Understanding & Implementing Energy Efficiency in Small to Medium Enterprises

Topic 02: Overview of Energy and Energy Efficiency

2.

Overview of Energy and Energy Efficiency

Understand key energy concepts, including energy issues at the global and national level, terminology and common energy efficiency profiles and strategies, and benefits of energy management.

The electricity industry is one of Australias largest industries, contributing 1.4% to Australian industry value added in 2009. The industry consists of generators, transmission and distribution networks and retailers. Over the 10 years from 199899 to 200809, Australias electricity use increased at an average rate of 2.5% per year. Although Australias energy consumption continues to increase, the rate of growth has slowed over the past 50 years. Our energy consumption increased on average at 1.7% per year over the 10 years from 1999 to 2009, compared with 2.8% over the previous 10 years. In 2009, energy consumption increased by 0.2% to 5,773 PJ (petajoules), which was 32% of Australian energy production. Over the past 20 years, domestic energy consumption has increased at a slower rate than production. Rapid growth in global demand for Australias energy resources has driven growth in domestic production. As a result, the share of domestic consumption in Australian energy production decreased, from an average of 49% in the 1980s to an average of 42% in the 1990s, and has continued to decrease, to an average of 33 per cent over the past decade (Australian Government Department of Resources, 2011).

2.1. Introduction to Energy

The global economy is heavily dependent upon a reliable and cheap supply of energy. Around 84% of this energy currently comes from combustion of coal, oil and gas (US Energy Information Administration, 2011), collectively known as fossil fuels. Australia has a particularly high dependence on fossil fuels for electricity because we have no nuclear energy and limited hydroelectricity. Our renewable energy generation capacity is growing steadily due to government policy and an impending price on carbon emissions, however currently only around 9.6% of Australias energy consumption is from renewable sources (Clean Energy Council, 2011). Australian energy production is shown in the chart below:

Australian energy population

2.1.1. Energy resources in Australia

Australia has large resources of both renewable and non-renewable energy. Australian resources of uranium, for instance, account for 33% of total world resources, while Australian coal resources make up 10% of the world total. A large proportion of Australian black coal resources are high-quality bituminous coals, characterised by a low sulphur and low ash content. A significant amount of natural gas reserves are also located in Australia. Although we do not have large oil resources, Australian crude oil is typically low in sulphur and characterised as a light liquid fuel. Light liquid fuels have a higher value than heavy liquid fuels because of their lower wax content. Australia has significant and widely distributed wind, solar, geothermal, hydroelectricity, ocean energy and bioenergy resources that can be used for heating, electricity generation and transportation. Except for hydroelectricity, where the available resource is already mostly developed, and wind energy, where use of the resource is growing rapidly, renewable resources are largely undeveloped and could contribute significantly more to Australias future energy supply (Australian Government Department of Resources, 2011). Renewable energy accounts for 5% of Australias primary energy consumption. Accounting for primary consumption and production of renewable energy includes the quantity of fuel used in producing secondary forms of energy, such as electricity, and associated losses in producing these secondary energy sources. Energy accounting also includes fuels used directly by end users, such as the burning of firewood. In 2011, renewable energy contributed around 9.6% to Australian electricity generation, with 6.5% sourced from hydroelectricity. Wind energy has grown strongly over recent years and contributed 2.1% of total electricity generation in

Source: Australian Government Department of Resources, Energy and Tourism (DRET) (2011, p. 1)

2011 (recalculated from pp. 4 - 6, Clean Energy Australia Report, 2011). Emerging renewable energy technologies yet to be commercially deployed include large-scale solar energy plants and geothermal generation technologies. Energy resources are geographically distributed as follows:

Electricity prices

Distribution of Australias oil, gas and coal resources

Source: DRET (2011, p.9)

2.1.2. Electricity prices in Australia

Australia has low electricity prices compared with most other OECD countries. Although Australian electricity prices were above those in some countries such as the United States and the Republic of Korea in 2009, they were below those in most European countries.

Source: DRET (2011, p.26)

Electricity prices in the domestic and small business sectors have increased at a faster rate than those paid by larger Australian businesses since 1991. Since the beginning of 2008, the difference in the growth rate of household and business prices has widened further.

