What is the value of saved kWh at our plant?
This post continues the discussion about the $value of kWh, started in What is kWh worth at your plant.
In that post we talked about effect of operational changes on cost of energy. Today we will talk about how value of energy efficiency projects shows at the bill. For those who missed the first post, we will repeat the introduction. If you have read it already – feel free to skip it.
Consider a plant that in the last month used 1,000,000 kWh to produce 100,000 units and paid $15,000. Will reduction of consumption by 100,000 kWh cut the bill by $1,000? Sensible answer depends on the context in which the question is asked. This may be not what your CFO wants to hear, but this is the reality of Ontario electricity market for businesses.
Structure of industrial electricity bill in Ontario
Before we go any further, let’s take a closer look at monthly electricity bill. Exact bill structure differs from one utility to another; however, numerous lines can be aggregated into four categories:
- Energy cost; calculated per kWh, based on weighted average spot market price
- Demand cost; calculated per peak kW, fixed rates
- Global Adjustment; calculated per kWh for Class B and per demand during annual peaks for Class A. The GA rate varies from month to month.
- Administrative fees and power factor fine; unrelated to peak demand and consumption.
Despite popular belief, all parts together constitute the cost of electricity delivered to the plant.
Value of an energy efficiency project
Effect of energy efficiency measures on bill will is not straightforward.
If lighting retrofit reduced consumption by 100,000 kWh per month, will hydro bill decrease by $1,500?
- Depends on Class
Class B: Yes (subject to GA rate of the month), because ‘energy cost’, ‘delivery cost’ and GA will decrease.
Class A: No, only ‘energy cost’ and ‘delivery cost’ will decrease, while GA will stay the same until it is reset next year, that is if plant keeps lights on through the peak hours. If plant curtails lighting during the peak annual hours, then lighting retrofit will not affect the GA.
If VFD on air compressor reduced consumption by 100,000 kWh per month, will hydro bill drop by $1,500?
- Maybe, or maybe not.
Class B: If compressor worked at 100% during monthly peak demand, while it was needed, then $1.5K drop should be expected. If peak draw on compressor was not during plant’s peak demand time, then ‘energy cost’ and GA will decrease, while ‘delivery cost’ will stay intact.
Class A: same logic, except GA will stay put until after next year’s peaks.
If refrigeration plant has been optimized to reduce annual consumption by 500,000 kWh, how will this affect July bill?
- Depends on how the reduction is expected to be achieved.
Refrigeration plants work at different settings in summer and winter. The efficient ones do at least. Annual energy consumption at refrigeration plant can be achieved during the winter with no reduction in summer. Or some of the reduction can accumulate through the year.