Edited version 15 June 2010

ENERGY SAVINGS MEASUREMENT GUIDE

Version 2.0
Commonwealth of Australia 2013 ISBN 978-1-922106-60-5 Energy Savings Measurement Guide (PDF) ISBN 978-1-922106-61-2 Energy Savings Measurement Guide (MS Word)

How to estimate, measure, evaluate and track energy efficiency opportunities

This work is copyright. In addition to any use permitted under the Copyright Act 1968, this document may be copied in whole or in part for personal and organisational use or published for educational purposes, provided that any extracts or copies are fully acknowledged. Copies or substantial extracts of this work may not be reproduced for profit without the permission of the Commonwealth of Australia, as represented by the Department of Resources, Energy and Tourism. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney-Generals Department, 3 5 National Circuit, Barton ACT 2600, or posted at www.ag.gov.au/cca. This Energy Savings Measurement Guide is published by the Department of Resources, Energy and Tourism and was prepared by the Energy Efficiency Opportunities Section, Clean Energy & Energy Efficiency Division. The guide may be downloaded from www.energyefficiencyopportunities.gov.au. For printed copies, phone 1300 799 186 or email energyefficiencyopportunities@ret.gov.au.

Acknowledgements
This guide was produced for the Department of Resources, Energy and Tourism by WorleyParsons Ltd and Demand Response Limited (NZ), based on an earlier guide and input from the Energy Efficiency Opportunities program and other consultants, including (in alphabetical order): Geoff Andrews of Genesis Now Rob Fowler of Booz & Company Paul Goerick of Rawetech Dr Chris Lund of GHD Alan Pears of Sustainable Solutions Some additional material and revisions were implemented by the Department.

Feedback and enquiries

ESMG version 2.0 has been produced to assist companies to conduct and complete their assessments. This guide may be revised in future to incorporate feedback from industry and relevant experts. To provide feedback, please email the Energy Efficiency Opportunities Program at energyefficiencyopportunities@ret.gov.au.

Important notice
This guide does not replace or modify any of the requirements in the Energy Efficiency Opportunities Act 2006 or the Energy Efficiency Opportunities Regulations and Energy Efficiency Opportunities Industry Guidelines. The Department of Resources, Energy and Tourism has published this guide purely for the assistance of the reader. The information in this guide is considered to be true and as accurate and complete as possible at the time of publication. The Department gives no warranty, however, for any changes in circumstances after publication that may impact on the accuracy and completeness of the information. Accordingly, readers should independently verify the guides accuracy, currency, completeness and relevance for their own individual purposes, and should obtain appropriate professional advice before making any business decision based on the guide. To the full extent permitted by law, the Commonwealth of Australia will not be liable in any way whatsoever for any damage, loss or expense arising from the use of or reliance on this guide. Hypothetical companies and activities are used as examples. They are for illustrative purposes only, and are entirely fictitious. Any resemblance to past or present organisations or individuals is coincidental and unintended. 2

Contents
Figures & tables Glossary & shortened terms Units of measurement Key Elements of the Assessment Framework Introduction to the guide 5 7 9 10 14 18 19 20 20 21 23 27 29 31 35 36 37 37 39 43 50 51 52 53 54 54 60 71 72 73 74 74 75 81 83 84 85 86 89 97 3

Part 1Building a platform to estimate, evaluate, measure and track energy savings
1.0 Establishing and using an energy baseline 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 Overview Defining an energy baseline Establishing an energy baseline Methods for establishing an energy baseline Forecasting future energy baselines Using an energy baseline Establishing an energy baseline at the Fair Dinkum Milk Company Section summary

2.0 Measuring, metering and capturing energy data 2.1 2.2 2.3 2.4 2.5 2.6 Overview of measuring, metering and capturing energy data Measuring, metering and capturing energy data How to develop an energy measurement system Energy metering and data capture systems Investing in energy measurement systems Section summary

3.0 Determining and improving accuracy 3.1 3.2 3.3 3.4 3.5 Overview of accuracy in opportunity evaluation Integrating accuracy into evaluations Statistical overview Determining accuracy Section summary

Part 2Estimating, evaluating, measuring and tracking energy efficiency opportunities

4.0 Estimating energy savings for an opportunity 4.1 4.2 4.3 4.4 4.5 Overview of estimating energy savings Estimating energy savings Methods for estimating energy savings Estimating energy savings for an opportunity for the Fair Dinkum Milk Company Section summary

5.0 Evaluating an opportunity 5.1 5.2 5.3 5.4 Overview of evaluating an energy efficiency opportunity Financial analysis Valuing the whole-of-business costs and benefits Prioritising the implementation of opportunities

5.5 5.6 5.7 5.8

Developing business cases for decision makers Allocation of resources to evaluate energy efficiency opportunities Evaluating an opportunity for the Fair Dinkum Milk Company Section summary

101 105 105 106 107 108 109 109 112 114 115 116 116 119 120 123 123 124 125 126 126 127 133 133 134 135 136 139 143 148

6.0 Measuring energy savings for an opportunity 6.1 6.2 6.3 6.4 6.5 Overview of measuring energy savings Measuring energy savings Methods for measuring energy savings Measuring energy savings for the Fair Dinkum Milk Company Section summary

7.0 Tracking energy savings for an opportunity 7.1 7.2 7.3 7.4 7.5 7.6 Overview of tracking energy efficiency opportunities Tracking the energy savings outcome Establishing an opportunity tracking register Managing energy performance Energy tracking for the Fair Dinkum Milk Company Section summary

Part 3Additional guidance, useful calculation tools and references

8.0 Energy-mass balance development 8.1 8.2 8.3 8.4 8.5 Introduction Defining energy-mass balance How to develop an energy-mass balance Additional energy-mass balance examples Section summary

9.0 Appendices 9.1 9.2 9.3 9.4 9.5 Useful benchmarking and calculation tools Citations Example of an opportunity tracking register Other financial analysis methods How the guide can be used in conjunction with the National Greenhouse and Energy Reporting Scheme (NGERS)

Figures
A 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.1 2.2 2.3 2.4 4.1 4.2 4.3 4.4 5.1 5.2 5.3 6.1 6.2 6.3 7.1 7.2 Energy Savings Measurement Guide overview Dividing your site into processes for analysis Sample output from Steam System modelling software Adjusting the current energy baseline Forecasting an energy baseline Estimating energy savings Measuring energy savings Fair Dinkum Milk Company baseline boundary Fair DInkum Milk Company Plant 1 drier gas consumed versus milk powder produced Comparison of estimated and actual gas consumption in season one Consumption rates, before and after Layout of an existing metering system How to create a virtual meter Data capture process The principle of estimating energy savings Current process for heating of Plant 1 air into the drier ( denotes efficiency) Proposed process for heating of Plant 1 air into the drier Drier 1 air pre-heater opportunity estimating energy savings Ease of implementation Opportunity supporting documentFair Dinkum Milk Company example Marginal cost of abatement curve for various energy efficiency opportunities The principle of measuring energy savings Comparison of the measured gas consumption and the revised energy baseline for the Fair Dinkum Milk Co. Drier 1 air pre-heater opportunity Close-out report Energy monitoring report for the Fair DInkum Milk Company 15 22 26 28 29 30 32 34 33 34 39 41 45 46 74 81 81 83 98 102 104 109 113 114 118 123

Tables
A B C D 1.1 1.2 1.3 1.4 1.5 2.1 2.2 2.3 2.4 Key Element 3 of the EEO Programs Assessment Framework Key Element 4 of the EEO Programs Assessment Framework Key Element 5 of the EEO Programs Assessment Framework Key Element 6 of the EEO Programs Assessment Framework Opportunity baseline boundary examples Methods for establishing an energy baseline Adjusting for energy influencing factors Variables selected for regression analysis Fair Dinkum Milk Company regression results for Plant 1 drier gas consumption Metering system capability Features of standard metering hardware Solutions for common metering issues Solutions to common data collection issues 5 10 11 12 13 22 24 28 32 33 38 43 45 48

3.1 3.2 3.3 3.4 3.5 3.6 3.7 4.1 4.2 4.3 5.1 5.2 5.3 5.4 5.5 5.6 5.7 6.1 6.2 6.3 7.1 8.1 8.2 8.3 8.4 9.1 9.2

The t-distribution table t-distribution data analysis Common modelling errors Solutions for Issues when determining accuracy in sample sizes Common metering errors Capital cost analysed to assess relationship to project cost Recommended approaches to accuracy Common applications of estimation methods Gas consumption forecast Estimated gas saving* Non-energy benefits from energy efficiency improvements Strategic alignment test Economic viability test Difficulty of implementation test Magnitude of the savings Risk test Estimated payback for projected project Measuring energy savings methods and their applications Measured energy savings for the Fair Dinkum Milk Company Payback calculation for the Fair Dinkum Milk Company Common key performance indicators (KPIs) Typical data sets for participants in the manufacturing sector Typical data sets for participants in the mining and mineral processing sectors Typical data sets for participants in the transport sector Typical data sets for participants in the commercial buildings sector Indicative cash flows for Project A for MFC Inc. Indicative cash flows for Project B for MFC Inc.

