Thursday, 11 July 2019

Energy Saving = Higher Profitability?

Energy Saving = Higher Profitability?

Energy forms one of the largest components in production costs for majority of the manufacturing units. This is true whether a manufacturing process is energy-intensive or not. The energy costs have been consistently rising and the trend is likely to continue in the foreseeable future as India continues to grow. 

Make-in-India and Chinese slowdown are other factors which are seen as contributors to rising energy demand in India. The demand-supply gap will keep on rising especially in the power space as could be seen in the figure below.
Historic Power Generation Demand-Supply
                    Fig. 1 - Energy Cost Trend & Supply-demand Gap in India
In the current situation of intense competition cost control is one of the comparatively easier routes to improve profitability. In fact majority of the well-known Companies consider cost control as central objective of the finance department and purchase department. Market-driven factors aside, Companies are focused to improve the internal efficiency at all levels such as manpower efficiency, energy efficiency, equipment efficiency, procurement efficiency etc. With appropriate management processes in places the non-technical efficiency can be achieved.

With regards to technical efficiency it is mandatory for Companies to rely upon one of the easier routes of energy which forms a significant component (as high as 20% in some cases) of the overall cost of manufacturing. The good news, however, is that the energy can be controlled by implementing Energy Efficiency and Energy Conservation measures.
Energy Cost as part of Production Cost in Manufacturing

   Fig. 2 – Energy Cost as part of overall Production Cost
So are Energy Conservation and Energy Efficiency different? While both contribute to the same goal i.e. reducing overall energy consumption in the facility without hampering productivity, quality and output., the 2 are different in terms of the path taken to achieve that goal.
Basically they are defined as -

Energy Conservation - To arrest leakages within the existing systems through plugging the leakages, altering operations and changing human behavior.

Energy Efficiency - Implementation of new-age equipment through retrofitting or replacement of existing systems which improves overall system efficiency thereby giving more output per unit of energy consumption. 

Sometimes the above two terms are used interchangeably which, as you could see, is not correct. Both the measures should be used collectively and not in isolation. Energy Optimization is a joint term to indicate both the above. For a plant to have optimum energy levels both Energy Conservation and Energy Efficiency are necessary. Not just for saving on production cost but also as a sustainability measure.

Majority of the plants where we have conducted Energy Audit have had energy as a significant cost component in the range of 10% to 30% with a median of 17%. So any reduction in energy through Energy Audit or going for Renewable energy has a significant and direct impact on Company's profitability. Even assuming a basic 7% reduction in energy bills (power, fuel, gas, coal etc.) can result in a saving of 1.20% in the total cost of production.
Energy Audit Saving Calculations
           Fig. 3 – Energy Saving Calculations and Impact on Cost of Production
As can be seen in Fig. 3 above savings on energy can have a positive and direct impact on a Company's profitability through cost control. It is thus a mandate now for Energy-intensive Industries to carry out frequent Energy Audits. Irrespective of the type of industry a plant should carry out Energy Audit at frequent intervals. Ideally once every 2-3 years is a good time for Energy Audit to reveal good opportunities for Energy Saving.
To know more or to enquire about Energy Audit, contact us at Enerco Energy Solutions LLP through -
Our website : www.econserve.in
Email id : info@econserve.in
Whatsapp / Phone : +91 9890737447