Industrial Utility Efficiency    

Energy Rebates Assist Industrial Sustainability Initiatives

The CFO asks the Corporate Energy Manager, “The numbers for this energy efficiency project look too good to be true - $334,000 in annual energy savings requiring a $89,000 investment (after the energy rebate) with a simple ROI of just 3 months?” “How do we know the reduction in kWh useage, which the energy auditor has promised, will actually happen?” “Why don’t we just deploy this same capital into a production project where we have more experience and confidence in the expected ROI?”

The recently hired Corporate Energy Engineer answers, “Those are the right questions to ask - we strongly believe in this opportunity for the following reasons.”

 

  1. We are currently spending $829,000 per year on energy costs to operate our compressed air system at this plant. This project will reduce those costs by 40% to $495,000 per year.
  2. The project recommends known “sure thing” quick wins for the operating characteristics of this plant.
  3. The Energy Conservation Program Manager from our Utility Company strongly agrees with the findings of the audit. His job is to help his industrial customers like us find real energy savings opportunities. He has endorsed this auditing firm and project and agreed to provide a:
    1. Audit Rebate of 50% of the audit costs ($10,000)
    2. Project Rebate Incentive $100,000. This reduces the project cost for our company from $189,000 to $89,000. This gives the project a simple ROI of only three (3) months.
  4.  

  5. This third-party project endorsement and investment from the Utility Company eliminates any doubt of the veracity of the energy-saving numbers.
  6. Our Corporate Sustainability Initiative will able to implement a significant project with the following impact:
    1. Energy savings of 3,600,000 kWh per year
    2. Equivalent CO2 Reduction of 2,567 metric tons per year
    3. Energy Savings of the equivalent kWh required to power 340 homes
    4. Equivalent CO2 Reduction of taking 470 passenger vehicles off the road

While the conversation outlined above is fictional, the numbers are not. They were taken from a BestPractices Case Study written by the U.S. DOE’s Industrial Technologies Program (www.eere.energy.gov/industry). The California Public Utilities Commission (CPUC) and the Pacific Gas & Electric Company worked together with a auditing firm, Air Power USA (www.airpowerusa.com), and were able to help a corporation implement this important project.

The fictional conversation was created as a result of countless conversations I have with Corporate Energy Managers. These people are responsible for reducing energy costs across all the factories in their corporation. The number one challenge they talk to me about is determining whether or not they can BELIEVE THE NUMBERS. They tell me that when a third-party Rebate Incentive is involved with the project – it significantly increases their confidence in the projected energy-saving numbers.

Reduce Industrial Energy Consumption

U.S. manufacturing provides a easily identified and major-impact target to reduce energy consumption. There are 350,000 industrial facilities in the U.S. spending $94.4 billion per year on annual energy costs. U.S. Industry consumes 32% of the energy requirements of the U.S.-the largest consumer segment in the country. Of these energy costs, 13.5% is consumed in the form of electricity.

When you listen to the media, all you hear is about plant closings or jobs being shipped overseas. For some reason, the media doesn’t like mentioning the fact that the U.S. manufacturing sector:

 

  • Ranks as the 8th largest economy in the world
  • Produces nearly 25% of the world’s manufacturing output
  • Employs 14 million people
  • Makes the highest contribution to the economy of any sector (12% of U.S. GDP)

 

While facing challenges, U.S. industry has successfully implemented lean management practices and productivity is at all-time highs. The new chapter being written today is on “Sustainability”

Industrial Sustainability Initiatives

Industries have consolidated, over the past twenty years, and we now have a higher percentage of large corporations operating hundreds of manufacturing facilities – as opposed to multitudes of owner-operated factories. A benefit of this scale is it has allowed for higher sophistication and efficiencies. Lean management has been successfully deployed in the U.S. manufacturing process culture and now “Sustainability” is taking root.

“Sustainability” has become a favored investment area for corporations. The General Electric Company is a good example of a corporation using “Sustainability” to shape its’ strategy. GE calls it “Ecomagination”. Strategies described at GE’s web site http://ge.ecomagination.com are:

  1. Revenues to increase from ecomagination products to $25 billion per year by 2010, up from $14 billion in 2007.
  2. R&D investments of $1.5 billion per year by 2010 into cleaner technology research.
  3. Reduce greenhouse gas (GHG) emissions of GE’s operations by improving energy efficiency. GE’s GHG emissions, in 2007, were 7.02 million metric tons- a reduction of 8 percent from 2004. Total energy use has also been reduced by 7 percent since 2004. Energy Treasure Hunts have been performed at 200 GE locations resulting in a reduction of 250,000 metric tons of GHG’s.
  4. Reduce water use at GE facilities. In 2007, GE reduced it’s water use by 2 percent from its’ 2006 reported water consumption of 12 billion gallons.

 

Corporate Energy Managers are the new “Conservation Heavyweights”

Driving the reduction in energy costs (and therefore GHG’s) at the multiple factories, lies in the hands of Corporate Energy Managers. This is one of the few hot job markets in the U.S. today. If your son/daughter is graduating in engineering, take a look at this field! Newly formed Corporate Energy Engineering teams are the new
“Conservation Heavyweights” in the fight to reduce energy consumption. These small teams of one to three people can have a tremendous impact. One of the areas they focus on is compressed air and it is the Editorial Mission of Compressed Air Best Practices to help them. Air Power USA, a leading compressed air auditing firm, supplied us with an example of a corporation they worked with between 2001 and 2004.

