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ENERGY CONSERVATION AND MANAGEMENT
1) SOME SUGGESTED PRINCIPLES OF ENERGY MANAGEMENT
If energy productivity is an important opportunity for the nation as a whole, it is a
necessity for the individual company. It represents a real chance for creative
management to reduce that component of product cost that has risen the most since
Those who have taken advantage of these opportunities have done so because of
the clear intent and commitment of the top executive. Once that commitment is
understood, managers at all levels of the organization can and do respond seriously
to the opportunities at hand. Without that leadership, the best designed energy
management programs produce few results. In addition, we would like to suggest
four basic principles which, if adopted, may expand the effectiveness of existing
energy management programs or provide the starting point of new efforts.
In comparing actual values with minimum values, four possible approaches can be
taken to reduce the variance, usually in this order:
- An hourly or daily control system can be installed to keep the function cost at the
desired level.
- Fuel requirements can be switched to a cheaper and more available form.
- A change can be made to the process methodology to reduce the need for the
function.
- New equipment can be installed to reduce the cost of the function.
The fourth principle is to put the major effort of an energy management program
into installing controls and achieving results_._ It is common to find general
knowledge about how large amounts of energy could be saved in a plant. The
missing ingredient is the discipline necessary to achieve these potential savings.
2) Characterization of an Investment Project
a) Capital Investment Characteristics
When companies spend money, the outlay of cash can be broadly categorized into
one of two classifications; expenses or capital investments. Expenses are generally
those cash expenditures that are routine, on- going, and necessary for the ordinary
operation of the business. Capital investments, on the other hand, are generally
more strategic and have long term effects. Decisions made regarding capital
investments are usually made at higher levels within the organizational hierarchy
and carry with them additional tax consequences as compared to expenses.
b) Capital Investment Cost Categories
In almost every case, the costs which occur over the life of a capital investment can
be classified into one of the following categories:
- Initial Cost, • Annual Expenses and Revenues, • Periodic Replacement and
Maintenance, or • Salvage Value.
As a simplifying assumption, the cash flows which occur during a year are
generally summed and regarded as a single end-of-year cash flow. While this
approach does introduce some inaccuracy in the evaluation, it is generally not
regarded as significant relative to the level of estimation associated with projecting
future cash flows.
c) Cash Flow Diagrams
A convenient way to display the revenues (savings) and costs associated with an
investment is a cash flow diagram. By using a cash flow diagram, the timing of the
cash flows is more apparent and the chances of properly applying time value of
money concepts are increased. With practice, different cash flow patterns can be
recognized and they, in turn, may suggest the most direct approach for analysis.
It is usually advantageous to determine the time frame over which the cash flows
occur first. This establishes the horizontal scale of the cash flow diagram. This
scale is divided into time periods which are frequently, but not always, years.
4 ) a. Characteristic method employed in Certain Energy Intensive
Industries
Industrial audits are some of the most complex and most interesting audits because
of the tremendous variety of equipment found in these facilities. Much of the
industrial equipment can be found during commercial audits too. Large chillers,
boilers, ventilating fans, water heaters, coolers and freezers, and extensive lighting
systems are often the same in most industrial operations as those found in large
office buildings or shopping canter’s. Small cogeneration systems are often found
in both commercial and industrial facilities.
are no contingent projects.
Some Interesting Observations Regarding Constrained Analysis
Several interesting observations can be made regarding the approach, measures of
worth, and decisions associated with constrained analysis. Detailed development of
these observations is omitted here but may be found in many engineering
economic analysis texts.
The present worth of a decision alternative is the sum of the present worth’s
of the projects contained within the alternative. (From above PW A&D
PW
A
+ PW
D
The annual worth of a decision alternative is the sum of the annual worth’s
of the projects contained within the alternative.
The Planning Horizon Issue
When comparing projects, it is important to com- pare the costs and benefits over a
common period of time. The intuitive sense of fairness here is based upon the
recognition that most consumers expect an investment that generates savings over
a longer period of time to cost more than an investment that generates savings over
a shorter period of time. To facilitate a fair, comparable evaluation a common
period of time over which to conduct the evaluation is required. This period of time
is referred to as the planning horizon. The planning horizon issue arises when at
least one project has cash flows defined over a life which is greater than or less
than the life of at least one other project. This situation did not occur in Example
17 of the previous section since all projects had 4 year lives.
