Energy risk factors for industrial plant site selection

April 4, 2011
Energy Expert Peter Garforth says energy factors can help decide where to build or relocate a plant.

When a company selects a site for a new manufacturing plant, energy plays a role in the final decision. In my opinion, it’s not nearly as much as it should be. All too often, questions about energy are limited to checking on the cost and availability of electricity and gas. A limited view of energy as a decision-making factor might mean that significant value is overlooked, and unnecessary risks might be incurred.

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Obviously, reliable supply has to be the first priority. In some parts of the world, aging infrastructure is beginning to cause increased unforced outages along with poor quality. In many countries, this has been a long-standing challenge. In others, such as the United States, rising unreliability is a new phenomenon and might not be appreciated fully as a future risk. When selecting a site, recent reliability matters should be investigated, and the future prognosis in both capacity and quality should be checked rigorously. In other places, China being the most obvious example, rapidly growing demand is putting severe stress on future supply patterns and availability. Today’s supply might seem adequate, but has sufficient local intelligence been gathered from independent sources about how it might look a few years into the future?

Even at high levels of reliability risk, market factors might still favor a particular site. In these cases, has the possibility of self-generation been fully explored as an immediate or potential risk-mitigation option? Historically, electric utilities often have been hostile to significant self-generation, but increasingly this is changing. Regulatory frameworks are slowly becoming more flexible, and, along with lower cost and more efficient technology, this might be an attractive option. In some cases, there might be utilities or investors willing to invest in local generation.


A fully thought through local generation plan might not only improve reliability and even reduce operating costs, it also can avoid the need for costly, and essentially wasted investments in emergency generators that might be used only a few hours a year. Even if the existing regulations are somewhat inflexible, the bargaining power to initiate change never will be greater than at the moment a new investor is making a siting decision.

Now we come to efficiency. The need for demand management is recognized more widely with efficiency in all its forms being seen as a viable source of supply. A company looking to site a plant might well have substantial bargaining leverage to be granted incentives to support enhanced efficiencies over and above what it normally would put in place. Has this been elaborated and included in the negotiations with the local authorities? This can be a double benefit for the investor in that it reduces both the initial capital costs and the ongoing production costs.

This column has talked frequently about the challenge of managing greenhouse gas risks. Some factors are obviously related to efficiency, others to the local generating mix for electricity. When the siting decisions are made, the greenhouse effects of the current and future local generating mix, combined with the probability of legislation, should be understood fully before making any final decisions. This also might feature as a negotiating aspect relative to local generation and efficiency incentives.

Most factories generate more waste heat than they can recover and use. In the event a local generation option makes sense from a reliability and cost standpoint, this might actually produce even more site heat with no practical use. Is the site being configured to buy waste heat for use elsewhere? If so, this has the benefits of reduced operating costs and emission footprint. Though still relatively rare, the industrial site that’s configured with its own multi-utility structure that supplies heating, cooling, gas, water and electricity can be highly attractive for a new factory. If the plant needs other common industrial utilities, such as process steam or compressed air, a site that includes these as a shared utility will be even more attractive.

Again, the bargaining position never will be better when an investor is making the initial siting decisions for a plant, especially if substantial employment is involved. Having a multi-utility siting plan as a condition for locating might benefit both parties. The operating value for the new plant might be far greater than the traditional tax and grant incentives, and the collateral benefits for the community to establish these frameworks will be a magnet for further investment.

With energy cost, reliability and environmental effects presenting higher levels of uncertainty than at any time in the past 200 years, new factories lacking a long-term energy game plan might be taking on unacceptable risks. Those that include a wide view of energy in siting decisions will have competitive edges for decades to come.

Peter Garforth is principal of Garforth International, Toledo, Ohio. He can be reached at [email protected].

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