Facing up to energy costs
May 1st 2006

As soaring energy prices put the squeeze on manufacturing overheads, companies are looking more closely at their energy management. Ken Hutchinson, national energy sales manager for Cofathec, explains how contract energy management can help

In the last year or so we have seen a sea change in the attitude of UK industry to the cost and use of energy. Indeed, just a few months ago, a survey by the Confederation of British Industry showed that many UK companies expect to be forced into laying off staff as a direct result of rising energy prices.

In the past, major energy users have been quite good at negotiating keen tariffs, and to some extent this has lulled them into taking their eye off the ball when it comes to efficiency. Now, however, it's become clear that those low tariffs were a short-lived phenomenon as energy companies fought for market share in a newly liberalised market. With the honeymoon period over, higher tariffs prevail and the only way to drive down energy costs is to reduce consumption.

In many cases, increasing energy efficiency will require some up-front investment with a payback over a few years, which can put pressure on capital budgets.

There is an alternative, though, known as Contract Energy Management (CEM).

With CEM, you outsource the operation, maintenance, management and financial risk associated with energy consuming plant - and the CEM contractor provides the investment in any energy efficient plant that's required. For instance, if your old steam boiler is well past its best they will purchase and install a new, efficient steam boiler with no capital input from your company - the payments are spread over a fixed period as part of the contract and can be met from revenue budgets rather than capital budgets.

Perhaps even more importantly, in most cases the CEM contractor guarantees how much energy you will consume over the contract period, so the consumption budget can be more accurately forecast.

In order to guarantee that consumption, the CEM contractor takes responsibility for the energy supply, the operation and maintenance of the plant and replacement of plant if that becomes necessary. And, because they will have to pay for any energy used above the agreed target, they have a vested interest in ensuring everything is running smoothly and efficiently. As a result, not only do you get a more efficient operation with lower overheads, you also reduce your organisation's carbon emissions.

The Energy Systems Trade Association has identified six areas where your business can benefit from CEM:

• Funding investment for energy efficient plant.
• Providing management, operational and maintenance resources.
• Improving plant and environmental operation.
• Improved working environment affecting productivity and output.
• Reporting on emissions and key legal requirements.
• Releasing the host organisation to concentrate on core business.

CEM in industry In most industrial operations there are two main areas of energy consumption - the energy used for the processes and the energy used for building services such as heating and lighting. Most manufacturing companies generally view these areas of energy consumption quite differently, in terms of energy efficiency.

Process energy consumption, for example, can be critical to the product manufacture but may be of secondary importance to getting the goods out of the door at the right time and at the right quality and price. In the past, how much energy is used to achieve this has not always been seen as a priority.

Building services are often treated with similar disregard. As long as there's enough light to see, enough fresh air to breathe and enough heat to stop the workforce downing tools, the focus on the energy aspects have often been overlooked.

Soaring energy prices are now making manufacturing companies sit up and pay attention - and are often finding that they don't know very much about their energy consumption. Surprisingly, many such companies don't even know how their energy spend is split across process and building services - and without that understanding it's difficult to identify areas for improvement.

A good CEM contractor will make it a priority to understand your pattern of energy consumption before entering into any kind of agreement - so a thorough and in depth energy audit is a necessary pre-requisite to entering into a CEM contract. Similarly, a CEM contractor needs to gain a good understanding of your business and your priorities. Clearly, any improvements can't be allowed to interfere with the production process. On the contrary, many energy efficiency measures can make a positive contribution to overall manufacturing efficiency.

A major difference between CEM contracts in the industrial and commercial sectors is the longevity of the contract.

Commercial organisations tend to change properties every few years, whereas manufacturers are inclined to stay in the same premises for much longer.

As a result, industrial companies can take advantage of longer term contracts, which bring greater savings. However, that makes it even more important to choose the right CEM partner - a partner that will understand what you need and work closely with you to make sure you get it.