Business

Energy: to conserve or to produce?

By Robert F Evans

Sunday, August 26, 2012    

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At the risk of revocation of poetic license, allow the liberty to suggest that Shakespeare's Hamlet, faced with Jamaica's high energy charges, would have voiced his soliloquy thus:

"To conserve, or to produce: that is the question:

Whether 'tis more arduous on the pocket to suffer

The slings and arrows of outrageous energy bills,

Or to produce from the abundance of sun and wind,

And, by such deed, oppose the tide of oil importation?"

A simple example will explain. If your energy consumption was 500KWh (kilo-Watt Hours) per month (equal to about 42 barrels of oil over five years) and a cost of about $220,000 annually and if, somehow, you had access to a facility of up to $1.5 million to resolve this, what are your options?

A renewable energy system (RE) - solar panels and/or wind turbine using the full $1.5 million could be installed. Or, for about $450,000, the solution could be energy conservation measures (EC) such as changing out bulbs to LEDs, tinting windows, photo cell switches, insulating the roof, use of inverter technology for fridges air-conditioners and practicing stringent energy management etc. If the strictest EC measures are adopted up to 175KWh per month may be saved and so, after expenditure on EC, there would still be an annual electricity bill of about $145,000 for 325KWh (27 barrels of oil over five years) saving $75,000 annually. This is a best case (or wishful thinking) scenario which assumes flat or stable oil prices over the next five years

At the end of EC however, your electricity bill may only be reduced by 35 per cent and so, when you take the inflation in energy charges into account, you may have saved some oil but you could be back to square one financially!

Conservation may not therefore be the answer and so consideration must be given to another option to answer the question "to produce or to conserve"? As it is in so many instances in life, the answer is in the grey area - neither EC nor RE but a combination of both.

If, after EC, consumption is reduced from 500KWh to 325KWh then install a 325KWh RE system and use a portion of the annual savings to carry out the EC measures - a combined approach. An achievable target could be to reduce consumption by an average of about 44KWh annually over five years after commissioning your RE system. Nothing would be done to attract expenditure until the end of the first year after accumulating the savings in electricity bills and the expensive EC measures would be accomplished over years two to five.

After one year the consumption would be reduced from 500KWh to 455KWh. After two years consumption is reduced from 455KWh to 410 KWh while production remains at 325KWh. At the end of five years consumption equals production. At the end of year one, savings is about $140,000 and this increases annually until the end of the fifth year when the electricity bill becomes zero and $220,000 is saved that year and afterwards. In five years the energy rates would have increased and the savings would be more in dollars and cents. Oil used by this combined approach would be about 7 barrels compared to about 27 barrels if only EC were employed but after 5 years of RE plus EC no oil would be used at all!

Excellent from the economic viewpoint but the financial reality is that, the combined approach demands repayment for the $1,500,000 capital cost of the RE system. At the most concessionary rate over 10 years this would be near $192,000/year. Therefore, for the first three to four years (depending on how much energy cost increases), the monthly repayment for the RE system plus energy charges from the electricity provider would significantly exceed the original electricity charge. This reason is that after five years the savings in electricity bills would be about $900,000 of which about one-half would have been expended in EC measures leaving only $450,000 to pay the $960,000 finance charges. But this does not mean that RE is not financially feasible!

Now, if EC only were employed the expenditure would only be about $450,000 which, under the above conditions would attract a finance charge of under $60,000 annually against saving $75,000 each year. Financially feasible but there is still the question of the continued use of oil.

This is a classic case for government intervention - brilliant economic gains (including oil savings and carbon credits) but significant negative financial consequences if attempted under conventional banking practices. The solution is a combination of creative, out-of-the-box initiatives including bulk purchases by the Government and loans with a two to three year moratorium ideally from the petrocaribe fund which appears to have been set up for just such a situation.

And so, back to the revised Hamlet, who, in his time, only appeared to have bigger problems because he was not faced with Jamaica's high energy charges. Be not be inspired by what he was talking to himself about however, as a means to escape expensive energy regimen.

"Thus independence does make heroes of us all;

And thus the self-generation revolution

Is strengthened with creative thought,

And enterprises of great pith and moment

Will flourish throughout the land

And doff the yolk of fossil oppressors.

Be all their sins remember'd."

Robert Evans is a practicing engineer.

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