Turning Energy Audits Into Energy Savings Plans
With the ESOS Phase 2 deadline rapidly approaching, most large businesses will be auditing their energy use. While many businesses view this process as simply another tick in their compliance checklist, we see it as a huge opportunity to identify and create long-term energy and carbon savings.
Richard Sulley, Senior Energy & Sustainability Manager at ENGIE, explains how you can you use these audits to implement real energy-saving strategies, turning the cost of an audit into an investment.
Lessons from past audits
In 2015 the mandatory Energy Savings Opportunity Scheme (ESOS), required all businesses over a certain size to conduct energy audits across their estates. The scheme set out to encourage businesses to save energy by compelling them to identify where savings could be made. Despite each audit providing a list of numerous energy saving projects, 18 months after the deadline, only 31% of businesses asked had implemented any projects as a result of the scheme.
ENGIE identified over 42 million pounds of energy savings projects for clients across 54 sites and saw numerous opportunities across all industries. Projects required differing levels of investment with over 50% costing less than £25,000 to be implemented. They covered a range of technologies and promised to deliver substantial savings.
So, what went wrong following ESOS 2015? Did people just accept that compliance had been achieved or were there other obstacles to achieving the improvements? What stopped businesses turning projects from energy audits into real life energy savings?
Creating a strategy
To get value from any audit you have done, its important to take the results, be it from an external party or internal audit, and turn them into a plan to generate real energy savings. But how can businesses do this and what obstacles arise?
Over time we’ve created a methodology to turn audit data into a coherent plan which I’ll share with you below. This process fits perfectly with ISO 50001, so if as a business you’re looking to formalise your energy management procedures into something that complies with an external standard, this strategy will help.
Begin by looking at your most recent audit, for many of you this will be ESOS 2015. Consider, were the results good? Ask if you’ve made any savings. If not, why not? What were the obstacles? Did you get lots of project ideas that were well described and well costed?
In many instances this isn’t the case and businesses can be left with little idea on exactly how to go ahead and achieve the savings identified. When using an external consultant for audits, it’s important to ensure you’re getting value for money. Don’t be afraid to go and ask for more information. Audit reports are often just a summary of all the auditing work that has gone on so there’ll be a lot of background data that’s not usually provided.
Explore your baselines, where are you now? What is your current energy consumption and what drives that? What targets do you have as an organisation? This goes beyond cost saving, to overriding targets like carbon reduction, total kwh or kwh per tonne of production. Try to understand the impact of those targets on your baseline.
Explore the opportunities
Next look to understand the projects identified by the audit. Every business will have different priorities, so any activity you undertake must be aligned to that. Do these opportunities align to your business targets? If so, prioritise them.
This is a typical output from a survey. You’ll receive a list of opportunities with various types of savings identified, from carbon to cost. They may not be ranked in any way so we must first collate and try to understand their relative importance.
Look at each project’s payback range. A simple payback of cost divided by savings works in most circumstances. When you’re getting into longer term pay back projects or big capital projects that would fundamentally change a site, such as changing a boiler plant to CHP, you’d need to be looking to do a lifecycle analysis instead.
Give each payback a minimum and maximum time range and plot them against each other so you can see where they sit. This is important if your organisation has strict investment criteria as you can easily begin to see which projects fall in to them. If you had a maximum payback of three years, you can see which projects fall into that.
Look at the impact
Look at the relative benefit of each project compared to the investment and visualise how the projects would affect operations on the site. You can start to understand what investment criteria you’d need to have in order to be able to meet certain targets. These graphs are useful when talking to directors and people who set the targets as they show how criteria they set will impact the project. For example, if you’re asked to change an element of the project you can look at the graph and show the impact on payback time.
Capex investment shows the actual cost of achieving the projects. Are the majority of the investments in the simple payback, low cost projects or is the bulk into the greater than three-year payback bracket? If you’ve been given investment criteria and a budget for improvement, you can start to shape which projects you’ll be able to do within the constraints set.
Could you implement them?
Look at the implementation, how and when can you implement these projects? Is it possible to implement them? How would you do it? In the maturing energy market, most quick win projects have already been completed, but how realistic is it for you to implement the bigger longer payback projects?
Create some scoring mechanisms. The financial benefit and simple payback are important, but then you could add readiness (is it a project you could do tomorrow?) and implementation (how difficult would be?). Add a relative importance weight to each variable you score.
If you score projects on all these variables you can start to get a prioritisation score. This should tell you which projects you should be starting now, and which projects are deemed either too difficult, or in need of further development.
Look to the future
You need to look at how the environment impacting your project may change in the future. Auditing is based on today’s stats, today’s CAPEX but things don’t sit still. It may be that you have existing supply contracts for electricity, gas, water and effluent that allow you to track their costs in the future. If you don’t then contact your supplier or use DEC forecasts to predict what those costs will be in the future.
