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Master the Fundamentals: How to Control the Top 3 Energy Cost Drivers

April 18, 2014

Little Leaguers and Major Leaguers alike who want to hone their skills have three basic areas to focus on: how hard they hit the ball, how fast they throw the ball, and how many balls they catch. Sure, the Billy Beanes of the world will say there’s more to it than that, but at the end of the day, if they do those three things better than the next guy, they’ll get a spot on the team.


The same goes with energy management. To take better control of your energy costs, there are really only three fundamental areas to focus on: how you buy energy, how much energy you use, and when you use energy. Doing these three things better means you reduce the size of your energy bill each month while at the same time improving your energy productivity: your ability to make more informed decisions about energy use, reduce the time you spend reporting on and managing energy spend, and shielding your organization from risk.


The cost drivers for energy are interconnected with each other and your unique business objectives, too, so controlling them will have a positive impact on other areas of your business as well – finance, operations, labor, etc.


Let’s break them down together.


Energy Cost Driver #1: How you buy energy

Buying energy isn’t as simple as paying a monthly bill. Are you sure you secured the best price per kWh or BTU on your contract? Are you exposed to market risk? Have you fully unpacked the cost components of your supply? And even if you did negotiate the best contract, do you know if your ensuing utility bills are accurate?


Securing optimal contracts and tracking utility bills, tariffs, and costs are the foundation for building budgets and making purchasing decisions. Even in regulated markets, changes can happen that affect your strategy.


Energy Cost Driver #2: How much energy you use

If the cheapest kilowatt hour is the one you don’t use, think how much the wasted kilowatt hours are costing you. But do you know where most waste is occurring at your organization? Do you know where to start looking?


Knowing how much energy is used in any given hour or minute is a leading indicator for identifying potential sources of energy waste and understanding the status of your building(s). And in many cases this has to be accomplished by someone like you who wears far too many hats, so actionable insights and recommendations of discrete projects to undertake – with a clear ROI – need to be identified, otherwise they’re not going to happen.


Energy Cost Driver #3: When you use energy

Not all kilowatts are created equal. We’ve talked at length here on the blog about the havoc peak demand charges can wreak on your energy budget. Do you have the visibility you need to know when these charges are incurred and strategies for how to avoid them? Are you participating in a demand response program that pays you for using less energy or curtailing at times of grid constraint?


If you have the flexibility to shift big energy consuming activities, this is a huge opportunity for better energy productivity. With a smart demand management approach, energy managers have the visibility to understand when these charges are incurred – and can take measures accordingly to shift production schedules, turn off non-essential equipment, or take a less energy intensive approach until the critical period passes.


Using data to tie it all together

Asking the right questions is a good start – but as Billy Beane learned, you’ve got to dig into the data to find the answers to drive improved performance and focus on the metrics that truly make a difference. (It might totally change your approach. Just look at what analyzing data from a different perspective did for Kevin Youkilis.) When tackling any one of these energy cost drivers, a data-driven approach is what will reveal how these factors interact in order to drive real, lasting change. For example, if you understand how you’re charged for energy and you do have hefty exposure to peak demand charges, it might make sense to use more kilowatt hours and avoid start up spikes. Or, if you can flatten your load, you could make yourself a more attractive customer to energy retailers. Energy intelligence software (EIS) is rapidly becoming a must-have business decision tool because it brings to light how these cost drivers interact and gives you the tools to prioritize your energy management efforts for maximum impact.