56 59 60 63 64 65 66 80 82 82 90 99 99 99 100 100 106 111 112 113 121 129 130 131 131 143 143

Glossary & shortened terms

Absolute precision Accuracy Absolute precision is the level of precision expressed in the original units of measurement, such as 723 GJ. Accuracy is the degree to which a measurement reflects the true value. For the purposes of the Energy Efficiency Opportunities program, the term accuracy is used to refer to the range within which the true value should lie, expressed as a percentage e.g. 5%. This is also known as relative precision. The forecast level of energy use if an opportunity is not implemented, adjusted for variations in other parameters such as level of output. A document that outlines energy use patterns and suggests ways in which the company can achieve energy efficiency, so as to prompt and inform discussion. The amount of energy used over a particular period, such as an historical baseline. Also referred to as an energy baseline. The period for which an energy baseline for an opportunity has been calculated. This is likely to be different from the baseline year in the EEO regulations and Industry Guidelines. A process used in management, and particularly strategic management, in which organisations evaluate various aspects of their processes in relation to best practice, usually within their own sector. Bench tests involve operating a small-scale version of the equipment or the process to assess performance. This approach is used when the opportunity involves a novel or unproven application of a technology. The degree to which variation in the dependent variable (energy) is explained by changes in the independent variables (such as output or temperature). Coefficient of performance (cooling or heating) is the ratio of heating or cooling produced to electrical or fuel energy input. The COP can be greater than one for systems that use ambient heat, such as heat pumps or chillers. Note that the COP is not a measure of thermal efficiency because it does not include the thermal energy supplied to the system. Thermal efficiency is always less than 100%. The confidence interval represents a range of values within which a proportion of values is statistically expected to lie, with a specified level of confidence. For a normal distribution, the t-statistic for a given confidence level indicates the number of standard deviations (s) on either side of the mean that is required to give a certain level of confidence, such as 95%. For example, the 95% confidence interval for a normal distribution with infinite sample size is the range from (X - 1.96s) to (X + 1.96s). The statistical probability that the true population mean will lie within the boundaries of the confidence interval. The common standard for stating the accuracy of metering and measurement equipment is 95%. The data resolution; data density is a function of the sample rate and the sampling size. A balance taken at a specific instant in time. It is generally applied to a continuous process, such as fluid flow through pipe systems. Energy-mass balance is a method of accounting for the materials and energy entering and leaving a site or fleet and its processes, systems or equipment; and the energy and material flows, energy conversions and energy use within the site or fleet and its processes, systems or equipment. A potential change to a system, process, activity, technology or piece of equipment that may result in improvements in energy performance with a payback period of four years or less. Note: Energy efficiency opportunities are not intended to include potential changes that would be in breach of relevant legal obligations that relate to the system, process, activity, technology or piece of equipment, including (but not limited to) building regulations and occupational health and safety requirements. Enthalpy A measure of the heat content of a material, enthalpy equals the sum of internal energy and the product of the pressure and volume of the material. It is tabulated in engineering texts and handbooks. Energy Savings Measurement Guide The present work; the Energy Savings Measurement Guide.

Adjusted energy baseline Background paper Baseline energy Baseline period Benchmarking

Bench test

Coefficient of determination 2 (R ) Coefficient of performance (COP)

Confidence interval

Confidence level

Data density Differential balance Energy-mass balance (EMB)

Energy efficiency opportunity

ESMG guide, the

HVAC Energy efficiency idea

heating, ventilating and air conditioning An idea for a potential change to a system, process, activity, technology or piece of equipment that: (a) is intended to improve energy performance; and (b) has not yet undergone technical or whole-of-business evaluation.

Independent variable

Independent variables (i.e. those variables that independently affect energy consumption) including production rate, product mix, raw material, occupancy, and ambient conditions. Energy consumption is the dependent variable. The capital investment that must be paid before or at the time of implementation. Integral balance is a balance taken at two specific instances in time. It describes what has happened over the time period between two points. An integral balance is generally applied to the beginning and the end of a batch process. The discount rate that will yield a net present value (NPV) for the project of zero, which is calculated iteratively. An appropriate measure of the energy efficiency or intensity for a site, fleet, process or company, such as gigajoule/tonne (GJ/t). The cost of an additional unit of a product or service. The arithmetic average. The net present value measures the increase in value of the investment based on the rate of return required by the company. Future net cash flows are discounted back to their present value to account for the effects of inflation and the interest available from alternative investments. The opportunity tracking register contains all the key information used to evaluate each opportunity and data resulting from the evaluation and prioritisation of each opportunity. An approach to energy-savings measurement that involves using existing measurements where available and estimating other variables based on engineering calculations and assumed parameter values. In a pilot study, an improvement is first applied to a single piece of equipment or process. Savings obtained in the pilot study can be used to estimate savings if the opportunity is implemented more widely. A method for minimising energy consumption of processes by calculating thermodynamically feasible energy targets (or minimum energy consumption) and achieving them by optimising heat recovery systems, energy supply methods and process operating conditions. The measure of the range in which the true value is expected to occur. This is stated in conjunction with a level of confidence, which is the probability that the quoted range, such as 5%, contains the true value. A statistical technique which examines the relation of a dependent variable (response variable) to specified independent variables (explanatory variables). Sensitivity analysis explores the possible effects of changes in parameter values from the original assumed values. Sensitivity analysis provides a deeper understanding of which parameters are of primary importance in an evaluation, and identifies break-even points and other milestones. This approach uses process data and engineering calculations to model a process and test parameter values. Simpler simulations may be run using spreadsheet software, while more complex simulations with more advanced models can use proprietary software or run as fully-developed applications. supervisory control and data acquisition The standard error is a measure of accuracy of the predictions produced by the model. This calculation is performed by common spreadsheets and statistical software tools. Equal to the square root of the variance, the standard deviation is the average difference between the measured values and the mean value. The t-statistic is a method of assessing whether the means of two groups are statistically different from each other. To calculate precision in the units of the data, a t-value is derived from a t-distribution table. A t-distribution table shows t-values for a given degree of freedom (dfnumber of measurements minus one) and probability (or p-value). 8

Initial capital cost Integral balance

Internal rate of return (IRR) Key performance indicator (KPI) Marginal cost Mean Net present value (NPV)

Opportunity tracking register Partial measurement

Pilot study

Pinch analysis

Precision

Regression analysis Sensitivity analysis

Simulation model

SCADA Standard error Standard deviation t-statistic

Variance VSD Whole-of-business evaluation

The average of the squared deviations from the mean for a set of values. The standard deviation is the square root of the variance. Variable speed drive, also referred to as a variable frequency drive Means the financial evaluation of an energy efficiency opportunity to consider all relevant quantifiable business costs and benefits, including: (a) direct energy-related costs and savings; and (b) other quantifiable financial costs and benefits, for example: (i) capital costs or avoided capital investment; or (ii) reductions or increases in costs of maintenance, waste disposal, water usage or occupational health and safety; or (iii) changes in productivity, the quality of outputs or the quantity of outputs. Note: A whole-of-business evaluation is used to determine net costs and benefits in order to calculate payback periods for energy efficiency ideas and opportunities.

Units of measurement
Unit C CO2-e d GJ Definition degrees Celsius Universal unit of measurement to indicate the global warming potential (GWP) of greenhouse gases, expressed in terms of the GWP of one unit of carbon dioxide. day gigajoule, equal to 1x10 joules joules (J) are the standard unit of energy h km kW hour kilometre kilowatt, equal to 1,000 J/s watts are the standard unit for power kWh L m m
3 9

kilowatt-hour, equal to 3.6 megajoules (MJ); a unit of energy litre metre cubic metre milliamp megajoules, equal to 1x10 joules petajoules, equal to 1x10 joules second
15 6

mA MJ PJ s Sm t y
3

metres cubed at standard temperature and pressure tonne year

Key Elements of the Assessment Framework

The following quick reference is to help you understand the Key Elements and Requirements of the assessment process that are addressed in this guide, indicating the sections of the guide that provide further information.
Table A: Key Element 3 of the EEO Programs Assessment Framework

Key Element 3: Information, data and analysis requirements

No 3.2 Requirements Data collection processes are identified, documented and implemented to provide: (a) energy consumption and cost data for each energy source. Data should be entered at the frequency that bills and other records are received (typically monthly) for a total of 24 months. The accuracy of data must be within 5%. A less accurate level may be used only if it was approved as part of the assessment schedule energy consumption data for each of the key site processes, systems and activities production (or output or service) data for a total of 24 months. Data should be entered at the same frequency and timing as the energy consumption and cost data information about the impact of the operating profile of the site or fleet on energy use data on other process parameters that impact on energy use (e.g. ambient temperature, geology, mining) and production inputs information about the energy and material flows through the site or fleet and its processes, systems and equipment (e.g. using an energy-mass balance or similar technique appropriate to the type of activity) information about measures being undertaken to ensure the accuracy and completeness of the energy data information about measures being undertaken to identify and resolve material data gaps and anomalies information about assumptions used in the data collection process and their associated uncertainty. Section 2 demonstrates how to measure energy flows through the development of energy measurement and data capture systems. ESMG reference Section 1 explains how to establish and use an energy baseline to estimate and measure energy savings. Section 2 demonstrates how to measure energy flows through the development of measurement and data capture systems. Section 3 explains the statistical methods used to determine the accuracy ranges during analysis. Section 9 explains how to quantify energy and mass flows for your company.

