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Energy Efficiency For Manufacturers

In today’s world, manufacturers need to squeeze every penny out of their cost structure. Energy, in particular, electric costs, takes a big bite out of that pie. There are a number of factors at work that are creating upward pressure on electric rates:

1. Cheap and plentiful natural gas. Utilities have traditionally taken a “balanced portfolio” approach when it comes to their energy supply. Many have a mix of coal, natural gas, hydroelectric, wind and biomass. And in some cases (such as Xcel Energy), nuclear power is in that mix. Cheap natural gas prices are causing utilities to shift more of that portfolio to natural gas generated electricity. However, unlike changing the investments in your retirement portfolio, changing the mix of energy supply takes significant investment. The transition has high transaction costs.

2. Environmental and safety regulations. There are a number of environmental regulations that are affecting the cost of operating coal plants to generate electricity. Utilities are considering whether they should spend money to upgrade the plants and keep them running, or retire them and look for alternate (natural gas) supply. Safety regulations are affecting nuclear power plants. There have been new regulations implemented since the Fukushima disaster that are causing increased costs for those resources.

3. Renewable mandates. Many States are mandating a certain percentage of the energy supply come from renewable energy sources. While Minnesota utilities have been very successful in developing wind as a cost-effective resource, the challenge from the MN Legislature is to do the same for solar. Although this mandate is a very small portion of the resource portfolio, costs of solar are more expensive the traditional resources, and initial development will put an upward pressure on rates.

What manufacturers can do:

1. To manage your energy bill, you need to measure it. Don’t just pay attention to the bottom-line billing, but look at how much electricity and demand you use and develop a strategy to manage it. Utilities in MN are required to offer conservation programs. Contact your utility representative and ask them for ideas on how your facility can trim its energy usage.

2. The Center for Energy and Environment (CEE) is offering a pilot energy-efficiency program for small industrial customers of Xcel Energy. “Energy Intelligence for Industry” is offered at no cost and places energy monitoring equipment at your electric meter to give you real-time feedback. If you can monitor how much energy you are using to make your product, you can manage it better. In addition, our engineers conduct an assessment of your facility — lighting, motors/drives, compressed air, and other systems to identify 5% or more in energy savings. Xcel Energy rebates and project financing can help you implement the recommendations for savings. Contact Kevin Bengtson, CEE, 612-335-2651,

Andrew Thom, CPA, CPE, is AEM’s Manufacturing Segment Leader. When he’s not navigating southern Minnesota waterways in his kayak, he’s helping clients navigate changes in their business. You can reach Andy at 507.304.6830 or at

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