Energy and Carbon Strategy for Accountants: Reporting Issues

Topic 03: Energy Management Strategy

3.

Energy Management Strategy

Queensland Energy Management Strategy

The development of an energy management strategy will provide the overarching framework on which to introduce and manage energy efficiency. An energy management strategy allows an organisation to set a plan to reduce overall costs associated with energy usage. This contributes to an overall organisational goal of effective cost management. Accountants have a critical role to place in developing an energy management strategy as they engage with the organisations senior management team and are able to identify from a financial perspective the value drivers and costs associated with any energy management initiatives. Accountants have a critical role to play in creating, managing and enhancing organisational value.

The Queensland Government has adopted a Government Energy Management Strategy (GEMS). The purpose is to encourage implementation of energy management practices within Government agencies, by adopting a whole of government approach to energy management (electricity, gas and water). The strategy has a clear objective, to improve the efficiency of energy consumption and unit acquisition values which result in reduced energy expenditure for government. There is also a clear strategy for implementation, including a set of 6 governing principles and supporting strategies. Agencies are required to (1) establish energy consumption baselines, (2) incorporate energy management into whole of life approach to asset management, (3) identify energy conservation initiatives and implementation plans and strategies including energy audits and development of energy conservation plans, (4) monitor energy consumption, and (5) report annually of progress, as part of the asset strategic planning process.
Source: Queensland Government: treasury

3.1.

Strategic Management

Becoming energy efficient should be an important part of the overall strategic management for any organisation. This allows an organisation to clearly articulate to stakeholders its strategy and direction, and how it will allocate resources in order to achieve this. Components of strategic planning include the need to have; Vision reflects where the organisation wants to be in the future. From an energy efficiency perspective, this can mean the organisation will have a vision to be an industry leader in energy efficiency, whereby organisational energy is sourced from renewable as opposed to fossil fuel based energy Mission constitutes the purpose of the organisation, with respect to why it exists and what it does to attain its mission. From an energy efficient perspective this could mean producing sustainable products and services in a manner that has the least impact on the natural environment. Values incorporate beliefs that are commonly shared among organisational stakeholders. They help drive organisational culture and priorities, and provide the basis on which decisions can be made. From an energy efficiency perspective this can be that the organisation places value on being a sustainable organisation and one that supports renewable energy. Strategy reflects a roadmap as to how an organisation will achieve its goals. From an energy efficiency perspective this may include specific targets and milestones relating to the percentage of renewable energy to be used by the organisation at a certain future date, and to lower its carbon footprint. That for every 1% reduction in temperature in a room through air conditioning, a further 10%-15% is added to the cost of the electricity bill?

Strategic Planning

Think about the organisation that you work for and the industry it is in. If your employer asked you to briefly develop a 2-3 line response for the organisations vision, mission, values and strategy for energy efficiency, what would it be? TIME ALLOTED: 5 minutes Workings for participant activity 1 Each participant will have his/her own answer to the question which will prompt them to think what they believe should be their organisations strategy relating to energy efficiency. Do solicit answers from the audience. It will be interesting to see which participants feel that their organisations have an effective strategy in place and which do not. Tease out whether there are common issues across participants. Perhaps they have an overall plan but do not track on a regular basis, or lack the manpower to do so.

3.2. What is energy management?

The Australian energy audit standard (AS/NZS 3598) provides a useful framework for developing an Energy Management Program (EMP). An EMP comprises a series of well-planned actions aimed at reducing an organisations energy bills and environmental impacts while maintaining or improving the operational integrity of existing systems.

Energy management involves: Devolving responsibility for energy bills to those with the authority and capacity to change the way energy is used; Providing resources where required; Collecting and monitoring existing energy use data; Undertaking an energy audit to determine where and how efficiently energy is used; Implementing energy saving measures; The two key approaches to energy management are: Energy conservation - the avoidance of wasteful energy use and the reduction in demand for energy-related services (e.g. if you dont need it, turn it off!); Energy efficiency - the reduction of energy use in current operations (e.g. if you need it, do it more efficiently!). Effective energy management strategies will reduce the costs of delivering goods and services, and improve the quality of services provided. The success of an EMP will depend on: 1. Full commitment of staff, from senior management down; 2. An effective reporting system with accountability of line managers for energy used; and 3. An effective staff awareness and training program. An EMP is seen as a continuing process that will be most effective if it is reviewed annually and revised as required.

Source: Barry Manor (Fictitious company, based on an actual anonymised client report)

per annum. This will result in the creation of carbon credits or Certified Emissions Reductions (CERs) which will be available for RubberCorps use.