(b) (c)

(d) (e)

(f)

(g)

(h)

(i)

3.3

An energy analysis process to assist in the identification, quantification and evaluation of energy efficiency opportunities, using data from Requirement 3.2, is undertaken and documented, including: (a) energy use performance indicators, established at the appropriate level, with consideration of variations over time and major factors that affect energy performance application of a range of analysis methods to explore relationships between energy use and variables (e.g. output or climatic factors) that may influence energy use, using data collected at appropriate times (e.g. review of graphs and charts, regression analysis) a comparison of performance to actual and theoretical energy use benchmarks, at the relevant level (process, technology, activity or site) to identify and quantify opportunities (Note: Theoretical benchmarking may include engineering calculations or simulations based on thermodynamic and heat transfer analysis, fluid

(b)

(c)

(d)

10

mechanics or combustion analysis.) (e) if appropriate, other detailed analysis, comparative techniques or experimental approaches (e.g. engineering, vehicle trials, pilot studies, logistical approaches or thermographic imaging) are used to fully understand energy consumption analysis of the energy and material flows through the site or fleet, and the processes, systems and equipment at the site or of the fleet, to systematically quantify if energy is being used, wasted or lost, compared with the amount of energy required by the specific products and services that the energy use delivers (e.g. energy-mass balance or similar).

(f)

Table B: Key Element 4 of the EEO Programs Assessment Framework

Key Element 4: Opportunity identification and evaluation

No 4.2 Requirements Ideas mentioned in item 4.1 are filtered (using appropriate criteria such as technical and economic feasibility or risk) to identify which of the ideas have sufficient merit to become opportunities. Reasons for screening out ideas are documented. The investigation and evaluation of all opportunities with potentially a 4-year payback or better is documented. Decisions to implement opportunities may be made at this stage. 4.3 Detailed investigation of opportunities is undertaken to enable the credible quantification and evaluation of the costs and benefits of opportunities to within 30%. Detailed investigation includes sub-metering or real time metering to a sufficient level of detail to understand the energy use of major systems and items of equipment, and potential energy savings. If an opportunity cannot be evaluated to within 30%, an indication is given in key requirement 5.3 of how the accuracy level will be achieved, including further investigation and sub-metering. (Note: Opportunities that have immediate business benefits (low costs and immediate paybacks), or for which the cost of achieving accuracy is greater than the benefit, may be implemented or scheduled for implementation without being evaluated to within 30%. If practicable, data on these opportunities should be monitored following implementation, to evaluate and report on savings. If a series of small opportunities has been identified, they can be grouped together to facilitate postimplementation performance monitoring and reporting.) If an opportunity can be shown to be clearly not within a four-year payback, further investigation to reach an accuracy of 30% is not required. Section 3 explains the statistical methods used to determine the accuracy ranges during analysis. Section 4 details the various techniques that can be used to forecast energy savings. Section 5 outlines how to evaluate each energy efficiency opportunity inclusive of the wider business costs and benefits. ESMG reference Section 5 discusses the process of prioritising and screening ideas.

An evaluation of whole-of-business costs and benefits of opportunities is undertaken in order to calculate a payback period.

Evaluation should reach a level of detail and accuracy appropriate for the size of investment and consistent with core-business investment decision-making within the corporation. If an opportunity will require approval for significant 11

capital expenditure, the costs and benefits should be evaluated to within 10%, or to the level of accuracy required by the corporations existing capital expenditure process if this is established at a different level. 4.4 For all the opportunities with up to a four-year payback, recommendations are made to the appropriate decision-makers based on business criteria. Recommendations should include whether the opportunities should undergo further investigation, be implemented, or not be implemented. Reasons for not pursuing opportunities are documented.
Table C: Key Element 5 of the EEO Programs Assessment Framework

Section 5 demonstrates how to present business cases to management.

Key Element 5: Decision-making

No 5.1 Requirements Management responsible for investment/resource allocation decision making is presented with key background information and the relevant outcomes of the assessment. Information presented to management includes: (a) total energy use and energy cost relative to variable operating costs and profit for the managers area of responsibility energy savings identified for each opportunity the costs and benefits based on a whole of business evaluation including payback for each of the opportunities the business recommendation for each opportunity recommendations to improve data and evaluation accuracy (if required). Section 6 demonstrates how to measure and track energy savings. ESMG reference Section 6 demonstrates how to measure and track energy savings.

(b) (c)

(d) (e) 5.2

Management responsible for investment/resource allocation determine the business response including which opportunities are to be implemented, which are to be further investigated (including improvements in data and evaluation accuracy) and which are not to be implemented. The appropriate decision-maker allocates timelines, resources and accountabilities for the business response to the assessment, including: all energy efficiency opportunities that a corporation decides to implement or investigate further (including improvements in data and evaluation accuracy) reviewing and monitoring to learn from experience and support public reporting.

5.3

Section 6 demonstrates how to measure and track energy savings.

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Table D: Key Element 6 of the EEO Programs Assessment Framework

Key Element 6: Communicating outcomes

No 6.1 Requirements For each relevant business unit or key activity, the board and the senior officer responsible for signing are presented with the public report and: total energy use and energy cost relative to variable operating costs and profit and other relevant business information (e.g. projected future energy use) total energy savings identified and the businesss response relative to the energy performance objectives set in Key Element 1 total whole-of-business costs and benefits of the opportunities identified and businesss response recommendations for major investments the information to be included in the public report prior to public release. 6.2 6.3 The board reviews and notes the information to be included in the public report. A clear message on the outcomes of the assessments, in the context of the objectives set in leadership, is communicated from senior management and operational management to relevant staff in the organisation. Section 6 demonstrates how to measure and track energy savings. ESMG reference Section 6 demonstrates how to measure and track energy savings.

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INTRODUCTION TO THE GUIDE

Purpose of the guide
The Energy Savings Measurement Guide (ESMG) version 2.0 is a technical document developed to help corporations estimate, measure, evaluate and track energy efficiency savings as part of the Energy Efficiency Opportunities (EEO) Program, which is administered by the Australian Government Department of Resources, Energy and Tourism. The EEO Program encourages Australias largest energy-using businesses to increase their energy efficiency by improving the identification, evaluation and resulting implementation of cost-effective energy-saving opportunities. Participation in the program is mandatory for corporations that use more than 0.5 petajoules (PJ) of energy per 1 year. These corporations are required to undertake a rigorous and comprehensive assessment of their energy use and identify energy efficiency opportunities with a simple payback period up to four years. Corporations involved are required to publicly report on the results of their energy assessments and the identified energy efficiency opportunities. This guide may be used by any corporation, registered or otherwise, seeking to improve the accuracy of their energy savings estimates and measurements. Specifically, the guide will help corporations to: use energy baselines and energy-mass balances to estimate and measure energy savings identify the financial value of wider business benefits from energy efficiency projects determine the accuracy range for energy and financial savings forecasts estimate the simple payback period for energy efficiency opportunities develop reliable energy and financial savings forecasts for company decision-makers. The ESMG provides corporations with technical advice about estimating and measuring energy efficiency opportunities, presenting results to decision-makers and tracking and reporting the opportunities to meet these key requirements. It also provides guidance on how to identify and estimate the wider business benefits and costs from implementing energy efficiency opportunities. While the ESMG was developed for the EEO Program, the methods in the guide may assist a companys responses to the energy consumption component of the National Greenhouse and Energy Reporting System (NGERS). Section 11.5 discusses the relevance of the guide for NGERS purposes. It is important to note that this guide is part of a series of complementary publications. The Energy Efficiency Opportunities Industry Guidelines explain what corporations must do to meet the formal assessment and reporting requirements of the program including registration, the Assessment Plan, energy use assessments and reporting requirements. The EEO Programs Assessment Handbook outlines a seven-stage process that corporations can use to meet the requirements of the program. The seven stages are: 1. Senior management sets assessment objectives for the corporation and determines how the key requirements will be met. 2. Internal and external stakeholders are identified and appropriate personnel assigned to undertake data analysis. 3. The corporation undertakes data analysis, workshops and brainstorming to identify energy efficiency opportunities. 4. Detailed analysis is undertaken of the energy and financial savings of opportunities to determine payback. 5. Assessment results are presented to decision-makers at the appropriate level. 6. Assessment results and decisions are presented to the board. 7. Opportunities are monitored and tracked, the government report submitted and public report published. This guide has been developed to complement the programs Industry Guidelines and Assessment Handbook and to specifically provide detailed guidance around stages four, five, six and seven of the assessment process. The requirements of the assessment process are shown in Figure B (overleaf). Further technical guidance on assessments for the program, including the Representative Assessment Guide and guidance on energy-mass balances for specific sectors, is available from the program website, www.energyefficiencyopportunities.gov.au.

