What Every CFO In Alberta Ought To Know About Energy Management
Jan 25, 2021
When you think of energy management, what comes to mind?When asked this question, most corporate or institutional executives think demand side management. For example, energy efficiency projects and demand response.
Energy efficiency is one-and-done project-based work. Things like changing lightbulbs, retrofitting a boiler, and upgrading the HVAC. Demand response takes a much more active approach. Things like peak-load shedding, which might include turning off, or dimming lights. It could include adjusting HVAC levels, or halting a manufacturing process. Demand response can either be implemented manually or automated through a building management system (BMS).
If the organization has a full-time energy manager on staff, onsite generation will also come up. Things like solar photovoltaic and cogeneration (CHP).
What many C-suite executives do not realize?There’s a whole other side to energy management that is completely overlooked. The missing piece of the puzzle is on the supply side of the meter. And it's the difference between successful energy management programs and failed ones.
The supply side of the meter has always been the concern of power generators - not end users. Supply side efficiency generally means improvements in electricity production and delivery. New efficient power plants. Power plant upgrades. Transmission and distribution system improvements. It's about using less energy inputs to produce the same or greater output. And it's about delivering the energy output with fewer losses.
Organizations, or end users have never assumed to have any influence over the supply side. And that's where they're mistaken.
The missing supply side piece of the puzzle is:· Why energy efficiency projects fail or return dismal results.
· Why green-solution solar installations lead to disappointment.
· Why guaranteed savings from ESCO's (energy service companies) don’t add up.
· Why demand response measures are ineffective.
The supply side has a make-or-break effect on your energy management program. Before we delve into greater detail about how – some context is necessary. Another question for you:
When asked why you'd bother spending time or money on energy management, what comes to mind? This usually returns a fast and clear answer:· Reduce costs - energy represents 25% (or more) in operating costs for most organizations.
· Reduce carbon emissions - to meet sustainability goals.
· Reduce risk – reduce the exposure to energy price increases, supply shortages, and emissions risk.
Let's take a closer look at how supply side measures help to meet your energy management goals.
Supply Side Measures that Reduce Costs:There are two sides to your energy bills in Alberta. Let's consider your electricity bill as an example. There is a commodity side and a delivery side to your bill. Using a mechanical analogy, think of a pipe, and water flowing through it. The delivery side of your bill is the pipe, the commodity is the water that flows through the pipe.
In Alberta, the electricity market is deregulated. But what does that mean? It means the commodity side of the bill is deregulated. It means you have choice. The choice of: 1) Who you select as your energy supplier, 2) What products you buy, and 3) Whether to buy wholesale or retail electricity. You receive the leanest commodity price possible when you exercise each of your choices wisely.
On the regulated side of your bill (the delivery side) you have little-to-no choice. You do not get to choose the transmission and distribution (T&D) company you receive physical power from. This is dependent on where your facility sits within the Province of Alberta. You do not get to choose the taxes or the rate riders, as these are set by the Alberta Utilities Commission. You do not get to choose your delivery tariff because this is dependent on your electricity demand profile. Yet, you can reduce the cost on the delivery side of your electricity bill – if you’re knowledgeable.
First, you must understand and implement demand response and energy efficiency measures. But before you do, you want to be sure you are not in a demand contract with the transmission wires owner. With a contract in place, no amount of energy management measures will produce meaningful results. It will not matter how many lights you change, how many boilers you replace, or whether your ESCO has guaranteed savings. You may see commodity related savings from these activities, but commodity represents only 40% of your bill. Unfortunately, with a demand contract in place you will not see delivery related savings on the remaining 60% of your bill. Be proactive and investigate what contracts are in place before you spend a penny on any demand reduction measures.
Supply Side Measures that Reduce Carbon Emissions:Environmental, Social, and Governance (ESG) is the latest buzzword used to describe the sustainability and societal impact of a company. These three central factors (E. S. G.) are indicators pointing to the organization’s future financial performance. The stronger the ESG goals, the more profitable they are deemed to be.
ESG goals often come in the form of reducing carbon emissions 25-50% by 2030 and being Net Zero by 2050. While that sounds good, the big question is: How do you plan to get there? There are endless options. Such as buying solar power PPAs, putting solar panels on the roof, installing cogeneration (CHP), or producing renewable natural gas from waste streams. The list goes on and on. The next question becomes: How do you decide how to get there?
To achieve your carbon footprint goals, hire a project feasibility consultant with simulation capability. One who understands supply contracts. Who collects meaningful data from your facility (because garbage in = garbage out.) that helps you quickly assess the projects that will help you meet your goals. At a cost and schedule you can afford.
Supply Side Measures that Reduce Risk:The risks inherent in energy management projects are multifactored. There is business risk. Financial risk. Performance risk. Emissions risk. Environmental risk. Supply price risk. Supply shortage risk. The list goes on.
Hedging limits the risk of rising prices and emissions penalties. To limit all other risks, find ESG project partners who are willing to share the financial, business, and performance risks. While this may seem impossible, consortiums willing to share risk are out there. Everyday, they are helping organizations who are on the path to achieving their Net Zero goals.
Being Informed is More Than Half the Battle:Arm all levels of your organization with this information. Once acted upon, you'll see significant improvements in your energy management program. You'll move from failed projects to winning ones. By incorporating supply side measures you will be better able to achieve both your energy management and ESG goals.
About the AuthorColette Kenney, is a consulting professional engineer and trusted business partner with 20+ years experience in the energy and utilities sectors of Canada. Having in-depth knowledge of wholesale OTC energy trading markets, supported by years of experience in sustainable energy development, project management, energy modeling/analysis, and communications – a true Energy Transition Visionary.
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