Energy Efficiency for Business: Catching the Low-hanging Fruit, Preparing for the Future

In 2008, Emily Reyna of the University of Michigan was a member of the first class of MBA students installed as summer interns at major corporations — part of the inaugural year of the Environmental Defense Fund’s (EDF) Climate Corps Program. Her mission: Ferret out the low-hanging fruit of energy waste, and offer creative solutions to reduce costs and improve environmental performance. EDF estimates that no-cost or low-cost energy-efficiency measures can save $40,000 a year for every 50,000 square feet in office space.


 


Reyna was assigned to Cisco Systems research and development labs in San Jose, Ca., (one of 1,500 labs the company operates worldwide). She came up with a host of ideas to improve air-flow management — hot/cold aisles, blanking panels on racked components and servers to prevent unnecessary heat buildup, improved monitoring, and more efficient cooling. Her most significant discovery, she says, was already in use at a Cisco lab in North Carolina. “They had installed Power Distribution Units, or PDUs, which enable lab managers to monitor and control energy use within the lab environment and can be programmed to shut down equipment when idle or not in use,” Reyna says.


 


Since forgetting to shut equipment off was a chronic problem, PDUs enabled the lab to reduce energy use 25% over six months. Reyna crunched numbers for Cisco company-wide and found it could save $8 million a year and reduce overall greenhouse gas emissions by 3%. “A lot of times, the IT folks that purchase the equipment are not the same employees who manage power and pay energy bills,” says Reyna, who saw part of her job as “breaking down the barriers to energy efficiency” that are often present at large companies. “I had a fantastic time at Cisco and learned a great deal about energy efficiency.”


 


Energy Waste … and Opportunity


 


There’s nothing unique about Cisco Systems. Most corporations are wasting huge amounts of energy because of practices that are “the way we’ve always done it.” But increasingly, companies worldwide are making changes and realizing dramatic savings.


 


Paul R. Kleindorfer, professor emeritus at Wharton and professor of sustainable development at INSEAD in France, was a consultant to a project launched by a branch of American pharmaceutical giant Pfizer at a plant in the “green” German city of Freiburg.


 


With a goal of reducing carbon emissions by 40%, enterprising chief engineer Michael Becker mapped out 50 plant projects that included everything from insulating windows to installing a biomass boiler that burns wood pellet waste from local timber industries to produce heat and process steam. The boiler alone reduced carbon emissions by 7,000 tons per year and resulted in six-figure savings in annual heating costs.


 


The Pfizer plant also installed geothermal heat exchangers to provide cooling in summer and heat in winter. “They’re getting about 75% of their total energy needs from these new systems,” Kleindorfer says. “And they’re eliminating imported fossil fuels in favor of sourcing biomass and geothermal within 30 miles of the plant.”


 


By striving for carbon neutrality, Pfizer’s Freiburg operation would set itself up for profiting by selling the carbon certificates that are the currency of European cap-and-trade systems, according to Kleindorfer. “Pfizer’s approach is particularly good, but there are literally thousands of projects like this all over Europe. It’s not inconsequential for a company to save 20% to 30% on energy costs, and it’s even more important for energy-intensive industries such a cement, steel and aluminum.”


 


Some of the most effective energy-efficiency projects are business-to-business partnerships. For instance, the Commonwealth Edison utility teamed with the Ford Motor Company to save more than a million kilowatt-hours of electricity (worth almost $100,000 annually) at a two million square-foot stamping plant in Chicago Heights, Ill. The project included upgrading more than 1,000 lighting fixtures and installing another 1,000 occupancy sensors. Gloria Georger, the Ford plant’s manager, told Commonwealth Edison that the benefits extended beyond saving electricity. “The improvements to our lighting provided a better working environment for our employees,” she says. “As a result, we see an increase in productivity.”


 


In developing countries where energy is expensive, companies seeking a competitive advantage have already picked much of the low-hanging fruit, says Ulku G. Oktem, a chemical engineer and Wharton adjunct professor of operations and information management. Currently teaching at Bahçe Şehir University in Istanbul, Turkey, as well as at Wharton, Oktem cites the examples of Turkish escalators, which incorporate motion sensors to operate only when people approach them, and classrooms with lights that automatically cycle off. “It is far more common to see things like that there,” she says. “People seem to be conscious of saving energy.” Because of this experience, she believes that western companies operating in the third world need to involve local people in their energy-efficiency improvement programs. “Rather than being imposed top down,” she says, “the programs need to incorporate local knowledge, customs and behaviors.”


 


Oktem also points out that “a lot of low-hanging fruit in product design and development,” citing both Xerox and Mattel as companies that have improved environmental performance with leading-edge product design and other innovations.


