UNIT V

Energy Management

Energy Management: Principles of Energy Management, Energy demand estimation, Organising

and Managing Energy Management Programs, Energy pricing.

Energy Management
Energy management is defined as:
“The judicious use of energy to maximize profits (minimize cost) and enhance competitive
positions”.
The primary objective of energy management is to maximize profit and minimize costs.
Some desirable sub-objectives of energy management programs include:
 Conserving energy, thereby reducing cost
 Cultivating good communications on energy matters
 Developing and maintaining effective monitoring, reporting, and management strategies
for efficient energy usage
 Finding new and better ways to increase returns from energy investments through
research and development
 Developing interest in and dedication to energy management program from all employees.

Need for Energy Management

It is estimated that industrial energy use in developing countries constitutes about 45-50 % of the
total commercial energy consumption. Much of this energy is converted from imported oil, the
price of which has increased tremendously. So much so that most of the developing countries
spend more than 50% of their foreign exchange earnings on oil imports. Not withstanding these
fiscal constraints, developing countries need to expand their industrial base so as to generate
the resources to improve the quality of life of its people. The expansion of industrial base does
require additional energy inputs.
India is a developing nation and has very low per capita energy consumption. To achieve
economic growth, we need to increase the pace of development and increase the manufacturing
of goods in quality and volume, which requires energy.
In any industry, the main operating costs are, energy (both electrical and thermal), labour, and
material. If one were to assess manageability of the costs or potential cost savings in each of the
above components, energy would invariably emerge as the top ranker. Thus, energy management
function constitutes a strategic are for cost reduction. Energy cost savings of 5-15% are usually
obtained quickly without any capital expenditure, when aggressive energy management program
is launched. Thus, energy management is one of the most promising profit improvements, cost
reduction programs available today.

5.1. Principles of Energy Management

If energy productivity is an important opportunity for the nation as a whole, it is a necessity
for the individual company. It represents a real chance for creative management to reduce
that component of product cost.

Four main principles underlie in the basis of a well-organized program for energy
management:

The first of these is to control the costs of the energy function or service provided, but
not the MWh of energy.

In addition to energy costs, it is useful to measure the depreciation, maintenance, labor,

and other operating costs involved in providing the conversion equipment necessary to
deliver required services. These costs add as much as 50% to the fuel cost. For example -
if we can lower the temperature level of a thermal process, along with reducing heat loss
will eventually be possible using other sources of heat, and from there to other parts
energy conversion elements. In turn, they may require less maintenance and repair. Thus, by
managing the quality of the heat achieves a multiplier effect.

The second principle of energy management is to control energy functions as a product

cost, not as a part of manufacturing or general overhead.

It is surprising how many companies still lump all energy costs into one general or
manufacturing overhead account without identifying those products with the highest energy
function cost. In most cases, energy functions must become part of the standard cost system
so that each function can be assessed as to its specific impact on the product cost.

The minimum theoretical energy expenditure to produce a given product can usually be
determined route to establishing a standard energy cost for that product.

As in all production cost functions, the minimum standard is often difficult to meet, but
it can serve as an indicator of the size of the opportunity.

In comparing actual values with minimum values, four possible approaches can be taken to
reduce the variance, usually in this order:

1. An hourly or daily control system can be installed to keep the function cost at
the desired level.
2. Fuel requirements can be switched to a cheaper and more available form.
3. A change can be made to the process methodology to reduce the need for the
function.
4. New equipment can be installed to reduce the cost of the function.

The starting point for reducing costs should be in achieving the minimum cost possible with
the present equipment and processes. Installing management control systems can indicate
what the lowest possible energy use is in a well-controlled situation. It is only at that point
 when a change in process or equipment configuration should be considered. An equipment
change prior to actually minimizing the expenditure under the present system may lead to
oversizing new equipment or replacing equipment for unnecessary functions.

The third principle is to control and meter only the main energy functions - the roughly
20% that make up 80% of the costs (so called Pareto's Principle).

It is important to focus controls on those that represent the meaningful costs and aggregate
the remaining items in a general category. Many manufacturing plants in the United States
have only one meter, that leading from the gas main or electric main into the plant from the
outside source. Regardless of the reasonableness of the standard cost established, the
inability to measure actual consumption against that standard will render such a system
useless. Submetering the main functions can provide the information not only to measure
but to control costs in a short time interval. The cost of metering and submetering is usually
incidental to the potential for realizing significant cost improvements in the main energy
functions of a production system.

