By Nick Clark
Thank you to our guest columnist, David Gray, pictured below of Gray Energy Economics and Aim Energy Pros. “Sophisticated” energy consumers often take a portfolio approach to purchasing energy.
For example, commercial energy consumers frequently choose a portfolio of energy hedges for some fixed part of their electricity consumption; they allow the rest to “float” at the spot price. This gives them a choice as to how much price protection they have to pay for while limiting their exposure to the risk of rising market prices. This is smart, as far as it goes. Unfortunately, many people stop at that level of sophistication and do not explore how energy efficiency and alternative energy should fit into their portfolio.
Distribution and transmission charges
The reason this is unwise is that it completely ignores all the other costs associated with energy purchasing, namely distribution and transmission charges. Increasingly, distribution and transmission charges are taking over the typical energy bill. Even as energy market prices have fallen to record lows, distribution and transmission charges are rising to record highs. The problem for most consumers is they don’t consider how they can take any action on those costs. That is becoming an ever more costly oversight.
The first place to start is with energy efficiency. I am going to use
the selection of electric motors as a prime example. Electric motors drive more
than 50% of the electricity demand in North America. They are reliable prime
movers that are used everywhere. Legislation requires electric motors to
become more efficient than they used to be but most motor sales are still of
the cheapest, least-efficient variety. I call this Pound Wise – Penny Foolish thinking.
Furthermore, while that more efficient motor is saving energy it is also reducing distribution and transmission costs. Any improvement to energy efficiency at your facility will affect not only energy charges, but distribution and transmission charges as well. The savings from energy efficiency cover the full spectrum of energy costs.
And while the benefits of energy efficiency are greater than just energy costs per kilowatt hour, typical costs for energy efficiency are often significantly less than energy costs alone. I have made a habit of calculating the cost per kW/h of avoided energy for all of our clients. We usually find that energy efficiency improvements end up costing only 1 - 2 cents per kilowatt hour. So why would you continue to pay even 4 cents per kilowatt hour for energy when there is a less expensive choice?
Renewable energy benefits from a similar portfolio approach to energy purchasing. When deciding whether you are better off to purchase green energy at a small premium or to install solar panels at your facility, you need to look at not only the cost of energy, but the effect that reducing distribution and transmission costs can have on your current and future costs. Solar panels do have the benefit of reducing those costs and providing a long term price guarantee for your energy use.
When you are making choices regarding your energy usage, expand your horizons beyond the price of the commodity. Look for opportunities to expand your portfolio of energy choices to change your whole bill and truly take control of your energy future.
The example of electric motors
The cost of a typical electric motor is less than 10% of the total operating cost of that motor. Saving some dollars by purchasing the least efficient electric motor adds penny after penny of operating costs over years of operation. Hundreds of thousands of pennies saved will more than outweigh a few hundred dollars saved on a motor.Furthermore, while that more efficient motor is saving energy it is also reducing distribution and transmission costs. Any improvement to energy efficiency at your facility will affect not only energy charges, but distribution and transmission charges as well. The savings from energy efficiency cover the full spectrum of energy costs.
And while the benefits of energy efficiency are greater than just energy costs per kilowatt hour, typical costs for energy efficiency are often significantly less than energy costs alone. I have made a habit of calculating the cost per kW/h of avoided energy for all of our clients. We usually find that energy efficiency improvements end up costing only 1 - 2 cents per kilowatt hour. So why would you continue to pay even 4 cents per kilowatt hour for energy when there is a less expensive choice?
Renewable energy benefits from a similar portfolio approach to energy purchasing. When deciding whether you are better off to purchase green energy at a small premium or to install solar panels at your facility, you need to look at not only the cost of energy, but the effect that reducing distribution and transmission costs can have on your current and future costs. Solar panels do have the benefit of reducing those costs and providing a long term price guarantee for your energy use.
When you are making choices regarding your energy usage, expand your horizons beyond the price of the commodity. Look for opportunities to expand your portfolio of energy choices to change your whole bill and truly take control of your energy future.