Energy ProductivityEnergy Productivity“A Competitive Prerequisite”“A Competitive Prerequisite”

Peter GarforthPeter GarforthPrincipal - Garforth International llcPrincipal - Garforth International llc

What we pay for What we pay for Gas, Electricity,Gas, Electricity,

Petrol....Petrol....

Energy weEnergy weuseuse

Energy weEnergy wewastewaste

Approximately 13% of Global GDPApproximately 13% of Global GDP

Global Cost of EnergyGlobal Cost of EnergyGlobal Cost of EnergyGlobal Cost of Energy

$ 5.0 Trillions$ 5.0 Trillions

Global Energy - New RealitiesGlobal Energy - New RealitiesGlobal Energy - New RealitiesGlobal Energy - New Realities

Highest energy prices in historySustained upward pressure and volatility

Dependence on importsUSA - Oil (65%) and natural gas (1.5%)EU – more than 50% of all energy

China & India - major new energy customers High USA energy intensity

Nearly twice European Union

Radically different climate change policiesEU, US, China, India… – different policy paths…

Fundamental difference from pastFundamental difference from past

Energy Productivity DifferencesEnergy Productivity DifferencesEnergy Productivity DifferencesEnergy Productivity Differences

RegionRegion PopulationPopulation GDPGDPEnergyEnergy

TotalTotal

Energy / Energy /

CapitaCapitaEnergy / Energy /

GDPGDP

USA 100 100 100 100 100EU-15 130 95 65 50 69RoW 1910 94 246 13 261

Opportunity for best practice sharing Opportunity for best practice sharing *Various US/EU Sources – 2004 Estimates

Energy prices globalizing

Energy use in USAEnergy use in USA26 % of Global Demand26 % of Global Demand

Energy use in USAEnergy use in USA26 % of Global Demand26 % of Global Demand

Industry Homes & Buildings Transportation

Most energy lost in range of inefficienciesGeneration, transmission distribution of electricityIndustrial processes, buildings, vehicles…&c

Only 5% to 15% used productively

Pay for a 100 and get 10!Pay for a 100 and get 10!*Indicative ratio of US average to global best practice

35% (1.2 : 1)

40% (2.0 : 1)

25% (1.4 : 1)

Sources: BP Statistical Review of World Energy June 2004 EIA International Energy Outlook 2004 Projection based on IMF 5% GDP Growth Rate

China IndustrializesChina IndustrializesChina IndustrializesChina Industrializes

EU-15EU-15

USAUSA

Climate ChangeClimate ChangeClimate ChangeClimate Change

Evidence that human activity affecting climate Coal, oil,& gas create most greenhouse gases Dialog to cut GHG Emissions - Rio de Janeiro

Conference in 1992 CO2 levels highest level in 650,000 years Temperature rise 1.5 and 6 deg C forecast Climate changes may be abrupt

Major impacts on energy policyMajor impacts on energy policy

Greenhouse Gas LevelsGreenhouse Gas LevelsGreenhouse Gas LevelsGreenhouse Gas Levels

* John Houghton – UK Met Office et al

TodayToday

2100 BaU2100 BaU

Lowest possible 2100Lowest possible 2100 Today??Today??

160,000 yrs* of ice core data160,000 yrs* of ice core data

Climate Change QuandaryClimate Change QuandaryClimate Change QuandaryClimate Change Quandary

Most countries plan to reduce greenhouse gases Kyoto Protocol in 1999 agreed limits Treaty in force – February 2005 Carbon reduction trading has started

Europe ~ $28 per Metric Ton Chicago at ~ $ 1 per Metric Ton Other markets at $5 -$15 per Metric Ton

US, India, China… have voluntary programmes Regulations expected in some US States

How to value GHG Reduction Investments?How to value GHG Reduction Investments?

Management PerceptionsManagement PerceptionsManagement PerceptionsManagement Perceptions

50% “Energy is a predominantly operational issue” 37% “Energy is a purely operational issue” 12% “Energy is a strategic business issue”

Only 17% have a single Energy Executive Most report in operations or EH&S

40% report “in some way” on energy Usually incidentally and non-numerically

30% claim to have an energy policy Most as part of environmental statements

Few have coherent climate change strategy

*Strategic Energy Management-The State of the Debate– The Conference Board 2004

Opportunity to gain competitive edgeOpportunity to gain competitive edge

Electricity ChainElectricity ChainElectricity ChainElectricity Chain

Growing demand for natural gas!Growing demand for natural gas!

Industry30% of total

Wasted Heat

Source: US DoE EIA

CoalCoal

GasGas

NuclearNuclear

RenewableRenewable

ConversionConversionLossesLosses

From Fuel to ApplicationFrom Fuel to ApplicationFrom Fuel to ApplicationFrom Fuel to Application

Rigid market structures – engrained thinking Overwhelms efficiency and new technology High-assets / low returns

ApplicationProcessDistributionConversionFuel

Time to rethink?Time to rethink?

