Energy management is the practice of using energy more efficiently by eliminating energy wastage in an organisation's operations. Most businesses think of energy as a cost that is out of their control but as with many elements of the organization.

Eliminating wastage and using energy resources efficiently is just good management practice. Successful energy management incorporates leadership (commitment from the top of the organisation!), measuring energy use and promoting the success!

Energy management will save the organisation money and reduce it's impact on the environment at the same time! Energy Management is all about:

• Make the best use of our present and future energy sources in order to avoid crises, both economic and environmental.
• It is a professional occupation that has impact on the economy, people's security and comfort, their jobs, and the environment.
• It is not just concerned with saving energy, but also with increasing productivity, improving standards of living and saving money.

Energy management can be described by five distinctive steps - each containing a number of smaller steps. The five steps are reiterated during the lifetime of the system.

(i) Energy Policy:
The energy policy defines the overall guidelines for the efforts to achieve greater energy efficiency. It is established and maintained by the top management of the company.

(ii) Planning:
The company reviews all energy aspects to form an overview of the significant energy consumption i.e. the machinery, equipment and activities which account for the highest energy consumption or which offer the most considerable potential for energy savings. The review forms the basis for determining the order of priority of the energy saving efforts. Concrete energy targets are set complying with the overall energy policy. To achieve the targets the company elaborates action plans.

(iii) Implementation and Operation:
The company involves the employees in the implementation of the objectives and makes sure better use of energy becomes a part of their daily routines. This includes introducing procedures for energy conscious purchasing, operation and maintenance of equipment with significant energy consumption, energy efficient design activities etc.

(iv) Checking and Corrective Actions:
The company monitors and measures the significant energy consumption and all activities with a significant impact on energy aspects. Corrective and preventive actions are taken in case of non-conformance e.g. when the energy targets have not been achieved within the specified time limit.

(v) Management Review:
The top management periodically evaluates how the implementation of plan, objectives and operational control is proceeding to ensure its continuing suitability. The management review must address the possible need for changes of the elements of the energy management system, in the light of the commitment to continual improvement.

Note : The above is very broad classification, which can be modified to suit the industries implemention requirement.

The most common problems in industry:

Electrical Power is used in all Industries either as motive power or for generating heat through arc or induction furnaces. The main factors contributing to energy losses are:-

• Low power factor.
  
• Penalties associated with maximum demand.
  
• Needless use of overrated motors and equipment for specific tasks.
  
• Compressor leakage.
  
• incorrect choice of main transformers.
• leakage of current at the LT control panel, cable and capacitors.
  
• Selection of cooling towers.
  
• Problems connected with electric arcs.

Heat energy is used either directly by burning any one of several fuels like oil, coal, wood, gas etc. as in a furnace or indirectly through the use of steam generated by boilers (process heat). The major contributory factors in this area are :-

• Carpet losses/losses connected with storage of fuel.
  
• Improper combustion of fuel.
  
• Load factor.
  
• Waterside & fireside deposits (low Heat transfer).
  
• Low efficiency of steam delivery systems (Improper insulation of steam pipe, optimum pipe size etc.).
  
• Condensate Recovery.
  
• Uncontrolled blowdown.
  
• Oversize of the equipment

The above energy losses can be avoided with effective Energy Management. The main objective of the Energy Management is to optimizing energy to increase profits.

Effective energy management must be designed to fully understand the inter-relationships of energy and process steam and the effects one can have on the other. It provides significant cost savings and increased profits through: Knowledge of energy needs ability to meet energy needs with minimum costs support for electricity sales and purchase in the open market avoidance of peak tariffs enhanced awareness of energy generation, use and purchases ease of use.

Energy management involves bringing all pertinent energy data from all over the mill into a central location and providing this information to users to make informed energy decisions.

Energy management and optimization includes the ability to forecast electricity, steam and fuel consumption; maximize cost efficiency by load scheduling and optimizing electricity generation; manage electricity purchase and sales; monitor and control peak loads, energy balance and efficiency; and support decision making with simulation and "what-if" analysis. Together, these advanced tools support the energy business from both operational and economic perspectives, helping mills increase efficiencies and cut costs.

Normally before a Energy management Cell is created, the following questioned are asked

1. Does Energy Management really pay?
2. What are the factors to be considered while evaluating the energy efficiency project?

The example gives below illustrate, to evaluate the energy efficiency project.

For example, the financial evaluation of a project involves identifying and calculating all the costs incurred over the life of the project and comparing them to the benefits received from its implementation. There are a number of ways that an energy efficiency project can be evaluated financially, and ultimately the methodology will likely be determined by the business's evaluation guidelines or investment strategy.

a. Payback Period

The Payback Period evaluation method evaluates the economic worth of a project by simply calculating the time it takes to recover the initial capital outlay of an energy saving project. This technique does not take into account any cash flow after the payback period, nor does it consider the magnitude and timing of the cash flows during the pay back period. As such this method does not make for a good assessment of the profitability of a project. However as this method gives an indication of how quickly funds will be paid back, it is often used as an assessment of risk ie the quicker the payback the less risky the project.

The definition of a useful payback period is dictated by a number of factors. The most significant of these would be the useful life of the asset, as any asset purchased should be paid back during it's useful life. Other factors to consider are, risk profile of the business, the type of asset being purchased, the cost of the asset being purchased, how quickly the asset will be superseded because of technological change and, the time the asset will be able to operate under normal conditions.

b. Internal Rate of Return

The Internal Rate of Return (IRR) calculation can be used as a measure of a projects profitability and identify if the amount to be spent on the energy saving project would be better used in another project or placed in an interest bearing deposit. The IRR method takes into account the size of future cash flows and also their timing.

The IRR is usually compared to a benchmark rate of return decided on by the company. This benchmark can potentially be based on net or gross profit of the business, or it may reflect the interest rate the business receives on funds deposited with a particular financial institution. The required rate of return will obviously vary from business to business and from industry to industry. The arbitrary nature of the selection of a required rate of return is a shortcoming with this method.

After the required rate of return has been decided, then an IRR for any particular project can be calculated. If the calculated IRR is higher than the required rate of return then it is appropriate to invest the funds in the respective project. If it were lower, then the funds would be more effective if invested in another area of the business.

c. Net Present Value

The Net Present Value (NPV) method of evaluating an energy efficiency project takes into account the magnitude and timing of future benefits, and therefore, like the IRR methodology is a good indicator of the profitability of a project. Put simply the NPV technique discounts future cash flows back to current rupee terms. This is done because the purchasing power of a rupee a year into future is not equal to that of a rupee now. That is the rupee's value has been eroded due to inflation.

This allows the initial cost of the project to be assessed accurately against the present value of future benefit streams. When benefits and costs are compared, a negative result indicates a net loss to the business, while a positive result represents a net benefit.

In order to calculate the net present value of a project it is necessary to have already determined the number of years that the benefit will flow, the size of the benefit in each period, the initial investment of funds and, the discount rate. Most businesses will have a benchmark discount rate that has been established based on current market conditions. This is the discount rate that should be used when calculating the net present value of a project.