A Corporation Operating 12 plants in 11 different states with an average electric rate of $0.06/kWh. One Corporate Energy Manager is responsible for all energy costs. He decides to have his compressed air systems audited for potential energy savings opportunities at each factory and discovers that for the 12 factories:

The Total Impact of Compressed Air Systems

  1. Energy cost is $16.2 million per year
  2. Energy consumption of 269.5 million kWh per year
  3. CO2 (GHG) emissions of 192,165 metric tons per year
  4. Equivalent CO2 emissions for 25,452 homes per year
  5. Equivalent CO2 emissions of 35,195 passenger vehicles per year

 

What is amazing to me is that often one person holds the key to managing the equivalent yearly CO2 emissions of 25,452 homes and 35,195 vehicles! These people are the true “Energy Conservation Heavyweights” of this new century.

   Win-Win  
  "One Energy Manager manages the equivalent CO2 emissions of 25,452 homes and 35,195 vehicles."    

Incentive Rebates for Audits

To continue with the example of this corporation with twelve factories, the decision was made to conduct audits at all the factories over a three-year period. Each audit cost $20,000 for a total cost of $240,000 to the corporation. Third-party rebate incentives were received for 5 of the 12 audits for a total of $86,000. Net auditing costs were therefore $154,000. In seven of the twelve audits, however, no incentive rebate funds were received. It is to the credit of the Corporate Energy Manager and his engineering contacts at each facility that they made the investments nevertheless. In many, many situations, the corporation will not spend the money on a full-blown audit.

Incentive vary from utility to utility for audits. Tacoma Power’s Compressed Air Efficiency Program will fund up to 50% of the cost of a “Demand-Side Assessment” of a system. These assessments focus on identifying air leaks and inappropriate uses of compressed air. Audit rebate programs vary state-to-state.

The U.S. DOE’s Industrial Technologies Program offers Energy Assessments which can be financed by the DOE. They ask firms to apply online. Their web site says the goal of their Save Energy Now Program is to conduct 1,500 Energy Assessments between 2008 and 2012 (www.eere.energy.gov).

Incentive Rebates for Projects

The findings of an audit (or assessment) will present the factory with the actions required to reduce energy costs. In the example we’ve used in this article of the corporation with twelve factories the assessment findings were as follows for the sum of the factories:

Total Annual Energy Savings Achieved with Compressed Air Systems

  1. Electrical energy cost savings of $3.6 million per year representing a 22 percent reduction.
  2. Electrical energy cost savings of 61.1 million kWh per year
  3. CO2 (GHG) emissions reduction of 43,529 metric tons per year
  4. Equivalent CO2 emissions reductions to power 5,765 homes per year
  5. Equivalent CO2 emissions of taking 7,972 passenger vehicles off the road per year

 

The corporation did receive incentive rebates for eight of the twelve projects. The numbers looked like this:

 

  1. Project Costs: $3.5 million
  2. Project Rebates: $1.2 million
  3. Net Project Costs $2.3 million
  4. Total Annual Energy Savings: $3.6 million
  5. Simple ROI Payback: 7 months

 

Project incentive rebate programs vary from region-to-region depending upon the policies of the local utility company. Some regions are extremely active with well-funded and professionally run incentive programs – while others are completely inactive.

Tacoma Power’s program offers cash incentives based on $0.12 per first-year kilowatt-hours saved up to 50% of the approved installed project cost, with a minimum of a one-year simple payback period (with incentive).

Aid for Energy-Efficiency Incentive Programs?

I have no idea how things work in Washington D.C. or in government in general. Yet, with President-elect Obama talking about a $1 trillion plan to re-start the economy, why not get energy-rebates in the capital appropriations request line? If private and public utility companies or the U.S. DOE were given capital to encourage the Sustainability Initiatives of corporations to do more energy-efficiency projects-it seems many objectives of the new administration would be met.

 

  1. Electrical energy conservation by U.S. industry
  2. Reductions in GHG’s like CO2 in U.S. industry
  3. Job Creation in auditing plants, purchasing, installing and producing energy-efficient machinery
  4. Increased competitiveness of U.S. industry

 

Wouldn’t this be a better use of tax-payer money than the financial bailouts?

Conclusion

We used an example of a twelve-factory corporation in this article which achieved significant energy savings of 22% in their compressed air systems. I have personally spoken with Corporate Energy Managers hoping to do the same in much, much, larger numbers of factories. How can we help them achieve their goals?

Perhaps it is naÔve to bring up the question of how can more capital be found for energy-efficiency rebates, but it seems a logical question since the funds deployed are so effective. Regions like the Northwest, the Northeast, California, Wisconsin, Minnesota, parts of the Southeast, Manitoba, Quebec, and British Columbia, boast of vibrant energy-efficiency incentive programs (my apologies to anyone erroneously left out). Huge industrial regions meanwhile like Pennsylvania, Illinois and Ohio, have insignificant rebate programs. What can be done to stimulate these regions?

What we do know is industrial rebates assist the Sustainability Initiatives of Corporations. These “Energy Conservation Heavyweights” are trying to push forward energy reduction projects in their factories. Rebates help them win the internal capital deployment debates. Rebates not only help win the ROI battle, but more importantly, provide third-party verification of the validity of the proposed energy-efficiency projects. The benefits of the projects hit many of the major priorities of the new “green economy”.

For more information contact Rod Smith, Editor, Compressed Air Best Practices Magazine, email: rod@airbestpractices.com, www.airbestpractices.com