Energy management remains a substantial source of business improvement and cost reduction value for the minerals sector
The discipline of energy management is concerned with the efficient and effective use of energy to minimise costs and enhance competitive position (Capehart, Turner & Kennedy, 2008). It is broader than energy efficiency, in that energy management is primarily focused on sustained cost reduction. At its core energy management is therefore as much an economic discipline as it is engineering. Likewise, the process of transforming a site or an organisation into one that manages energy more effectively involves a high degree of change management. We propose that long-term programs focused on cost reduction provide the structure and attention required to sustain the financial benefits of energy management.
Resource businesses are familiar with cost reduction programs and have successfully used the principles of Six Sigma and Lean to achieve sustained business improvement goals. Energy management belongs in this domain. With strong support from top management and integration across multiple functional areas, energy management programs that adopt the tools and methods of continual business improvement can achieve significant financial results.
The industry understands this somewhat, with more than 30 per cent of Energy Efficiency Opportunities (EEO) program participants – including many resource businesses – opting to embed EEO accountabilities within business improvement functions (ACIL Tasman, 2013). Encouraging as this is, decision makers must also see the reduction of energy waste as economically attractive and reliably achievable in order to continue to invest in the absence of regulatory pressure. In the current environment, the absence of compliance requirements affords greater flexibility in program design and leaves a great deal to be gained from continuing to invest in energy management.
Why is there an opportunity?
The dynamic nature of mining and processing operations creates an ongoing opportunity for energy cost optimisation. Operations in the sector are rarely static: production volumes change, ore grades shift, technology and practices improve, and expansions and contractions occur. It is for this reason that a long-term, whole-of-business approach is required to access untapped energy cost reduction in the minerals sector.
With tight margins across much of the minerals sector presently, operating efficiency is once again of paramount importance – and energy represents a large and growing segment of operating costs. The question that needs answering immediately is: is it worth investing the company’s time and money to solve this problem? The answer requires a whole-of-business review resulting in a financial business case, supported by technical solutions and the backing of key stakeholders. Too often these reviews (or audits) focus on the technical solutions, without sufficient consideration of how large-scale change will be implemented and sustained.
An alternate approach is to devise a program of works and accompanying plan to systematically evaluate, implement and sustain a prioritised program of projects over an agreed timeframe. The initial review needs to consider if a program approach is appropriate. If the combined, risk-adjusted value is not large enough, it might not warrant a program. However, assuming that a program does look financially attractive, the benefits of this approach are that it:
- aggregates the financial benefits in a way that allows management to provide resources – capital and human
- elevates the issue of energy management within the organisation, allowing management to provide a strong mandate for change
- reduces investment risk by using a portfolio approach
- provides a mechanism to discard projects that do not pass evaluation stage gates, and bring additional ideas into the program over time.
Why programs and not projects?
Projects deal with outputs, programs deal with outcomes: they are capable of producing transformational change that delivers benefits related to the organisation’s strategic objectives (Office of Government Commerce, 2011). Programs provide an umbrella for coordination, consistent application of standards, and a mechanism for sustaining performance. In the absence of a program, projects are commissioned, closed out and handed over to operations without an effective method for sustaining the benefits.
Programs are more likely to fail because of weak planning, execution and maintenance than due to a lack of good ideas. For energy efficiency projects to produce sustainable benefits into the long term they need to be accepted in the business operations – requiring good stakeholder management, collaborative project design and well planned execution. In our conversations with energy managers from resource companies in Chile, Australia and South Africa, we have heard all too often that past projects have failed to produce results in the long term. The unfortunate result of this is understandable skepticism about the value of energy management, and a consequent reluctance to invest. Unlike traditional projects, which rarely extend far beyond handover, project completion signals merely the beginning of benefits realisation for energy management projects. This gives programs one big edge over projects. Programs can be scaled back after the projects are completed, but legitimately remain in operation for a reporting, monitoring and performance improvement phase. During this time the individual projects can be embedded, monitored and corrective action taken to maintain performance. Opportunities to refine or extend projects may also arise, in which case the program might consider coordinating and managing a tranche of new projects.
There will always be risk in an energy management program. Well-managed programs have a clear understanding of their benefit profiles, and controlling mechanisms that allow for periodic assessment of the results. If the program is not on track and cannot be recovered, it may need to be terminated early. Therefore, it is desirable to stage the evaluation of projects such that investments are made only as uncertainty is reduced.