All corporations must assess at least 80% of their corporate energy use and all sites that use more than 0.5 PJ of energy per year in their first five-year cycle. This increases to 90% of energy use for subsequent cycles.

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Figure A: Energy Savings Measurement Guide overview

What the guide covers

Since the ESMG focuses on energy efficiency opportunities, it is intended for use once companies have analysed their energy use at company and site level. Companies should have examined utility bills, aggregated site data and performed an initial energy-mass balance (or analysed energy and material flows using a similar technique) to identify and list potential opportunities before using this guide. Similarly, the guide does not detail the organisational, communication and planning approaches suggested in the EEO Programs Assessment Handbook. Most companies would have appointed project management responsibilities for energy efficiency and established a suitably qualified project team before using this guide. Guidance on financial decision-making is focused on program requirements. For practical reasons, the EEO Program legislation uses simple payback criteria rather than incorporating discount rates. Accordingly, this guide only addresses the use of a simple payback methodology, as this demonstrates how to meet the programs requirements. Companies may use other financial evaluation methods for their own internal purposes. Section 12.4 discusses several other financial evaluation methods. The ESMG provides advice on the processes involved in managing energy use and pursuing energy efficiency. It does not provide detailed analyses of each of the specific plants and equipment used within industry sectors. Section 12 provides some references and calculation tools to assist with the analysis and optimisation of specific systems.

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Intended audience
While the ESMG is designed to be as clear and accessible as possible to a wide audience, it is primarily a technical guide, intended for company staff who will be involved in estimating, measuring and tracking energy efficiency opportunities. This includes engineers, managers and operational personnel.

Benefits of rigorously investigating energy efficiency opportunities

Energy efficiency can deliver significant benefits to a business beyond direct energy savings and compliance with the requirements of the EEO Program. Energy use is fundamental to every business. It is correlated with materials movement, production scheduling, operating procedures and working conditions for employees. Understanding energy use can reveal potential improvements in these areas and contribute to greater quality, productivity and profitability. Accuracy should be a key consideration in any investigation of energy savings. In addition to satisfying regulatory requirements, accurate energy savings estimates will encourage energy efficiency investments, reduce investment risks and assist in accounting for the costs of carbon emissions. The ESMG provides detailed guidance on how to achieve accuracy in estimation and measurement. Energy efficiency improvements are typically the most cost-effective way to reduce industrial emissions. With the introduction of a carbon price, financial returns on existing energy efficiency opportunities increase. Some opportunities with longer payback periods may fall within the four-year cut-off for reporting after the cost of emissions is taken into account. Putting systems in place to record all identified opportunities and track changes over time can provide significant financial benefits.

Structure of the ESMG

Part 1Building a platform to estimate, evaluate, measure and track energy savings
Analysing an energy efficiency opportunity is a time consuming process. Part 1 of the ESMG assists in developing a reliable platform to estimate, evaluate and measure energy and financial savings from an energy efficiency opportunity. Part 1 also helps in better understanding the energy flows, mass flows and external factors that impact on energy savings. Improved understanding of processes, coupled with access to reliable energy data, will provide a solid platform for evaluation of opportunities. Actual steps involved in estimation, evaluation, measurement and tracking of an energy efficiency opportunity are covered in Part 2. Building a platform for understanding current and future energy consumption is necessary to separate the costs and benefits of energy efficiency opportunities. It is also required to evaluate the impact of opportunity savings on energy use. This analysis will help to develop systems to estimate, measure, evaluate and track energy efficiency opportunities for energy-using processes at a site. Section 1Establishing and using an energy baseline. This explains how to establish the current level of energy consumption for opportunities at the process or site level. Section 2Measuring, metering and capturing energy data. This shows how to capture reliable energy and production data for the evaluation and reporting of energy efficiency opportunities. Section 3Determining and improving accuracy. A key function of this guide is to provide guidance on how to prepare reliable energy savings data for decision-makers in a company.

Part 2Estimating, evaluating, measuring and tracking energy efficiency opportunities

A series of steps is required to obtain reliable information to inform decisions as to whether an energy efficiency opportunity offers value to the business and warrants implementation. Section 4Estimating energy savings for an opportunity. Energy savings are estimated by calculating the comparison between baseline (historical) energy consumption and the forecast energy consumption postimplementation of the opportunity. Section 5Evaluating an opportunity. This includes conducting a payback analysis which considers the whole-of-business costs and benefits.

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Section 6Measuring energy savings for an opportunity. Once an energy efficiency opportunity has been implemented, the actual energy savings need to be measured to determine the financial success of the opportunity. Section 7Tracking energy savings for an opportunity. Describes how to monitor the success of implemented opportunities and improve energy performance.

Part 3Additional guidance, useful calculation tools and references

This final part of the guide contains additional information, guidance, links and identifies useful tools which will assist you during evaluations at your site. Section 8Energy-mass balance development. Definition, examples and assistance in developing an energymass balance. Section 9Appendices. Sources, references and links to other useful calculation tools and materials for assisting the evaluation process.

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PART 1BUILDING A PLATFORM TO ESTIMATE, EVALUATE, MEASURE AND TRACK ENERGY SAVINGS

18

SECTION 1.0
Establishing and using an energy baseline
1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 Overview Defining energy baseline Establishing an energy baseline Methods for establishing an energy baseline Forecasting future energy baselines Using an energy baseline Establishing an energy baseline at the Fair Dinkum Milk Company Section summary

19

1.1 Overview
Purpose of this section
This section explains: why it is necessary to establish the level of energy consumption before an energy efficiency opportunity is implemented at a site how to establish an energy baseline for an energy efficiency opportunity how to use an opportunity baseline to estimate and measure energy savings how to incorporate factors affecting current and future energy use into reliable baselines. Note that the energy use in the EEO baseline year is the absolute energy use over a specific period of time. Refer to section 4.3.2 of the EEO Industry Guidelines.

Establishing an energy baseline

Energy baselines are defined in ISO 50001 as quantitative references providing a basis for comparison of performance that apply to a specific time period and provide a reference for comparison before and after the implementation of energy improvements. There are three main methods for establishing an energy baseline for opportunities: 1. regression analysis 2. modelling/simulation 3. short-term metering This section provides a step-by-step description of how to apply each method and lists typical applications for them. For EEO purposes, corporations may wish to establish energy baselines as part of their assessment to track energy performance, (possibly in conjunction with energy performance indicators), at various levels, such as: whole site or system baselines (e.g. for a furnace or chiller) opportunity baselines, from which to determine savings for individual opportunities.

Creating a forecast energy baseline

Adjusting an energy baseline to account for expected future variables creates a forecast energy baseline. This baseline can be used to compare the implemented opportunity against the expected outcome if the opportunity is not implemented. Developing a robust and accurate energy baseline is vital to accurate energy savings measurement. This section builds on this theory to accurately estimate and measure energy savings.

Using an energy baseline

The forecast energy baseline becomes the reference point from which an opportunity's savings are estimated and measured. This section includes examples that illustrate the use of an energy baseline. Part 2 of this guide builds on this theory to accurately estimate and measure energy savings.

Section outcomes
At the end of this section, you will be able to: establish an energy baseline for an identified energy efficiency opportunity use the energy baseline to forecast energy use prior to implementing an opportunity.

1.2 Defining an energy baseline

An energy baseline establishes a level of energy consumption before an opportunity is implemented. Each energy consuming process or item of equipment has a baseline level of energy use. These aggregate to an overall energy baseline for the whole site (or fleet). As part of the assessment process to understand energy use and identify energy efficiency opportunities, data collected on energy use and production levels should have already been used to establish a site energy baseline. Data and information from site baselines, such as production levels, can be drawn on to assist in developing individual opportunity baselines.

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1.3 Establishing an energy baseline

To accurately estimate and measure energy savings, each opportunity must have a corresponding energy baseline. An energy baseline should detail energy data and take into account variables that influence energy consumption, such as production rate and seasonal effects. When developing an energy baseline its important to include both fixed energy consumption and variable energy consumption. Energy-saving projects can reduce either or both types of energy consumptionfixed energy consumers may include lighting and space heating, while variable energy consumers will be dependent on operation.

