January 27, 2016 | Neil Kolwey
Focused on their short-term profitability and survival, many industrial facilities are only willing to invest in energy efficiency projects if they pay for themselves in 1 to 2 years. Yet there are very significant energy savings available in these facilities through projects with payback periods from 2 to 8 years. Several utilities in the Southwest have developed innovative programs that are leveraging this potential and helping industrial customers achieve significant energy efficiency improvements.
As shown in Figure 1, utility incentives help industrial facilities implement energy efficiency projects with longer payback periods than projects they would normally pursue on their own. Utility programs provide other services as well, including technical assistance and training.
Figure 1 – Utility Incentives for Energy Efficiency
Caption: On their own, industrial companies typically only fund energy efficiency projects that have a payback period of two years or less. To help avoid investments in new power plants (with a 10-30 year time horizon), it makes sense for utilities to provide incentives to help industrial facilities implement energy efficiency projects that these facilities would not normally fund on their own.
Some types of industrial energy efficiency programs are shown in Figure 2 below. Self-direction programs allow large customers to put their energy efficiency surcharge payments into a fund from which the customer can draw to invest in energy efficiency projects. These programs are a good alternative to opt-out policies, since they encourage large customers to invest in energy efficiency projects rather than losing their surcharge money. Programs that provide even more value to large customers include technical assistance and incentive programs that help customers identify, evaluate, and finance energy efficiency projects. The best programs include collaborations between the utility and large customer. These can include assistance with developing multi-year energy plans, and/or training in principles of strategic energy management (SEM). Some programs also provide funding for the customer to hire a full- or part-time energy manager.
Figure 2 – Energy Efficiency Programs for Large Customers
Rocky Mountain Power (RMP) in Utah offers a comprehensive suite of energy efficiency programs for industrial and large customers, including prescriptive and custom incentives, technical assistance, training in SEM principles, and co-funding for energy managers. Through RMP’s energy project manager co-funding program and the accompanying free training, a large industrial company in Utah hired a new energy manager in 2014. After the 12-month performance period, the customer documented energy savings of 4.5 GWh per year, for which it received $113,000 from RMP to pay for the energy manager’s salary. These energy savings reduce the customer’s electricity costs by $270,000 per year.
Xcel Energy’s Process Efficiency (PE) Program is a multi-year planning and technical assistance program for large and medium-size industrial customers. After an initial energy assessment, PE customers and Xcel Energy sign an agreement that outlines the projects the customer will pursue over a three-year period, as well as the incentives that the utility will provide. Terumo BCT, a blood component and cellular technologies company, has been engaged with the PE program since 2011, and has implemented 18 projects (including projects planned for 2016). With Xcel Energy incentives of $207,000, the average payback period for these projects was reduced from 6.2 years to 4.5 years, and Terumo is now saving $122,000 per year on its energy costs.
RMP’s and Xcel Energy’s programs help large customers implement deeper and more energy efficiency projects than they would implement on their own. These programs provide significant value to these customers and keep them engaged and satisfied with their utilities. For more information on energy manager funding programs, see SWEEP’s new report here. You can learn more about Xcel Energy’s Process Efficiency Program here.
Neil Kolwey is Industrial Program Director at SWEEP where he promotes best practices in utility energy efficiency programs for industrial customers throughout the region.