Introduction to Industrial Energy Management

Module 1: Introduction to Industrial Energy

Management
Organisations that successfully manage energy have business processes to plan, monitor,
and control energy use, just as they do for other corporate priorities, such as labour,
materials, and other costs. For these organisations, energy management is “business as
usual”.

Module 1 provides a context for industrial energy management in South Africa in terms of
market conditions, energy supply issues, government regulations and initiatives, and
international practice pertaining to energy efficiency and the concomitant environmental
impact concerns. It develops a practical approach to effective energy management by
highlighting the multidimensional nature of this organisational function.

Module 1 Learning Objectives

After completing this module you will be able to:

• Define energy management;
• Provide a rationale for industrial energy management in terms of South African and
global market conditions;
• Describe energy supply pressures and government actions in South Africa that are
driving industries towards effective energy management;
• Explain effective energy management as a multi-dimensional activity.

1.1 A Context for Industrial Energy Management in South

Africa

1.1.1 A definition of energy management

Many definitions have been offered for “energy management”. One definition that
captures the key principles is as follows:

“The judicious and effective use of energy to

maximize profits (that is, minimize costs) and
enhance competitive positions.”
(Capehart, Turner and Kennedy. Guide to Energy
Management, 2nd Edition. Fairmont Press Inc., 1997

Among the practices that arise from this definition are the following:
♦ ELIMINATE WASTE: Ensure that energy is used at the highest possible
efficiency.
♦ MAXIMISE EFFICIENCY: Utilise the most appropriate technology—from a
business case perspective—to meet organisational needs.
♦ OPTIMISE SUPPLY: Purchase or supply energy at the lowest possible
cost.

Energy management takes many different forms. It may vary from simple
maintenance and operational activities that ensure equipment and systems use
energy efficiently and effectively, to capital intensive installation of new, more efficient
technology. It may involve “fuel switching” to energy sources that are inherently more
economical for a given application.

Industrial Energy Management Training Course Page 1-1

Introduction to Industrial Energy Management

1.1.2 Motivation to manage energy

Interest in energy management is a consequence of several inter-related pressures

that are presently acting on the industrial sector. They are:

♦ Industrial Competitiveness: reductions in energy consumption and

therefore energy costs flow directly to the bottom line. While energy may be
a relatively small component of total operating cost, for many industries, it is
one of the most manageable components.

♦ Restructuring of the Energy Supply Sector: there is an international

movement towards the introduction of competition into the energy supply
sector. In North America, this includes both natural gas and electrical utilities.
As a result, energy consumers are being given the opportunity to select
energy suppliers and negotiate purchase agreements to a greater extent than
in the past. In South Africa as well, the electrical utility sector is being
restructured and commercialised, while natural gas from Moçambique will
soon be available in Gauteng, Kwazulu-Natal and parts of Mpumalanga and
the Free State previously served by SASOL gas. The implication for industry
is that more must be known about how, when and where energy is used in
order that the benefits to the consumer from competition in energy supply can
be maximised.

♦ Energy Supply Limitations: Some industries in South Africa experience

power supply problems—in terms of reliability and quality—due to limitations
in the power supply infrastructure. More significantly, the continued growth in
the economy, coupled with expansion of electrical service to new areas and
new users, has led to predictions of a serious supply shortfall by 2006.
Conservation programs such as ESKOM’s DSM programme can alleviate this
supply shortage to some extent, but it is now clear that much greater efforts
will be required to reduce demand from industrial and commercial energy
users.

♦ Environmental Management: the ISO 14001 standard on environmental

management is increasingly becoming a requirement for trade in certain parts
of the world, especially Europe. In South Africa, the opening up of the EU
market to South African products means that companies will have to meet
this standard if they are to remain competitive. Compliance with this
standard, as with the other ISO standards, leads to tangible savings due
primarily to the reduction of waste—of water, energy and materials. Energy
management is an important component of environmental management and
waste reduction strategies, and features significantly in ISO14001.

♦ Climate Change: there is a large body of evidence to support the conclusion

that the global climate is changing because of human activity, and that one of
the major causes of climate change is the emission of Greenhouse Gases
(GHG), principally CO2, into the atmosphere from the combustion of fossil
fuels. Since fossil fuels, directly or indirectly, are important energy sources to
industry, there is international pressure to reduce GHG emissions by
reducing energy consumption. International accords, begun in Rio de
Janeiro in 1992 and taken to new levels of commitment in Kyoto in 1997,
provide a basis for international action. As of February, 2005, the Kyoto
Protocol has taken on the weight of international law.

