By Jorge J. Lopez, president and CEO,
The time is right to launch an integrated, multi-year Energy Master Plan.
While it is typically difficult for corporations and institutions to exercise control over such costs as healthcare and real estate, they do have a significant opportunity to rein in and rationalize their spending on another major budget item: energy.
Indeed, the growing capability of organizations to control energy spending comes at an ideal time, because energy prices have been extremely volatile during the past 24 months.
Corporations and institutions today have the power to combine and co-ordinate a number of energy procurement and management techniques under the over-arching scope of an Energy Master Plan. Such a plan — best implemented for a multi-year horizon — reduces costs, makes for easier budgeting, and promotes sustainability.
And when corporations and institutions are able to direct their dollars toward their core mission and away from such non-core expenses as electricity, these organizations become leaner and better-focused entities.
Moreover, businesses and institutions are finding they can maximize the effectiveness of their energy management programs by working with a single provider that is capable of delivering a comprehensive portfolio of services.
They have discovered that best outcomes are achieved when upgrades and new systems are planned intelligently, using a 360-degree approach that takes into consideration all aspects of the energy supply-and-demand equation.
By developing an integrated, comprehensive program, the energy user avoids the confusion and overlap that can be generated through multiple consultants, single-product vendors and procurement processes using incomplete data or incompatible systems.
Effective energy management needs to strategically integrate commodity procurement, a demand response component, and energy efficiency initiatives in the context of financial, operational and sustainability objectives. Experience shows that the best energy services provider can deliver on all of these by bringing an effective, end-to-end approach, a demonstrated record of success, comprehensive energy expertise and a strong, existing customer base.
With respect to energy procurement, readers know that many states around the country function under a deregulated energy market that empowers end users to shop for a supplier that best meets their particular needs.
The best-qualified energy solutions provider should have experience with at least five types of energy supply plans:
The first is a “fixed” plan that provides predictability with a ﬁxed price guaranteed for a given term.
Next is a “block and index” plan that allows companies to lock in a portion of their load at a ﬁxed price, as the remainder floats with the market.
The third option is a “guaranteed savings” plan that delivers a guaranteed discount off of utility bills.
There is also a “variable” plan, where price varies somewhat from month to month as the energy price ﬂoats with prevailing market rates, while other price components (e.g. capacity) are ﬁxed.
Finally, providers should offer a “fully variable” plan, under which price varies from month to month, as the three key price components — energy, ancillary, and capacity – float with the market.
To help achieve sustainability goals, providers should also offer an environmentally friendly plan that enables use of renewable energy or Renewable Energy Credits (RECs) for all, or a portion of, the organization’s portfolio.
A fully integrated energy solution should also include a demand response program, a strategy that brings together both supply and demand expertise. With an infrastructure put in place to accommodate load management, large businesses can reduce their energy consumption during peak times.
Demand response offers customers the opportunity to participate in independent system operator (ISO)/Retail Transmission Organization (RTO)-sponsored programs, and/or local utility programs, and earn what can be significant money by committing to reduce load at times of electricity transmission grid emergencies or local utility feeder stress.
Energy users can also leverage demand response capabilities as a means of directly generating revenue. If market prices are higher than the price at which supplies were originally purchased, customers can “sell back” some of their lower-priced electricity into the marketplace after reducing usage using their demand response cutbacks. This newly emerging technique, called “energy optimization,” transforms a facility into a “virtual power plant” – and a new profit center.
In addition to procurement and demand management, another essential component of a fully integrated energy management strategy focuses on energy efficiency measures that deliver long-lasting energy reductions and cost savings. While often the most effective energy management tools, the obstacle to efficiency upgrades sometimes is the first cost of the upgrade.
Energy experts have come to agree that Energy Performance Contracting (EPC) can be a superior means of replacing aging, inefficient or high-maintenance equipment with new energy-efficient equipment.
Requiring little or no capital outlay, the EPC approach reduces energy and water usage and cost, improves operating practices, boosts sustainability, and properly integrates new maintenance and measurement procedures. The cost savings provide the funds to pay for the newly installed, more efficient technology.
Businesses benefit most by selecting a provider who designs, constructs, monitors, measures and helps maintain EPC energy improvements, transforming the initiative into an easy-to-manage, turn-key program. Moreover, the provider should guarantee that annual energy savings will be equal to or greater than the cost of the new equipment while providing significant sustainability benefits.
An integrated Energy Master Plan is best able to deliver long-term, structural payoffs when it is undertaken on a thoughtful, four-stage basis: assessment, planning, implementation, and measurement.
To boost competitiveness, savings, sustainability and to help focus on the organization’s core goals, an Energy Master Plan that manages supply costs in a strategic way, takes advantage of demand response programs, applies energy efficiency techniques and new technologies, reduces energy use, and incorporates renewable power where appropriate should be a part of every organization’s business planning.
An Energy Master Plan brings benefits that are both strategic long-term and immediately compelling, and the tools to reap these powerful benefits are readily available.