For companies, the energy demands are becoming more and more complex every day. This white papers aims business owners & decision makers to identify all the important factors in transforming energy into a broad and strategic business driver.
2. ENERGY MANAGEMENT FOR BELGIAN BUSINESSES
Goal
This whitepaper aims to help Belgian Businesses manage their total
energy demands in order to lower their overall energy costs or Total Cost
of Energy (TCE).
3. ENERGY MANAGEMENT FOR BELGIAN BUSINESSES
Challenges on the Belgian Market
The Belgian electricity market is in constant evolution. As both society and government move towards
more renewables in the energy mix, new challenges are bound to arise. The physical nature of the
majority of renewable energy sources (wind, solar, hydro,…) implies they are not as controllable as
other sources of energy. When there is no wind, there is no power to be harnessed from wind. This
uncontrollability is largely due to the simple fact that there are no realistic ways – yet – to store energy
in large amounts. As long as we are unable to store energy in an economically viable way, the combined
demand of all companies and households in Belgium at any given time during the day cannot exceed
supply (the total sum of all electricity originating from windmills, gas-fired plants, nuclear installations,
solar panels, imported energy, etc.).
As governments are constantly modifying the applicable rules and regulations, it is becoming increasingly
difficult for companies to predict their energy-related costs. On the other hand, however, new technical
evolutions (in terms of measurement, smart grids and load balancing for example) are opening up new
opportunities for companies to optimise their energy needs.
In the face of these challenges and opportunities, we have developed the Total Cost of Energy indicator
(TCE): a powerful tool designed to help you tackle your company’s energy challenges.
The TCE
Whether your organisation relies on energy simply for heating and lighting your offices or for more
heavy-duty industrial processes, energy management is an essential part of your operational and even
strategic management. It is therefore important to integrate every aspect with a potential impact on
your total P&L within a comprehensive energy strategy.
And that is where the Total Cost of Energy (TCE) model comes in. To help you map all these elements
into an effective strategy to minimise costs and maximise your competitive edge.
The TCE is not just a cost-related construct. In addition to tracking total costs,
the individual building blocks of the TCE can represent both savings and gains.
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4. ENERGY MANAGEMENT FOR BELGIAN BUSINESSES
The TCE takes the following elements into account:
• Total Raw energy cost
Defined as the total cost of the raw energy (the total amount of money you spend on every
MWh consumed via all your energy sources combined). This is the price for your electricity
and/or gas, including all taxes, transport and distribution costs charged on the basis of your
consumption.
It is important to always keep in mind that this is not the unit price (e.g. in €/MWh) but the
total cost (unit price x consumption).
o Unit price
- Energy component
- Tax component
- Grid component
- Price risk component (Fix vs. Flex). As energy cannot be stored, there is always a
direct link between the moment you consume and the moment energy is generated
somewhere on the grid. The real cost of delivering any given amount of energy is
therefore different at different times. Of course, most energy providers offer (semi-)
fixed price plans which eliminate this price risk or, more accurately, transfer this risk
onto themselves. Naturally this, too, comes at a price. Companies that prefer to
adopt this price risk themselves should include it in their TCE.
o Volume component
- The energy needs of your process, installation or building.
- Requirement for energy acquisition: the amount of energy you need to buy in the
market (in excess of your own production). When you have no local production, this
equals the total energy needs of your business.
o Consumption timeframe.
Any flexibility you may have regarding the time of consumption (see below: Demand
response).
• Non-consumption related energy cost.
The cost (in EUR) you pay for your use and/or impact on the grid without necessarily consuming
energy from it. The reactive fine (caused by the impact your installation has on the grid) is an
example of this. It is possible that in the near future, grid operators will be forced to impose
more of these costs.
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5. ENERGY MANAGEMENT FOR BELGIAN BUSINESSES
The TCE takes the following elements into account (continuation):
• The cost of security of supply.