3.3. Strategies for Establishing an Energy Management Program

For accountants to be able to measure and report on energy efficiency it is important that an energy management program be in place in order for energy to measure and reported on in a consistent rather than ad-hoc basis. The following strategies should be deployed when setting up an energy management program:

3.3.1. Adopt a Strategic Corporate Approach

Clear accountability for energy management must be established. Appropriate financial and staffing resources need to be allocated, and reporting procedures initiated. A corporate statement of commitment should be prepared and promulgated, because to be successful an energy management program requires commitment from the whole organisation.

3.3.2. Appoint an Energy Manager

A senior staff member should be appointed as the Energy Manager, with the responsibility of overall coordination of the program and reporting directly to senior management. Energy Managers do not necessarily require a technical background; rather, they need to be familiar with the businesss activities and have good support.

Energy Management Success

Green Production is an energy management program implemented in RubberCorps Asian manufacturing operations. Energy management within RubberCorp focuses on achieving the most efficient and effective use of energy and simultaneously reducing greenhouse gas emissions. The driving forces for Green Production are productivity enhancement, which provides the framework for continuous improvement, environmental protection, which provides the foundation for sustainable development, and energy efficiency, which optimises yield with the lowest possible energy use. Programs implemented to date include installation of heat exchangers to heat water with energy recovered from boiler flue gas, and installation of energy efficient equipment to provide chilled water for manufacturing site cooling systems. In the 6-year period from 2005 to 2011, Greenhouse Gas (GHG) emissions have been reduced by 31% across all of RubberCorps manufacturing facilities, and further reductions are targeted for the period 2012 to 2014. In April 2010, RubberCorp commissioned a new biomass boiler system at its Indian manufacturing facility. This eco-friendly installation uses biomass material as its fuel source instead of fuel oil. The installation is the largest of its kind in India and at full capacity is expected to reduce GHG emissions by 15,000 tonnes

3.3.3. Set Up an Energy Monitoring and Reporting System

To be successful, energy management requires the establishment of a system to collect, analyse and report on the organisations energy costs and consumption. This will facilitate an overview of energy use and related costs, and help to identify savings that might otherwise not be detected. The system needs to record both historical and ongoing energy use, as well as cost information from billing data. It should be capable of producing summary reports on a regular basis to support analysis of trends and review of tariffs.

3.3.4. Use Insights from an Energy Audit

An energy audit establishes where and how energy is being used, and the potential for energy savings.

3.3.5. Prepare an Energy Management Policy Statement

A written energy management policy represents a commitment to saving energy and will guide efforts to improve energy efficiency. It will also help to ensure that the success of the program is not dependent on particular individuals in the organisation. An energy management policy statement includes a declaration of commitment from senior management of the general aims and specific targets relating to: energy consumption reduction (e.g. electricity and LPG); energy cost reduction (by reducing consumption and negotiating lower rates); timetables; budgetary limits; energy cost centres; and organisation of management resources.

3.4.2. Energy use goals of ISO 50001

Rather than specifically including energy use goals, ISO 50001 aims to ensure that credible and effective management processes are in place to reach energy use goals as set in accordance with an organisations own requirements and vision.

3.4.3. What type of organisations can an ISO 50001 energy management system benefit?
All organisations that use energy can benefit from implementing an energy management system, although the bigger energy users will gain the greatest advantage. Businesses in the SME sector that would most benefit from an ISO 50001 energy management system include manufacturers, IT operations, chemical and pharmaceutical plants, heavy equipment operations and food processors. Larger organisations will likely follow the Energy Efficiency Opportunities (EEO) Act.

3.3.6. Prepare and Undertake a Detailed Project Implementation Plan

A project implementation plan should be developed following the energy audit and should be endorsed by management. The plan should include an implementation timeline and should state funding and budgetary requirements. Projects may range from establishing or changing operational procedures to ensure that plant and equipment use minimum energy, negotiating supply contracts, through to adopting asset acquisition programs that will reduce energy consumption. An overall strategy could be the introduction of energy management projects of least cost and maximum financial benefit to the organisation.

3.4.4. How is ISO 50001 used?

An ISO 50001 energy management system enables an organisation to systematically set and reach energy use goals and realise associated energy cost savings. Increasingly, government and utility energy programs will require that an effective Energy Management System (EnMS) be put in place to qualify for rebates and other supporting benefits. From the experience of other ISO management standards now commonly in use, it is likely that an ISO 50001 EnMS will become a universally accepted standard.

3.3.7. Implement a Staff Awareness and Training Program

A key to the success of an energy management program is maintaining a high level of staff awareness. This can be achieved through formal training, newsletters, posters, publications and incorporating energy management into existing training programs. It is important to communicate program plans and case studies that demonstrate savings, and to report results annually.

