Zap Back: Cutting Energy Costs

James Kramer and Mel Cook are senior Consultants with Laclede Consulting Services Ltd. (St. Louis), a subsidiary of Laclede Steel Co.

As scrap processing technology advances, allowing new machinery to replace manual labor, throughput often increases, but so does energy consumption. This, coupled with swelling power costs, makes energy an ever-growing portion of total operating expenses.

This needn't result in despair. There are opportunities to reduce and control these costs with little, if any, capital investment. Despite a common belief, energy consumers are not totally at the mercy of their utility companies. Too many companies consider their energy bills a burden over which they have no control. While they may complain amongst themselves about the size of their bills, they pay them without understanding how they are calculated, how various operations affect them, and how they can be controlled.

For most scrap processors, electricity represents the largest energy cost component and offers the greatest potential for cost savings. This is truer in some areas of the country than in others. Depending on the geographic location of the scrap plant--and, thus, the utility providing the service--electricity rates can range from 3 cents per kilowatt-hour up to as much as 18 cents per kilowatt-hour.

While moving a plant to a different location certainly isn't a viable way for most businesses to reduce electricity rates, altering the type of service received and the amount and pattern of electrical consumption are. Choosing the most appropriate service and properly managing the power provided can reduce electricity costs by as much as 40 percent.

In an ideal world, utility companies would volunteer suggestions to their customers on how to modify their electric use to reduce costs, but few--if any utilities--operate in such a fantastic fashion. Nevertheless, many do have special rates available to customers that inquire about them and are willing to make service adjustments, such as halting their electricity use within a few hours' notice of unusually high power demands.

Few of the options are likely to be quite this simple, however. Wading through all of the potential savings opportunities to choose those that will work best for a particular operation is close to impossible without an understanding of how electricity rates are calculated. This knowledge is also vital to determining how to reduce electric costs beyond utilities' special rates.

Two or three key items generally make up the major portion of a monthly electric bill: demand cost, energy cost, and power factor, the last of which is not included by all utilities. See Figure 1.

Demand Cost. This reflects the rate of energy consumption. It is measured in kilowatts in either 15-minute or 30-minute time intervals continuously throughout the monthly billing period, with the highest level attained in any one interval establishing the demand level billed for that entire month. Some utilities base demand charges on a time-of-usage rite that breaks down demand into "on-peak" and "off-peak" rates, depending on the time of day or day of the week power is used.

Demand levels usually vary substantially throughout the day, as shown in Figure 2. Peak-demand spikes (such as those around 7:30 a.m., 11 a.m., and 2 p.m. in the figure) generally occur when all equipment is operating simultaneously, but they can also be caused by equipment malfunctions such as overloaded or stalled motors.

Because the demand cost of an electric bill is based on the highest kilowatt-demand level reached in any 15- or 30-minute period during the billing cycle, top demand peaks (known as spikes) must be reduced in order to cut monthly demand costs. This requires knowledge of which pieces of equipment-and what part of their operation cycles-are causing these spikes. In some cases special equipment can be installed to manage the demand levels and prevent unusual spikes from occurring. In other instances, alternative ways of managing operation of the equipment-from reducing the number of pieces of equipment run at one time to taking additional steps in maintaining particular components-must be undertaken to eliminate the demand spikes.

Another way to reduce demand peaks is to shift operations, where practical, from one time period to another. If a time-of-usage rate is in effect, substantial cost savings can be attained by moving activities from on-peak, high-cost periods (typically 9 a.m. to 9 p.m., Monday through Friday) to off-peak, low-cost periods. Besides reducing the rate at which shifted electricity-consuming activities are charged, this strategy offers additional cost-saving opportunities if the utility company, like most that factor in a time-of-usage rate, offers "free" off-peak demand consumption as long as consumption stays below a specified level (1,200 kilowatts in Figure 1).

Energy Cost. This represents the amount of energy used each billing cycle as measured in kilowatt-hours. Improved equipment performance and simple efficiencies in operation such as switching from incandescent bulbs to fluorescent or other alternative lighting will reduce energy consumption costs. In addition, if energy cost rates factor in time of usage, shifting as many operations to off-peak periods as practical will reduce energy costs.

