Energy Risk Management in Food Manufacturing
It will not surprise the readers of this publication that the trade is energy intensive. The BEA reports that the manufacturing of food, beverages and tobacco products (FBT) consumes around 15 percent of the total U.S. manufacturing energy inputs. In particular, food processors are second only to chemical companies in the non-durable goods sector in the use of thermal energy. The share of energy consumption has gone up steadily between 1997 and 2009, with the recent recession breaking this trend.
Energy productivity, the ratio between value-added shipments and total energy cost, is an important indicator for managers of food processing companies. Like all operating indices, managers expect this to be at standard, or even continuously improve. How can this be done without increasing risk?
I’m happy to report good news: In recent years much has changed on this topic, creating new options and strategic opportunities. Most readers will, of course, know about the natural gas boom, and the resulting supply glut has created low-cost thermal supply. Since natural gas and electricity are also closely related, electricity costs have come down for the last few years as well, although these are now going back up. But there’s more.
This year, the Southern Power Pool (SPP) is completing its ‘Integrated Marketplace’ initiative. The SPP is the last of the major Independent System Operators (ISO) to install accessible wholesale electrical energy markets (See Figure 2). These markets serve the preponderance of the populated sectors of the country, and provide structured access to wholesale electricity markets.
Wholesale markets differ from retail access in that there is no other ‘selling’ party. In a conventional energy supply chain, food processors buy the commodity from one company, then pay a local utility to transport the commodity to the point of use.