Coal in Cold BeerCoal in Cold BeerCoal in Cold BeerCoal in Cold Beer

Transmission loss ~ 3Transmission loss ~ 3Transmission loss ~ 3Transmission loss ~ 3

Distribution loss ~ 3Distribution loss ~ 3Distribution loss ~ 3Distribution loss ~ 3

Heat ~ 70Heat ~ 70Heat ~ 70Heat ~ 70

Conversion loss ~ 15Conversion loss ~ 15Conversion loss ~ 15Conversion loss ~ 15

Is there better deal?Is there better deal?Coal = 100Coal = 100

Cold Beer = 9Cold Beer = 9

From Application to FuelFrom Application to FuelFrom Application to FuelFrom Application to Fuel

Change the questions“How much energy do I need for the application?”“Will renewable energy or cogeneration be a good choice?”“How can I team with the grid to make win-wins?”“What are optimum investments in efficiency and supply?”

Change the outcomesImproved energy productivityReduced GHG and other emissionsInvest in efficiency, renewable and new technologyEnhanced competitiveness

Application Process Distribution Conversion Fuel

Different questions – different answersDifferent questions – different answers

Owens Corning's ExperienceOwens Corning's Experience1999 to 2003 to…..1999 to 2003 to…..

Help others save energyHelp others save energy Help others save energyHelp others save energy

$US 5Bn global sales 19,000 employees Building Materials Composite Systems

Reduce energy use Insulation, vehicle

weight...

Energy costs $US 260Million in 1999 5% of sales 80% of profits

How well did they do?How well did they do?

Way energy usedWay energy usedin processesin processes

1999 Declared New Game1999 Declared New Game1999 Declared New Game1999 Declared New Game

ImprovedImprovedProcurementProcurement

EnergyEnergyTechnologyTechnology

EnergyEnergyEfficiencyEfficiency

Energy Mission: PossibleEnergy Mission: Possible20% Energy Cost Reduction20% Energy Cost Reduction

$260 Millions$260 Millions

First Reactions…..First Reactions…..First Reactions…..First Reactions…..

“It’s not a high priority…” “Our energy buyers have got the best deals…” “Our engineering is 100% perfect… here’s reams of data

to prove it…” “It’s been OK for 50 years ..why change?…” “We can’t have strangers touch the process…” “You’re in marketing….” “The leadership isn’t serious…” “Someone tries this about every five years…” “We know what’s needed…but “they’” reject investment

This too shall pass !!!This too shall pass !!!

Multi-pronged approach..Multi-pronged approach..Multi-pronged approach..Multi-pronged approach..

Senior management sponsorship Corporate Energy Leader Clear goals Employee engagement

Plant leadership goals Plant energy teams

Revitalized energy procurement Consolidated demand Teamed with experts

Formed energy efficiency capital / skill pool New production technology Recognition – Rewards - Consequences

Consistent long-term senior commitmentConsistent long-term senior commitment

Keep Scorecards SimpleKeep Scorecards SimpleKeep Scorecards SimpleKeep Scorecards Simple

Energy Mission: Possible

2002 Scorecard Summary

January - July, 2002

Composites Solutions Business

Target Performance vs. TargetUOM $US/UOM 2002 YTD vs 2001 vs 2000 Target vs Target 2002 YTD vs 2001 vs 2000 2002 YTD vs 2001

Glass Ton $ 110.46 $108.98 -11% -2% $110.46 -1% 5.03 -4% -4% $4.48 -18%Conversion Ton $ 60.36 $61.46 -8% 7% $60.36 2% 3.01 8% 18% $3.01 -18%Asphalt Ton $ 5.92 $5.78 -12% N/A $5.92 -2% 0.30 4% N/A $4.71 -23%

Energy Types Included: Electricity, Natural Gas, & Oxygen Source: MPE mwhr -May

Insulating Systems BusinessTarget Performance vs. Target

UOM $US/UOM 2002 YTD vs 2001 vs 2000 Target vs Target 2002 YTD vs 2001 vs 2000 2002 YTD vs 2001Wool MLbs $39.43 $37.96 -13% -9% $39.43 -4% 1.63 -5% -11% $3.60 -24%Foam MBft $3.56 $3.66 -8% -6% $3.56 3% 0.077 -4% -3% $3.95 -46%

Energy Types Included: Electricity, Natural Gas, Oxygen, Compressed Air, Steam, & Propane Source: ISB Monthly Energy Report

Exterior Systems Business

Target Performance vs. TargetUOM $US/UOM 2002 YTD vs 2001 vs 2000 Target vs Target 2002 YTD vs 2001 vs 2000 2002 YTD vs 2001

