Utilities Manager: How Waste Raises The "Price" Of Energy

Christopher Russell, Principal, Energy Pathfinder Management Consulting, LLC, Contributing Editor

Reacting to rising energy costs, many managers will naturally focus on what they pay for fuel and power. A “price-centric” approach seeks lower prices for the same fuel, or if possible, a switch to a different, lowercost fuel. That’s not a bad idea, but it recognizes only one side of the energy equation:

EXPENSE = PRICE times QUANTITY

Of course, any reduction in energy waste will reduce the total quantity of energy consumed. The companies that understand this concept proactively change the way they consume energy.

Other companies-especially those that remain focused on prices-fail to grasp this opportunity. Industry’s price-focused decision-makers are asked to consider this concept: they can reduce their expenditure per unit of energy available to do useful work.

Understanding the relationship
The relationship between fuel and the work it performs is noteworthy. Industry buys fuel that must be converted several times before it does the work for which it is intended. Take, for example, the steam systems that consume over half of total industrial fossil fuel purchases. Almost all manufacturing processes require heat, and steam is an effective medium for heat supply. Fuel is transformed to heat in several stages:

Fuel Input to Boilers is combusted to
Generate Steam, which carries heat to a variety of
Heat Exchangers,which apply heat
to transform materials.

Each stage allows some energy loss–the volume of which depends on the quality of technology, procedures and behavior of a facility and its staff. The U.S. Department of Energy’s “Energy Use, Loss and Opportunities Report” describes overall industry average losses incurred at each stage of the process.While figures vary across and within industries, it’s useful to use the following aggregate industry measures:

Fuel Combustion experiences ~8% fuel energy loss.
Heat Distribution sustains ~16% loss.
Conversion of Heat to Work sustains
an additional 16% loss.

In other words, only about 60% of industry’s energy purchases performs the work for which it is intended. The other 40% includes waste that can potentially (and economically) be avoided.

Running the numbers
So, just how does this type of waste “impact”fuel prices? The following example illustrates it clearly.

A plant purchased 100,000 units of natural gas (units are million Btu, or MMBtu). The price per MMBtu was $8.00, for a total outlay of $800,000 for fuel delivered “to the fence.” By the time the fuel was put to work, however, energy losses due to the various stages of conversion totalled a whopping 40%.

As a result, our example facility effectively spent $800,000 for only 60,000 MMBtu–or $13.33 per available MMBtu. (Go to http://www.eere.energy.gov/ industry/energy_systems/pdfs/energy_use_loss_opportunities_ analysis.pdf to review these calculations in their entirety.)

There’s yet another way to look at this situation. Energy changes hands several times after it is delivered to a facility. At each step in the conversion sequence, the “handler”incurs energy waste that effectively “marks up” the “price” of the energy that is eventually applied to do useful work.

The results shown here are based on industry averages. Naturally, some facilities are better than others. Still, virtually all industrial facilities have the potential- through reduced energy waste-to improve their energy expense performance.