 


According to Mattel’s 2009 Global Citizenship Report, installation of an evaporative air cooler on a paint line saved 130,000 kilowatt-hours of electricity. Replacing hydraulic injection molding with electric molding saved $100,000 in annual energy costs. Improvements in the U.S. distribution system reduced electricity use 30% by, among other things, using skylights instead of artificial light in warehouses and reducing the use of supplemental lighting.


 


Close to Home: Saving Energy at the University of Pennsylvania


 


Emily Schiller, a 2009 MBA graduate of Wharton, is associate director of sustainable initiatives at Wharton. The school’s recent environmental innovations include, in 2004, the launching of a three-bin recycling program (expanded in 2008), which has increased the school’s overall recycling rate from 18% to 25%, and default two-sided (known as duplex) printing, which saves 2.4 million sheets of paper a year.


 


Schiller says her Wharton energy-efficiency work has focused on four categories: HVAC, lighting, green IT and behavioral changes. At Wharton’s Jon M. Huntsman Hall, for instance, Schiller’s team found that the set points for the HVAC system brought in more outside air than was necessary for good air quality. The HVAC project is currently under review and may be able to provide savings of $200,000 a year, Schiller says.


 


“Lighting is also huge,” Schiller adds. “There are thousands of light bulbs just in Huntsman Hall, and we’re changed them all to high-efficiency fluorescents and LEDs.” More than 500 public computers at Wharton now go to “sleep”after an hour of sitting idle, saving $8,000 a year.


 


And a search is on at Wharton for “vampire” or “phantom” loads — devices from coffeemakers and microwaves to “sleeping” computers — that use significant amounts of “standby” electricity even when not in use. This secret power use accounts for 6% of electricity consumption nationally, and Schiller says that one way to reduce this power drain would be to unplug these appliances at the end of the workday, over the weekend and on holidays. “Anything with an LED light uses power, and in my office I’ve agreed to reset all the clocks,” Schiller says.


 


In a recent four-month period, Wharton has identified $92,000 in energy savings, which helps realize goals set by University of Pennsylvania President Amy Gutmann’s Climate Action Plan, which aims to achieve a 5% reduction in energy use this year, and a 17% reduction by 2014. To reduce emissions further, the plan aims to motivate more than half of the university community to walk, bike or use carpools.


 


Recapturing Energy Waste with Cogeneration and More


 


Reducing a company’s energy profile starts with eliminating the kind of waste symbolized by oil refiners venting off and burning valuable methane gas. “The lowest-hanging fruit is the avoidance of waste,” says Noam Lior, professor of mechanical engineering and applied mechanics at Penn and a faculty advisor with the Initiative for Global Environmental Leadership (IGEL) at Penn/Wharton. “We started looking at that in the 1970s when it was common for steam vents to blow all winter and people to leave windows open because it got so warm. Unfortunately, companies have sometimes decided it was easier to throw away energy than find ways to use it. But this kind of waste is easy to detect and cheap to fix.”


 


In a process known as “cogeneration” (also called combined heat and power, or CHP), waste heat or steam can be captured from a manufacturing process and used to create electricity that can either be reused or sold. Your car is a good example of cogeneration efficiency, because the engine both drives an alternator to create electricity and generates waste heat, which can be diverted to heat the car’s interior.


 


Power plants typically vent waste heat into the environment through cooling towers or other means, but Con Edison offers an example of impressive energy recapture. From five electric plants, it takes 30 billion pounds of steam heated to 350 degrees Fahrenheit and uses it to heat 100,000 buildings in Manhattan, creating the world’s largest “steam district.” Waste heat and steam can also be used in absorption chillers to produce cooling. For Con Ed, it’s hardly a new business: The steam system, which now incorporates 105 miles of mains and service pipes, began service in 1882. In the peak winter period, the system provides 10 million pounds of steam per hour. And steam is a profitable business, providing 6% of Con Ed’s revenue.


 


Lior recommends that corporations conduct thorough operational audits to determine where they are wasting energy. The audit can identify possible secondary uses for that generated energy and ways to eliminate it with more efficient equipment.


 


Tips for Action: Don’t Overlook the Obvious


 


Kate Robertson, an energy efficiency specialist at the EDF, says the group’s Climate Corps Program offers a “fresh pair of eyes” to ask questions about potential energy savings “that seem silly, but are so basic nobody thought to ask them.” One Texas company, she says, achieved big savings by simply turning off boilers that were no longer being used. Since the company’s exposure is limited to paying the 10-week salary of the MBA students who become de facto energy-efficiency assistants, savings can be substantial.