Most businesses today are highly dependent on energy consuming devices (whether it be your
workforce PC farm, cooling installation for your production facility or heat used in industrial
processes. If for some reason the energy supply to your facility is interrupted, the opportunity
cost of not being able to produce can be very high. Elements of this part of the TCE may
include the possible loss of industrial output or the cost of mitigating/eliminating this risk such
as the cost of a backup generator or maintenance costs of your high-voltage cabinet.
• Cost of compliance.
Government authorities and/or grid operators require you to meet certain technical or other
criteria. One example would be the requirement to install a high-voltage cabinet (which
includes the legal obligation to carry out annual check-ups and modifications according to
safety regulations).
• Cost of energy consumption devices.
This is the cost of your installation. This might already be part of and therefore managed
together with your industrial cost. However, if it is not (or not entirely), it is important to
allocate this cost here. For example: a producer of steel plates might consider the raw steel
as part of his production cost. But if you do not consider the cost of the installation that
generates the compressed air used in his installation, you are basing your management on
incomplete information.
• Cost of the maintenance of energy consumption devices.
Cost related to the devices in the previous point. E.g. the repairs or even replacement of your
high-voltage cabinet.
• Cost of comfort security.
Having a secure and comfortable workplace to motivate your workforce is not only relevant
in office buildings. In fact, it might be even more critical in industrial environments (think of
sufficient lighting that allows your workers to perform tasks beneath your production line).
6. ENERGY MANAGEMENT FOR BELGIAN BUSINESSES
What to do with TCE ?
The TCE enables you to map all your energy-related costs. As such, it gives you a real and actionable
view of the real impact of energy on your business and value chain. This clear view enables you to take
the best decisions and clearly identify possible risks.
TCE element Content Opportunities
Energy cost - Price of energy (€/MWh)
- Cost of price changing risk
- Price of taxes (€/MWh)
- Grid costs (transport distribution) (€/
MWh)
- Volume needs of your business.
- Potential volume savings for your
business
- Volume needs to buy energy (excl. local
production)
- Flexibility of your consumption profile
(time of consumption)
- Price of commodity contract
- Type of commodity contract (fixed vs.
flex)
- Consumption saving investments
(relighting, VSD, liquid air, HVAC)
- Load balancing
- Local production (PV, Wind, Combined
Heat Power (CHP) unit)
Non- consumption
related energy costs
- Reactive fine
- Grid use net cost
- capacitor bank installation
- optimise local use of energy production
Security of supply - cost of non-production in the event of
interruption
- local production
- installation of backup capacity
Cost of compliance - personal liability in the event of non-
compliance
- audit HV
- adaptation HV
Energy consumption
devices
- cost efficiency of equipment - Improve efficiency
- Use more robust equipment
Cost of energy
consumption device
maintenance
- cost of keeping your current equipment
in good condition. This also includes
small replacement investments
(e.g. bulbs for your existing lighting
installation)
- all-in maintenance contract
Cost of comfort
security
- cost of ensuring your people can work
in a safe and comfortable environment
(e.g. sufficient lighting for all areas of
the work floor).
- Relighting
Cost of energy saving
investments
- Investments in new energy-saving
equipment
- Third party financing
7. ENERGY MANAGEMENT FOR BELGIAN BUSINESSES
Zoom in: Price elements
Fixed vs. flexible tariffs.
Choosing the pricing structure that best fits your needs is an important and balanced exercise. The
following elements should be taken into account:
- The % of energy costs in your total expenditure. This % defines the impact of your choice.
- Your belief in the future. Nobody has a crystal ball. But all of us have an idea of how the
future will look. This idea can shape your pricing structure decisions: If you are confident that
markets are at a low level, it makes sense to lock in this price by opting for long-term fixed
price contracts (e.g. 5 years fixed).
- Your risk profile vis-à-vis price fluctuations. With fixed prices, you are hedging the future. This
means you are certain about not having to pay double for your energy in the near future. The
trade-off being that you are unable to profit from price drops on the market in the future.
- The place of energy in your value chain. If (part of) your energy is used to directly create
your industrial output, you should consider the impact of the price structure on your daily
competitiveness. Take for example a brick manufacture who uses gas to power an oven to bake
bricks. A fixed price may place him at a competitive disadvantage overnight if market prices
go down.