Roofing Square $0.236 $0.196 -25% N/A $0.236 -17% 7.23 -4% N/A $4.94 -23%Cultured Stone MSft $44.84 $50.597 2% N/A $44.837 13% 1.38 -20% N/A $5.33 -39%

Energy Types Included: Electricity, Natural Gas, & Oxygen Source: 2002 Energy MP Report ESB(Master) Data Notes: Completeness of data varies by plant location

Siding Solutions BusinessTarget Performance vs. Target

UOM $US/UOM 2002 YTD vs 2001 vs 2000 Target vs Target 2002 YTD vs 2001 vs 2000 2002 YTD vs 2001Metals MLbs $39.99 $35.55 -20% N/A $39.99 -11% 0.41 -14% N/A $4.08 -13%Vinyl MLbs $9.93 $11.63 5% N/A $9.93 17% 0.25 0% N/A $8.67 12%

Energy Types Included: Electricity, Natural Gas, & Oxygen Source: 2002 Energy MP Report ESB(Master) Data Notes: Completeness of data varies by plant location

Note: MWh/UOM columns include all energy sources, including electrical, natural gas, propane, oxygen, and purchased compressed air. Natural gas and propane decatherms are converted to MWh using standard conversion factors. Oxygen and purchased compressed

$/Decatherm

$/Decatherm

Commitment (Target): Reduce total energy costs 10% vs. 2001

$/Decatherm

MWh/UOM

$/UOM vs 2001-12% -2%

$/Decatherm

MWh/UOM

MWh/UOM

MWh/UOM

$/UOM

Average Change for All BU's

$/UOM

$/UOM

$/UOM

Commitment (Target): Reduce total energy costs 10% vs. 2001

Commitment (Target): Reduce total energy costs 10% vs. 2001

Commitment (Target): Reduce total energy costs 10% vs. 2001

$/UOM vs 2000-3%

MWh/UOM vs 20000%

MWh/UOM vs 2001

CEO’s Monthly Energy ReportCEO’s Monthly Energy Report

..and have some fun!..and have some fun!..and have some fun!..and have some fun!

Visualizing efficiency in Indian plantVisualizing efficiency in Indian plant

““Cool Company” AwardCool Company” Award““Cool Company” AwardCool Company” Award

Declared energy to be manageable costDeclared energy to be manageable cost

Results After Four YearsResults After Four YearsResults After Four YearsResults After Four Years

Energy cost from $260M to $220M / year Total capital invested – less than $20M Increased production 18% Absorbed 10% energy price increases Energy productivity gain of $80M Improved employee energy awareness Substantial emissions reduction Champion energy plants also had highest

quality, waste, safety….

$80M Productivity…more to go!$80M Productivity…more to go!

Sources of GainsSources of GainsSources of GainsSources of Gains

ImprovedImprovedProcurementProcurement

ImprovedImprovedProcurementProcurement

Low Cost/No CostLow Cost/No CostEmployee TeamsEmployee Teams

Low Cost/No CostLow Cost/No CostEmployee TeamsEmployee Teams

Capital ProjectsCapital Projects(Externally Driven)(Externally Driven)

Capital ProjectsCapital Projects(Externally Driven)(Externally Driven)

Capital ProjectsCapital Projects(Employee Driven)(Employee Driven)

Capital ProjectsCapital Projects(Employee Driven)(Employee Driven)

TotalTotal$80M$80MTotalTotal$80M$80M

The Game Continues…..The Game Continues…..

Average Return ~ 22%

Average Return ~ 22%

The game continues..The game continues.. The game continues..The game continues..

Ruthless pursuit of energy productivity “Plant-of-the Future” Pilots

Raise energy productivity another 30% Explore all options Efficiency, renewable, cogeneration Green incentives etc.

Manage Greenhouse Gas worldwide System wide spotlight on productivity Potential new cash-flows from carbon credits

Team with Suppliers and Customers Manage energy productivity along the value chain Avoid costs and discounts

Energy Productivity = Normal ProcessEnergy Productivity = Normal Process

Other ExperiencesOther Experiences

BASF - Total Resource ViewBASF - Total Resource ViewBASF - Total Resource ViewBASF - Total Resource View

Courtesy of BASF AG

BASF ResultsBASF ResultsBASF ResultsBASF Results

Results 1990-2004 Market leader 37% energy productivity gain Heat strategy avoided 3.4 Million MT Oil equiv/yr 34% CO2 emissions reductions

Goals & Management model Senior sponsorship Systematic integrated long term approach

Features Energy management with normal process tools Global data base – data back to the 70’s Heat and electricity deeply integrated – no waste heat!