1.3.1 Determining the boundaries for energy baselines

The first step in developing an energy baseline for an opportunity is to define the boundary across which the energy and mass flows. The boundary will vary depending on the size and complexity of the opportunity, and can be set at site, process, or specific equipment level. For instance, in a mining site the energy baseline could be established for the entire mine or specifically for the rock crushing and grinding circuitit depends on where the boundary has been drawn. The boundary should be set to be wide enough to capture the full extent of the energy changes caused by the opportunity, yet also narrow enough to isolate the effect from other opportunities. While the boundary can be set to use metering currently available on a site, it will also highlight areas requiring additional metering. Measurement and metering are covered in Section 2.

Tip: It is useful to draw a schematic of the boundaries of the system. Note that the schematic may already be available as an energy-mass balance. Section 9 details how to develop an energy-mass balance.

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Example
A company has identified six on-site energy consuming processes. An opportunity has been identified to reduce energy consumption in one of the processes (Process 5), but implementing the opportunity is expected to have a flow-on effect on the energy use in another process (Process 6). To determine the opportunity energy savings, both processes (Process 5 and Process 6) should be included in the opportunity baseline boundary. This diagram illustrates how the opportunity boundary could be established.
Figure 1.1 Dividing your site into processes for analysis

Inputs Raw materials Labour Capital Energy/utilities

Outputs Finished product Site waste

Dividing your site into processes for analysis

Site Process 1 Process 2 Process 3

Process 4

Process 5

Process 6

Opportunity baseline boundary

Inputs Raw material Thermal gas

Process 5

Process 6 boundary

Outputs Finished product By-products Waste heat

The following table offers examples of how to draw appropriate baseline boundaries for identified opportunities, and illustrates how establishing the individual baseline provides measurement of the energy savings from the opportunity.
Table 1.1: Opportunity baseline boundary examples

Sector

Industrial site

Opportunity

Process enclosed by the boundary Refrigeration unit Slurry pumping facility

Metric for comparison Electrical demand

Metering/monitoring requirements Meter electric power used by refrigeration units (kW) Meter electric power used by refrigeration units (kW)

Manufacturing

Brewery

Reduce compressor pressures Replace fixed speed pump with variable speed drive pump Replace all motors with new, energy

Minerals processing

Concrete production

Electrical energy consumption

Mining

Coal mine

Large conveyor belt

Electrical current demand

Meter electric current (A), possibly linking to supervisory control and

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efficient versions Commercial buildings Transport Hospital Freight company Fuel switching, from coal to gas Mandatory checking of tyre pressures Boiler unit Fleet of trucks Amount of fuel bought Fuel economy

data acquisition (SCADA) system Refer to utility bills (gigajoules (GJ)) Engine management system (L/km)

Tip: Best practice definitions of project boundaries can be seen in the Clean Development Mechanism publications in support of the Kyoto Protocol. The focus of the Clean Development Mechanism is to establish a baseline for 2 emissions released; however, the same approach can be used for energy consumed .

1.3.2 Data required to establish an energy baseline

To create an energy baseline, the amount of historic data necessary to show that all trends have been accounted for should be specified. A whole-of-facility baseline requires data that extends for at least one year to account for the effects of ambient temperatures and seasonality in market cycles. Similarly, an energy baseline requires process data for all levels of output and other major process variables. Equipment baselines will be highly dependent on each item and may have to take into account the age of the equipment and the life of that equipment type. A schematic will help in identifying the necessary measurements required to calculate the baseline and energy savings. The following points are important to clarify: the necessary parameters that need measuring (refer to Section 2.4 and Tables 2.1 2.4 of the guide, and also look at the way data is sorted in the Clean Development Mechanism methodologies) the instrumentation that is needed to take measurements (refer to Section 3) how frequently measurements will be taken (refer to Clean Development Mechanism approaches such as Steam system efficiency improvements by replacing steam traps and returning condensate (p 15) and appropriate sections of the National Greenhouse and Energy Reporting System Determination 2008, such as section 2.25 Frequency of Analysis (of Subdivision 2.3.3.2 for sampling and analysis of gaseous fuels) the accuracy of the measurements (refer to Table 2.1 of the guide as well as equipment specifications and 3 also the Californian Evaluation Framework, Chapter 7 ).

Tip: Plotting energy use against significant variables such as time (e.g. monthly to determine any seasonal effects) or production level will highlight if there are any significant effects which require further analysis. Multi-variable analysis will assist in determining which variables are significant.

1.4 Methods for establishing an energy baseline

Stage three of the programs Assessment Handbook explains the process of establishing the site's energy baseline. This section describes the methods for establishing an energy baseline for each opportunity. Both use the same methods as described in Table 1.2 below. The calculations used to determine baseline energy use are needed to fill out worksheet 22 in the Assessment Handbook. There are several ways to establish energy baselines for opportunities, sites or systems, from the simplest to the more complex. At the estimation stage the most common baseline method used to determine savings is most likely to be the modelling/simulation approach, or short-term metering. Other approaches listed in the table below may 4 be applicable in some circumstance. Several methods for measuring energy consumption and analysing the data are identified in Table 6 of the Assessment Handbook.

Clean Development Mechanism (CDM) Approved Baseline and Monitoring Methodologies are available from: http://cdm.unfccc.int/methodologies/ TecMarket Works Framework Team (2004). The California Evaluation Framework, Prepared for the California Public Utilities Commission and the Project Advisory Group, available from: http://www.cee1.org/eval/CEF.pdf 4 This table has been developed with reference to an unpublished working draft ISO standard, ISO/CD 50006, Measuring Energy Performance using Energy Baselines and Energy Performance Indicators General Principles and Guidance, being developed under the ISO Energy Management technical committee.
3

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Table 1.2: Methods for establishing an energy baseline

Method Absolute energy use

Description Absolute energy use, based on historical data.

Applicable For a constant process (such as lighting that is on 24/7 for safety reasons) or if required for regulatory purposes (as with the baseline year). Where output is the primary source of variation in performance, and a simple basis for comparison or identification of nonconformities is required.

Not applicable Processes that are subject to variation, such as most systems at generation sites.

Comment The baseline year, used for compliance purposes, is probably the only absolute energy baseline that would be applicable to an EEO assessment.

Specific energy ratio baseline

Uses a historical average energy intensity figure, such as MWhe/GJth to estimate future performance: Et = (I Qt), where: I is the historical average energy intensity Q is the quantity of output in time period t. Uses a ratio of energy use to two or more variables, e.g. MW/[(flow rate).(hydraulic head in metres)] for a water pumping system, or MJ/t.km in transport.

Where changes in variables other than output can make the past energy intensity a poor predictor of performance, or where the data is of insufficient quality or frequency to develop a meaningful intensity baseline.

Provides only a very basic normalisation for variation in output. Using a simple energy intensity ratio can be a poor indicator of performance where there is significant variability.

Multivariate specific energy ratio baseline.

Where output and one or two other variables are the major sources of variation in performance, and a simple basis for comparison or identification of nonconformities is required.

Where changes in other variables can make the past energy intensity a poor predictor of performance, or where the data is of insufficient quality or frequency to develop a meaningful intensity baseline.

Even with multiple variables, ratios provide only a very basic normalisation for variation in output. Using simple energy intensity ratios can be a poor indicator of performance where there is significant variability. Requires data collection to cover a representative period of time and is dependent on accuracy of input data. Regression analysis provides a simple way to normalise for changes in relevant variables by placing new data into the established regression equation. Tests should be run to ensure that the results are statistically valid. Can require constant refinement to reflect actual operating conditions. Incorrect assumptions may lead to inaccurate results. Energy and material flow analysis (or an energy-mass balance) may assist in the

Regression analysis

Determination of energy use, using statistical methods applied to historical energy data, to identify how the independent variables affect energy consumption.

Variable energy use, No historical data. historical data available. Useful where limited energy metering is installed.

Modelling/ simulation

Determination of energy consumption pattern using known variables, manufacturers data and engineering calculations.

Variable energy use, historical data unavailable, process well understood.

For novel applications, changing process conditions (e.g. product specifications), modelling is used to design systems and model future performance, but after implementation of changes, regression analyses can be more effective for verifying 24

Method

Description

Applicable

Not applicable performance.

Comment modelling process.

Short-term metering

Spot or short-term Constant energy use metering of process or simple pattern. and sub-processes to determine energy use patterns.

Energy use in the shortRequires data collection term is variable and erratic. that captures the energy consumption level or pattern of the operation accurately.

Sections 1.4.1 to 1.4.3 discuss the more common methods in detail.

