Bridging the gap with combined heat and power
Published: 13 March, 2020
Craig Akers, sector team leader for manufacturing at Aggreko, explores the benefits of temporary combined heat and power (CHP) solutions, and how by mitigating the impact of these rising costs, they can make UK companies more competitive worldwide.
The rising cost of energy across the UK is putting companies under creasing financial pressure. As overheads and potential profit margins shrink, and with the cost of a permanent solution to alleviate concerns often proving too prohibitive, these organisations can find themselves in an unenviable and worsening situation.
Energy bills are an on-going concern for plant owners and operations, constituting 20 to 25% of facility’s overall budget. When considered alongside the fact that energy costs have risen by 37% on average in manufacturing alone, it is understandable that many are looking to actively confront this issue. However, between capex constraints and the state of the UK’s ageing asset base, adopting a permanent solution that would ease concerns is becoming increasingly difficult.
Reduced costs are clearly a priority, and more and more companies are taking initial steps to enact change. Yet while these steps are welcome and make a difference, more sweeping changes are required if the situation is to change. With the UK participating in a highly competitive worldwide market, it is clear that such decisive action is required if we are to level the playing field with our global competitors.
However, though this aim is laudable, it is possible that the national grid will not be able to maintain the energy supply that UK businesses require. This shortfall can stunt growth and competitiveness, further reinforcing the current disadvantage at which UK businesses find themselves. In fact, there is even a risk that this situation will only get worse as the grid continues to age.
Reducing overreliance
Decentralised energy solutions offer a way to remedy these growing concerns. By adopting such a solution, industry can reduce its current overreliance on the national grid and pave the way for a future where the majority of electricity is generated on-site. This attractive option is becoming increasingly popular to business, with a 2019 survey from Aggreko finding that a 49% of companies citing lower energy costs as the main reason behind adopting a decentralised energy solution.
Because of this, a growing number of manufacturing, commercial and industrial organisations are trending toward adopting a decentralised energy solution as an independent power source. As a result, these firms can enhance their global competitiveness through reduced energy costs, all while reducing their carbon footprint in line with sustainability and emissions targets.
Solutions
Though the benefits of decentralised energy are clear, some companies can find that the pathway to adopting the technology is littered with obstacles. While other organisations have the financial capital to fund a permanent installation, not all companies are able to do this. Indeed, Aggreko’s survey’s findings highlighted that while 43% of respondents had entertained the prospect of a decentralised energy solution, 38% have had an investment for new equipment to reduce energy consumption turned down in the last five years as a result of capex constraints.
Consequently, these companies can be left in something of a bind – needing to enact change to reduce their energy bills, but not having the funds to do so. Stuck in this vicious cycle, these firms could find their situation worsening, even as the need to upgrade to more efficient system so they can compete globally grows ever stronger.
Furthermore, human resistance can play a part in the reluctance to opt for more efficient decentralised energy technology. This can be seen in Aggreko’s recent study, which suggested that 76% of businesses leave energy decision-making to those who have other job roles, aside from energy managers, and so potentially have no specific technical knowledge in regards to energy. Without the expertise, investing in a decentralised energy solution could easily be seen as a daunting task, especially as it is a significant financial investment.
Combined Heat and Power – a potential answer
However, the world of business is dynamic and constantly moving, and companies know that standing still isn’t an option. So, while such organisations may not have the capital to fund a permanent installation, it does not mean they are without options when it comes to reducing energy costs. A standout among these options is CHP technology, which can eliminate disadvantages around energy generation while also allowing companies to make gains in operational efficiency.
Sometimes referred to as cogeneration, CHP involves generating electricity by taking advantage of the large amounts of heat that would otherwise be wasted in conventional power plants. The heat generated by harnessing this former waste product can be used to produce hot water and the steam can also be redeployed to assist in multiple processing applications.
A further appealing aspect of a CHP system is that it provides all heat and power from one source, meaning emissions can be lowered by up to 30%. As well as allowing businesses to reduce costs and improve efficiency, this aspect of the technology can prove an instrumental factor for businesses looking to hit their sustainability targets.
By capitalising on the output heat, CHP installations significantly reduce wasted energy and ensure that businesses are, quite literally, not throwing money away. Through the use of on-site electricity generation, decentralised energy solutions can therefore alleviate some of the pressure on our already-strained national grid, helping to remove stress about the instability of the UK’s future and cultivate industry growth.
Bridging the gap
It must be noted that a CHP system is a substantial investment. However, plant owners and operations can elect to hire the equipment as a ‘bridging gap’ solution, meaning they can take advantage of the benefits offered by this innovative technology, without being deterred by potentially prohibitive up-front costs.
This provides an off-balance sheet option with no requirement for depreciation of tangible assets. In addition to this, hire solutions also come with maintenance capability. Because a third-party team is available to handle product optimisation, on-going maintenance and remedial action should issues occur, those hiring the equipment can enjoy peace of mind about its performance.
The substantial capital investment required to purchase the equipment means that some businesses would have to wait years to see a return, which, depending on their financial position, is time they may not have. However, combined heat and power packages can offer up to 40 per cent in savings for regular business energy bills when compared to importing power from the grid. In turn, long-term hire options could therefore let companies compete and give them the opportunity to build up the capital required for a permanent plant solution.
Current conditions may be unfavourable for manufacturers that are under pressure from the capex crunch. Yet by electing to hire equipment instead of purchasing it outright, there is no need to commit to invest in a permanent installation. As a result, investors can minimise the challenges associated with capex constraints and the capex crunch, which shows no sign of easing. In such an environment, it is incumbent on businesses to adapt to avoid highly damaging financial repercussions before it is too late. The temporary hire of CHP technology represents an excellent way of doing exactly this.
For those ready to take the next step, but unsure of the options available, there are many incentives available, such as Good Quality CHP under the Combined Heat and Power Quality Assure Programme.
