Australia’s energy-hungry manufacturing sector is being squeezed by soaring gas and electricity prices – which is bad news for business. A panel of experts outlines strategies to help managers claw back the power they need to stay ahead.
The panel:
- Luke Menzel is chief executive officer of the Energy Efficiency Council. Luke is vice-president of the Australian Sustainable Built Environment Council, sits on the NABERS National Steering Committee, is a member of Standards Australia’s EN001 energy standard committee and is the lead chair for the NSW Government’s Green Globe Awards.
- Lachlan Jacobson is senior business development manager of Flow Power. Lachlan has a financial services background with a focus on energy and infrastructure, transportation and manufacturing sectors. He has a Masters of Energy Systems from the University of Melbourne and a Bachelor of Commerce from Auckland University.
- Brett Spicer is head of advisory, energy solution at ERM Power. Brett has served in senior roles in organisations such as Verdia, Origin Energy, Deloitte and the Department of Sustainability and Environment.
- Marija Petkovic is founder and managing director of Energy Synapse. She has executed demand response programs for manufacturers all over Australia, New Zealand and the United States. Marija holds a BE (Chemical and Biomolecular Engineering) (Hons I) and a BCom (Finance) from the University of Sydney.
How have rising energy prices shaken the Australian manufacturing industry awake to the possibilities of better managing their energy use?
Luke Menzel, Energy Efficiency Council: Ten years ago, you could safely argue that sitting around the average in terms of energy performance was fine. Energy was pretty cheap and prices relatively stable. Straightforward efficiency projects with a quick payback got done, but more complex projects stayed on the backburner. For managers and executives with limited time, it made some sense to manage energy spend primarily through procurement; locking in the cheapest possible unit cost for energy was the name of the game.
Today it’s harder to argue that the gap between average performance and leading performance doesn’t matter. Companies are operating in a very different environment – a world of big price hikes, reliability issues and inherent volatility in gas and electricity markets. This is why many companies are bumping energy productivity up to the top of the list of strategic issues they need to deal with.
Lachlan Jacobson, Flow Power: Australia’s manufacturing industry was built on access to low-cost energy. Until recently, having an energy strategy meant running a fixed-rate tender every three years, then getting back to other priorities. Now, there is a financial incentive to consider alternatives. New technology is rapidly evolving and becoming more affordable, so there are more options − it’s not just about onsite solar any more.
Smart companies are building multi-disciplinary energy teams that span from procurement to finance, sustainability and operations. This means higher value, more innovative solutions can be properly evaluated, particularly where new technology and onsite infrastructure is concerned.
Brett Spicer, ERM Power: It has been widely publicised that energy costs have increased significantly in recent years, both as a result of electricity and gas markets and network charges. Industrial processes requiring gas as an input are also subject to material risks from gas availability and price volatility. Furthermore, the energy sector is seeing unprecedented technical and market disruption. The result of this combination of factors is driving the C-suite to demand more intelligent energy solutions.
Applying a strategic lens – rather than simply viewing energy through the old prism of procurement – is the most material shift we are seeing. However, our work in the manufacturing sector indicates low energy literacy and a lack of accessible and credible information represent the most significant barriers to energy productivity actions by the sector, and we are working with our clients to unlock this potential.
Marija Petkovic, Energy Synapse: Many businesses have seen their price of electricity more than double over the last three years. This is particularly challenging for manufacturers because their processes can be very energy-intensive. As a result, electricity has become one of the top three business costs for most of the clients we work with. For some, it is the single biggest cost of doing business.
More and more manufacturers are realising that energy management is about more than just renewing an electricity contract when it is due to expire. In this new climate, manufacturers are hungry to learn how to successfully implement demand response, improve energy efficiency, incorporate renewable energy and adopt more advanced procurement strategies.
Which sectors are best suited to benefit from demand response programs? Are they taking part?
Menzel, EEC: Demand response is starting to be better understood across Australia’s manufacturing sector, but many businesses are still getting their head around it. The first thing to say is that it is entirely voluntary – if you have an inflexible load profile, it’s a rabbit hole that you don’t need to go down. However, if you do have some flexibility with when you use energy, demand response is a win-win – it can help businesses manage their own energy costs while helping match supply and demand across the energy system in real time.
