By Steve Acevedo and Mark Gilbreth
There has been much misdirected discussion related to how to deal with demand charges and, on a much larger scale, how to better manage your utility spend.
The many discussions posted on demand charges center on four key common initiatives: invest in smart meters and controls; enroll in a demand response program; for large enterprises, hire an individual to review utility bill charges; and, of course, the soft sell to position the end-user to consider the implementation of solar and/or battery storage as the end-all solution. These approaches do little to help promote the effective management of energy expenditures.
It is surprising that commercial and industrial users continue to view the issue of managing energy bills as a low priority. It’s not uncommon to see that 10–30% of business’ Cost of Goods Sold is spent on energy. The finance department receives the utility bill and only when there is a significant variance is a review requested from the facilities or operations team. Often the reviewer does not have the data or tools to effectively evaluate the variance. Significant time is spent developing a variance story, but little to no change will result from this activity. As energy costs continue to rise, the impact on a company’s operating expense will continue to grow, negatively impacting profits.
Consider that the Department of Energy has reported that companies waste 30% of the energy they consume.
For many businesses, this is equivalent to approximately 3–9% bottom-line profit loss. A key challenge to oversight on utility bills is often the result of siloed and decentralized decision-making over the utility budget. For example, the finance department approves what to buy and facilities maintain equipment. One recommendation is to create a management process between the stakeholders within finance and facilities to jointly audit energy bills for accuracy and trends. This simple, low-cost approach provides significant value by having multiple eyes reviewing the utility spend and establishing a common framework to really understand the impact of energy usage and cost. A company’s team may quickly realize that the electric utility increases in demand charges are now 40–60% of the utility bill.
A subsequent recommendation may be to contact the local utility and request Green Button data that provides a 15-minute interval look at your utility usage. The Green Button initiative is an industry-led effort that responds to a 2012 White House call-to-action to provide utility customers with easy and secure access to their energy data in a consumer-friendly and computer-friendly format for electricity, natural gas, and water usage. With access to your 15-minute interval data you can immediately begin to track usage trends and get an understanding of how your usage impacts demand charges. The team now has enough information to establish critical metrics, understand opportunity for improvement, and identify common goals.
Now at this point, a company will be positioned to consider what strategies are available to begin managing the utility spend. Utility bill auditing can highlight mischarges or alternate utility tariffs that result in savings. Like most process improvement activities, there will be low-hanging fruit that the team can identify with simple process changes such as equipment scheduling to improve energy efficiency or level usage to effectively lower demand. For operations that are more difficult to understand or track, now would be the time to consider smart metering to pinpoint specific equipment usage and associated tariff-based cost. A company’s management team may highlight aging or inefficient equipment that requires upgrades or is eligible for energy efficiency incentives. Businesses now have the opportunity to purchase energy from third-party vendors that offer lower pricing.
Now in consideration of this new operating state, a management team will be well-positioned to explore which distributed generation or microgrid technologies are right for its business. The amount of cogeneration, solar, wind, or energy storage that makes operational sense will vary based on the company’s energy usage profile, utility tariff structure, energy costs, business outlook, and access to capital. A company’s understanding of its energy usage and costs will help it understand how much cogeneration, solar, wind, or energy storage is ideal. Users should not outsource their utility spend unless they truly understand how they use it and what it costs them to use it at any point in time of the day.
Agave Systems has developed a unique software platform that provides its clients with the opportunity to manage their energy usage more effectively.
The SaaS platform brings utility rate data together with real-time energy usage to provide key metrics, trends, and notifications for clients to decide how you most efficiently use their energy. Agave Systems’ mission is to provide its clients with an easy-to-use Virtual Energy Manager that empowers clients to make informed, calculated decisions about energy usage and cost. Agave bridges the chasm between operations and finance on the challenges of accountability, asset management, and performance in relation to managing energy cost.