It’s important to understand that the ‘do nothing’ case for most businesses isn’t that spend will stay the same, its that the spend will gradually increase overtime. This will impact the predicted savings generated by each project.
Take the information you’ve developed from the project list and map that on a time line. Include the quarterly savings generated by each project, the length of each operation and the readiness. This will enable you to look at when these projects could begin being implemented and when you could start realising the savings. Again, this is key in the discussions you’ll have with people who own the budget. You’ll be able to demonstrate when they’ll start realising a project’s savings allowing them to more accurately budget the company’s finances. This is particularly important if you’re looking to reinvest savings back into future projects.
This graph is what you’re trying to build up to. Its about looking at the overall performance. If you consider the cost of energy, the red line is the ‘do nothing’ case. In this case the cost of energy would gradually go up, so the sooner we act, the sooner we can combat this increase. The green line is the business’s target, to reduce energy costs into the future. This graph demonstrates cost but it could be in any metric you use, from kWh to carbon. Its all about trying to reduce that number down per quarter.
The blue bars are the project’s savings as identified on the implementation planner. If you subtract the blue bars from the red line, you get the yellow line. That is our expected performance; the line you can check your performance against as you progress. You can look at the projects that were implemented, the bills coming in and the results and track your performance against them. Rather than simply providing the target, this provides the flight path you think you should be on. Essentially the key is to keep the yellow line below the green line. It’s important to keep checking the status of the projects and ensuring they’re on the right flight path. At times cost may creep above the target but if you’ve forecasted this it shouldn’t impact your finances.
Achieving zero carbon
You could do this for any metric you want. This is a client who wants to get to zero carbon. We’ve plotted the target line to zero carbon and added projects purely from a carbon saving stance. As you can see here, actual performance doesn’t track exactly the target link but ultimately should achieve it a year early. Without this prediction, it could be concerning for the first year or so.
This process is all part of the methodology of taking an audit’s list of project ideas, and turning them into something resembling a strategy. A strategy that you can use to demonstrate to people what’s required, the time it will take to get there and the long-term benefits. Importantly it adds that extra element of checking everything is going to plan.
Obstacles to implementation
There are three main obstacles to implementing energy saving projects:
Cash - Not having the money to do the project
Cost - Investment – how much the project will cost compared to the savings and payback
Confidence - Having confidence in:
- the data provided to you
- your understanding of the engineering involved
- the savings you’ll achieve
- the environment where you sit
- Future changes to your business.
To alleviate some of these obstacles you might like to:
- Look into the project in more depth with engineering design and feasibility studies
- Complete full lifecycle analysis of longer-term investments projects
- Put risk mitigation measures in place. Could you push any of this risk onto suppliers?
- Look at commercial arrangements that can help you overcome some of these challenges such as project development agreements, energy supply agreements or energy performance contracts.
Energy performance contracts
Energy performance contracts enable you to pass risk onto your energy supplier or solutions provider. These services come at a premium but in most cases it will give you the assurances needed to get the project done.
With these contracts your supplier implements energy saving projects that are guaranteed to save you an agreed sum. Worst case, these should be arranged to be cost neutral for you. The cost of the project will be funded purely by the savings it generates, removing the financial risk from the project. Ideally, the savings will outweigh that and there will be a benefit to you. If projects over perform then you can have gain share arrangements that incentivises your suppliers to over-achieve, making sure the project works well and providing you with additional benefits.
When we look back to the three obstacles, cash, cost and confidence, energy performance contracts address each. In terms of cash, the project can be third party funded with suppliers claiming back from the savings. Considering cost, you get a positive cashflow with no outlay, so the investment problem disappears. Finally, with performance guaranteed you can have full confidence in the project.
There are also options if you’re willing to take on more risk as you can create bespoke energy performance contract that meets your needs.
Our ENGIE Assure energy saving scheme functions in a similar way.
Looking to the future
With the mandatory ESOS 2019 deadline only months away, ask yourself again, will you get good results with lots of new quality project ideas from your auditor? Will you be paying too much for the service? Remember, the value is in the results you’ll get against the initial cost. Its not simply about the cheapest cost of compliance. You only achieve value and retrieve the cost of what you spend if you manage to get some savings out of the process.
If you’re about to embark on the ESOS journey, work with your auditor. You’ll benefit a lot more from the results if you support them through it. The best thing to do is work with them honestly, giving them as much information as possible. If you already have project ideas, hand them over and explain what you’ve been considering. It may be that your auditor can develop these plans and wouldn’t have identified them on the one or two days they spend on site.
Once the compliance process is over, work through the methodology I’ve described and use your ESOS audit to inform the new mandatory streamlined energy and carbon reporting (SECR) scheme.
If you have any questions please get in touch, otherwise you can view the full presentation.