1.4.1 Method 1Establishing an energy baseline using regression analysis

Standard (single variable) regression analysis involves determining the relationship between a dependent variable and an independent variable. For establishing an energy baseline: the dependent variable is energy consumption independent variables (i.e. those variables that affect energy consumption) include production rate, product mix, raw material, occupancy and ambient conditions (these and other possible factors are discussed in Section 1.5 of this guide) all data must be coherent (i.e. data must be collected over the same time period and data frequency).

The data is then analysed to develop an equation, often linear in the first instance, which describes the relationship (or regression line) between the dependent and independent variable. In some circumstances non-linear forms of regression, such as polynomials, may be required. Regression can be performed by either a manual scatter plot or other parameter-quantification process tools. These tools are included in programs such as Microsoft Excel, NLREG and MATLAB. Links to the homepages of these programs are in Section 12.1.4. The EEO Representative Assessment Guide, available from www.ret.gov.au/energy/Documents/energyefficiencyopps/PDF/newsletters%2010/EEORepAssessGuide-FINAL.pdf, also discusses regression analysis.

Developing a multi-variable regression analysis

In some instances, a standard regression analysis may not be an accurate enough representation of the process because it may over-simplify the process by neglecting other relevant variables. This can lead to inaccurate confidence intervals and hypothesis tests. A standard regression analysis also assumes that error terms for regression variables are uncorrelated and have the same variance. If these assumptions are violated, the regression may produce biased and unreliable results. When standard regression analysis does not represent the process well, a multi-variable regression analysis should be conducted. A multi-variable regression analysis assumes all major explanatory variables are included in the model. Error terms capture any factors not included (because the effects of any omitted variables are attributed to variables included in the model). The steps involved in a multi-variable regression analysis to establish an energy baseline are to: 1. 2. 3. 4. 5. 6. nominate a time period for the analysis that covers one complete energy-use cycle (e.g. one week or one year) gather data for the energy consumption (dependent variable) and a range of variables that could possibly be independent variables perform a regression analysis using Microsoft Excel, or other statistical tool, to determine the relationships between the variables analyse the results to determine the significance of the relationships described if necessary, add or remove variables from the analysis or gather more data to improve the significance of the relationships analyse the accuracy of the analysis performed and repeat the regression if accuracy does not meet the EEO Program requirement of 30% for energy savings.

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Further details of these regression steps are provided by the Canadian Industry Program for Energy Conservation 5 guide . The data gathered and the regression analysis results can both introduce errors. These errors can be estimated using the techniques described in Section 3 of this guide. Section 8.2 includes a worked example of how to complete a multi-variable regression analysis.

1.4.2 Method 2Establishing an energy baseline using modelling or simulation

This approach uses process data and engineering calculations to model a process. An effective way to model a process in this way is to complete an energy-mass balance or equivalent, as required by the Energy Efficiency Opportunities program. Section 9 provides further detail on the definition and development of an energy-mass balance. The Department has also developed specific energy-mass balance guidance for Mining, Resource Processing, Transport and Commercial Building sectors. Simple models could be created in an easily-modifiable spreadsheet. More advanced models can use proprietary software or run as fully-developed applications. A model should include a range of input variables identified as influencing energy consumption. Manipulating the input variables illustrates different energy scenarios. Entering current input variables in the energy-mass balance will calculate the current energy consumption. Establishing an energy baseline using modelling involves three key steps: 1. 2. 3. develop the model enter current input datathese may include variables such as production rate, recipe mix, ambient temperature, occupancy rate or freight volume run the modelthe output energy consumption is the current baseline energy.

Results of any calculation will only be as accurate as the inputs to the calculation. To ensure accuracy, the model should be routinely updated to include process modifications or operational changes. Each major component in a system can be modelled and the resultant system energy use calculated to establish a baseline. Simple or well-known systems may be modelled using engineering calculations. More complex systems may require specific and expensive utility system analysis software, and it may be necessary to engage an energy analysis expert. An example of the output from a steam analysis software package is provided in the Figure 1.1.
Figure 1.2: Sample output from Steam System modelling software

ProSteam is a trademark of KBC Advanced Technologies plc,

Tip: Measurement via modelling is a technical and complex method for determining energy savings. It may prove cost effective to engage energy simulation experts for this type of simulation analysis.

5 Canada. Canadian Industry Program for Energy Conservation (CIPEC) (2000). Energy Management Information SystemsAchieving Improved Energy Efficiency. Ottawa: Office of Energy Efficiency of Natural Resources Canada. Available from: http://oee.nrcan.gc.ca/publications/industrial/EMIS/8569

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1.4.3 Method 3Establishing an energy baseline using metering

For processes that have a constant or easily established pattern of energy use, short-term metering (often including sub-metering) can be sufficient to determine how energy is used. To establish an energy baseline using this method, the process must be stable enough to be represented by fixed energy consumption. Analyse past energy data and operating conditions to determine if the energy use remains constant during varying production conditions, or can be assumed constant. In the absence of metering, engineering and process knowledge can be used to establish whether the energy use profile will be stable and can therefore be used as an energy baseline. Results can then be verified using temporary or permanent metering if required. If there is existing metering, this can be used to determine the energy baseline. In the absence of installed metering, temporary metering can be used due to the stable nature of the process. See Section 2 for more detail about metering.

Example
A water pumping station fills a reservoir at a fixed rate. The head and flow rate are constant, so when the pump is operating energy use will always be the same. Pumping conditions Head: Flow rate: Power requirement: 100 m 250 L /s 300 kW (measured)

The power requirement was temporarily metered to determine the energy required to pump water at the given rate. This energy requirement may be multiplied by the volume of water pumped to project the energy use for any period: Time required [s] = volume volumetric flow rate) Energy required [kW] = power [W] time taken [s] 3600 [s/h] Calculating the energy consumption to pump 13,500,000 L of water to the reservoir: (13.5 10 L (250 L/s) (300 kW 3600 s/h) = 4500 kWh Specific energy consumption: 300 kW (250 L/s 3600 s/h) = 0.33 10 kWh/L This is the energy requirement for the current combination of equipment and operational parameters. If significant changes are made, new readings will be necessary to establish a new baseline.
3 6

1.5 Forecasting future energy baselines

Relevant variables unrelated to implementing an opportunity can influence energy consumption. Savings cannot therefore simply be calculated by comparing post-implementation energy use to the original opportunity baseline. An energy baseline must be adjusted to incorporate these factors in order to generate the forecast energy baseline. The forecast energy baseline is a future scenario, after the opportunity is expected to have been implemented, that does not account for the opportunity changes. In the absence of changes in relevant variables the forecast energy baseline can be the same as the original baseline. Relevant variables influencing energy use include production rate or ambient temperature. Other factors may only become apparent during the development of your baseline through regression analysis or the creation of an energy-mass balance. It is advisable to take a pragmatic approach when deciding which variables are significant to the baselineas the complexity of a forecast increases rapidly as more variables are introducedwhile being mindful that oversimplification can lead to inaccuracy.

Tip: Identifying the factors that contribute to an energy baseline has practical benefits. By understanding which factors impact on energy consumption, and how they vary over time, a process can be better managed at an operational level. Improving understanding of a process can reveal additional energy savings or process improvements. 27

Figure 1.3: Adjusting the current energy baseline to account for factors which influence energy consumption.

Adjustment Adjusted energy Energy Energy baseline baseline without opportunity implementation

Based on historical energy data and factors

Based on future energy data and factors

Examples of variables that affect energy performance and corresponding adjustments that can be made when forecasting a future energy baseline are listed in Table 1.3, below. Section 1.6 presents an example demonstrating the importance of adjusting the energy baseline for changes in external factors so as to identify the actual impact of the opportunity.
Table 1.3: Adjusting for energy influencing factors

Factor Multiple product lines Production rate

Influence on energy consumption Some products are more energy intensive than others. Fixed energy overheads are spread over production, so energy intensity changes with production.

Adjustment required Set separate baselines for each product. Index energy baseline to production rate.

Tip Compare performance with appropriate baseline when evaluating opportunities and measuring savings. Optimisation of assets is a key method to improve energy efficiency while improving business outcomes. Compare performance with appropriate baseline when evaluating opportunities and measuring savings.

Raw materials

Changes to raw material can increase Set separate or decrease energy consumption baselines for each (e.g. a mineral processing plant using raw material. more energy when processing gold due to hardness). Temperature Relative humidity (RH)affects performance of wet cooling towers and gas turbines Degree days % RH

Ambient conditions

Degree day data is available for each geographical region (refer to the Bureau of Meteorology website for more information: <www.bom.gov.au>). Find appropriate measure (e. g. number of people, floor area or number of rooms). Optimisation of services according to occupancy rates can deliver significant savings. Compare performance with appropriate baseline when evaluating opportunities and measuring savings.

Occupancy

Increasing number of Index to occupancy guests/patients/employees increases levels or rooms in energy consumption. use.

Energy Steep gradients increase vehicle fuel consumption rates consumption.

Set baselines for common routes or for a range of gradients.