Average wholesale electricity prices in the National Electricity Market (which covers the eastern states of Australia) increased in 2007, largely as a result of record average demand over the year combined with a tight supply situation due to the drought at that time. However, wholesale electricity prices have generally moderated since 2007. In 2009, electricity prices averaged around 6 per cent lower than in 2008. Occasional electricity price spikes are often caused by factors such as widespread heatwaves, industrial disputes or generator malfunctions. For example, electricity spot prices in Tasmania spiked in June 2009, mainly because of lower water inflows into hydroelectric plants (Australian Government Department of Resources, 2011). Overall prices have been steadily increasing:

make electricity does not reach the point of use the generators boiler efficiency is around 33% and roughly 8% of the electricity generated is lost in the transmission and distribution networks. Thus, a staggering 75% of the energy content of coal is wasted in the process of centralised electricity generation, and only 25% of the coals energy is available as electricity by the time it reaches the power point. The main reason to improve energy efficiency in Australias SME sector is to protect profit by saving money as energy costs increase, and to reduce Greenhouse Gas emissions from carbon-intensive coal fired power stations.

2.2. Importance of management support for improving energy efficiency

Improving energy efficiency (EE) can be challenging but is usually rewarding in the form of substantial ongoing energy savings. The goal is to reduce energy use per unit of production e.g. sales, services or manufacturing. Many businesses have not yet integrated energy into core business management and reporting. They may be lacking policies, systems and knowledgeable personnel (e.g. energy or environment managers) to support energy efficiency initiatives. Businesses should have upper management awareness of energy efficiency to drive improvement, because it is difficult to achieve transformation without full support of the management even when the importance of optimising a system has been recognised and system optimisation projects have been identified. Management may be resistant to change for many reasons, but common hurdles include: a focus on production as the core activity, not energy efficiency a lack of understanding of operational costs and equipment life cycle cost (operational costs are often 80% or more of the equipments life cycle cost) concern about investment costs of energy efficiency measures In larger businesses within the SME sector, this situation may be exacerbated further by a budgetary disconnect between operating expenses and capital projects (including equipment purchases). Other stakeholder inertia is also common, though often irrational. Frequently, there is a bias toward preserving the current cash position rather than authorising capital

Electricity prices for households and busienss quarterly index

Source: DRET (2011, p.27)

2.1.3. Carbon intensity in NSW

In NSW, the carbon intensity for supply of electricity is currently 1.04 kg tCO2-e/ kWh. That is, for every kilowatt-hour sent out of coal-fired power stations in NSW, the equivalent of 1.04 kg of carbon dioxide is emitted into the atmosphere (Australian National Carbon Accounts Factors, July 2012). Most of the energy in coal used to

expenditure for energy efficiency initiatives, despite potential for ongoing energy and financial savings from these initiatives.

2.4. Data segmentation

Many businesses face challenges in trying to understand the different characteristics of their operational energy use. Energy can be wasted on poorly controlled processes and inefficient equipment. Without specific data it is easy to focus on the wrong targets in energy consuming operations and difficult to develop effective energy efficiency strategies. Segmentation of energy data is the process of dividing up data so it can be used more effectively to gain insight into energy consuming operations. Data segmentation provides insight into energy use within business operations and facilitates recognition of patterns, identification of areas of significant energy consumption and tailoring of energy efficiency solutions. It is thus a valuable approach for overcoming a waste of resources. Without data segmentation, an organisation can face various problems such as: General lack of knowledge about how the business uses energy Ineffective energy efficiency initiatives yielding low ROI Poor choice of energy supply contract Unnecessarily high carbon emissions

2.3. Physical units of measurement

Terms used to describe energy consumption and Greenhouse Gas emissions can be confusing. Herezz are some of the key units to be aware of: kilowatt hour (kWh) a measure of energy consumed, usually used for electricity; derived by multiplying the power rating of an appliance (e.g. 2,000 W or 2 kW) by the duration of operation (e.g. 2 kW x 1 hr = 2 kWh, or 2 kW x 5 hr = 10 kWh) megawatt hour (MWh) = one thousand kWh megajoule (MJ) a measure of energy consumed, usually applied to gaseous fuels; 1 kWh = 3.6 MJ (linear conversion) gigajoule (GJ) one thousand MJ tonne (t) metric measure equivalent to 1,000 kg (not to be confused with imperial short or long tons) cubic metre (m3) a measure of volume, usually applied to gaseous fuel, can be converted to MJ at standard temperature and pressure. tonnes of carbon dioxide-equivalent (tCO2-e) a measure of Greenhouse Gas (GHG), expressing the Global Warming Potential (GWP) in terms of equivalent mass of CO2. Other greenhouse gases like methane (CH4) and nitrous oxide (N2O) can be converted into their carbon dioxide equivalent using factors that compare their GWP. For example, one tonne of methane released into the atmosphere has the same warming effect as 25 tonnes of carbon dioxide (over a 100 year period). GHGs and their GWP (over 100 years), as defined in Kyoto Protocol (Intergovernmental Panel on Climate Change, 2007): Gas Carbon Dioxide Nitrous Oxide (N2O) Sulphur Hexafluoride (SF6) Hydrofluorocarbons (HFCs) Perfluorocarbons (PFCs) Methane (CH4) GWP 1 25 298 23,900 675 14,800 7,390 13,300 Comments Reference gas

2.5. Electricity Supply Contracts

Commercial / industrial electricity supply contracts can be complex and bills are often difficult to understand. While electricity costs may represent a large controllable portion of an operating budget, many supply contracts are rarely reviewed and facility managers may not even see bills on a monthly basis.