Because of heavy reliance on coal for both power generation and industrial
energy, South Africa’s CO2 emissions per unit of GDP are among the highest
in the world. Although South Africa is not required to meet CO2 emission
reduction targets during the initial commitment period for the Kyoto Protocol,
it can benefit from sale of certified emissions reduction (CER) credits sold to

Page 1-2 Industrial Energy Management Training Course

Introduction to Industrial Energy Management

countries which do have commitments—for example, the EU, Canada, and

Japan. The opportunity to sell credits from energy efficiency projects offers a
major opportunity for South African companies to reduce their energy
consumption cost-effectively.

1.1.3 Government Action on Industrial Energy Management

The Industrial Sector in South Africa has a relatively high demand for energy, and
accounts for over 45 to 50% of the total final energy demand in the country. This
sectoral consumption is dominated by a few energy-intensive sub-sectors in which
energy intensity is typically higher than that found in 1st world countries.

Thus, it is envisaged that potential exists for energy savings in the sector by replacing
old technologies with relatively new ones and by employing best energy management
practices.

To identify and implement cost-effective efficiency interventions within this sector, the
draft National Energy Efficiency Strategy—for which final publication was imminent in
early 2005—makes provision for the use of Energy Management within the industrial
sector. The Strategy addresses all economic sectors in setting broad sustainability
goals, sectoral objectives and targets, and provides for the development of sectoral
action plans.

There are two industry sector objectives:

1. To delineate the growth of industrial energy consumption from the rate

of growth in industrial output; and

2. To bring energy intensities of major industrial sectors into line with

international standards and best practice.

The approach incorporated into the Strategy combines voluntary action—in pursuit of
energy management best practice—and mandatory measures—efficiency standards
for selected technologies, requirements for energy audits, and requirements for
implementation of measures based on audit findings.

Actions that are being taken to achieve the industry sector objectives include:
• The development of a programme of support for industry energy training
• The establishment of a “Corporate Commitment” programme
• Encouragement of and support for energy management demonstration projects
• Implementation of energy monitoring and targeting.

1.1.3.1 Capacity Building in Energy Efficiency and Renewable Energy

(CaBEERE)
Realising that major energy savings can only be achieved through changes in
people’s behaviour by providing information about available options, the DME has
endorsed the project “Capacity Building in Energy Efficiency and Renewable Energy
(CaBEERE)” under the auspices of Danida. The sub-project “Industrial Energy
Management” is one of the actions being undertaken under CaBEERE. It is intended
to establish a Corporate Commitment programme to promote adoption of energy
efficiency policy into existing corporate policies. A strong Energy Management
foundation is essential in any firm in order to optimise energy efficiency best practice.

The key components of effective Energy Management are information (Monitoring

and Targeting), Training and Awareness (Motivation) and corporate commitment
(energy policy). “Monitoring and Targeting” is one of the actions being undertaken as
a sub-project under CaBEERE.

Industrial Energy Management Training Course Page 1-3

Introduction to Industrial Energy Management

1.1.4 Energy Supply Issues in South Africa

South Africa’s primary energy supply is dominated by coal, which is plentiful and
relatively inexpensive by international standards. In 2000, the total primary energy
supply was approximately 4,782 PJ. Liquid fuel requirements in South Africa are
imported as crude oil, whilst synthetic fuel produced by Sasol accounts for
approximately 30% of the former. All the current natural gas produced at the PetroSA
offshore rig in the Bredasdorp Basin is converted into liquid fuels, supplying 8% of
national liquid fuel requirements.

Natural gas was delivered to South Africa from Mozambique in the first quarter of
2004 and is expected to reach a capacity of 120 MGJ per year in 2008.

South Africa has a mix of electricity generation power plants that use coal, hydro, gas
and nuclear energy as sources of power. In 2003, Eskom – the national electricity
utility – generated over 210 TWh of electricity with a net capacity of 36, 208 MW.
With the excess power capacity of South Africa expected to run out in about 2007,
Eskom is considering several additional power generation scenarios, including
revamping its mothballed power stations.

There is largely untapped solar-based resource in South Africa that is variable,

depending on weather conditions. A major source of energy in the rural areas is non-
commercial biomass, which is unsustainably harvested. Renewable energy
technologies are not fully developed in South Africa to the point of supplying reliable
and bulk energy for various applications. Additionally, the harnessing of renewable
energy is characterised by relatively high initial capital expenditure. This discourages
the bulk utilisation of renewables as a viable source of energy.

1.2 Energy is a Manageable Expense

Three Questions:

1 What are your top three operating expenses? For many organisations, the
answer to that question includes energy (electricity, coal and fuel), labour and
materials expenses.

2 Through careful management, by what percentage could you reduce each

expense? One possible answer to this question is presented in Figure 1.1. The
magnitude of each expense is represented along with the manageable component—
the potential cost savings. Many companies have realised as much as 25% savings
in energy costs by implementing an energy management program.