The fourth principle is to put the major effort of an energy management program into
installing controls and achieving results.

It is common to find general knowledge about how large amounts of energy could be saved
in a plant. The missing ingredient is the discipline necessary to achieve these potential
savings. Each step in saving energy needs to be monitored frequently enough by the manager
or first-line supervisor to see noticeable changes. Logging of important fuel usage or
behavioral observations are almost always necessary before any particular savings results
can be realized. Therefore, it is critical that an energy director or committee have the
authority from the chief executive to install controls, not just advise line management. Those
energy managers who have achieved the largest cost reductions actually install systems and
controls; they do not just provide good advice.

5.2. Energy demand estimation:

Energy demand is the term used to describe the consumption of energy by human activity. It
drives the whole energy system, influencing the total amount of energy used; the location of, and
types of fuel used in the energy supply system; and the characteristics of the end use technologies
that consume energy.
Forecasting energy demand is extremely important as the demand for electricity increases.
Knowing how much electricity is needed ahead of time has a significant impact on carbon
emissions, energy cost, and policy decisions

Energy Supply:

1) Coal Supply

India has huge coal reserves, at least 84,396 million tonnes of proven recoverable reserves (at
the end of 2003). This amounts to almost 8.6% of the world reserves and it may last for about
230 years at the current Reserve to Production (R/P) ratio. In contrast, the world's proven coal
reserves are expected to last only for 192 years at the current R/P ratio.

Reserves/Production (R/P) ratio- If the reserves remaining at the end of the year are divided
by the production in that year, the result is the length of time that the remaining reserves would
last if production were to continue at that level.
India is the fourth largest producer of coal and lignite in the world. Coal production is
concentrated in these states (Andhra Pradesh, Uttar Pradesh, Bihar, Madhya Pradesh,
Maharashtra,Orissa, Jharkhand, West Bengal).

2) Oil Supply

Oil accounts for about 36 % of India's total energy consumption. India today is one of the top ten
oil-guzzling nations in the world and will soon overtake Korea as the third largest consumer of oil
in Asia after China and Japan. The country's annual crude oil production is peaked at about 32
million tonne as against the current peak demand of about 110 million tonne. In the current
scenario, India's oil consumption by end of 2007 is expected to reach 136 million tonne(MT), of
which domestic production will be only 34 MT. India will have to pay an oil bill of roughly $50
billion, assuming a weighted average price of $50 per barrel of crude. In 2003-04, against total
export of $64 billion, oil imports accounted for $21 billion. India imports 70% of its crude needs
mainly from gulf nations. The majority of India's roughly 5.4 billion barrels in oil reserves are
located in the Bombay High, upper Assam, Cambay, Krishna-Godavari. Interms of sector wise
petroleum product consumption, transport accounts for 42% followed by domestic and industry
with 24% and 24% respectively. India spent more than Rs.1,10,000 crore on oil imports at the end
of 2004.

3) Natural Gas Supply

Natural gas accounts for about 8.9 per cent of energy consumption in the country. The current
demand for natural gas is about 96 million cubic metres per day (mcmd) as against availability of
67 mcmd. By 2007, the demand is expected to be around 200 mcmd. Natural gas reserves are
estimated at 660 billion cubic meters.

4) Electrical Energy Supply

The all India installed capacity of electric power generating stations under utilities was 1,12,581
MW as on 31st May 2004, consisting of 28,860 MW- hydro, 77,931 MW - thermal and 2,720
MW- nuclear and 1,869 MW- wind (Ministry of Power). The gross generation of power in the
year 2002-2003 stood at 531 billion units (kWh).

5) Nuclear Power Supply

Nuclear Power contributes to about 2.4 per cent of electricity generated in India. India has ten
nuclear power reactors at five nuclear power stations producing electricity. More nuclear
reactors have also been approved for construction.

6) Hydro Power Supply

India is endowed with a vast and viable hydro potential for power generation of which only 15%
has been harnessed so far. The share of hydropower in the country's total generated units has
steadily decreased and it presently stands at 25% as on 31st May 2004. It is assessed that
exploitable potential at 60% load factor is 84,000 MW.

Final Energy Consumption

Final energy consumption is the actual energy demand at the user end. This is the difference
between primary energy consumption and the losses that takes place in transport, transmission
& distribution and refinement. The actual final energy consumption (past and projected) is given
in Table 1.2.

