Energy consumption
Strategic perspective
Corporate social responsibility perspective
Key performance question this indicator helps to answer
To what extent are we reducing our energy consumption?
Why is this indicator important?
The worldwide consumption of energy is constantly increasing while the world’s fossil resources (the main sources of energy) are becoming more limited, and as a consequence energy prices are rising. We can make the fair assumption that energy prices will continue to increase and that environmental protection will become an increasingly important issue (and possibly a competitive differentiator as consumers become more conscious of the environmental impact their consumption has).
As a business it therefore makes financial and ethical sense to invest in energy-saving projects and renewable energy solutions. What’s more, many governments are now taking energy consumption seriously. For example, the UK government has recently passed legislation called the Carbon Reduction Commitment which means that businesses that consume more than 6,000 megawatt hours (MWh) a year must register for a carbon-trading system and identify their annual CO2 carbon-reduction performance.
Tracking energy consumption provides companies with an insight into how much money they are saving and how much they are helping the environment. The easiest way to track energy consumption is by the amount of energy purchased.
How do I measure it?
Data collection method
Your energy supplier will provide your consumption and the cost of the energy you have purchased. You can simply use this information for your KPI.
Formula
Total amount of energy purchased in a given time period.
Frequency
Depending on your billing period, you can collect this data monthly or quarterly.
Source of the data
The data will come from your energy supplier.
Cost/effort in collecting the data
Because this data are provided by an external supplier there are no costs to you.
Target setting/benchmarks
It is impossible to provide a benchmark or target for energy consumption because energy usage varies enormously across industries and companies. The best way to set targets initially is to create an internal benchmark of your current consumption and then set a target of, say, 15–20% net reduction per year.
Example
Nestlé, which refers to itself as the world’s leading nutrition, health and wellness company and owns brands such as Nescafé, Pure Life, KitKat, Häagen-Dazs, Purina, Smarties, Shreddies and Munch Bunch, has set itself a target of becoming the most energy-efficient food manufacturer. Since 2000, Nestlé has reduced its energy consumption by almost 3% while increasing its production volume by 73%. Nestlé seeks to achieve energy-efficiency improvements of at least 5% in each of its key product categories over the next five years, and will continue to investigate the setting of energy consumption targets by product category.
Another company that is committed to reducing total energy use is mobile phone and communications giant Vodafone, which has adopted this as one of its strategic KPIs listed in its annual report.
Governments which have signed up to carbon reduction targets are keen to monitor and reduce energy consumption in public sector and government organisations. Take, for example, Nottingham Trent University which has energy consumption as one of its publicly reported KPIs:
Tips/warnings
As many executives still struggle to understand what a saving of 500,000 kilowatts means, it is useful to express the numbers in actual costs as well.
Many experts now advise that establishing the energy costs per unit of output (e.g. each product or service your business produces or offers) allows everyone to understand the proportion of costs linked to energy and therefore the implications of reducing energy consumption on profit margins and bottom-line performance.
References
www.vodafone.com/content/annualreport/annual_report08/performance/corp_responsibility/kpis.html
www.ntu.ac.uk/ecoweb/document_uploads/94617.pdf
http://archive.defra.gov.uk/environment/business/reporting/pdf/envkpi-guidelines.pdf