Wastewater Treatment Facilities Energy Program
On March 28-29 in 2012, Helio Energy Solutions participated in the Energy Roadmap Summit workshops in Raleigh, N.C. The Water Environment Federation (WEF). The summit brought together nearly 40 water and energy professionals with experience in designing, implementing, and operating energy projects at wastewater treatment
The summit’s goal was to promote wastewater energy reduction by creating a “road map” to help plants increase onsite energy production, reduce consumption and to focus on overall energy management.As a result, WEF developed an energy road map. The Road map is a guide for Water Resource Recovery Facilities (WRRFs) to reach energy neutrality and beyond. It is structured in a series of steps that are arranged in six categories to help water and wastewater utilities plan and implement an energy program. Categories range from technical needs to organizational aspects, and steps are applicable to all sizes of facilities.
The road map is applicable whether WRRFs choose simply to increase energy efficiency or to build a full-scale distributed generation systems.
The early stages of the road map
Most water and wastewater treatment facilities will find themselves in the early steps of the Road map.
They will have implemented “low hanging fruit” type of energy cost improvement measures.
These include switching to variable speed drives on pumps and aerators. Or going to more efficient lighting in facilities and offices as well as, implementing some form of distributed generation. If anaerobic digestion is used
in the process, methane gas can be captured and used to drive generators. Some utilities even implement solar carports and ground mounts to help generate electricity. For example, East Bay MUD generates virtually all its electricity from waste biogas. However, even after implementing these types of measures, most utility engineers and managers are left wondering what else can they do to drive their cost of energy down.
Here’s an example from another industry. Helio Energy Solutions was hired by a prominent high-end brewery to help solve its high demand charges. This brewery was a sophisticated user of energy, as well as a generator. They have solar covered parking facilities, Bloom Energy fuel cells, and solar thermal.
As a result of our successful engagement, we were asked to calculate the amount of energy cost it took to brew and package a keg of beer. It was a complex process, with many variables involved; including equipment used, transport and storage of materials, tariffs, and time of use. During our investigation, we created many of the numerical processes and parameters which is now in our energy analytics software: PredictEnergy.
Once we calculated the cost of energy in a keg of beer for the brewery, the CEO had this to say. “We can choose from PG&E, the solar array, and the fuel cells for the required electricity. Do you know if we optimized the sources of energy at our disposal to drive the minimum cost?” A fantastic question that all heavy users of electricity should be asking themselves after they’ve invested in distributed generation or storage. Especially, those wastewater treatment plant managers that are using methane to fire a generator or run a fuel cell.
In reality, once you’ve picked the low hanging energy efficiency fruit and implemented methane gensets and solar photovoltaics, additional improvements tend to be organizational and behavioral. There are still some homeruns to be had, especially around demand charges. But most improvements are incremental and the only way you can enjoy those benefits is through measurement and analysis.
Here’s another example from a different industry. One of our largest users of PredictEnergy (PE) analytics software is a large international grocer. They use PE to determine the cost of energy to manufacture, move, or store a specific SKU item, such as a gallon of whole milk, a loaf of cinnamon bread, or a liter of cola. Then, they create energy cost KPI’s and incentive pay to drive the behavior they need from managers and line crews.
Energy Cost of Goods Sold
At Helio Energy Solutions, we have coined a phrase for this. We call it eCOGS or the Energy Cost of Goods Sold.
In the accounting world, there are three overall categories of expenses: cost of goods sold, operating expenses, and extraordinary expenses. Cost of goods sold (COGS) is the direct cost of the products and services your business sells. COGS can be directly identified in the end product. For a manufacturer, the cost of raw materials and labor is a direct cost and is usually considered a controllable cost. Significant business attention and resources are focused on these costs in order to increase gross margin. Team incentives are paid on the ability to reduce COGs and increase gross margin.
The cost of insurance, fuel, and maintenance for the trucks used to carry the bricks and mortar are indirect costs. While these costs are part of the product produced and are incurred in the process of generating revenues, they cannot be identified as belonging to a specific job or product. These indirect costs, such as, heat,power, insurance and rent are also known as operating expenses or overhead.
Operating expenses are listed under expenses in the profit and loss statement. Only the direct cost of the product is included in the calculation of cost of goods sold and margin. The COGS varies directly with the volume of goods produced and sold. For example, each sale adds to cost of sales. Operating expenses, on the other hand, are relatively fixed. The business will pay the same amount of rent and insurance whether 10 items or 100 items are sold.
COGS and operating expenses are shown in separate sections of the profit and loss report. First, the statement shows revenues, followed by cost of goods sold. COGS is subtracted from revenues to produce gross margin, or gross profit in the below example. Expenses are then summarized, totaled, and subtracted from gross margin to calculate net income from operations.
Finally, extraordinary items — such as the gain or loss on a sale of fixed assets — are added or subtracted from net operating income to yield net income. The standard format for an income statement is as follows:
The term gross profit margin refers to the ratio between revenue and gross profit. If the business has a low margin, such as a grocery store, it means that COGS is high in relationship to revenues. The margin, or difference between revenues and COGS, is low. Businesses with a low margin need to make up for it with a high volume of sales. Businesses with a high margin, such as a jewelry store or a high-end clothing store have low COGS compared to revenues.
WEF Energy Matrix
As stated earlier, historically, utility expenses such as electricity and heat are listed as operating expenses. Further, COGS varies directly with the volume of goods produced and sold.
However, the cost of electricity can also vary directly with the volume of goods produced and sold and be one of the top 3 costs a business incurs, along with labor and material costs. The idea was since a single electricity bill was received every month, it needed to be applied across the whole of the operation. Not until the advent of technologies, such as PredictEnergy, did the ability to allocate costs of electricity directly attributed to the production of a good or service become available. Thus, the creation of the notion of energy cost of goods (COGS), or energy COGS.
As you can see, by moving the cost of electricity above the gross margin line, businesses now have a more accurate and actionable picture of the cost of producing their goods, and its impact on gross margin. In many ways, it can now be viewed and treated as a controllable cost.
It is a standard management principle to control COGS as tightly as possible in order to maximize gross margin. Typical management controls include enhanced and detailed reporting, the creation of metrics to measure COGS performance, and the creation of incentives for managers and floor supervisors to control waste and increase production. Energy COGS gives you the ability to elevate electricity cost to this same level of scrutiny.
While a wastewater or water treatment plant is not a for-profit entity, many of these principles still apply. The most important of which are to determine the cost of energy per unit processed, such as $/MGD, or to determine the cost of energy produced, such as $/CFM of biogas, in order to optimize the sources and uses of energy through real-time metrics tied to behavioral incentives.
By successfully doing so, utilities will find themselves in the most advanced levels of the WEF Energy Matrix.
Contact Helio Energy Solutions to see how we can help.