Sector Wise Energy Consumption in India

The major commercial energy consuming sectors in the
country are classified as shown in the Figure 1.5. As seen
from the figure, industry remains the biggest consumer of
commercial energy and its share in the overall consumption
is 49%. (Reference year: 1999/2000).

5.4. Designing an Energy Management Program

Energy Management Programme means a program to achieve and sustain efficient and
effective use of energy including policies, practices, planning activities, responsibilities and
resources that affect the organization’s performance for achieving the objectives and targets of the
Energy Policy.

Fundamental to the effective implementation of energy efficiency is good management. Like any
 resource that an organization employs, energy will only be used efficiently if it is managed
properly. Good energy management, in itself saves energy.

Energy management can be broken down into a number of key areas:

 Preparation of Policy Statement
 Appointment of Energy Manager
 Planning and organizing
 Monitoring and control
 Conducting an Energy Audit
 Motivating People
 Reporting and review
 Formalized an energy Management Policy Statement
All these steps are necessary for effective energy management. However, the extent of
criticality and type of approach would depend on the nature and size of the organization.

Energy management is a highly cost-effective tool requiring very little capital. None-theless
effectiveapplication needs total commitment from the top management, allocation of requisite
time and patience.

Policy
There should be a formal statement of the organization’s objectives, demonstrating senior
management commitment to continuous improvement in the efficient use of energy. It should
explain the key approaches that the organization will take to achieve these objectives. An
effective policy provides the foundation for setting the culture within the organization, and should
be clearly communicated throughout the organization.

An effective energy policy should:

 Set out the organization’s objectives for energy management.
 Demonstrate commitment to managing energy in a way that both supports good
business performance and takes due regard for environmental effects.
 Commit the organization, when capital investments are planned, to giving due regard to
energy efficiency in the selection and configuration of plant, and adopting the most energy
efficient equipment available when the marginal cost is justifiable.
 Recognize the need for adequate resources and reporting through-out the company.
 Identify the Director or Senior Manager with overall responsibility for the energy policy and
its implementation;
 Commit the company to a regular review of the policy.
Appoint Energy Manager
The energy manager, who should be a senior staff member, will be responsible for the overall
coordination of the program and will report directly to the top management. Energy managers
need to have a technical background, must be familiar with organization support from the top
management.
Planning and Organizing
To achieve the aims and objectives of the energy policy, there should be clear and formalized
responsibilities, plans and procedures in place. These should include:
 Documented roles and responsibilities.
 Plans which set targets for energy savings, and supporting action plans.
 Appropriate methods for communication to ensure that policies and procedures are
understood and the management commitment to them is visible.
 Training plans, both for energy managers and the workforce, as appropriate.
 Procedures for planned and emergency maintenance of equipment and the procurement of
new planttaking due account of opportunities for energy efficiency.
 Procedures for assessing the cost-effectiveness of energy saving measures.

Monitoring and control

The consumption of energy cannot be effectively controlled without a clear understanding
of its use. There are two complementary activities that provide, and help maintain, this
understanding:
 The physical energy survey.
 Ongoing monitoring and analysis of energy consumption information.
Energy survey is an investigation of the control and flow of energy. A survey can range from a
simple ‘walk-through’ to a comprehensive and detailed appraisal. In both cases, the aim of the
survey is to gain understanding and identify cost-effective energy saving measures. Whatever
their level of sophistication, surveys usually include an examination of energy conversion,
distribution and end-use, together with management systems. Surveys typically result in
recommendations under the categories of no-cost, low- cost, medium cost and high cost
measures.
At its very basic, the second activity should consist of an examination of energy bills before they
are paid and a comparison with expectations, though expectations should not be limited to ‘Is the
bill much the same as last month?’
Ideally, the activity often referred to as Monitoring & Targeting (M&T), should be more
sophisticatedthan this, and comprise four main elements:
 Data collection from a number of possible sources including energy bills, manual meter
readings, automatic meter readings, half –hourly data from utilities; plus in-house production
information and meteorological data as appropriate. Validation of utility bills as part of this
activity frequently yields benefits
 Analysis and interpretation to turn the data into useful information on which to act.
 Reporting of appropriate information, such as unexpected excess consumption, at the right
time to the individuals with the ability and responsibility to act.
  Action, without which there is little, if any benefit, as well as responding to unexpected
excess consumption. This should include the setting and reviewing of standards of
performance that managers are charged with achieving.
M&T may seem a little complicated at first, but really is very straightforward and is powerful in
identifying waste.
Conduct Energy Audit
An energy audit establishes both – where and how energy is being used and the potential for
energy savings. It includes a walk through survey, a review of energy using systems, analysis of
energy use and the preparation of an energy budget, and provides a baseline from which energy
consumption can be compared overtime. An energy audit can be conducted by a specialist energy
auditing firm. An energy audit report also includes recommendations for actions which will result
in energy and cost saving.

