After the power crisis of 2007 and 2008—and the steep rises in electricity costs that followed—South African industrial groups moved fast to reduce their energy consumption. Yet few of them have yet completely transformed their businesses to reach optimal or high levels of energy efficiency. The result is that most large organisations are missing cost reduction opportunities worth millions or even hundreds of millions of rand each year.
For example, when we talk to mining companies we often find that they consider their businesses to be energy efficient after taking the obvious steps to reduce electricity consumption. They look at the performance of their peers and at fixed electricity prices and believe that they have done everything in their power to reduce their costs. Yet when we look at the specific energy usage needs and patterns within their environments, we can usually identify a range of ways that they can drive down energy costs by 20% or more.
Given that energy accounts for between 15% and 30% of an industrial company’s total production costs, reducing energy use by 50% could significantly increase earnings before interest and tax (EBIT). Starting the journey towards becoming a more energy-efficient organisation starts with three insights: Your energy systems are probably inefficient: Most businesses are running production systems designed 20-30 years back, when power costs were relatively low. It’s not unusual to find old equipment in a process plant using water pressure four times higher than necessary to suppress dust, for example.
This is a hidden liability and, as the costs of electricity rises, so will the cost to business. It’s important to look at inefficiencies in each system as well as how various systems interact with each other. A simple example is how lighting generates heat which contributes to the overall heat load of the building. This, in turn, affects the energy that the air-conditioning system uses to cool the building. Whether directly or indirectly, all systems that require energy are in some way or another interconnected.
Your systems are inefficient because you haven’t defined your energy needs: Even in energy-intensive industries, many organisations have not clearly and comprehensively defined their energy needs. Without knowing what the energy the company buys will be used for or the physics of the energy needs, it is hard to understand the energy requirements of the total site (not just the plants that make up the site or the systems and equipment comprising the plant).
Engineers and designers in the past have simply assumed that all energy needs must be met with high grade energy; the systems, therefore, operate at greater capacity than is required. When energy needs are not clearly defined, systems are oversized and energy systems’ operating parameters are not focused on efficiency, in turn creating massive waste. However, when energy needs are efficiently met massive cost savings are achieved.
There will be further price shocks in the electricity market in the next five years: Since 2008, South Africa’s electricity costs have soared by around 285% from an average of 19,6 cents per kilowatt-hour (c/kWh) to 75,4 c/kWh for 2015/6. The published data shows that average pricing must rise in real terms over the next few years by more than 50%. Are you ready? Executives can only immunise the business from government energy decisions by reducing reliance on the grid system—for example, eliminating energy waste, making the operation more energy efficient, and installing alternative sources of energy such as waste gas, solar or alternative fuels. Insulating a business from energy wastage Energy inefficiency is a hidden cost that eats away at a business’ bottom line. Changing that begins by acknowledging that waste exists.
As they understand that energy use is not a fixed cost, organisations can find ways to reduce and manage this cost—in turn, boosting profits for the longer term.
Francis Barram, CEO of Ensight
