Energy Management in SMEs: Application Note

SMEs can benefit greatly from energy management. Even for non-energy intensive SMEs, the savings potential compared to business-as-usual can be substantial. Energy management does not always need to lead to ISO certification, since this can be a high bar for a small organisation. SMEs could chose to follow the main principles of energy management systems, but implement them more pragmatically, without actually going for accreditation. Sadly, there is no standard for “energy management light”, tailored to SMEs, but there is a wide selection of literature on the subject.

A major evolution in energy monitoring technology has brought energy management within the reach of SMEs. In the past, installing metering systems was often complex, and processing the resulting data was time consuming. More recently, markets have welcomed easy-to-install, plug-and-play energy monitoring systems that provide data in an aggregated format, such as energy performance indicators.

Assistance does not come from technology alone. External consultants can be called in at various stages of the energy management process or during implementation of energy efficiency measures to complement the SME’s own workforce.

Compared to energy audits, energy management penetrates deeper into the tissue of an organisation, leading to long-lasting results. Not only can it bring changes in workforce behaviour and install a culture of continuous improvement, it can also establish energy efficiency as a major criterion informing future equipment replacement and facility investment decisions.

Perhaps the most essential condition to be met before any kind of energy efficiency oriented system can be elevated to being called energy management, is the involvement of the company’s higher management. This is necessary for the energy impact on the organisation to be assessed in terms of costs and risks, to make investment decisions, and to steer measures designed to create a behavioural shift. Equally important is assembling a carefully constituted Energy Team. A major task of this team is to ensure that energy management will become – and remain – integral to the overall corporate strategy. Even in small companies it is important to compose a team of people to ensure that the energy management culture penetrates every functional division of the organisation. It can sometimes be a good idea to also include external consultants in the team.

Continuous improvement is a key concept in energy management. It is sometimes formalised into the Plan – Do – Check – Act (PDCA) cycle but does not always need to be formalised. Once it becomes part of a company mindset, these cycles will take place spontaneously way for many tasks. The advantage for an SME of applying the continuous improvement principle is that you can start small and humble, reflecting the size of the organisation, and develop energy management step-by-step. The continuous improvement principle also ensures that you are never “ready”. The principle, however, can also have a downside. If energy management remains limited to those changes that can be achieved one small step at a time, the organisation risks missing out on important savings opportunities that could make the difference. Some opportunities require just a substantial one-off investment to result in a constant harvest of benefits for years to come. These opportunities risk being neglected because of rigid interpretation of the continuous improvement principle.

An important aspect of pragmatic energy management is finding the right balance between result management and method management. Result management aims for direct, rapid achievements, bypassing unessential formalities and paperwork. Method management wants to ensure enduring change, and requires a more formal approach by creating methods designed to bring results regardless of the people using them. Without method management, you will not range much further than a one-shot energy audit, returning to business-as-usual all too quickly. Without result management, the whole undertaking risks being abandoned for lack of motivation before any results are harvested.

In the spirit of result management, it is crucial to see the first outcomes early in the process. This can be achieved by conducting a series of walk-around energy surveys and by implementing the resulting quick-win solutions.

Taking the walk-around surveys as a starting point, actions to achieve deeper insight into the organisation’s energy use should be pursued, without which the optimisation process is impossible. For many SMEs, this can be a difficult exercise, but external help can come from monitoring systems, energy audit consultants or energy service companies. At this point, the energy team should identify key performance indicators (KPIs).

The in-depth energy audit is at the core of any energy management. It should be repeated at regular intervals, but the first audit will be the most difficult and time consuming. Follow-up audits can profit from the structure and results of former audits and can mainly focus on what has changed in the intervening period. The in-depth audit thoroughly assesses every area of significant energy use (SEU) to look for potential energy efficiency measures that go beyond the obvious. It is exactly these kinds of measure that could make a difference to a company’s competitive and environmental position. All kinds of action are possible, leading to changes in infrastructure, equipment, energy carriers, control systems and their settings, operational procedures or staff behaviour. They will range from minor changes requiring only limited resources, to large scale projects demanding substantial investment and which need to be planned years in advance. The following are a few major categories of measures that can make a substantial difference:

  • Reducing waste, including re-evaluating heating and cooling settings, insulating pipework, improving compressed air system efficiency, installing variable speed drives (VSDs) on motorized systems, recuperating waste heat, and optimizing equipment control systems and lighting controls
  • Making or adapting equipment replacement plans to take energy efficiency into consideration
  • Including energy efficiency as a criterion in facility investment plans
  • Choosing the right energy carrier: setting time aside to scrutinize the choice of energy carrier in every project involving investment in energy-using equipment. With technology evolving, increasing decarbonisation of grid electricity and government incentives for decarbonisation, electricity has often become the most advantageous energy carrier in cases once dominated by fossil fuels
  • Investigating options for on-site renewable energy generation

For every potential energy efficiency measure, an estimation is made of the technical and financial feasibility and of the potential energy and cost savings. For substantial investment projects, a more detailed analysis covering energy savings, financial implications and risk factors should be undertaken.

To assess the profitability of energy efficiency measures, a payback time is often relied upon, despite it being a sub-optimal evaluation criterion. Life cycle costing (LCC), net present value (NPV) and internal rate of return (IRR) are better instruments to assess the profitability of energy efficiency investments.

Quantifying the anticipated energy savings is arguably the most complex part of any investment decision involving energy efficiency measures. Energy use is typically the result of many factors, including local conditions, the quality of implementation and commissioning, and operational and maintenance practices. These factors can vary from year to year, making it difficult to assess any expected savings. Because of this uncertainty and complexity, decisions to implement energy efficiency measures are often either postponed or avoided. Having an energy management system in place has the advantage that the organisation will have already gained some insight into the energy streams in its facility and how they can be measured. However, if the organisation lacks the necessary resources or focus to forecast energy savings, outsourcing this element can be a good solution.

Since the future is never entirely predictable, investment always involves risk. Whether this risk needs to be assessed in a formal manner depends on the size and the time horizon of the investment. For more substantial investments with a longer time horizon, a formal risk assessment is highly recommended and will often be critical to gaining access to external financing. This risk assessment can also be outsourced to external consultants if the organisation lacks resources or the necessary focus.