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Winter 2016

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Letter from the President

At the beginning of 2016, the price of crude oil, natural gas, and coal is at its lowest levels in decade.  As reported on CNBC recently, for the first time since 2003, oil prices fell below $27 dollars a barrel. The recent low of $27 per barrel is even lower than it was during great recession. As a result of such low energy prices, energy efficiency improvement projects (capital) are no longer financially viable, and so they get shelved.  In times like this, we, the energy engineers, have an obligation to educate our clients on why and how they need to continue with energy efficiency improvement efforts, rather than abandon it. 

Unfortunately, many businesses (corporations, institutions, et.al) not only shift their focus from this important mission, but also transfer resources from energy efficiency to other projects. Regrettably, such shortsighted decision making is common, rather than an exception. Recent history suggests that days of higher energy prices are coming. How soon, nobody knows! As per recent article in The Week, Spencer Dale, BP’s chief economist told The Guardian that the oil price would return again – and more than once – to the $100 threshold. This is a bold prediction considering that when he made this statement, Brent crude was close to $30 a barrel. Right now, Mr. Dale seems like a contrarian, but is he?  A contrasting prediction in early 2014 looked absurd, but entities that purchased long term energy contracts in first half of 2014, based on advice of experts, ended up regretting that decision when barrel of oil that peaked at $112 per barrel in June 2014 and was at $62 in December of 2014. Mr. Dale’s projections might come true, and that is what we need to make sure our clients are prepared for.

Meanwhile, how can we not only continue, but financially justify, energy efficiency improvement efforts when cost savings are low due to lower energy prices.  Let’s start with what Dr. Wayne Turner advocated in a letter that he wrote as the editor of Strategic Planning for Energy and the Environment in Spring 2011, Vol. 30, No. 4 issue.  Following is the 1st paragraph of that write-up:

A Novel Idea: Let's Run Existing Equipment Well
Often we do not run existing equipment well, so we buy more sophisticated equipment and hope that it runs better. As all of you know, this does not work. If we do not run older, less automated equipment well, we will run newer, more automated equipment less well (bad grammar but you get the point).

Like many of you, I strongly believe that low-cost/no-cost Operations and Maintenance (O&M) measures should be the first energy savings measures to be considered.  Studies have suggested that O&M programs, targeting energy efficiency, can provide anywhere from 5% to 20% savings.  Since most of these measures are no cost/low cost measures, payback is quick, if not immediate, which in times like now, when cost savings are low due to lower energy prices, is a more suitable approach. 

One of the most significant, but often overlooked, benefit of O&M improvement process is engagement of the in-house staff and learning opportunity that this exercise delivers.  Maimonides, a great Spanish philosopher, said it beautifully that, “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”  In many cases, O&M measures are implemented by in-house staff which means they have to be educated on what to do, how to do, and more importantly why.  Your team may be able to impart much of the required education to implement the identified O&M measures, but a structured training course such as Energy Efficiency Practitioner (EEP) should also be considered and recommended to enhance skills and knowledge of facility operating staff. A well trained and knowledgeable staff who knows the “why” (application of engineering principles) – is like a man who knows how to fish.  In the future, when they encounter that or similar condition, they will be able to identify it as an opportunity for optimization, will be able to immediately take corrective actions, minimize energy waste, and thus keep cost in check. Educated staff, will not only be able to optimize operational efficiency of existing equipment, but also of newer more sophisticated equipment in the future. 

A long term approach should also include concept of and establishment of “sinking funds.”  Businesses that take long term approach already have sinking fund (or something similar to it) set up for energy projects. Accrued cost savings, from continued energy efficiency improvement efforts, and surplus from energy budget resulting from lower energy prices, are placed in this sinking fund, rather than shifting it into general (other) funds.  This approach allows the facility to continue to pursue cost savings through no cost / low cost O&M energy efficiency improvements, during times like this when energy prices are low and capital projects are not cost effective, and build up required reserves for capital projects which are cost effective during times of high energy prices. 

The above mentioned methodology is not a state secret, yet only fractional of the businesses practice it.  Investment in human assets has been declining for a long time. We need to remind and encourage our clients to invest in education of their staff, which provide better returns over long term. Again a reminder that Mr. Dale’s projections might come true and that is what we need to make sure our clients are prepared for. As an energy engineers, experts on whom our clients rely for energy related matters in their facility, it is our responsibility to assist them in making long term plans that include and allow the facility to be operated at optimal levels all the times, regardless of energy prices.  I know we can, so let’s do this!

 - Asit Patel, 2016 AEE President

 

 

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