Power Factors. Some utilities charge their customers for "reactive demand," which is caused by power losses in the customer's equipment and is determined by comparing kilowatt demand to kilovolt amperes recorded by a separate meter. Poor power factors should be a concern even if the utility has no special penalty for this variance since poor power factors will increase energy consumption and demand levels--thereby increasing electric bills.

Improving poor power factors generally requires not-so-minor capital investments such as replacing an oversized motor with a more suitable one or adding capacitors in front of motors. These costs, however, can usually be recovered within a year or two through reduced electric costs. Furthermore, if the utility offers special credits for good power factors (those between 90- and 100-percent comparable), as some that penalize for poor power factors do, the investment may be recouped even faster.

Other Charges. Fuel-cost recovery charges, which reflect the cost of fuel consumed in power generation by utilities, and state or local taxes may also be applied to electricity bills. Although it's unlikely these could be reduced directly, they should be indirectly diminished as other charges are cut.

While understanding how electric bills are calculated is the first step in energy cost reduction, all variables must be thoroughly analyzed in concert to attain maximum benefits, which may require the services of an energy expert. Lack of investigation of all demand costs, for example, could negate the savings obtained by reducing overall kilowatt-hour electric usage.

In any case, the key thing to remember is that most electricity consumers can reduce their electric costs-up to 40 percent in some instances-thereby easing what's becoming an increasing portion of operating expenses.

By Lester Pratt

Lester Pratt is vice president of the engine division of Carloss Inc. (Memphis, Tenn.).

One way to save electricity in certain applications is to not use it! Shredders, for instance, can be retrofitted with natural-gas-powered engines, which can cost approximately $6 less per ton than electric motors to operate.

This comparison is based on the premise that the shredder, excluding any auxiliary equipment, operates at approximately 3,000 horsepower (the average of shredders in the 74-104, 80-104, 96-104, and 98-104 mill sizes).

To calculate the energy cost of the electric motor, start with three assumptions:

Each horsepower requires 0.746 kilowatt of energy.

Electricity costs (demand charge plus energy charge) are 18.3 cents per kilowatt-hour.

The motor operates at a power factor of 85 percent.

Multiplying 3,000 (number of horsepower) by 0.746 (energy requirement) by $0.183 (electricity costs per kilowatt-hour) by 0.85 (power factor) yields an hourly electricity cost of $348.12. Assuming shredder throughput of 50 tons per hour, the motor would cost $6.96 per ton to operate.

The natural-gas-engine cost calculation assumes the following:

Each horsepower requires 7,300 British thermal units (Btu) of energy and gas is delivered by pipeline at 1,000 Btu per cubic foot, resulting in a 7.3-cubic-foot-per-horsepower energy requirement.

The shredder loads and unloads an average of every 36 seconds, resulting in a usage factor of 60 percent.

Natural gas cost is $3 per 1,000 cubic feet (0.3 cents per cubic foot).

Maintenance costs (including preventive maintenance, oil changes, and oil analyses) are $3 per hour.

Multiplying 3,000 (number of horsepower) by 7.3 (energy requirement) by 0. 6 (usage factor) by $0.003 (gas cost per cubic foot) produces a gas power cost of $39.42 per hour. Adding $3 per hour (maintenance charge) to this rate yields a total hourly cost of $42.42. This time, assuming shredder throughput of 50 tons per hour, the engine would cost 85 cents per ton to operate.

The initial investment in a natural-gas engine, however, is substantially higher than that for an electric motor-approximately $775,000 for two 3,000-horsepower drive engines, including cooling media, belt drives, and auxiliaries, compared with approximately $360,000 for a 3,000-horsepower electric motor with resistance-grid starter and wiring. Nevertheless, assuming the equipment shreds an average of 5,000 tons per month (at a cost of $34,800 per month [$6.96 x 5,000] for the electric motor and $4,250 per month [$0.85 x 5,000] for the natural-gas engine), that $415,000 differential could be recouped in less than two years. (This does not take into consideration finance charges, insurance, or amortization.)

Retrofitting an existing electric-powered shredder could delay the payback to 18 to 36 months. •

In most cases, energy consumers can reduce their costs, sometimes substantially. The first step is to understand how energy bills are calculated.