There are multiple “flavours” of demand response, and managers need to ensure any demand response initiative is aligned with business objectives. Manufacturers looking to get their head around demand response opportunities generally benefit from seeking advice from an expert that can give them a sense of these options, and guide them through the process.
Jacobson, Flow Power: Every business can benefit from demand response. A common misconception is that demand response means shutting down production at short notice. Typically, any business that has some flexibility to how and when it operates can benefit from some form of demand response. While many businesses say that they have no flexibility, taking a closer look at operations can reveal opportunities for demand response. It can be as simple as turning down a heating system or starting a shift half an hour earlier.
We have a diverse portfolio of businesses, from manufacturers to growers and water corporations, which respond to energy market signals to take control of their energy costs. This includes doing demand response as part of formal programs like RERT or simply responding to the spot market price. What these customers have in common is that they’re able to partially or fully shut down some operations or shift them outside of peak pricing periods.
Spicer, ERM Power: Rather than thinking about which sectors are best suited to demand response programs, we prefer to approach the possibility based on characteristics of an individual business. Typically, the characteristics we look for are load which can be interrupted or curtailed, and/or where a business may have latent capacity, such as backup diesel generators sitting idle that could be deployed as a demand response.
Petkovic, Energy Synapse: Manufacturing is a natural fit for demand response. In fact, heavy industry was the first sector to start providing demand response decades ago both in Australia and internationally. The high energy intensity of manufacturing means that these businesses often have the most to gain from providing demand response. As a result, we are seeing more and more manufacturers of all sizes looking to demand response as one of the key levers to reduce their electricity costs.
How can we tackle smelting?
Petkovic, Energy Synapse: Smelters have a very big challenge in that they are producing a trade-exposed commodity that needs to be competitive on the international stage. The rising cost of electricity is a major threat to their continued viability in Australia. We are actively working with this sector to help them make appropriate investments that will secure the lowest long-term cost of electricity.
Jacobson, Flow Power: Smelters, which are some of the nation’s largest energy users, are also some of the best placed to undertake and benefit from demand response. In fact, most of Australia’s smelters are already involved in demand response. While smelting takes an incredible amount of concentrated energy in the production process, the actual time of operations has limited impact on the end customer. This means smelters are typically able to shift load or reduce it without significantly disrupting their output.
Which sectors are hindered by inflexible load profiles? What are some solutions they may not have considered?
Spicer, ERM Power: We completed an energy productivity pilot in the Queensland manufacturing sector in late 2018 and found that while there was great diversity in the businesses we looked at, there were common themes that came through strongly in terms of energy productivity opportunities. This ranged from the more obvious solutions such as solar PV to addressing leaks or inefficiencies in air compression systems, tuning boilers and installing variable-speed drive motors. Critical to understanding the scope of the opportunity and potential savings is a sound data set, so this may require some form of metering installed.
Jacobson, Flow Power: Some sectors, such as those with refrigeration, might feel they need to run continuously. Innovations in tech can help these businesses manage energy demand with minimal impact on operations. Pre-cooling can prepare these businesses to temporarily drop load while staying within the required temperature range. This is the type of strategy we support with our kWatch technology, which provides operations with alerts based on market movements. Increasingly, the same technology is using machine learning to predict the market and help operational teams with advice ahead of time.
Petkovic, Energy Synapse: When it comes to manufacturers, we find that it is often the age of the production fleet which can limit flexibility rather than the specific sector they are part of. Ageing plants that are 30-40 years old were not designed with flexibility in mind, and due to their age often have a high risk of failure if they are stopped and restarted. In contrast, newer production facilities tend to be cycled more easily.
In the past five years, we have seen some really interesting trends when it comes to designs of new production facilities. A trend has been to purposefully oversize the capacity of new plants for the sole purpose of providing more flexibility in wholesale electricity markets. As a result, these plants are intentionally taking a hit on the capex (something that would have been unimaginable five years ago) in order to secure lower operating costs over the life of the project. New plants are also re-engineering traditional designs to allow for easy decoupling of product lines to further enhance flexibility.
For existing plants, there are many opportunities to improve flexibility by optimising operations and better utilising product storage and the supply chain. In our experience, demand response works best when businesses consider and optimise their entire operation, rather than treating energy pricing as a standalone function.
What’s your idea of low-hanging fruit in the energy efficiency stakes for owners of manufacturing businesses?
