Heather Staley: Knowledge is power and good practice

One of the most ridiculed predictions is the claim by US Atomic Energy Commission chairman Lewis Strauss in 1954: "It is not too much to expect that our children will enjoy in their homes electrical energy too cheap to meter." (This is slightly at odds with what I was taught about supply curves in stage one economics.)

Nuclear advocates now say he was referring to forms of electricity generation not yet developed, such as nuclear fusion. After more than 40 years of power generation from nuclear fission, Strauss's prediction seems more naive than ever.

But it makes you think about the relationship between price and value.

Oscar Wilde said that a cynic was a man who knew the price of everything but the value of nothing. (I've also heard that said about economists - or was that accountants?)

If you pay too little for something, you are less likely to value it. If a new BMW cost the same as a Japanese import, would it maintain its desirability?

Many of New Zealand's manufacturing business leaders believe their problems will be solved if they can get the price of electricity as low as possible. They cling to a cargo cult mentality that lobbying for adjustment of the electricity sector's rules to reach the nirvana of true competition is the only way to deal with rising energy bills. Since their aim is to increase company value and profits, it's logical they would want to keep the costs of their inputs down.

But by looking outwards at the cost of considering their own business operations, they are missing out on wonderful opportunities to become truly competitive themselves.

When electricity is too cheap, it is not valued. Steam is left to hiss from joints in pipes, compressed air is pumped into space, motors run inefficiently, lights get left switched on when nobody needs them and maintenance programmes are less rigorous than they might be, because it doesn't seem worthwhile to invest in energy efficiency.

Relying on cheap energy breeds complacency and lack of discipline. In today's deregulated market, it leaves the user exposed to sharp spikes in price when the lakes don't fill up on time or a substation trips out.

Manufacturers might think their plants are already as efficient as they can be. But are they keeping pace with the latest developments? Maybe their plant was efficient five years ago, but better equipment and practices have been developed. Are their performance indicators such as energy per unit of product improving?

Getting on top of energy use by thorough measurement and monitoring is an ideal way to control all sorts of business costs and one of the obvious first steps in good management that gets overlooked.

Knowledge is power. If a company's energy-use patterns are predictable and controllable, the information can be used to leverage favourable electricity contracts.

And let's face it, letting expensive plant lie idle due to breakdowns or inadequate control of processes is not a good use of capital. Good energy data enables the optimal use to be made of equipment, even diversifying into new product lines that will bring in extra revenue.

Getting efficient in energy use brings other benefits such as reducing wastage of other raw materials and improving plant safety.

And perhaps most important, investment in energy efficiency provides a new profit source. Many energy efficiency projects are more profitable than selling more products.

This time next year, when I'm looking back at 2006, I'd like to say that it was the year when New Zealand business seized the profit opportunities that come from energy efficiency. 

* Heather Staley is chief executive of the Energy Efficiency and Conservation Authority