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8. ENERGY MANAGEMENT FOR BELGIAN BUSINESSES
Zoom in: Price elements (continuation)
- The time element. Even when you opt for a fixed-price contract, the element of time plays
an important role. In this case, it is not the time of consumption but the time of buying that
defines your total cost. Fixed-price contracts use forwards in the market to set a price. The
situation of such forward markets, however, is in constant evolution. Which enables you to
optimise the relative risks and gains by choosing your moment of buying. Take, for example,
the evolution of the Endex CAL 2015 (yearly forward curve) for the year 2013:
If we eliminate the ‘outliers’ in this curve, we can see that if you had the flexibility of buying energy
when you wanted (no deadlines) and you had a crystal ball to look into the future, an average B2B
electricity consumer with an annual consumption of 2.5 GWh could save 12000 EUR. Assuming, of
course, you could find the right moment every time.
Image 1 - Evolution of ENDEX CAL 2015 during the year 2013
9. ENERGY MANAGEMENT FOR BELGIAN BUSINESSES
Zoom in: The old economical reality
Cost = p (price per unit) x q (quantity)
However straightforward this equitation may be, it is significantly underestimated when it comes to
energy management decisions. This also explains why it is important to look at the total cost in EUR and
not merely the unit €/MWh cost.
Why quantity beats price in the short long run
tbc ...
P
(€/MWh)
0,25€/MWh price decrease
Q
(MWh)
10%
saving
10. ENERGY MANAGEMENT FOR BELGIAN BUSINESSES
Zoom in: The old economical reality (continuation)
Market Deregulation
After the deregulation of the energy market in Belgium (for B2B already more then 10 years), the
energy market was suddenly flooded with competition, driving prices to an all-time low. The bottom
line here is that it has become almost impossible to drive unit prices down any further without sacrificing
minimum service levels and stability of supply.
Actionable
When looking at energy prices, a large chunk (up to 2/3!) is ‘non negotiable’ as they are set by the
government in the form of taxes (either as regular VAT or in the form of support schemes for green
energy, denuclearisation, etc.) or grid costs (transport distribution).
Recurrence
With average industry contract durations of 2 years or floating price products, the impact of the unit
price can only capitalised on for a relatively short time. An energy saving investment typically results in
recurrent savings for 5-20 years.
Impact
p x q means we are talking rectangles here, where in the case of large businesses, q is the long side. The
impact of q therefore typically trumps that of the p element. By way of demonstration, simply compare
the probability (1/365) of a 10% price difference in the ENDEX example above to an almost 100%
certain realisation of a 40% reduction in consumption after replacing your old lighting.
Sustainability
Finally, saving on energy consumption is the best green investment there is: the cheapest and most
green KWh is the KWh that has not been used.
11. About the author.
Filip Modderie is Marketing Innovation Transformation Manager for EDF Luminus and crazy
about effective innovation.
www.luminusbusiness.be
The opinions reflected in this whitepaper are the ones of Filip M. and do not necessarily reflect
those of EDF Luminus nv/sa.
@xtension
Load balancing
When we look at the complete energy production and consumption value chain, one of the most critical
elements of the equation is defined by our inability to effectively store energy. That is why we often see windmills
not in use during summer or on weekends, even when there is a lot of wind. This is simply because nobody is
consuming energy at that specific moment in time. As you can imagine, striking the right balance requires that
energy producers continually shut down and start up their production units. However, the balancing act is also
one that can be performed on the side of demand as well as supply. If we could postpone our consumption
of energy to times of low demand, we would avoid the need to switch on a new production unit. As this adds
value to the entire network, it creates opportunities for companies with a flexible consumption profile to profit
from compensation, bonuses, etc. in return for switching their load.
WRAP-UP
When it comes to effective energy management, there is no one magic ingredient. What can
make a difference, however, is your ability to adopt a clear and comprehensive view of all
elements in the TCE. At present, the only way to realise immediate and sustainable savings on
your energy bill is to actively manage your consumption.
ENERGY MANAGEMENT FOR BELGIAN BUSINESSES