May 10, 2017

The Three Big Obstacles to Reducing Power Purchasing Costs

By Edison Energy

Just how much could commercial and industrial (C&I) organizations in the U.S. save on power purchasing? The amount isn’t insignificant. It’s staggering.

The country’s largest energy users spend an estimated $260 billion on electricity and natural gas annually. Yet, that energy tab could be slashed by nearly a third to the tune of $80 billion.

So, why aren’t more large corporations doing something that could take those dollars and apply them to the bottom line? Three primary obstacles to more efficient energy consumption presently exist.

First, energy planning is not on corporate leaderships’ radar. Surprisingly, energy is not typically regarded as a strategic asset to a company’s core mission. While pains are taken to continually find efficiencies in manufacturing and operations, many company management teams lack the necessary structure to handle present and future energy challenges.

The benefits extend far beyond a smaller utility bill. Eliminating 30 percent of unnecessary consumption could reduce equipment downtime, become a competitive differentiator, and lower carbon emissions.

And, because many of these companies are publically traded, lower energy consumption can improve profitability and shareholder value. A Harvard Business Review article stated it succinctly: “Every dollar saved in utility costs becomes an additional dollar in net profit.” That gets shareholder attention.

It’s part of the motivation behind the long-term moves made by forward-thinking, larger multinational companies’ continuing drive for greater energy efficiency and broadening use of renewables, despite the current U.S. administration’s recent walk back on the previous president’s Clean Power Plan.

“Every dollar saved in utility costs becomes an additional dollar of net profit.”1

Second, there’s the complexity of power purchasing. When a company has operations in multiple locations served by several utilities and gas companies — each with their own tariffs and regulations — management issues become unwieldy. Identifying the best tariffs and available options for each location is time consuming, while simultaneously managing operational, logistical and marketing issues.

Then there’s the added dimension of converting energy into productive forms and the associated services needed to deliver them. Technological change is a constant. Most companies have a tough enough time keeping up with how to maximize production output while minimizing labor, supply chain and environmental costs. Add energy to this mix and things get even more complicated for most facilities and operations personnel.

Third, there is the question of capital. Many companies do not have easy access to capital to finance the energy infrastructure makeover typically required to implement the necessary energy efficiency improvements. Additionally, they could face a high internal rate of return and competition from other core business organizations.

But, a study by the Carbon Trust (see Table 1) that focused on the UK paints a brighter picture. It suggests savings of 40 percent or better with short payback periods is possible in manufacturing and other industry segments.

Table 1: Energy efficiency opportunities in selected industries in the UK

Energy efficiency opportunities in selected industries in the UK

Source: Carbon Trust

Even with high expenditures, the payback for these kinds of energy investments in surprisingly short, illustrating that the savings that could be achieved at relatively low cost. For the U.S. the potential energy efficiency savings could range as high as 60 percent.

The operational hurdles, while high, are not insurmountable. Major energy consumers have a huge opportunity in embracing comprehensive energy management, not only in operational savings, but also in enhancing shareholder value.

To learn about the three barriers and other macro level energy issues facing large commercial energy users, download “The Eighty Billion Dollar Energy Savings Opportunity” here.

  1. Jimmy Jia, Harvard Business Review