Energy prices are rising rapidly leading to globally increasing - - PowerPoint PPT Presentation
Turning Green into A Source of Competitive Advantage National Energy Efficiency Conference 2012 September 20, Singapore Energy prices are rising rapidly leading to globally increasing Rapidly rising oil prices electricity prices
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SOURCE: McKinsey; EIA – Reference case; McKinsey Global Power Model
3.7 6.0-8.0 3.6 5.0-7.0 3.5 4.0-5.0 2.6 3.5-4.5 2.2 6.0-10.0 2.4 2.0-2.6 1.1 2015 1.5-2.5 2006 U.S. cent/KWh, real
…leading to globally increasing electricity prices Rapidly rising oil prices…
$/barrel (Real terms in 2009 $) 10 20 30 40 50 60 70 80 90 100 110 2025 2015 2020 2010 1995 2005 2000 +2% p.a. 60-120% 40-100% 10-40% 30-70% 170-350% ±20% 30-130%
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Percent of total costs, %
SOURCE: Global Insights; Mining Association of Canada; AME; EPA McKinsey analysis; Need.org; EIA glass report; CIPEC;CPBIS; UNIDO 2011, UN
5 7 10 12 15 15 24 30 30 32 Food and beverage Oil refining Glass Paper & Pulp Chemicals1 Metal ores mining Coal mining Cement Steel Aluminium
1 Based on US basic chemicals plants. Costs may vary by region and nature of chemical
Top 10 industries with the highest share of energy costs
245 482 123 62 59 428 86 17 131 185 Absolute annual global energy costs, US$ bil Industry
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Range of energy savings with payback of up to three years
Percent of total energy cost
Impact achieved Min Max
SOURCE: McKinsey, UNIDO 2011, Global Insights
10 20 30 40 50 Industry sector Food and beverage Improvement potential, US$ billion 10-15% Average Oil refining 13-20 Steel 24-72 Coal mining 3-9 Chemicals 43-128 Pulp and paper 9-13 Glass 5-7 9-93 ~340 Aluminum 73-86 Cement 25-31 Metal ores mining 6-9
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1 Limits of Quartile 1 approximate as actual limit changes with every survey 2 In 2010 Shell Malaysia reported an annual cost of sales of $3.3 billion. Assuming energy cost to be 7% of annual cost of sales and that Shell can reduce energy cost by 40% to move up to Quartile 1 SOURCE: Solomon Associates, Annual reports 2010 – Shell Refining Company Malaysia, Reliance Industries, McKinsey
Solomon’s Energy Intensity Index (EII)
EXAMPLE
Quartile 11 Quartile 41 150 140 130 120 110 100 90 80 70 60 50 Reliance Jamnagar Refinery (most energy efficient refinery WW)
“Mediocre” Refinery
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Cost reduction sustainability among the S&P 500 Percent of companies 10 100 Year 4+ Year 3
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Year 2
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Year 1
57
Year 0 Initiated cost reduction Failed to achieve cost improvement Failed to maintain improvement Sustained Improvement
SOURCE: Bloomberg; Factiva; Transformation Compendium; Beer and Nohria; Conference Board report (Fortune 500 interviews)
90% of all transformation efforts fail to sustain improvement after 4 years
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“… leadership mindset…” “… capabilities to sustain …” “… accountability …” “… misaligned aspirations …” Factors contributing to failures Miscellaneous 14% Insufficient Resources 14% ~70% Employee resistance ~39% Management behaviour ~33%
SOURCE: McKinsey research
Typical reasons
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T12
T2 T3 T5 T6 T4 T8 T9 T7
Energy value chain Current state analysis Theoretical limit Load curve Process parameter analysis Network loss analysis Motor analysis Contracts Pinch analysis Energy loss framework
Create energy consumption baseline along energy value chain Identify minimum level of energy consumption Map and quantify energy as it flows through system Identify energy losses Quantify operational losses (distillation column as example) Quantify losses due to sub-optimal control of key para-meters (furnace as example) Quantify losses due to sub-optimal reuse of heat (heating network as example) Structure and
T10
Cost curve
Quantify losses due to energy demand- supply mismatch (cooling systems as example) Quantify losses in distribution networks (compressed air system as example) Quantify losses due to inefficiencies in motors and their applications
T11
Energy sourcing
Determine right sourcing strategy
T1 SOURCE: McKinsey
TS
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Losses
SYSTEM OUT IN
SOURCE: McKinsey
TS
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SOURCE: McKinsey
Resource Efficiency Deployment Engine (Web-based system) Proprietary database of energy saving levers Instant estimation of energy and CO2 savings Detailed explanation on how to execute lever End-to-end project management of initiative
TS
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Energy performance review Performance monitoring Implementation road map Performance dialogues Transformation design
M2 M4 M1 M3 M5