““Maximize efficiency through Verbund…”Maximize efficiency through Verbund…”

Toyota’s View of the CorporationToyota’s View of the CorporationProduction Sub-Committee (1 of 3)Production Sub-Committee (1 of 3)Toyota’s View of the CorporationToyota’s View of the Corporation

Production Sub-Committee (1 of 3)Production Sub-Committee (1 of 3)

Courtesy of Toyota Ltd

Toyota ResultsToyota ResultsToyota ResultsToyota Results

ResultsMost profitable global car company24% energy productivity gain 1990 to 200349% GHG productivity gain 1990 to 2003

Goals & Management modelSenior sponsorshipYear on year targets – integrated approachCradle to Grave: Car Design – Manufacturing - Lifetime

FeaturesAnnual reports from 1999 – data from 1990Suppliers’ energy includedRegular “Energy Treasure Hunts”

““Alleviate impact of automobiles…”Alleviate impact of automobiles…”

Unilever – Global ManagementUnilever – Global ManagementUnilever – Global ManagementUnilever – Global Management

Energy (GJ) /TonneEnergy (GJ) /Tonne Carbon-dioxide (kg) /TonneCarbon-dioxide (kg) /Tonne

Total Energy (MGJ)Total Energy (MGJ) Total Carbon-dioxide (MMT)Total Carbon-dioxide (MMT)

Unilever is committed to meeting the needs of customers and consumers in Unilever is committed to meeting the needs of customers and consumers in

an environmentally sound and sustainable manner, through an environmentally sound and sustainable manner, through continuous continuous improvementsimprovements in environmental in environmental performanceperformance in all our activities. in all our activities.

Unilever – Local ResultsUnilever – Local ResultsUnilever – Local ResultsUnilever – Local Results

Canada - $4 M / year USA - $30M / year Italy – 3,000 truck

trips/year UK – 1,000 truck trips ……

Energy Productivity ImpactEnergy Productivity ImpactEnergy Productivity ImpactEnergy Productivity Impact

Sales 100

Materials 35

Labour 30

Energy 10

Gross Margin 25

Marketing & Sales 10

R&D 2

G & A 5

Operating Profit 8

Taxes and Interest 2

Net Profit 6

“Only 2.7% product cost reduction”

“Only 2.2% operating cost reduction”

“Only 2% of sales”

What would 20% energy What would 20% energy productivity gain mean?productivity gain mean?

What would 20% energy What would 20% energy productivity gain mean?productivity gain mean?

..or 20 % increase in net profits..or 20 % increase in net profits

What is Real Energy Cost?What is Real Energy Cost?What is Real Energy Cost?What is Real Energy Cost?

Fertilizer

Agro Machines

Irrigation

Transport Processing Transport

Major energy costs in materials Opportunities to team in value chain

Effective Energy ManagementEffective Energy ManagementEffective Energy ManagementEffective Energy Management

High level sponsorship Strategic competitive issue Energy Leadership Clear energy strategy Goals and accountability Measure and communicate Clear climate change strategy Common metrics Bar constantly raised 20% -30% productivity advantage

The Story Doesn’t ChangeThe Story Doesn’t Change

Copyright Clinton International LLC

Energy is a manageable cost…Energy is a manageable cost…not an act of God!not an act of God!

Energy is a manageable cost…Energy is a manageable cost…not an act of God!not an act of God!

Winners manage it effectively!Winners manage it effectively!

Thank You !Thank You !

Contact InformationContact InformationContact InformationContact Information

Peter Garforth

Garforth International llc2121 Boshart Way

Toledo, Ohio 43606, USA

Tel: +1 419 578 9613Fax: +1 419 578 6861

Mobile: +1 419 320 0664Email: garforthp@cs.com

Peter Garforth

Garforth International llc2121 Boshart Way

Toledo, Ohio 43606, USA

Tel: +1 419 578 9613Fax: +1 419 578 6861

Mobile: +1 419 320 0664Email: garforthp@cs.com

Peter GarforthPeter GarforthPeter GarforthPeter Garforth

Strategic energy productivity advisor: Corning Inc, California Energy Commission, Owens Corning, US

Energy Star Industries, US Department of Energy, MVV AG … Senior corporate management

VP Strategy–Owens Corning– Ohio / Landis & Gyr – Switzerland Director – Honeywell – Brussels, Tehran, Netherlands & USA

Advocate for the rational use of energy Founder “European Business Council for Sustainable Energy

Future” Former Chair “International Institute for Energy Conservation” Co-Chair of International Committee of Alliance to Save Energy

Energy business experience in Europe and USA Industrial, residential and commercial energy productivity

services Lecturer at Purdue University

“Economic & Business Aspects of Energy – A Global View”

Energy – The ability to do workEnergy – The ability to do workEnergy – The ability to do workEnergy – The ability to do work

1. You can’t win!“Energy can be neither created not destroyed”

2. You can’t break even!“Quality of energy is irreversibly degraded”

3. You can’t get out of the game!“Absolute zero is unattainable”

*As paraphrased by CP Snow 1905-1980