Motivating People
People are crucial to effective energy management. If the person tasked with energy management
is working without the support of others in their organization, their endeavors are likely to be
frustrated. Every employee can make a contribution to saving energy, particularly through
attention to ‘house- keeping’ issues, if they have awareness, motivation and empowerment.
Reporting and review
Organizations should provide management reports on energy use and management (progress
against plans, conclusions from regular reviews, etc.) in a way appropriate to the size and
complexity of the company.
Reporting should include:
 Progress reports as necessary or as required by the appropriate senior management
body (e.g. Board) in order to ensure adequate control and review of objectives;
 Frequent reports for operational management control.

Reviews should include:

 Consideration of the policy (its aims and objectives, scope, adequacy).
 Comparison of quantitative performance against targets.
 Comparison with benchmark data (where available).
 A review of the barriers to the implementation of energy efficiency improvements, and
proposals foraddressing these as far as possible.

5.5. Energy Pricing in India

Price of energy does not reflect true cost to society. The basic assumption underlying efficiency
of market place does not hold in our economy, since energy prices are undervalued and energy
wastages are not taken seriously. Pricing practices in India like many other developing countries
are influenced by political, social and economic compulsions at the state and central level.More
often than not, this has been the foundation for energy sector policies in India. The Indianenergy
sector offers many examples of cross subsidies e.g., diesel, LPG and kerosene being subsidized
by petrol, petroleum products for industrial usage and industrial, and commercial consumers of
electricity subsidizing the agricultural and domestic consumers.
 Coal
Grade wise basic price of coal at the pithead excluding statutory levies for run-of-mine (ROM)
coal are fixed by Coal India Ltd from time to time. The pithead price of coal in India compares
favorably with price of imported coal. In spite of this, industries still import coal due its high er
calorific value and low ash content.

Oil
As part of the energy sector reforms, the government has attempted to bring prices for many of
the petroleum products (naphtha, furnace oil, LSHS, LDO and bitumen) in line with
international prices. The most important achievement has been the linking of diesel prices to
international prices and a reduction in subsidy. However, LPG and kerosene, consumed mainly
by domestic sectors, continue to be heavily subsidized. Subsidies and cross-subsidies have
resulted in serious distortions in prices, as they do not reflect economic costs in many cases.

Natural Gas
The government has been the sole authority for fixing the price of natural gas in the country. It
has also been taking decisions on the allocation of gas to various competing consumers. The gas
prices varies from Rs 5 to Rs.15 per cubic metre.
Electricity
Electricity tariffs in India are structured in a relatively simple manner. While high tension con
sumers are charged based on both demand (kVA) and energy (kWh), the low-tension (LT)
consumer pays only for the energy consumed (kWh) as per tariff system in most of the electricity
boards. The price per kWh varies significantly across States as well as customer segments with-
in a State. Tariffs in India have been modified to consider the time of usage and voltage level of
supply. In addition to the base tariffs, some State Electricity Boards have additional recovery
from customers in form of fuel surcharges, electricity duties and taxes. For example, for an
industrial consumer the demand charges may vary from Rs. 150 to Rs. 300 per kVA, whereas
the energy charges may vary anywhere between Rs. 2 to Rs. 5 per kWh. As for the tariff adjust
ment mechanism, even when some States have regulatory commissions for tariff review, the
decisions to effect changes are still political and there is no automatic adjustment mechanism,
which can ensure recovery of costs for the electricity boards.

