Improving TCO by using CHP

The manufacturing sector accounts for 16.5% of national energy demand, with plants and factories using the equivalent of 27.7m tonnes of oil annually. Such large amounts of power lead to larger costs. According to an Association of Decentralised Energy report, industrial energy users have experienced cost rises of over 120% in the last decade.

Yet boosting efficiency and reducing costs can be difficult for organisations that rely entirely on electrical power and which use huge amounts of heat during the manufacturing process. These processes require roughly equal amounts of natural gas and electricity to produce heat and steam, further increasing energy costs.

Combining heat and electricity

CHP technology generates electricity and heat from one singular source in a manner significantly more efficient than generating them separately. This makes it perfectly suited for use in power and manufacturing plants.

Sometimes referred to as cogeneration, CHP systems capture the heat generated in conventional plant processes. Using this otherwise wasted heat, CHP plants can reach efficiencies of up to 80% – by comparison, coal and gas-powered plants struggle to reach 40%.

According to government statistics, CHP is currently used at 383 industrial sites and generates a significant portion of the sector’s energy. However, many more plants could benefit from the technology.

Total cost of ownership

CHP can be seen as an expensive option, and its up-front costs can prove a barrier for companies seeking efficiencies. Yet savings generated over the system’s lifetime dwarf these starting costs. 

For example, CHP users’ industrial energy costs rose by less than half the national average over the past decade. The technology can also reduce users’ primary fuel use by up to 30%.

So while installing a CHP system may involve an initial outlay of several hundred thousand pounds – and potentially seven-figure sums for larger plants – the long-term benefits make for a sound business case. This can make securing capital funding or debt financing significantly easier. 

Others may elect to lease a CHP system from a supplier such as Finning instead of purchasing it outright, either as a hire purchase, finance lease or an operating lease. 

This would allow the plant to choose a system based on business need rather than balance sheet restrictions, resulting in a more appropriate, effective solution. In turn, this leads to a better-suited purchase while avoiding the deterrent of high initial costs.

Long-term savings

Free from these restrictions, the purchasing plant can also prioritise its CHP system’s ongoing efficiency. This is important – fuel costs constitute up to 75% of spend over the system’s lifetime, so investing could lead to larger long-term savings.

With this in mind, it makes sense to take a long-term view when analysing CHP costings. A good-quality, reliable system sourced from a well-respected and trusted supplier will pay for itself over a course of years, if not decades. Conversely, the urge to make initial savings by choosing cheaper systems and opting out of operation and maintenance contracts may result in greater costs further down the line.

To help manufacturers learn more about how CHP can reduce energy costs, increase efficiency and improve total cost of ownership, Finning has produced a guide called ‘Combined Heat and Power in the Manufacturing Industry – A Guide to Improving Total Cost of Ownership’. It can be downloaded free from Finning’s website: http://bit.ly/FinningCHPManufacturingGuide