3.4.5. Benefits of developing an ISO 50001 energy management system?

The many benefits of developing and implementing an ISO 50001 energy management system include: Reduced energy consumption as projects are implemented; Controlled energy costs from reduced energy use; Better managed operations and decreased maintenance as equipment use is optimised and energy monitoring yields performance information; Readiness for emissions tracking, reporting and carbon pricing regimes; Decreased environmental impact from waste; Raised corporate & social responsibility profile; Improved awareness and engagement of workforce as personnel participate in the energy management process, resulting in decreased recruitment costs.

3.3.8. Annual Review

An energy management program will be more effective if its results are reviewed annually. The energy management policy and strategies should be reviewed in the context of results achieved thus far, as it will form the basis for developing and implementing a plan for the next twelve months.

3.4. 2.10. ISO 50001 - Energy Management Systems 3.4.1. What is ISO 50001?
ISO 50001, published in June 2011, is a new international standard for energy management. Its design is similar and complementary to ISO 9001 (quality Management) and ISO 14001 (Environmental Management).

3.4.6. Developing an ISO 50001 Energy Management System

This depends on a variety of factors, including: the type of processes being managed; the scope of the system; the variety of energy sources used; and

 whether an organisation has other existing ISO plans and mechanisms in place. As a guide, an ISO 50001 EnMS takes 12 to 18 months to develop and implement. An internal Energy Leader and a small team of employees are required to develop and implement the system.

Can the software be applied to multi-site organisations? Can the software track energy consumption against goals? Computer based Identification of energy usage can help facilitate decision making regarding what type of capital investments are needed in order to reduce or control energy consumption at sites or projects with unnecessarily high energy usage.

3.5.

Energy Management Software

3.5.2. Demand Response Resources

In order to avoid reliance on auxiliary power, energy utilities are increasingly using demand response resources in order to alter consumers normal consumption patterns (Environmental Protection Authority, 2010). As unit prices for energy differs based on time of day usage, consumers are offered incentive payments to reduce energy usage at peak periods or when electricity supply is in jeopardy. Whilst energy efficiency relates directly to reducing overall consumption, demand response alters the consumption patterns of consumers in order to benefit from off-peak rates. Demand response energy software companies provide aggregated demand side reductions to energy utility companies from software installed at client organisations. An integrated energy efficiency/demand response approach can be adopted by organisations with existing infrastructure or can be part of the design element of new facilities. Examples of demand response practices include reducing lighting levels, reducing the operating time of air-conditioners, curtailing the use of elevators to peak periods only or reducing the number of elevators in operation, undertaking production activities at night, or reliance on self-generating electricity through generators. Examples include; EnergyLens.com Coordimax.com

Just as accountants use accounting software to record and process financial transactions within an organisation, and to summarize and prepare accounting reports, energy management software are a class of software programs that can assist organisations in analysing energy usage data. Energy Management software is similar to mainstream accounting software in that it comprises both physical and financial data associated with energy management. Accountants need the necessary software to track, manage, process, report and analyse energy usage through quarterly utility bills. Data can include; Real time energy bill tracking maximum and minimum usage profile for any time of the day based on Kwh carbon footprint calculation the separation of green energy sources from regular energy sources identification of how much energy is placed back into the grid verification of the accuracy of energy bills according to tariff simulation and modelling of energy usage Some software requires installation and training, whilst other software are easy to use. Energy Management software systems can range from simple excel based programs that can generate charts and tables, including overlays, to complete database systems. Information can be analysed on an hourly and daily basis, and weekend and public holidays can be excluded from analysis. Certain software also have the capacity to track energy consumption against goals.

3.5.1. Purchasing Software

Issues to consider when purchasing energy management software for accounting or managerial decision making include; Are the reports generated easy to use and interpret by accountants and managers? Can the software be integrated into the existing accounting system, and if so is this desirable or should the software be stand-alone? What is the extent of training required to operate the system? Does it require extra personnel? What is the level of operational support supplied to operate and maintain the software?

MetCash Trading

3.6. Energy Management Assessment Matrix

The United States Environmental Protection Authority has established guidelines for conducting an effective energy management program. Organisations will be at various stages of this program, however it is critical that accountants and managers, who are responsible for setting organisational policy and processes and budgets, are aware of what is needed to ensure that energy management becomes a reality within their organisation, as opposed to lip service.