3 What priority should energy management receive? On the basis of the amount
spent, energy often ranks third on the list behind labour and materials. However, if
we rank these cost centres in terms of the potential for savings, many companies find
that energy moves to the first priority position. In fact, in this illustration, energy
management would deliver about twice the savings
that materials management would and five times Energy is a manageable
what labour cost management offers. expense — perhaps your
most manageable
expense!

Page 1-4 Industrial Energy Management Training Course

Introduction to Industrial Energy Management

Cost & Manageability

250 5%
200

(R 1,000's)
150 25%
10%
100
50
0
Energy Labour Materials

Figure 1.1: Energy is a Manageable Expense

1.3 The Dimensions of Energy Management

The experience of organisations that
successfully manage their energy use

O
indicates that technological solutions alone

rg
al

a
do not achieve maximum energy savings,

ni
nic

za
and are less likely to be sustained in the
!

t io
ch
long term. Rather, energy management has

na
Te

the greatest impact when organisations

l
address these three dimensions:

♦ technical--the energy consuming Behavioral

devices and systems that use
energy efficiently, or inefficiently

♦ organisational--the structure and Figure 1.2: Dimensions of Energy

management systems that can Management
support or hinder the achievement Adapted from Dollars to Sense Energy Master
of energy efficiency goals Planning Workshop, Natural Resources Canada

♦ human behavioural--the personal

values, attitudes and practices of individuals in the organisation that impact on energy
use.

There are cases to demonstrate that a focus on people alone—their awareness of energy
efficiency as corporate priority, their values and attitudes towards energy use, and their skills
and knowledge related to the management and use of energy systems—can achieve
significant and sustainable savings. The combination of these two approaches—
technological and human resources—typically yields the best result.

Many cases can be found to demonstrate the wisdom of addressing the three dimensions of
energy management listed above. One such case follows.

Industrial Energy Management Training Course Page 1-5

Introduction to Industrial Energy Management

Case study: ChiRex Ltd.

The British chemical company, ChiRex Ltd. (Good Practice Case Study 331: Energy
Management Within a Strategic Framework) achieved savings in its production energy
and water consumption equal to over 9% of the existing energy and utilities budget,
£212,300 (or about US$350,000) per year at 1994 rates through a variety of measures that
included the following:
♦ Senior management support and leadership expressed through a policy of
minimizing energy and utility costs;
♦ Creating an organizational structure to support energy management activities, using
an “energy account center” approach for the production units;
♦ Setting up Energy Teams in each production unit comprised of engineering,
maintenance and production personnel;
♦ Communicating on energy efficiency activities and progress by means of regular
performance reports, energy notice boards to build broad awareness throughout the
organization, publicity activities focused on quarterly energy performance reviews, and
suggestion schemes open to all company personnel;
♦ Monitoring and Targeting to effectively collect, analyze and manage energy
information
(Note: this case study and many other publications on good practices in energy
management can be downloaded—in English only—from the UK Best Practice Program at
http://www.thecarbontrust.co.uk/energy/pages/home.asp).

1.4 This Course

This course is designed to develop the knowledge and skills related to organisational performance
that energy managers need to implement and sustain effective practices. While we recognise that it
is necessary to understand the technology of energy efficiency, many industrial organisations all over
the world report that the most important barriers to improving energy efficiency are not the lack of
technical knowledge, but rather the lack of sufficient organisational capacity to manage energy—
leadership, information management, related skills and knowledge of workers, and other
management practices.

This course focuses on the management side of the issue. It does address the technical dimension
by means of an energy assessment methodology. However, it does not deal with the technological
questions—what it is about technology that makes it efficient or inefficient, how maintenance impacts
efficiency, and so on; we leave these questions for other training courses.

In sequence, then, the topics we will address are:

♦ how to approach the implementation of energy management strategically (Module 2)

♦ organisational capacity—how to assess it, and how to grow it (Module 3)

♦ energy policy—the role that it plays, and how to develop a good one (Module 4)

♦ structuring the organisation for energy management—ensuring accountability and

effectiveness (Module 5)

♦ training and communicating for energy management—ensuring that employees have

the skills, knowledge and information they need (Module 6)

♦ energy monitoring, targeting and reporting—using energy information to manage

consumption downward (Module 7)

Page 1-6 Industrial Energy Management Training Course

Introduction to Industrial Energy Management

♦ developing the business case—analysing the financial merits of energy management

measures, and presenting a persuasive business case to obtain approval (Module 8)

♦ assessing energy use and identifying savings opportunities—seven practical steps

(Module 9).

Industrial Energy Management Training Course Page 1-7