Petkovic, Energy Synapse: The lowest hanging fruit by far is to examine the operational strategy for your plants. There is often no capex involved, but the efficiency savings can be substantial. We have achieved electricity cost savings in the millions of dollars simply by optimising the operating mode of a plant.
Menzel, EEC: Many manufacturers can improve their efficiency by between 10% and 30% through tuning and maintenance improvements. Working with an expert to identify these opportunities can yield some big wins without a significant capital investment.
Jacobson, Flow Power: Assessing operations for energy waste and upgrading old equipment to more energy efficient models is the first step. From there, technology can monitor energy use to support demand response strategies. For many businesses, about 10-20 hours of the year can impact energy costs. Demand response is a way to bring down this cost. This is especially true for manufacturers that aren’t looking at how the time of day impacts energy cost.
Spicer, ERM Power: When we engage with owners of manufacturing businesses we see a tendency to some of the more ubiquitous solutions such as solar PV. However, jumping straight to solar PV, for instance, misses opportunities across compressed air, waste heat recovery and boiler tuning that will have significantly shorter paybacks. Taking a data-led approach will reveal some of these “low-hanging fruit” energy productivity opportunities that can be implemented with little or no capital outlay. Only once these opportunities have been evaluated should the business owner turn their attention to capital upgrades or onsite generation options.
What are some sophisticated solutions that, when put into practice, can go surprisingly smoothly?
Menzel, EEC: Start by ensuring there is granular data available about when and where energy is used. Sub-metering for electricity and gas might not be that sexy, but it is enabling technology is the foundation of a robust energy management strategy. Manufactures that are really kicking goals put the data to work. They take the time to identify energy hogs across their business and the investments – whether in energy efficiency, fuel switching or demand response – that could bring down costs. It’s then a matter of prioritising investments and monitoring market trends; investments that don’t stack up this year may stack up in six, 12 or 18 months, depending if technology costs go down or energy prices rise. I’m increasingly seeing businesses put a regular review cycle in place to consider behind-the-meter energy productivity investments.
Jacobson, Flow Power: What we call “behind-the-meter” generation and storage is becoming gradually more affordable. There are multiple benefits to generating and storing power, as operations can be undertaken without incurring a cost from the National Electricity Market. Behind-the-meter solutions can be controlled remotely – which is something we are already doing for some of our customers with onsite generation.
Petkovic, Energy Synapse: The spot market for electricity is extremely volatile and as a result many businesses are scared to dip their toe in the water. Managing spot exposure is a challenging task and it is definitely not for everyone. It requires a very sophisticated strategy for forecasting prices as well as optimising operations and internal processes within the business. However, for businesses that are up for the challenge, it can result in very deep cost reductions.
Energy has been cheap for so long and some business owners probably feel stunned. What’s your message to them?
Menzel, EEC: Many energy users feel they have been failed by governments, market institutions and energy companies over the past 10 years, and they have been left to pick up the tab. Energy efficiency and productivity is a way of taking back some control. Getting more out of every unit of energy behind the meter is a way of reducing exposure to the craziness playing out on the other side.
Jacobson, Flow Power: Don’t panic. The energy sector has evolved alongside rising prices and businesses and more innovative solutions are coming to the fore. Businesses no longer need to simply be price-takers – there are new opportunities to take control of prices.
Petkovic, Energy Synapse: Electricity is a key strategic input for the manufacturing sector. Yes, prices have increased dramatically, but this is exactly the kind of environment where you can really pull ahead of your competitors. Businesses that adopt sophisticated energy management strategies will find that they have created a very significant competitive advantage.
Spicer, ERM Power: My message would be that by making smart energy decisions tailored for your business you can take back control of your energy future and achieve savings of up to 25% on energy costs. The complexity and dynamic nature of the energy market can make it difficult for businesses to make the right energy choices for their circumstances. There is no “one-size-fits-all” approach to energy management – multiple factors need to be considered.
The first step should be to evaluate all elements of the energy value chain to ensure optimal energy productivity and investment decisions are made with a clear evidence base. The other key message is that data plays a pivotal role in energy productivity by helping your business make evidence-based decisions. Using data analytics and real time insights, you can uncover the ways to manage your consumption and maximise energy efficiency in your business. Analysing your business’s energy usage and needs helps you to make the right energy investment.
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