Energy is a cost you can control

Increasingly, energy is a risk management issue for business as purchasing and managing energy has become a complex exercise. What can business do?  This article examines ways to enhance your understanding of how your business uses energy.  By undertaking this analysis, you can target energy savings measures that will deliver the greatest cost reductions and drive efficiencies through your processes.  At times of high prices, you can take steps to ensure that you don’t pay more than is absolutely necessary, and if you're investigating renewable energy options, sizing the project is best done following a push to reduce energy demand and by ensuring it is as predictable as possible.

Three areas of focus that form the basis of proactive energy management

Energetics has seen considerable interest from clients in investigating on-site renewable energy generation options.  The starting point is to reduce energy demand as much as possible through efficiency programs, and ensure that the energy load profile is predictable and as constant as possible before sizing both renewable generation equipment and back-up storage.

1. Energy conservation and efficiency measures

The first course of action should always be to make sure you don't require the energy in the first place.  Related to the reduction of energy demand, some sites have classified their equipment into critical and non-critical loads which allows for sophisticated load management strategies to shed non-critical load when the energy supply is maxed out. This helps to ensure that businesses don’t over invest in idle generation capacity, or alternatively defer costly capital upgrades when energy supply is constrained.

2. Efficiency in site reticulation systems to ensure optimal power supply for installed capacity

Ensuring your site reticulation system is well managed can deliver cost reductions. We have seen sites looking at the power factor delivered up to the point of connection with the network, however, typically not much attention is paid to power factor within sites.

While site reticulation systems are typically well designed initially, over time equipment is added and removed. Each time this happens the electricity flows within the reticulation systems are affected. This can result in very poor power factor performance for the site.  If your power factor is low you are losing the capacity of electricity as supplied to the site to do work.

If you improve the power factor within your site you are essentially reducing these power losses.

If yours is an off-grid site, it means that you get more power for the same installed generation capacity.  Or, if you are grid-connected, you can get more from your existing mains supply. There are a number of ways to improve the power factor within your site reticulation system.

Mostly capacitance is installed within the system. Optimal placement of these capacitor banks needs to be carefully considered.  A load flow analysis can quickly help you determine whether there are power factor correction opportunities within your site.

3. Ensure you are on the best energy supply contract: negotiate charges, look at terms and conditions

There’s great information in your energy bill. 

Examining the terms of your energy supply contract is the best starting point for minimising energy spend.  Know the contract details and the sensitivity of energy spend to variables such as time of day or peaks in energy draw, and a wealth of information opens up.

Typical components of an electricity bill are:

•    Consumption charges: the payment made for the electricity used, typically 20 to 40% of the total bill, this is the element of the bill which has consideration of time of use charges – peak, shoulder and off peak tariffs. These are split between the retailer and the network provider and are usually calculated relative to kWh consumed.
•    Capacity charges: typically 25 to 35% of the total bill, these are charges which relate to the maximum power draw for the site in the month, and are calculated from the kVA for the meter.
•    Network charges: these are the costs of running the poles and wires, and are usually around 30% of the total bill.  They are calculated based on a combination of usage (kWh) and capacity based charges (kVA). Note that there is a growing trend amongst most network operators to shift their tariffs to be more focused on capacity and less so on consumption.
•    Renewable Energy Certificates and other charges: this cost starts in the region of 5%. These cover the RET requirements as well as other environmental and market fees, and they are calculated relative to kWh.
•    Fixed charges: typically less than 2% of the total bill, these are usually supply charges and are fixed for each meter used. These can typically only be reduced at the point in time when the contract is negotiated. They are independent of electricity consumption and cannot be controlled through reducing draw (kWh) or demand (kVA).

Fixed charges, RET costs and other pass through charges cannot be readily reduced through energy management programs.  However the majority of the bill can be impacted by changing some site operations. The entire bill can be reduced through energy efficiency projects, and there are other opportunities for reducing electricity costs which sites might consider. 

Reducing consumption charges
These are the charges which relate to electricity draw and are calculated relative to kWh used by the site. This is the cost which is most directly reduced through the implementation of energy efficiency projects. At the same time, if there are time-of-use charges on your site you could reduce your energy spend through scheduling when equipment is turned on or off. Scheduling maintenance for the peak cost period (typically late afternoon) can reduce energy costs significantly. There are obviously other considerations such as the timing of shifts to consider here too.

Reducing capacity charges
Capacity charges are calculated relative to the peak demand of the site in that time period, typically a month. Peak demand is measured in kW or kVA. If you have a ‘peaky’ load, such as a combination of a whole lot of conveyor belts, or some very large pieces of equipment that have significant energy draw on start up, you may be paying significant capacity charges. Reducing these peaks by not turning equipment on and off a lot, rather slowing it down; or putting soft starters or variable speed drives onto large loads can trim this aspect of your bill significantly. It is worth understanding your capacity charges and how they are calculated so that you can better build the business case for improved energy management on site.

Finally, consideration of peak charge times should be built into the management of any piece of high energy-using equipment.  Turning the equipment back on at the wrong time can erase all savings achieved from not having the equipment running.

Reducing network charges
Network charges can be complex in their derivation. Some of charges are calculated relative to demand and/or maximum demand (kW) for your site. Programs which are used to lower capacity charges could reduce network charges as well.

Building the business case: cost savings + productivity improvements 

We often see businesses challenged to ‘sell’ energy savings projects based on cost reductions – the productivity gains are under-valued or not considered at all.  Reducing energy consumption goes hand in hand with reducing maintenance costs. There are accepted multipliers in many areas of operations where energy savings are seen as a proxy for cost savings. In the mining sector we see savings on the running of haul trucks which are typically a five times multiplier of the energy savings, and projects that reduce the running of empty conveyors which carry a 7 to 10 times savings multiplier.

Renewables can be attractive

Current energy market volatility and persistent high prices, together with the potential for future carbon constraints adds further uncertainty to energy price forecasts and the use of grid electricity, diesel and gas for offgrid sites.  Increasingly we see industry turning its attention to behind the meter renewables for grid connected sites and renewable hybrids for off grid sites. Uptake is further driven both by technology improvements in small scale renewable installations and improvements to battery storage.

And there is another prize:  on site renewables can act a partial hedge against future price volatility. 

Conclusion: take a close look at the full range of energy productivity opportunities

There are considerable opportunities for significant cost reductions in energy spend and they are not limited to energy efficiency.  However, reducing total demand through energy efficiency programs and managing your on-site reticulation system gives you the flexibility to use more rewarding approaches including renegotiating contracts and considering renewables as a different source of energy supply.  Taking an holistic approach to energy and energy management underpins sustainable and ongoing improvements in a site’s or building’s energy efficiency and energy performance, and can become a source of competitive advantage.

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Dr Mary Stewart

Executive Director and General Manager (Consulting)

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