 


In a summer, Robertson says, a Corps student can go through operations, printing, lighting and refrigeration — with the latter often presenting major opportunities for savings. “A company may not have a clear idea of what they’re paying for refrigeration,” she says. “They’re used to paying the bills and moving on. But an energy audit can lead to replacing 20-year-old refrigeration units so that, in just one year, the company will save enough money to buy new computers.”


 


Commercial buildings account for 17% of global warming pollution in the U.S., and asset value rises $3 for every $1 invested in energy efficiency, the EDF reports. The California Energy Commission recommends energy audits as possibly “the best investment you can make for your business.” Among the Commission’s other tips for businesses to save energy:


 



  • Whenever possible, do not use large equipment during the peak hours of 3 p.m. to 7 p.m.
  • Turn equipment and lights off after hours (putting computers into “sleep” mode). Motion detector controls can pay for themselves in two years.
  • Set summertime workspace thermostats to 78 degrees Fahrenheit during work times, and 85 degrees after hours. (This can save 2% in air-conditioning costs for every degree that the thermostat is raised.) Ceiling fans can also make it seem at least four degrees cooler in workspaces.
  • Install window films, solar screens or awnings on south- and west-facing windows.
  • Use Energy Star-certified appliances (up to 30% more efficient than standard models) when possible.
  • Replace incandescent bulbs with long-lasting compact fluorescent lights (CFLs) that use 75% less electricity to produce the same amount of illumination. CFLs also can last 10,000 hours compared to 1,000 hours for an incandescent bulb. Replacing a single 100-watt incandescent with a 25-watt CFL can save $90 over the latter’s lifetime. Exit signs using incandescent or fluorescent lights can be replaced with very energy-efficient LED lights.

 


Innovative Financing for Energy Improvements


 


Eric W. Orts, director of IGEL and a professor of legal studies and business ethics, says energy-efficiency improvements offer “a basic, steady return, not the kind of blockbuster return that can result from a research and development investment.” As a result, companies are often tempted to invest for near-term profit at the expense of long-term energy savings.


 


Howard Kunreuther, Wharton professor of decision sciences and public policy, and co-director of Wharton’s Risk Management and Decision Processes Center, points out that companies may defer energy-efficiency improvements that pay off over a number of years “because they have short-term horizons. If the payback is in 15 years, and the decision makers expect to move on before that, they worry that they won’t get credit for the savings but will get the blame for the added costs.”


 


Performance contracts are one way to overcome this problem. Many solar companies, for instance, will now install photovoltaic panels on a company’s buildings at no cost, charging only for the electricity purchased at a discount in a long-term contract.


 


Tom Rooney, CEO of major player SPG Solar, recently signed a contract with the Irvine Unified School District in California to install four megawatts of solar panels on 21 building roofs by the end of 2010. “There’s zero hassle and zero dollars down for them, but it saves $17 million over 20 years in electricity costs,” Rooney says. The solar system will produce 6.6 million kilowatt-hours of electricity annually, 45% of the school district’s demand, he says.


 


Another way for companies to overcome the long-term pay-back nature of many energy saving investments, Kunreuther says, is with internal processes that apportion the costs of upgrades over time. “It’s better not to charge the whole cost in the first year, because it will look negative,” he says. “The time horizon needs to be longer.” Another approach, he added, is loans offered by utilities and other companies that provide upfront energy-efficiency upgrades that can be amortized over a number of years.


 


To make energy investment more attractive, some organizations have looked at Energy Service Companies (ESCOs). In an ESCO strategy, a company (Honeywell International is an example) creates an energy performance contract with a client and installs energy-saving upgrades. The client pays back the upfront investment, over seven to 20 years, with the savings in energy costs. The World Bank created the first ESCO companies in China in 1997, and it’s become a popular tool for funding energy efficiency in developing countries. The ESCO industry is worth $6 billion annually in the U.S., and industry groups say that figure could triple in the next few years because of Obama Administration energy-efficiency spending.


The ESCO industry was launched in the 1970s in response to rising energy prices from the Arab oil embargo (1973) and the Iranian Revolution (1979). The National Association of Energy Service Companies says that $20 billion has been invested in ESCO projects to date, with $7 billion going directly to labor employment.


In an increasingly unpredictable world, long-range contingency planning makes growing sense — particularly where energy is concerned. The Global Business Network, which specializes in helping companies cope with mounting uncertainty — “whether it’s uncertainty about their future, the future of their industry or the future of the world at large,” — offers a four-point program towards what it calls “energy success,” as follows:


 


·         Master the fundamentals of energy efficiency, building an energy-savings oriented corporate culture through executive leadership and appointment of an energy director who can set aggressive goals.


 


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