Mitigating Strategies Reduce fossil fuel combustion Capture methane and use as source of energy Tighten emission standards for vehicles (e.g. Euro 5) Very specialised use; prevent escape of gas during handling Substitute high-GWP refrigerants for lower-GWP types Specialist uses; substitute high-GWP types for lower-GWP types

e.g. from coal seams, decaying landfill e.g. from engine exhausts Used in electricity distribution and other heavy industries to prevent sparking in high voltage switch gear Refrigerants Used in medical, electricity industry, refrigeration and fire extinguishers

2.5.1. Electricity Supply

Commercial / industrial electricity supply contracts are usually based on a monthly billing cycle. Retailers tend to use smart meters that log electricity consumption data every 15 or 30 minutes, providing a detailed dataset that is invaluable for analysis of electricity consumption. Each retailer will have a specific emission factor (the quantity of Greenhouse Gases emitted per kWh consumed, in tonnes CO2-e/MWh). In NSW, this ranges from around 0.60 to 1.06 t CO2-e/MWh, depending on the proportion of renewable or low-carbon technologies in the power generation mix. These factors vary between states to reflect the relative carbon intensity of power generation (e.g. brown coal vs. black coal).

supply contract period it can only increase! To bring this component of electricity cost down, the contract must be re-negotiated with the supplier only worthwhile if substantial steps have been taken to permanently reduce peak demand through energy efficiency initiatives, improved demand management and in some cases, power factor correction.

2.5.4. Line Losses

Line Loss is the loss of electrical energy due to resistance in the cables that carry it. The higher the electricity demand, the higher the current flowing through the cables, and the greater the losses (in the form of heat, which in extreme circumstances can damage or destroy cables). For example, a ski resort in the Snowy Mountains originally had a single 3-phase aerial (cable-on-pole) power supply from the distribution network at the base of the mountain. However, after installation of snow-making equipment, the power supply was unable to cope with the additional load and the cables overheated dangerously (e.g. insulation materials melt, high fire risk). A second supply line, this time an underground cable, was subsequently installed at great cost to the ski resort operator. Notwithstanding the additional capacity, the power supply to the resort area is frequently heavily loaded, especially in winter season during snowmaking activities. This supply is predisposed to unusually high line losses. In a typical twelve-month period, an average of 14.6% of the electricity paid for by the operator was lost in the line (NSW average is around 8%).

2.5.2. Time-Of-Use Tariff

A Time-Of-Use (TOU) tariff is designed to vary the cost per kWh of electricity according to the time of day at which it is consumed. For example, time brackets are divided into: Bracket Peak Shoulder Offpeak Time 7:00 AM 9:00 AM and 5:00 PM 8:00 PM, Mon-Fri 9:00 AM 5:00 PM and 8:00 PM 10:00 PM, Mon-Fri 10:00 PM 7:00 AM, Mon - Fri, all weekend & public holidays

2.5.5. Which retailer / supply contract?

Some charges are regulated, while others vary widely between retailers. When seeking a new electricity contract, all additional charges should be carefully examined, because in some cases the best rates do not represent the lowest cost offer once all additional costs have been taken into account.

These time brackets reflect the level of demand on the electricity generators / supply system and the corresponding unit costs. Note that there may also be a network demand component in the electricity cost, and that the network TOU brackets may be different to the unit cost TOU brackets. Time-of-use tariffs have both disadvantages and advantages for many businesses. During the week, the scheduling of many commercial / industrial energy-consuming operations may be inflexible. However, where possible, shifting loads to Shoulder or Offpeak times may offer considerable cost (but not energy!) savings. This is known broadly as demand management.