It is nearly impossible to run a successful transformation program of any kind without a strong mandate and executive support. In the work we have been involved with, the CEO has provided a mandate to find and exploit lowest cost energy solutions in as many areas as possible. This gave our team the confidence and authority to look at the full spectrum of opportunities. Energy managers often lament that they receive no support for their ideas from the top. Attaining this mandate requires gaining the trust, confidence and support of the executive upfront, which takes time, skill and the existence of a substantial opportunity. Gaining this support is worth the effort required, as it will make an enormous difference to the team’s ability to deliver benefits.
In order to endorse a program, the board (or senior management) must be presented with a compelling opportunity to improve their operations, and it must be backed by strong internal support. Some of the factors that may enable a board to support an energy management program include:
- the financial opportunity is of a magnitude that is worthy of attention – somewhere around 10 per cent or more of total energy costs
- there is strong internal support, particularly support for the practicality of the technical solutions proposed
- the CEO and CFO understand the financials
- there is a clear and realistic plan for the implementation and management of the program.
Taking the first steps
The process of creating stakeholder buy-in begins during idea generation. All too commonly energy audits are completed in isolation from operations, maintenance and technical teams. The basic (and arguably false) premise is that the energy auditor(s) should know the best solution and be able to apply it to the situation reliably. However, in many instances there will be multiple options that should be considered and there could be valid production, safety, environmental or quality reasons why the idea would not be workable in the long term. The risk of this approach is that the ideas contained in the report may not have acceptance within the team or may have overlooked critical information that only those working in the plant have. If the end game of a program is producing financial benefits (measured and verified cost savings), rather than an opportunities report, it becomes unacceptable to conduct technical studies in isolation from the business.
There is a wide range of views within industry regarding the size of the energy management prize. Recently, the energy manager for a new mining development told us that he has set a target for a 10 per cent improvement in energy efficiency that will be realised through process optimisation. Yet many other managers from older minerals operations have told us that 2-3 per cent is the best that could be hoped for on their plants. Countless times we have seen energy audit reports that fail to take into consideration anything other than capital upgrade opportunities, as these are seen as being more reliable and involve less change management. The tendency to focus on technological solutions could in part explain the view that the opportunity is small. Process improvements or projects involving low or no capital are both attractive to capital constrained businesses and significant in magnitude. In the two major programs the authors have worked on, process change projects have represented more than 50 per cent of the benefits received by the business. From our perspective, it seems implausible that a complex minerals business could be 98 per cent efficient. But it does highlight the importance of conducting the preliminary reviews with an open mind. Perhaps there is a lesson to be taken from the commercial sector, where we increasingly hear about ‘energy centred maintenance’ and ‘building re-commissioning’. Proactive maintenance coupled with the optimisation of management and control systems according to current conditions yields big returns and could provide a new paradigm for energy management in the resources sector.
Energy management takes leadership as much as anything. It requires holding a conviction that positive change is possible. Even where projects are of a technical nature, achieving successful energy management outcomes is about delivering sustainable change management. We have seen an example where a globally well-accepted technology failed in a plant because of poor change management. It was not until several pilot tests had been conducted, designs had been finalised and equipment procured that the full extent of the operators’ unwillingness to cooperate became evident to the project team. By treating the problem as purely technical, the opportunity of the project was eventually missed. The operators had organised themselves to conduct union action over a perceived increased workload. There were disputes about several safety issues, which had not been experienced in other applications of the technology. No doubt the issues could have been resolved, but at this point there was a mounting pile of reasons why the project shouldn’t go ahead and the managers felt it had ‘gone too far’ to be saved.
These kinds of examples provide valuable lessons. Energy efficiency projects pose the same problems that all business improvement projects pose – they require acceptance in order to work. The implementation team must ask the right questions, and listen to the answers. They must hear what is in the background, and understand the concerns of the stakeholders impacted. It is only when projects run successfully in the long term that the potential value of energy management is realised.
ACIL Tasman, 2013. Energy Efficiency Opportunities Program Review: ACIL Tasman.
Capehart B L, Turner W C, & Kennedy W J, 2008. Guide to energy management (Fifth edition). Lilburn: The Fairmont Press.
Office of Government Commerce, 2011. Managing Successful Programmes: 2011 edition. Norwich, UK: The Stationery Office.