In the view of growing electricity prices and time-sensitive tariffs numerous vendors around offer on-site electricity generation and storage. Should your company do it?
Are you in business of electricity generation?
Prior to going into technical and financial details of different power generation solutions, I suggest you ask yourself a strategic question:
Are you in business of generating electricity?
Is power generation within your core competence?
Do you want to enter generation business?
To dive a bit deeper: Do you have in-house capacity to evaluate, select, procure and maintain generation equipment? Do you plan to build such capability? Do you expect your in-house capability to generate electricity to be beat companies that have been in the business for decades? Are you willing to accept the risk of subcontracting all this to several 3rd parties?
Avoid risks you can’t manage effectively
If you decide to focus on your current business and still want to reduce cost of your power, then I suggest you consider procuring electricity from an independent supplier of energy, often called ESCO-type company. Such companies offer electricity as a service and generate or store it at your site. Here is a review of possible options as it relates to global adjustment in Ontario.
Let ‘generation’ people deal with all the complexities of this business. Let them deal with all risks – technological, legal, carbon legislation, financial, maintenance. That’s what grid does for you now.
Ask vendor of on-site generators to tell you the story of Campbell Soup CHP disaster.
Ask vendor, what will happen with installed on-site generation asset if new government introduces carbon tax or changes Class A/B rules for global adjustment?
If, with all risks mitigated, an ESCO offers you a better deal than grid – you have a winner.
If somebody tells you that you can manage generation risks better than companies working in the business for many years, then they should also tell you to divest from your current business and join commercial generation.
If a vendor claims to be able to manage electricity generation risks better than current generators, as long as you buy equipment, then such vendor should become an ESCO instead of selling you equipment.
Please do not get me wrong: I am not against decentralized electricity generation.
Just it has to be done by generation professionals, who are equipped, trained and insured to deal with the associated risks.
I have written on related topics in several prior posts:
Disclosure: I have no interest in any ESCO or grid generation.