Voices: Energy Expert

Energy Expert explores the growing range of energy related opportunities and risks facing today’s Energy Manager. Peter Garforth draws from his considerable track record in establishing successful energy productivity programs that create profitable business solutions and enhanced competitiveness.

Remember the true cost of energy

Peter Garforth asks how does your plant ensure productivity.

By Peter Garforth

The return on investing in energy productivity is defined by the energy costs the investment avoids. This seemingly obvious statement all too often takes us down pathways that result in valuable energy efficiency measures being refused. In reality the avoided cost of energy is often far from simple. More importantly, it is often far greater than estimate in the investment request.

I was reminded of this at a recent meeting in a factory with significant expansion planned. This caused a number of energy-related issues to rise to the surface. The expansion could not be met with the existing connected capacity from the grid. The utility was more than happy to increase the capacity in exchange for a considerable amount of money.

The first discussion was around efficiency potential and whether this could fill the gap and avoid the need for added capacity. A two-to-three-year sustained efficiency program including significant rearrangement of heat management could probably bring home a respectable 20-30% efficiency gain. Not enough to meet the growth needs, but certainly a step in the right direction.

The next obvious discussion considered on-site generation or cogeneration to close the gap and avoid the need for added capacity. It could also possibly enhance the overall efficiency of the plant by creating an opportunity to rethink the heating and cooling structure using cogenerated heat.

How should these measures be evaluated in terms of avoided energy costs? Combined, they could avoid the need to pay for capacity expansion, so at a minimum the efficiency and on-site supply investments should probably be offset by the avoided one-time charge to increase capacity. The efficiency measures, including thermal realignments, reduce the overall need for energy. Should this avoided cost be estimated at today’s or tomorrow’s estimates of utility prices or at some new future blended pricing from a mix of grid and on-site generation?

The efficiency measures would almost certainly lower operating and maintenance costs of the plant. By any reasonable definition this is a cost savings resulting from energy efficiency investments and should be included as such. On the other hand, the addition of on-site cogeneration would add to the overall operating costs, and these should realistically be counted as an energy cost increase.

At this stage, even a relatively simple discussion around the need for expanded power capacity to serve a growing business proved to be less simple than thought. There were significant present and future changes in investments and costs associated with an energy productivity solution with a relatively small number of moving parts. The timing of each piece was critical, as were the assumptions that would be used to assess which might be the best approach to recommend.

It was at this point that the discussion turned to power supply reliability. The plant happened to be in a part of the United States that has a system average interruption duration index (SAIDI) more than twice the U.S. average of 112 minutes. Recent years have seen SAIDI increasing year on year in the United States. For any manufacturer, this level of unreliability is an issue. For one embarking on a major expansion with time-critical deliveries, it is core to the business. Compare this with the comparable index in Germany of 15 minutes and the need for this plant to have a sound supply reliability strategy became clear.

Peter Garforth heads a specialist consultancy based in Toledo, Ohio and Brussels, Belgium.Peter Garforth heads a specialist consultancy based in Toledo, Ohio and Brussels, Belgium. He advises major companies, cities, communities, property developers and policy makers on developing competitive approaches that reduce the economic and environmental impact of energy use. Peter has long been interested in energy productivity as a profitable business opportunity and has a considerable track record establishing successful businesses and programs in the US, Canada, Western and Eastern Europe, Indonesia, India, Brazil and China. Peter is a published author, has been a traveling professor at the University of Indiana at Purdue, and is well connected in the energy productivity business sector and regulatory community around the world. He can be reached at peter@garforthint.com.

The traditional approach would be to invest in standby generators ready to kick in when the grid failed. Does it really make sense to have expensive equipment sitting idle for most of the year, even on a relatively unreliable grid? Would it not make more sense to use on-site cogeneration not only in normal operating times, but as a “hot” standby for at least part of the capacity during grid events?

Viewed this way, investment in CHP not only avoids some or all of the investment in grid capacity expansion, it also avoids investment in some “cold” standby and the associated ongoing costs. Incidentally, investments in efficiency also reduce the need for standby capacity, adding more moving parts to the cost-of-energy question.

A robust reliability strategy, especially on this site, avoids costs of excess inventory, of loss of productivity after an event, or of rectifying production quality issues. In the most extreme case, it avoids possible delivery shortfalls and jeopardizing customer relationships. While not easy to estimate, the value of avoided production should clearly be included as an energy cost savings. In many cases it may be far more significant than the simple saved costs on the utility and fuel bills.

Professional energy managers understand there are multiple cost and saving benefits to good energy productivity solutions. Do we systematically and rigorously work through them when designing and valuing energy productivity investments?

Read Peter Garforth's monthly column, Energy Expert.

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