Energy Conservation and its Importance

Coal and other fossil fuels, which have taken three million years to form, are likely to deplete
soon. In thelast two hundred years, we have consumed 60% of allresources. For sustainable
development, we need to adopt energy efficiency measures.
Today, 85% of primary energy comes from non- renewable, and fossil sources (coal, oil,
etc.). These reserves are continually diminishing with increasing consumption and will not
exist for future generations (see Figure 1.13).
What is Energy Conservation?
Energy Conservation and Energy Efficiency are separate, but related concepts. Energy
conservation is achieved when growth of energy consumption is reduced, measured in physical
terms. Energy Conservation can, therefore, be the result of several processes or developments,
such as productivity increase or technological progress. On the other hand Energy efficiency is
achieved when energy intensity in a specific product, process or area of production or
consumption is reduced without affecting output, consumption or comfort levels. Promotion of
energy efficiency will contribute to energy conservation and is there-fore an integral part of
energy conservation promotional policies.

Energy efficiency is often viewed as a resource option like coal, oil or natural gas. It pro-
vides additional economic value by preserving the resource base and reducing pollution. For
example, replacing traditional light bulbs with Compact Fluorescent Lamps (CFLs) means you
will use only 1/4th of the energy to light a room. Pollution levels also reduce by the same amount
(refer Figure 1.14).
Nature sets some basic limits on how efficiently energy can be used, but in most cases our
products and manufacturing processes are still a long way from operating at this theoretical
limit. Very simply, energy efficiency means using less energy to perform the same function.
Although, energy efficiency has been in practice ever since the first oil crisis in 1973, it has
today assumed even more importance because of being the most cost-effective and reliable
means of mitigating the global climatic change. Recognition of that potential has led to high
expectations for the control of future CO2 emissions through even more energy efficiency
improvements than have occurred in the past. The industrial sector accounts for some 41 per
cent of global primary energy demand and approximately the same share of CO2emissions.
1.8 Energy Strategy for the Future
The energy strategy for the future could be classified into immediate, medium-term and
long- term strategy. The various components of these strategies are listed below:

Immediate-term strategy:
• Rationalizing the tariff structure of various energy products.
• Optimum utilization of existing assets
• Efficiency in production systems and reduction in distribution losses, including
those intraditional energy sources.
• Promoting R&D, transfer and use of technologies and practices for environmentally
soundenergy systems, including new and renewable energy sources.

Medium-term strategy:
• Demand management through greater conservation of energy, optimum fuel mix,
structural changes in the economy, an appropriate model mix in the transport sector,
i.e. greater dependence on rail than on road for the movement of goods and passengers
and a shift away from private modes to public modes for passenger transport; changes
in design of dif ferent products to reduce the material intensity of those products,
recycling, etc.
• There is need to shift to less energy-intensive modes of transport. This would include
measures to improve the transport infrastructure viz. roads, better design of vehicles,
use of compressed natural gas (CNG) and synthetic fuel, etc. Similarly, better urban
planning would also reduce the demand for energy use in the transport sector.
• There is need to move away from non-renewable to renewable energy sources viz.
solar, wind, biomass energy, etc.
Long-term strategy:
➢ Efficient generation of energy resources
• Efficient production of coal, oil and natural gas
• Reduction of natural gas flaring
➢ Improving energy infrastructure
• Building new refineries
• Creation of urban gas transmission and distribution network
• Maximizing efficiency of rail transport of coal production.
• Building new coal and gas fired power stations.
➢ Enhancing energy efficiency
• Improving energy efficiency in accordance with national, socio-economic, and
environ-mental priorities
• Promoting of energy efficiency and emission standards
• Labeling programmes for products and adoption of energy efficient technologies in
largeindustries
➢ Deregulation and privatization of energy sector
• Reducing cross subsidies on oil products and electricity tariffs
• Decontrolling coal prices and making natural gas prices competitive
• Privatization of oil, coal and power sectors for improved efficiency.
➢ Investment legislation to attract foreign investments.
• Streamlining approval process for attracting private sector participation in power
generation, transmission and distribution.
• Describe briefly in three or four lines the actions which you take to bring
awareness on energy management program?
• One of the most successful means of motivating employees is through
“awareness”. Inform them of (1) the amount of energy they are using (2) the costs
involved (3) the critical part that energy plays in the continued viability of their
job (4) the many ways they can save energy in their operation (5) the relationship
between production rate and energy consumption.

• What are the vital elements for a successful energy management programme?
• The four vital elements for a successful energy management program are: Top
management support, Well charted strategy plan, An effective monitoring system,
and Adequate technical ability for analysing and implementing energy saving
options