Every business is unique, but we often see 3 metrics emerge as Key Performance Indicators:
1) Energy Spend vs. Budget
2) Production-Normalized Energy Intensity
3) Carbon Intensity
Have you ever received an insert with your utility bill that compares your energy performance to that of your neighbors?
To create a meaningful comparison, they didn’t just compare your home to the one next door. They had to account for different home sizes. In other words, they normalized the data to the square footage of each home.
In industrial facilities, it’s even more complex. Because bills vary with more than just square footage, facilities need different metrics to accurately measure performance.
The Key Performance Indicators (KPIs) our clients use typically fall into three main categories:
Let’s dive into each one.
Industrial facilities don’t just need energy efficiency. They also need to consider the timing of their electricity usage, and they may need to monitor power factor and other charges. For these reasons, it’s not enough to look at energy consumption alone. It’s also helpful to look at total energy costs (also called Energy Spend).
It’s even more helpful to look at energy spend in relation to something else. For example, Energy Cost Intensity is a measure of how much money a company spends on energy compared to throughput. This is important because it’s generally OK if energy spend goes up, as long as throughput does too. This metric is also called Throughput Energy Cost.
Another way to look at energy spend is to compare it to a budget. Many organizations have established budgets for their energy bills so they can plan for upcoming expenses and hold people accountable. Accurate budgeting has become a monumental task in an era of price uncertainty, but even imperfect budgets can help teams manage energy more effectively.
Tracking performance against a budget is especially useful in real time, rather than in retrospect. Daily updates allow people to adjust their behavior before it’s too late. We’ve even seen cases of operators experimenting with different processes and watching the energy impact in real time. This can help others get on board with process improvements.
Energy Intensity measures energy usage in relation to something else. That “something else” could be related to size, throughput, or even weather.
In residential and commercial buildings, Energy Intensity typically refers to energy consumption divided by square footage. This is not a perfect metric, but it works well enough for simple buildings like offices. Some buildings, like refrigerated warehouses, also measure Space Efficiency. This accounts for the volume of a structure, rather than just square footage.
In an industrial facility, the biggest factor affecting energy usage is typically production. That’s why our clients focus a lot of attention on Production-Normalized Energy Intensity, which is a measure of energy usage per widget produced or per pound of product processed. This is also called Throughput Efficiency.
Closely related to Throughput Efficiency is Revenue Efficiency. This measures how much energy is being used per dollar of revenue generated. Revenue varies by more than just throughput, of course, so this provides a much more holistic look at energy performance (but is also harder to troubleshoot when this number goes awry).
Lastly, it’s easy to see why weather can affect energy usage. It’s possible to account for the effects of extreme weather on a utility bill, typically by dividing energy usage by Degree Days. The result is Weather-Normalized Energy Intensity, which makes it easy to evaluate energy performance over time.
Many organizations are now reporting their carbon emissions and setting aggressive emissions reduction goals. Reliable carbon data will become even more important for public companies – and anyone who does business with them – as the SEC rolls out new carbon disclosure rules.
A note about carbon: emissions reductions targets are typically set in absolute terms. In other words, total carbon output must fall, even if production increases. This is important because the planet doesn’t care about Carbon Intensity. It only cares about the total amount of carbon in the atmosphere.
That said, Carbon Intensity – the measure of carbon emissions per unit of throughput or revenue – is what allows companies to make smarter decisions on their journey to Net Zero. Throttling production is not a sustainable strategy.
Carbon Intensity is, in many ways, the ultimate metric. It shows the way to process improvements that help profits and the planet. The companies that manage Carbon Intensity most effectively will gain market share from those who can’t.
Moreover, those that can measure carbon at the level of a specific supplier, product, or customer will better serve their customers’ needs for accurate data – making themselves more attractive as a business partner. This will become imperative for anyone doing business with companies that have a Scope 3 reporting mandate.
Every business is unique. One company’s KPIs don’t easily translate to another company, much less another industry. The units of throughput, for example, will be different in every case.
That said, we often see the following as “go-to” KPIs:
Energy Spend vs. Budget is a quick, high-level snapshot that tells you if you’re on track or not. Production-Normalized Energy Intensity gives you a much deeper and more actionable understanding of your operational efficiency. And Carbon Intensity is the ultimate measure of business efficiency. Together, these KPIs can create a meaningful picture of energy performance in an industrial setting, without adding unnecessary complexity.
Ultimately, each organization will need to create a dashboard of KPIs, since no one metric provides a complete picture of energy performance. The categories above should provide solid guidance to any industrial company looking to manage energy and carbon. An experienced partner can help tease out which metrics make the most sense in each case, and where to start for the fastest return on investment.