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Example
A manufacturing company plans to increase production. To forecast the energy baseline, the current energy baseline was adjusted for the production increase. The dashed line shows the forecast energy baseline, had the production level not been adjusted for an increase (source: IPMVP 6).
Figure 1.4: Forecasting the energy baseline

Adjusted energy baseline

Energy use

Increased production Energy baseline

Adjustment

Opportunity implementation
Baseline period

Reporting period

Time

1.6 Using an energy baseline

The majority of energy savings cannot be measured directly, but are calculated from a comparison of pre- and postimplementation energy consumption. The pre-implementation energy used is not the current level of energy use, but a forecast of the energy consumption if the opportunity is not implemented. The baseline takes into account all the expected fluctuations in the relevant variables that impact on energy use, but does not include the energy savings to be made from implementing the opportunity. Developing a robust and accurate baseline is fundamental to the EEO Program, since a high-quality baseline enables accurate opportunity evaluation and informed business decisions. It is crucial to isolate energy savings which are a direct result of implementing the opportunity from the total changes in energy consumption over the savings period. The forecast energy baseline should be adjusted to take into account changes in energy consumption which are not due to implementing the opportunity. The forecast baseline must be used to estimate and measure savings rather than simply using current energy data, which would give a static energy baseline. The forecast energy baseline will be used as a reference point to estimate and measure energy savings (as discussed further in Part 2 of the guide). Section 4 forecasts what the energy consumption will be after an opportunity has been implemented. The estimated saving is the difference between the forecast baseline in the business-as-usual (BAU) case (without opportunity implementation) and the forecast baseline post-opportunity implementation (Figure 1.3). The forecast BAU energy baseline should be adjusted post-implementation. The difference between the adjusted BAU energy baseline and the post-implementation measured energy consumption is the measured energy saving (Figure 1.4). Tip: Where there are small opportunities which cannot be measured separately, energy savings can be estimated using the site energy baseline. The energy savings resulting from the smaller opportunities can be calculated by adjusting the site energy baseline for energy influencing factors and the results of other energy efficiency opportunities.

6 USA. Department of Energy, Efficiency Valuation Organization (EVO) (2007). International Performance Measurement and Verification Protocol (IPMVP) Springfield: US Department of Commerce, Volume 1, Section 1.4.

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Figure 1.5: Estimating energy savings

Estimated Adjusted energy baseline Energy without opportunity implementation Forecast energy consumption with opportunity implementation energy savings

Figure 1.6: Measuring energy savings

Measured Revised energy baseline Energy without opportunity implementation Measured energy consumption after opportunity implementation energy savings

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Example
A minerals processing site has identified an energy efficiency opportunity. Implementing the opportunity will influence energy use across the site, so the baseline boundary has been set around the mineral processing site. Baseline: On average, each year the mineral site processes 180,000 tonnes of mineral, consumes 30.06 GWh of electricity and operates for 8,000 hours. From this, the baseline energy intensity was calculated: Site baseline energy intensity = 30.06 GWh 180,000 t = 167 kWh/t The production forecast from the companys business plan indicates production levels will alter significantly over that period. Production has a large impact on the sites energy use, so the baseline energy use needs to be adjusted to take into account production changes. The current energy consumption of 30.06 GWh can be adjusted to take into account the forecast changes in production by multiplying the current energy intensity (167 kWh/t) by the production forecast. This adjustment creates the forecast energy baseline which will later be used by the company to estimate energy savings.
Table 1.7: Annual production forecast

Units

Current

Forecast (without opportunity implementation) 189,000 167 31.56

Annual production forecast Energy intensity Energy consumption

tonnes kWh/t GWh

180,000 167 30.06

There is a 5% difference between the current energy baseline and the forecast energy baseline due to the forecast production change. There would have been a 5% inaccuracy in the baseline if the company had used the unadjusted energy baseline.

1.7 Establishing an energy baseline at the Fair Dinkum Milk Company

The Fair Dinkum Milk Company worked example analyses an opportunity from a company in the manufacturing sector. This example expands on aspects of the analysis detailed in this guide, and sections of this worked example appear throughout the guide. The entire Fair Dinkum Milk Company worked example is provided in Section 8.

1.7.1 Background
The Fair Dinkum Milk Company converts standardised liquid milk to a powdered form. This involves using thermal energy to remove moisture from the raw milk. The milk enters the process with a moisture (water) content of 86%. During evaporation, steam is used to reduce the moisture to 50%. A gas-fired drier further dehydrates the finished product, to a 3% moisture content. The companys operation consists of two milk powdering plants, each with evaporators and a drier. A large amount of energy in the form of natural gas is required to heat the air entering the driers. Other energy required for the drying process is in the form of steam (raised in a natural gas-fired boiler) and electricity. The operating season for milk processing is from the beginning of July to the end of March. The plant, therefore, has a planned shutdown from April to the end of June. An energy savings opportunity has been identified at the Fair Dinkum Milk Company: heat can be recovered from the hot condensate in the Plant 1 evaporators to preheat the air feeding into the drier.

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1.7.2 Establishing the energy baseline Baseline boundary

The opportunity involves condensate from the Plant 1 evaporators. However, the energy savings resulting from the opportunity will be observed as a reduction in the gas needed to preheat the drier air feed. For this opportunity, the boundary for the analysis is established around the Plant 1 drier.
Figure 1.7: Fair Dinkum Milk Company baseline boundary

Steam

Exhaust

Milk

Plant 1 evaporators

Plant 1 drier

Milk powder Gas to heat inlet air

Condensate

Air

Energy baseline
The current energy baseline of 280 GJ per operating day was determined based on historic data from gas flow measurements. The gas flow meters have an accuracy of 0.5%, so the current gas consumption is an average of 280 GJ per operating day 0.5%.

Forecast energy baseline

The Fair Dinkum Milk Company completed a regression analysis to quantify the relationships effecting gas consumption. This regression will be used to establish the forecast energy baseline, from which energy savings will be estimated. The following steps refer to those stated in Section 1.4.1 (Method 1Establishing an energy baseline using regression analysis). 1. Nominate a time period for the analysis that covers one complete energy use cycle (e.g. one week or one year). The analysis will be completed for a full year so as to include the range of process conditions across the seasons and the dry (no milk) period. 2. Gather data for the energy consumption (dependent variable) and a range of variables that could be independent variables. The data sets of daily gas consumption and powder production were captured by the Fair Dinkum Milk Companys existing meters and stored in its database. The evaporated milk flow was metered to an accuracy of 3%, the gas was metered using a gas turbine meter (0.5%) and air flow was metered to 1%, all with a 95% confidence level. There was no need to install additional metering. 3. Perform a regression analysis using Microsoft Excel or another statistical tool to determine the relationship between the variables. Under normal operation, gas consumption depends on production rate. Process knowledge and gas consumption trends, however, show gas use changes during plant start-up and during cleaning cycles. To account for this in the regression, a plant operating variable has been added: operating = 1, not operating = 0.
Table 1.4: Variables selected for regression analysis

Dependent variable (output) Gas consumption

Independent variables (inputs) Milk powder produced Plant operating

The regression analysis was performed in Microsoft Excel using line of fit modelling. Figure 1.6 and Table 1.5 display the regression analysis results.

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Figure 1.8: Fair Dinkum Milk Company Plant 1 drier gas consumed versus milk powder produced

y =1.8198x + 90.0064 operating (yes =1, no =0) R =0.956

Gas used (GJ)

Y X

Gradient = Y/X

120 Product produced (t) Table 1.5: Fair Dinkum Milk Company regression results for Plant 1 drier gas consumption

140

Coefficient Interceptplant not operating (GJ) Interceptplant operating (GJ) Gradientpowder mass flow (t/day) 0

Standard error N/A

t-statistic (no units) N/A

p-value (no units) N/A

-15

Lower 95 percentile N/A

th

Upper 95 percentile N/A

th

90.0064

1.7628

51.0592

1.340 x 10

86.5398

93.4729

1.8198

0.0221

82.2362

6.549 x 10

-40

1.7763

1.8633

For definitions of standard error, t-statistic and p-value, refer to Section 3.3. 4. Analyse the results to determine the significance of the relationships described. At the Fair Dinkum Milk Company, there is insignificant gas consumption when the plant is not operating. Start-up processes and cleaning cycles are classified as a fixed consumption. The intercept is dependent on whether or not the Plant 1 drier is operating. - Intercept when Plant 1 drier is operating - Intercept when Plant 1 drier is not operating 90 GJ 0 GJ