MetCash Trading, a leader Australian distributor of food and fast moving consumer goods has begun piloting energy and water saving programs with the intent of saving millions of dollars in energy costs. In seeking to measure energy use and carbon emissions, the company recently adopted the Enterprise Sustainability Platform from CarbonSystems, which is a global provider of sustainability software. The purpose was to manage, track and evaluate environmental initiatives. MetCash used the program to assess the impact of new capital works which aim to reduce energy and water usage at nine of its sites. Furthermore the program will track energy and cost savings relating to new lighting modification pilot at one of its stores, which is expected to result in annual power savings of 72,266 kwh, or 58.75 tonnes of CO2 equivalent. The annual power bill savings are expected to be approximately $8,670, which if realised will result in a payback period of 3-4 years. If the pilots prove successful Metcalf expect to roll-out the platform nationwide during its national capital works program, which could save millions in power and water costs each year. An added benefit of the platform is that it is expected to allow the MetCash group to reduce its emissions below the Energy Efficiency Opportunities Act threshold (see EEO section on these notes for threshold requirements), thereby reducing regulatory burden. The ESP platform is currently being used to track and generate near realtime business reports on electricity, fuel, water usage, as well as carbon emissions across all 75 of Metcash subsidiaries. The software further allows for MetCash to comply with the reporting requirements under the National Greenhouse and Energy Reporting System.
Source: globalcarbonsystems

Table 6: Energy Management Assessment Matrix

Little or no evidence 1. Make commitment to continuous improvement
Energy Director Energy Team Energy policy No central or organisational resource. Decentralized management No company energy network No formal policy Central or organisational resource not empowered Informal organisation Referenced in environmental or other policies Local or partial metering/tracking/ reporting Some unit measures or weather adjustments Various facility-established Some internal comparisons among company sites Some attempt to identify and correct spikes Internal facility reviews Empowered central or organisational leader with senior management support Active cross-functional team guiding energy program Formal standalone EE policy endorsed by senior management

Some elements

Fully implemented

Next steps

2. Assess performance and opportunity

Gather and track data Normalize Establish baselines Benchmark Analyse Technical Assessments and Audit Little metering/no tracking Not addressed No baselines Not addressed or only same site historical comparisons Not addressed Not conducted All facilities report for central consolidation/analysis All meaningful adjustments for organisational analysis Standardized organisational base year and metric established Regular internal and external comparisons and analyses Profiles identifying trends, peaks, valleys & causes Reviews by multi-functional team of professionals

3. Set performance goals

Determine scope Estimate potential for improvement Establish goals No quantifiable goals No process in place Not addressed Short term facility goals or nominal corporate goals Specific projects based on limited vendor projections Loosely defined or sporadically applied Facility-level consideration as opportunities occur Informal interested person competes for funding Tools targeted for some groups used occasionally Periodic references to energy initiatives Some training for key individuals Threats for non-performance or periodic reminders Annual reviews by facilities Short & long term facility and corporate goals Facility& organisation defined based on experience Specific & quantifiable at various organisational levels

4. Create Action Plan

Define technical steps and targets Determine roles and resources Create a communication plan Raise awareness Build capacity Motivate Track and monitor Not addressed Not addressed or done on ad hoc basis Detailed multi-level targets with timelines to close gaps Internal/external roles defined & funding identified

5. Implement Action Plan

Not addressed No promotion of energy efficiency Indirect training only No or occasional contact with energy users and staff No system for monitoring progress All stakeholders are addressed on regular basis All levels of organisation support energy goals Broad training/certification in technology & best practices Recognition, financial & performance incentives Regular reviews & updates of centralized system

6. Evaluate progress
Measure results No reviews Historical comparisons Compare usage & costs vs goals, plans, competitors

Review action plan

No reviews

Informal check on progress

Revise plan based on results, feedback & business factors

7. Recognize achievements
Provide internal recognition Get external recognition Not addressed Not sought Identify successful projects Incidental or vendor acknowledgment Acknowledge contribution of individuals, teams, facilities Government/third party highlighting achievements

Source: U.S Environmental Protection Agency, Energy Management Assessment Matrix, available at: energystar

3.7.

Sustainability Worksheets

The web contains various tools to help organisations calculate the financial benefits of adoption sustainability strategies. One example is a sustainability advantage worksheet, whereby organisational data on revenue, energy cost, material usage, and salary, are entered into a spreadsheet. Users are then prompted to identify potential percentage improvements in revenue and energy savings. These will then be automatically translated into financial data based on pre-determined formulas within each cell. Accountants and managers are then able to identify the direct effect on profitability. Like budgeting and financial statement spreadsheets, sustainability and energy based excel spreadsheets are an efficient way of identifying the direct bottom line effect of a change in sustainability strategy. The degree of desired change in strategy can arise through: 1. specific managerial directives, such as that energy costs be reduced by 10% 2. moving to an industry benchmark 3. moving to best practice within an industry.

Source: sustainabilityadvantage