2.6. Understanding Electricity Bills

A monthly electricity bill is a valuable tool for gaining insight into how energy dollars are spent. By knowing how to translate expenditure into energy use information, energy and cost-saving opportunities can be identified. After energy-saving initiatives have been undertaken, the bill can provide monthly feedback on an organisations progress. Electricity bills typically show retail energy and network costs, as well as any additional charges. Example bills are provided at Appendix 1. Additional charge components on NSW electricity bills may include (Energetics, 2011): Large-Scale Renewable Energy Target (LRET) The federal government has a Renewable Energy Target (RET) of 20% renewable electricity generation by 2020. From 1 January 2011, RET was split into the Large-Scale Renewable Energy Target

2.5.3. Contract Demand Charge

A Contract Demand Charge generally applies only to supply contracts for sites that use upward of 160 MWh per year. The charge is determined by the sites peak monthly electricity demand. It ratchets upward each time a sites monthly peak demand exceeds the existing level. The Contract Demand Charge cannot usually be reduced within the

(LRET) and the Small-Scale Renewable Energy Scheme (SRES). Under LRET, large-scale renewable energy projects, such as wind farms, create 1 Large-scale Generation Certificate (LGC) for each 1 MWh of electricity generated. Electricity retailers are then obliged to purchase an increasing number of LGCs each year to fulfil their obligations under LRET. The costs associated with the purchase of LGCs can be passed through to end-users. It is important to note that the pass through of LGC charges is not regulated and can be negotiated with your retailer. LGC pass through costs are around $3/MWh in 2011 but will more than double over the next few years as scheme targets increase. Small-Scale Renewable Energy Scheme (SRES) This is a new scheme from 1 January 2011 to fund small-scale residential and community solar power and hot water systems. Unlike the large-scale scheme, which has fixed targets, the number of certificates retailers must purchase for each calendar year is not formally announced until the start of that year. To account for this uncertainty, most retailers are treating SRES as a pass-through cost to customers, rather than nominating fixed pass through costs in the contract. Retailers have the option of purchasing certificates through a central clearing house as $40 each, or through the market at the prevailing market price. As present, the spot market price for SRES certificates is around $33 each. In 2011, SRES pass through costs on electricity are typically between $5-6/MWh, depending on how your retailer has purchased certificates. In 2012, this cost is expected to increase to between $7.50 - 9.50/MWh before falling to $2 - 3/MWh in 2013. Energy Savings Certificates (ESCs) ESCs are applied in NSW to fund energy efficiency initiatives in the State. The number of certificates required increases annually. For 2011, pass through costs on an electricity bill should be around $1/ MWh, rising to $1.50/MWh in 2012. AEMO (Australian Energy Market Operator) Pool Fees AEMO pool fees are fixed for each financial year and are currently around 0.4c/kWh (or $0.40/MWh). Ancillary Services Fees Ancillary services fees vary on a weekly basis and are passed through by the AEMO to retailers who, in turn, pass costs onto customers. Generally the retailers set the price at one level and then reconcile this quarterly or annually. It is advisable that businesses check that this reconciliation has taken place as, in some cases, ancillary services fees are overcharged. On average, these fees should be around $0.50/MWh. Metering Metering charges are usually set by the retailer, but can range from between $600 to $1,300. It is possible for customers to negotiate directly with their meter provider, as opposed to negotiating through their retailer. Direct negotiation with a meter provider can result in a better price and the benefit of gaining access to consumption data and a variety of reports via the internet.

2.7. Estimating Electricity Unit Costs

The complex nature of electricity retailers calculations makes it difficult to define the exact cost per unit of electricity from billing information, because of a curious paradox: it is almost impractical to work out the running cost of equipment as all other factors such as network charges, contract demand charges, ancillary charges etc. are based on the usage that is the result of the running equipment. One useful approach is to estimate an overall unit cost by simply dividing the total cost of the bill by the total number of kWh consumed. For the more adventurous energy analyst, overall unit costs associated with TOU brackets can be derived by considering actual TOU energy cost ratios and applying these to all other non-energy components of the bill.

2.8. Benefits of sub-metering

Many businesses have a single metering point for the electricity supply to their site (usually for billing purposes). The energy data from this metering arrangement do not give any insight into where or how the electricity is used. Submetering refers to the use of electricity meters installed on key pieces of equipment or specific electricity supply circuits within a sites operations. The meters are usually owned by the business or a third party submetering service provider, rather than the electricity utility. Submetering allows greater granularity in understanding energy use. For example, items or groups of equipment can be monitored individually to allow better management and early detection of malfunctions.

2.9. The Limits and Benefits of Energy Analysis and Modelling

Energy analysis is an important undertaking because of the insights it can provide into operational energy use. It important, however, to understand its inherent limitations. Energy analysis makes use of energy calculations that, regardless of their sophistication, cannot precisely predict actual energy consumption. Factors such as estimated energy consumption, data quality, reported patterns of use and maintenance procedures may vary markedly from assumptions contained in the analysis and skew results. However, energy analysis may be used to identify opportunities for reducing energy consumption through either modification or replacement of equipment or by changing operational practices. These aspects are considered in more detail in the following section.