Develop insights on management and people system diagnostics Design effective KPIs, targets and performance dashboards Prioritize and sequence initiatives to draw up transformation workplan Develop system and practice coaching employees Understand overall transformation framework: technical, management and people systems
SOURCE: McKinsey
MS
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Heat exchanger performance Heater inlet temperate (C) Time Furnace efficiency Energy output/energy input (%) Time Quality of distillate Gas oil flash point (C) Time Flue gas outlet temperature C Time Oxygen level Percentage of excess O2 (%) Time Energy consumption Energy/distillate (t SRF/100 t-crude) Time
Energy index of plant Energy efficiency of equipment Percentage of process target in control Energy performance dashboard Plant: Date: Responsible:
Target Actual
Heat exchanger cleaning Soot blower broken
MS
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P2 P4 P1 P3
Communication and influencing techniques Root cause problem solving Continuous improvement Conflict management
Learn storytelling and influence model to motivate organization Diagnose key drivers and develop solutions Learn best practices in sustaining ongoing transformation impact Practice resolving conflicts
30In all interactions, we need to be cautious of two forms of potential conflicts – overt and covert
High Passive – “I don’t really matter” ▪ Don’t express needs, opinions or feelings ▪ Don’t speak up even as others violate their rights ▪ Avoid conflict even at own discomfort Assertive – “Take control of your own life” ▪ Respect needs, opinions, and feelings ofSOURCE: McKinsey
PS
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following an expert
without leading
group of experts and maintain knowledge
integrated people and transformation programs
SOURCE: McKinsey
PS
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Knowledge retained from different learning approaches
SOURCE: McKinsey
Knowledge retained
10%
Learning by Hearing Seeing Doing Doing
Books and PowerPoint Simulations and games Pilot for a lean transformation Shop floor training
Concept experienced Transformation executed Experience gained Theory understood Adults learn best through learning- by doing
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DISTILLATION LEARNING STATION HEAT EXCHANGERS LEARNING STATION FURNACE LEARNING STATION FIN FANS LEARNING STATION COOLING WATER SYSTEM LEARNING STATION AIR COMPRESSORS LEARNING STATION DISTILLATION LEARNING STATION HEAT EXCHANGERS LEARNING STATION FURNACE LEARNING STATION FIN FANS LEARNING STATION COOLING WATER SYSTEM LEARNING STATION AIR COMPRESSORS LEARNING STATION
SOURCE: McKinsey
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Real-life case on transformational journey Realistic role-plays Proprietary toolbox Interactive apps 1 2 3 4
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Implement and sustain “Sustain implementation progress” Design “Design transformation roll-out” Diagnose “Identify losses, define levers” Prepare “Build baseline”
Energy Consumption Time How do I create a transformation with How do I design a How do I ensure ubstantial impact so there is a convincing case for change? ustainable impact where my team has the right mindset and capabilities to drive continuous improvements? calable transformation where the blueprint can be replicated and cascaded? Inflexion points
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SOURCE: McKinsey
Operations manager “I am more concerned about throughput, quality and safety” Technical & planning manager “I am very busy” Operator “I just do what I’m told to do” “I set the targets” Plant manager “I seldom communicate directly with the operators” HR & corporate transformation director “Energy is not part
Maintenance manager “Yet another corporate initiative…” Shift supervisor
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Cost curve T10 Root cause problem solving P1 People system Technical system Management system Theoretical limit T3 Energy value chain T1 Current state analysis T2 Energy sourcing T11 Contracts T12 Network loss analysis T8 Energy performance review Transformation design M1 Performance dialogues M5 M2 Continuous improvement P4 Communication and influencing techniques P3
Module number
Load curve T5 Pinch analysis T7 Motor analysis T9 Performance monitoring M3 Implementation road map M4 Process parameter analysis T6 Energy loss framework T4
SOURCE: McKinsey
Prepare Implement and sustain Design Diagnose
Conflict management P2
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SOURCE: McKinsey
Duration Objective
Understand drivers of success behind Green transformations
Acquire tool-kit for an end- to-end Green transformation
months Develop full capabilities for a Green transformation
Provide Green transformation capabilities to SME segment For CxOs Change leaders Energy managers SMEs
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efficiency represents a massive
most Green transformations fail
a capability driven Green transformation approach was developed … …brought to life by the Green Campus…
life by the Green Campus in Singapore