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Guest Column
Get It Done by Sharing the
Benefits of Energy Projects
By Jay Raggio, Manager,
Energy Services, Global Energy Services
(ges), Danville, CA, a member company of
Emerson Performance Solutions
Imagine your facility
sits directly on top of
an underground de-
posit of valuable
minerals. You would
like to tap into the
value the minerals
represent, but you
don't know anything about mining and re-
covery. What if you offered to "share the
wealth" with an experienced mining com-
pany if it will take on the necessary steps to
recover the minerals?
This scenario may actually exist at many
commercial and industrial facilities. Not that
they literally sit on top of valuable mineral
deposits, but they often do have substantial
recurring expenses for the various forms of
energy that they consume. These energy ex-
penses can be "mined" for technically and
economically feasible opportunities to re-
duce energy costs or be more profitable
while using the same or less energy.
Explore the Opportunities
The values that may be gleaned from the
current energy expenses and process and
production metrics can be explored by a
qualified energy services company, or ESCO.
They will work closely with facility opera-
tors, turning over every rock to look for
meaningful opportunities. ESCOs will accept
compensation for performing such work
through an arrangement to share the result-
ing financial gains with the facility owner.
Opportunities may take many forms,
including:
* Changing energy price conditions by
negotiating more favorable rates with
current suppliers. For example, a time
of use (TOU) rate may save on energy
costs, depending on the facility load
profile.
* Changing energy price conditions by se-
lecting alternate, lower cost energy ser-
vice providers (ESPs) rather than the
traditional utility being the electric en-
ergy supplier.* Changing price conditions by modifying
the energy service conditions with cur-
rent suppliers-for example, taking elec-
trical service at primary voltage instead
of secondary voltage. Service at primary
voltage often has a lower unit price
($/kWh) than secondary voltage service.
* Mitigating adverse price conditions
through the use of financial instruments
and hedging strategies. Figure 1 pro-
vides an example of hedging. As the
price of a key raw material increases,
energy prices, through a negotiated
contract with an ESP, decrease allowing
the overall costs of production to re-
main relatively stable.
* Mitigating high energy cost conditions
by shutting down nonessential equip-
ment during high energy cost periods
(load shedding), changing the time when
energy intensive operations are carried
out (load shifting), or even self-generat-
ing during high energy cost periods.
* Using less energy overall by implement-
ing retrofit energy efficiency measures.
* Using less energy per unit of production
by modifying process practices and/or
technologies.
80
70 - - .. Energy price, $/MWh - -
60-- -..
50 - - -
40 -
20 Raw material cost, $/ton ($00)
10
0-
1 2 3 4 5
Time period
Figure 1. An example of energy price hedging.
There are no givens that an ESCO will
always uncover opportunities worth pursu-
ing. Thus, it is important that all parties un-
derstand and accept the risks as well as the
potential rewards of embarking on a pro-
gram to investigate energy cost savings op-
portunities. Further, every effort should be
made to manage the risks in any arrange-
ment to share future savings or benefits.
Define Criteria for Sharing Benefits
A facility operator must consider several
important areas in any arrangement to
share future benefits. From the beginning,
define the criteria for success. For example,
what minimum dollar value of savings must
be achieved to make it worthwhile? If in-
vestments are likely, what return on invest-
ment must be achieved? What maximumpayback period will be considered? What
limitations will there be on disruption of the
facility's occupants or its operations? By
starting from a solid set of ground rules, you
enable the ESCO to focus on finding the
biggest "bang-for-the-buck" opportunities.
Have a clear and mutual understanding
and quantification of where you are starting
from-that is, identify the current energy
costs and production per unit of energy.
Collect and make available to the ESCO
historical records of energy use, costs, and
production statistics. The variables in past
energy costs must be analyzed and as-
signed to quantifiable metrics such as cool-
ing degree days, building occupancy
profiles or production throughput. The
ESCO will develop a computer-based en-
ergy consumption model for a facility
and/or a process, and will test and verify its
prediction capabilities using the historical
data.
You must also establish, at the outset, a
clear and mutual understanding and ac-
ceptance of how financial gains attribut-
able to the ESCO's performance will be
measured and quantified. What data will
be monitored and collected, and how will
that data be used? Can a computer model
provide sufficiently valid results on which
to base the sharing of benefits?
Be Assured of Performance
Most leading ESCOs have a level of con-
fidence in their experience and capabilities
to guarantee that their recommendations
will deliver a minimum level of financial
gain. The facility owner should insist on re-
ceiving guarantees for performance.
Last, the facility owner and ESCO must
agree on steps to be taken in the event of
disputes over the achieved financial gains. A
prudent approach might be to mutually
agree that an impartial third party would de-
termine the achieved gains, or at least audit
the ESCO's determination of achieved gains.
The ESCO should employ an underwriting
organization to back up its guarantees, and
the ESCO's contract should include provi-
sions for arbitrating difficult disputes.
With proper attention to the risks in-
volved, meaningful financial gains can be
mined from existing energy expenses. Get it
done by establishing a win-win relationship
with a qualified energy services company. 0
Contact Jay Raggio by phone at (925)
824-0330 ext. 305, or e-mail: jayraggio@
electro-test. com.
Energy Matters, September/October 2000 3
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Mallory, M. Energy Matters - September/October 2000 issue, book, September 22, 2000; Golden, Colorado. (https://digital.library.unt.edu/ark:/67531/metadc717680/m1/3/: accessed March 19, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.