, and use of other resources.
- Reducing greenhouse gas emissions – For most businesses, managing energy use is the primary means by which organisations can manage their greenhouse gas emissions. Improving energy productivity and exploring different sources of energy can dramatically reduce an organisation’s carbon footprint and associated carbon costs.
- Reducing maintenance costs and improving reliability – Energy efficiency actions can identify problems before they occur and reduce the load and operating hours of machinery and equipment. This often improves production uptime, reduces labour and component costs, and extends the useful life of the asset.
- Reputational benefits – Public perception is an important consideration for many companies. A strategic approach to energy management can demonstrate good corporate citizenship, improve the attractiveness of the business for institutional investors, and support the company’s social license to operate.
- Empowering and educating senior management – Similar to other business management systems, an energy management system provides the board and top management with insights into the way that energy is used in the organisation, opportunities for improvement and how resources could be used to strategically manage one of the company’s key business inputs.
- Reducing employee turnover and many other benefits – Businesses that actively monitor and manage their energy use often enjoy other indirect benefits, such as a more motivated workforce, demonstrable improvements in environmental performance and new means of staff engagement.
Best practice in energy management
Companies that are successfully managing their energy have several elements in common. Best practice approaches allow an organisation to develop a thorough understanding of energy sources, energy use and opportunities for improvement. This includes ways to use energy more efficiently in systems, processes and technologies; how energy is sourced and procured; and investigating alternative sources of energy, e.g. clean energy, cogeneration or waste heat recovery.
Best practices in energy management include:
- Strong top-level commitment from senior executives and clear strategic leadership on energy management.
- Integration of energy management into the company’s existing systems.
- Appropriate resourcing of the energy management strategy, energy efficiency assessments and project implementation with skilled and knowledgeable personnel, and sufficient funds for implementation.
- Energy efficiency goals that can be translated into business performance goals, are time-bound, measurable, linked to action plans and included in management performance metrics.
- Implementation of tracking, measurement and reporting systems to monitor performance in relation to goals and objectives.
- Effective communication, internally and externally, of the priority placed on energy management and the performance and successes of the company’s energy management strategy.
Many corporations have historically placed energy management within the environmental function, as energy usage is often used to report environmental compliance. However, corporations that have achieved significant cost savings and reduced greenhouse gas emissions have cross-functional responsibility for energy management including the financial, operational and environmental roles within the business. Companies have often found that rigorous management of energy and implementation of energy projects requires recognition of energy at the top levels of the business. Placing energy management responsibilities within the business improvement part of the business has also led to more effective outcomes.
Energy sources, procurement and demand side management
An understanding of energy use throughout the organisation can reduce the cost of energy supply. Generation technologies, fuels and contractual opportunities can be assessed and implemented as part of a comprehensive energy management approach. When combined with energy efficiency measures, the optimisation of energy supply contracts, fuel supplies and on-site generation technologies could yield dramatic improvements in business performance. Many Australian businesses will also need to address and manage the impacts of the carbon pricing mechanism.
In an effort to reduce energy costs and greenhouse gas emissions, many businesses have considered or implemented alternative energy sources or generation technologies such as co-generation plants, roof-mounted solar systems, heat pumps and many other technologies. Fuel switching, for example from diesel to natural gas, may also result in cost savings for both stationary and transport applications. For businesses facing network constraints, alternative energy technologies can also enable an expansion of capacity.
Managing the use of peak and off-peak power, maximum demand, power factor, and other aspects of electricity contracts can yield substantial savings. Depending on the size and nature of the loads at a site, demand side management opportunities may also exist which could provide an additional income stream for curtailable loads.
You can find further information on energy procurement and demand side actions under the Energy Procurement section of the EEX website.
Resources – Strategic Case for Energy Management
- Research of CEOs/Senior Level Executives Participating in the Energy Efficiency Opportunities Program 2010 (Opens in a new window)
- Department of Resources, Energy and Tourism
- PDF 456 KB
This report developed by Ogilvy Earth on behalf of the Department of Resources, Energy and Tourism reports on the findings of a survey of CEOs/Senior Level Executives participating in the Energy Efficiency Opportunities (EEO ) program, which sought their views on the drivers for, and barriers to, adopting energy efficiency measures.
- From Shop Floor to Top Floor: Best Business Practices in Energy Efficiency 2010 (Opens in a new window)
Best practice in energy management is described using a set of international case studies. The findings in this report include the business case for energy management, the ‘7 habits of highly efficient companies’ and many examples of energy leadership throughout several organisations. This resource is particularly useful for organisations that are seeking to learn from companies that have already been successful in improving their energy efficiency. The examples presented are from large corporations. However, the reasons for undertaking improving energy management practices, and the results achieved, can be useful to large and small businesses alike.
- Factors influencing behaviours and decision making in the business sector 2012 (Opens in a new window)
- UK Department of Energy and Climate Change
- PDF 1.1 MB
This paper presents the findings of U.K research on organisational behaviour and behaviour change in relation to energy efficiency in the business sector. It considers the key factors driving investment decisions across different industry sectors and business sizes, including the barriers faced by business and implications for policy. The research was based on the assessment of journal articles, conference papers and studies.
- Business at its Best: Driving Sustainable Value Creation 2011 (Opens in a new window)
This document asserts that leading businesses have found that best performance is achieved by aligning value creation with sustainability principles. Several international case studies are referenced which demonstrate a confluence of economic growth while improving the sustainability and environmental performance of a business. Senior management, or personnel involved in strategic decision making will find this resource particularly useful.
- Energy Efficiency, Taxonomic Overview 2004
This document is an excerpt from the Encyclopaedia of Energy, which provides an extensive overview of energy efficiency. The excerpt includes the definition and importance of energy efficiency, the benefits of energy efficiency, the engineering versus economic perspectives, the diminishing versus expanding returns to investments in energy efficiency, market failures and business opportunities and the old and new ways to accelerate energy efficiency.
- Making the Business Case for a Carbon Reduction Project 2009
Proponents of carbon reduction projects often encounter issues when attempting to have energy and carbon projects approved for implementation. This document asks questions that help the reader determine who makes the decisions in the organisation and how to engage with them. It discusses how to build a business case, including: considering finance and risk, competing for funds, and drafting and presenting business proposals. This resource would be particularly useful for people without experience in making proposals to key decision makers.
Note: The UK Carbon Trust website requires registration in order to download publications. Registration is free.
- Elevate Energy Management to Senior Managers
The support and involvement of senior managers is an essential element of energy management. This tip sheet is targeted at those responsible for energy management in a medium-to-large organisation who need advice on the motivations and language of senior managers. An understanding of how energy management aligns with senior management can help with establishing and sustaining energy management practices.
- Good Energy Management is Good Business 2003
The U.S. Energy Star program publishes resources that describe why energy waste is prevalent in many organisations and the returns that have been achieved by organisations that have implemented successful energy management practices. This resource links to a useful collection of U.S. based case studies and proven results from many different industry sectors of the economy. Sectors discussed in the case studies include the retail merchandising, retail food and real estate sectors.
- Navigating the complexities of carbon pricing policy 2012 (Opens in a new window)
- Ernst & Young
- PDF 996 KB
This document from Ernst & Young provides an overview of the Australian Government’s Clean Energy Legislation Package and what this means for industry. It also outlines approaches companies can take to manage their exposure to a carbon price.
- Under the Carbon Pricing Mechanism: Helping you navigate your financial reporting 2012 (Opens in a new window)
- Ernst & Young
- PDF 526 KB
This document from Ernst & Young discusses key accounting issues arising from the Carbon Pricing Mechanism which companies should be aware of, and address in their financial reporting.