Companies considering energy conservation measures must balance each measure's price tag with the expected energy savings. Conservation projects that don't offer a quick investment return won't survive the budget axe. Now, energy engineers reveal that a more comprehensive analysis of the company’s energy costs could increase the value of the project, allowing the company to carry out conservation plans that might otherwise appear too expensive.
Digging out all of the savings above and beyond lowered energy costs could double the value of an energy conservation project, according to engineer Ernest Fossum at the U.S. Department of Energy's Idaho National Engineering and Environmental Laboratory. In an article in the July 2000 issue of Energy Engineering journal, Fossum and INEEL colleagues Dale Teel and Will Wyland show how those additional savings could speed up the time it takes for a company to pay off the cost of a such a project.
"We've often heard we should look closer at our unit cost of energy, but no one explains how," says Fossum. "There's a real need to practically spell out ways to reduce the payback time by capturing all of the relevant savings."
Many energy managers determine energy savings by simply using the billed energy costs, says Fossum. For example, if new energy-efficient windows are installed, energy savings will be reflected in a smaller power bill at the end of the month. Those savings are used to determine how long it will take to recoup the cost of the windows.
However, simple billed energy costs leave out important details of the company's daily operations, say the authors. Basing their calculations on a typical, theoretical conservation project, the authors illustrate a variety of overlooked savings. They apply those savings -- both in energy usage and other related costs -- to the case study and analyze the effect the impacts have on the project's payback period.
"You can't just use simple energy costs," says Fossum. "You have to make an effort to figure out what you're paying for your energy, and you need to find out when -- what time of day -- you're spending it."
Peak energy usage is one area that could use more scrutiny. Considering the time of day that energy is used is important, says Fossum, because the peak power usage of a business translates into demand costs -- additional fees that utilities charge to cover their reserve generation capacity.
"The electric utility needs to have excess generating capacity to meet daily spikes in usage," says Fossum. "And the everyday electricity consumption cost doesn't cover that capacity." Utilities meter businesses and record their maximum spike, which determines the demand cost. The higher the spike, the higher the demand cost that is added to the unit cost of the electricity they consume.
"Let's say a project will save energy only at night. Night use generally does not affect the demand cost so you won't save as much money with that kind of project. And the same goes for savings during other non-peak times," says Fossum. But if the project results in lower energy use during peak times, what the project saves in demand costs should be included in calculating the payback period. "Often, demand costs can run just as high as the cost of consumption," he says.
There are a variety of ways to lower demand costs. For example, powering up multiple heating and air conditioning systems at the same time each day creates a spike in usage. Spacing out the time that different systems turn on would produce a smaller spike, and hence a smaller demand cost.
The authors include seven example calculations for a variety of energy conservation projects, including other overlooked savings that energy managers should consider. "Consumption and demand costs are the big ones, but other smaller incremental costs add up too," Fossum says.
Reduced maintenance is easily overlooked. For example, if equipment is used at lower loads for less hours, less repair and upkeep are required. Hence, less maintenance dollars are spent to keep systems operating correctly.
Other internal costs might also be reduced by decreasing energy use. Costs such as overhead allocation costs or avoided repairs are specific to each business, and an effort should be made to seek them out, says Fossum.
Although these other considerations turn a simple calculation into a more complex one, Fossum and his coauthors agree that it is an exercise well worth doing. Energy managers determining the value of a conservation project need to uncover these overlooked savings and include them in the project payback calculation. "Conservation projects are helped by understanding the real costs of saving energy," Fossum says.
This work supports the energy efficiency efforts of the DOE's conservation and renewable energy mission. It was funded at the INEEL by DOE In-house Energy Management.
The INEEL is a science-based, applied engineering national laboratory dedicated to supporting the U.S. Department of Energy's missions in national security, environment, energy and science. The INEEL is operated for the DOE by Bechtel BWXT Idaho, LLC, in partnership with the Inland Northwest Research Alliance.
Note to editors: Ernest Fossum can be contacted at 208-526-2513 or eff@inel.gov. The title of the published article is "What are your real electric costs?" by Dale Teel, Will Wyland, and Ernest Fossum and is in Volume 97, Number 4, pages 61-70 of Energy Engineering.
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