The slope represents the additional amount of gas required to produce each additional unit of milk powder. The efficiency of the process can be established from the slope, that is: -Variable energy consumption rate (i.e. the gradient) = 1.8198 GJ gas/t milk powder The distribution (or scatter) of points (in this case, production days) represents the amount of gas required for the measured production rates. Gas usage varied from one production day to another, based not only on milk powder production, but also on other controllable (behavioural) and uncontrollable (operational) factors. 5. If necessary, add or remove variables from the analysis or gather more data to improve the significance of the relationships. Ambient air temperature was not included in the regression analysis. However, ambient air temperature affects the amount of air heating required, which in turn affects the amount of gas required. To improve the model, ambient air could be added as an input variable. The Fair Dinkum Milk Company considered the impact of the ambient air temperature on gas consumption to 33

be negligible relative to production rate, and opted to continue using the current regression. 6. Test the accuracy of the analysis performed. To test the model, the regression was used to model the gas consumption based on milk powder produced and compared with actual data over the same period. The production values for season one (first year using a model to estimate gas consumption) were input to the model. The model was then used to estimate the site gas consumption. The actual energy consumption was overlaid onto the modelled results.
Figure 1.9: Comparison of estimated and actual gas consumption in season one

Gas consumption (GJ/d)

Apr Season one Actual gas consumption (GJ/day) Estimated site gas (GJ/day)

Figure 1.7 shows the estimated gas consumption is a close fit to actual gas consumptionthis indicates the regression model provided a good estimate of the gas consumption; the regression model was thus used to model season two. The production forecast indicates a reduction in output. Entering the forecast production rate into the regression model establishes the forecast energy baseline. The production forecast stated an annual production of 28,925 t over 280 operating days. This resulted in a forecast energy baseline of 278 GJ/d. This is the reference point from which to estimate the savings from the opportunity. The method outlined in Section 3.4.1 was used to determine the accuracy of the forecast energy baseline. 1. 2. Evaluate the mean energy consumptionThe mean energy consumption was found by entering the average production rate and days operating into the regression equation. This resulted in 278 GJ/d. Evaluate either the lower or upper 95 percentile energy consumptionThis was done by entering the th production data and operating days into the coefficients for the lower 95 percentile. The energy consumption there was determined to be 270.04 GJ per operating day. Regression equation using the lower 95 percentile coefficients Gas consumption (GJ) = 86.5398a + 1.7763x where x = 28,925 milk powder produced in tonnes
th th

a = 280 operating days

3. Calculate the differenceThe absolute precision of the forecast energy baseline is the absolute th difference between the mean and lower 95 percentile values. The absolute precision is 7.96 GJ/d. Using th the upper 95 percentile would provide the same result. Convert to relative precisionConverting to a percentage provides the relative precision of 2.86%. State the accuracyThe forecast energy baseline is 278 GJ/d 2.86%.

4. 5.

34

Summary of Fair Dinkum Milk Company worked example:

There was an existing gas flow meter, so historical data was used to determine the current gas use. The current energy baseline is 280 GJ/d 0.5%. Regression analysis was used to determine the relationship between plant variables and gas consumption. Adjusting for changes in production by entering expected production changes into this regression relationship will establish the forecast energy baseline. The gas consumption is defined by the regression equation: Gas consumption (GJ) = 90.0064a + 1.8198x where x = milk powder produced in tonnes

a = 1 if plant operating, 0 if plant is not operating

Entering the forecast production rate into the regression model establishes the forecast energy baseline of 278 GJ/d 2.86%. This is the reference point from which the opportunitys savings will be estimated.
Drier 1 pre-heater opportunity

Adjusting the baseline for production changes over the implementation period
280 270 260

280 Energy baseline Adjustment 2 GJ/d

278 Adjusted Energy baseline without opportunity implementation

GJ/d

250 240 230 220

Based on historic energy data and factors

Based on future energy data and factors

1.8 Section summary

An energy baseline or baselines should be created for each energy efficiency opportunity. There are three methods for establishing an energy baseline: 1. regression analysis 2. modelling/simulation 3. short-term metering. An energy baseline provides the reference point for estimating, measuring, and tracking energy savings.

Key Element addressed in Section 1: Key Element 3.2: Data collection process

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SECTION 2.0
Measuring, metering and capturing energy data
2.1 2.2 2.3 2.4 2.5 2.6 Overview of measuring, metering and capturing energy data Measuring, metering and capturing energy data How to develop an energy measurement system Energy metering and data capture systems Investing in energy measurement systems Section summary

36

2.1 Overview of measuring, metering and capturing energy data

Accurate recording of energy data underpins the estimation, evaluation, measurement and tracking of energy efficiency opportunities. Data accuracy is essential to develop robust analyses and evaluations, and is also important in informing company decision-making by improving the accuracy of cost benefit analysis and payback period calculations. This section provides guidance on using and improving existing metering and data capture systems, to obtain accurate energy savings forecasts, which can be tracked after implementation and accurately reported for the EEO Program.

Developing an energy measurement system

Measurement system capabilities vary from site to sitefrom almost none to complete sub-metering with automated data management of individual items of equipment. This section provides a framework for developing a measurement system, regardless of the current capability for energy data capture, to accurately measure energy savings and provide robust data for reporting purposes.

Energy metering and data capture systems

Electrical/mechanical meters are the hardware that enables measurement of energy consumption. Data from energy meters must be captured, communicated, stored and managed to enable evaluation of savings. The rate at which energy data is captured is dependent on the meter, process and the application. Guidance is offered on: appropriate data capture frequencies for common industrial processes the establishment of reliable data communication strategies. This section of the guide also discusses the costs associated with energy metering for measurement of energy savings.

EEO Program requirements

The EEO Program requires that energy savings, costs and benefits for opportunities with a four-year payback or better be determined to within 30%. Opportunities with larger uncertainties can be voluntarily reported.

Section outcomes
At the end of this section, you should: be able to develop a measurement system for a site to the required accuracy standards have an improved understanding of energy metering hardware including accuracy requirements be aware of common metering and data capture issues, and be able to implement solutions to overcome them be in a position to gather energy data of sufficient accuracy to meet EEO Program requirements for estimating, measuring, evaluating and tracking all opportunities.

2.2 Measuring, metering and capturing energy data

Reliable energy and production data is critical to accurately evaluate an energy efficiency opportunity. Satisfactory measurement, metering and data capture systems are vital to fulfil the EEO Program requirements for current and future energy reporting. Improving data accuracy also assists in meeting the requirements of the National Greenhouse and Energy Reporting System (NGERS), which is administered by the Clean Energy Regulator. As discussed in Section 1, energy data is fundamental to establishing an energy baseline. Developing metering and data analysis systems is an iterative process. Process knowledge gained from creating an energy-mass balance and establishing an energy baseline can be used to improve a metering system by identifying metering gaps and the most effective measurement points. This section focuses on developing measurement, metering and data capture systems. Whatever the current capability, the goal is to move towards a best practice system (as shown in Table 2.1) to improve understanding of business energy use and production processes. Developing a best-practice metering regime is also an iterative process. Ideally the capability of the measurement system should be continually improved over time. As a metering system improves, data accuracy will improve correspondingly. High-quality and reliable energy data improves the accuracy of an opportunitys evaluation, and is essential to accurate reporting now and into the future, and leads to informed decision making. Determining and improving accuracy, a key requirement of the EEO Program, is covered in detail in Section 3. 37

Table 2.1: Metering system capability

Level Sub-standard Basic Simple

Metering system Utility bills Monthly meter readings Monthly reading checked output to produce a specific energy ratio Monthly monitoring system based on submeters Weekly system based on sub-meters and targeted against output Automated real-time monitoring and management

Data management responsibility Finance/administration department Maintenance/engineering department Each production department according to some apportionment Each department according to metered consumption Each department, with adjustments made for output Integrated with production management and business information systems

Standard

Advanced

Best practice

Tip: Successful energy management is highly dependent on energy measurement. You cant control it if you dont measure it.

Using advanced metering systems to identify, estimate and measure energy savings opportunities
Well-developed metering systems capture energy data of sufficient density to produce high-resolution demand profiles. This in turn allows for a better breakdown of energy trends and rapid identification of anomalies that may be costing money. High-density energy data enables decision-makers to critically review operational performance and make the necessary changes to improve energy savings. Half-hourly data capture has become the most commonly used interval for advanced metering systems, and in many cases, data is captured even more frequently. Advanced metering enables the development of a suitable energy profile, and can demonstrate three key areas for energy reduction: 1. Fixed load reductions. The overall fixed load of the site can be studied and reduced (e.g. by identifying unnecessary, constant energy use). 2. Process optimisation. The profile can be used to identify which equipment is running and when. Altering start-up and shut-down times of key processes and equipment can reduce consumption by limiting the duration of high-energy usage at the start and end of working schedules. 3. Peak usage reduction. Analysing timing and frequencies will help to establish the causes of peaks in energy usage, and understanding of the causes in terms of specific activities or equipment.

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Example
Company X operates department stores. Initially, electricity consumption data was only available on a monthly basis as determined by the suppliers actual or estimated readings. Remotely-read, half-hourly electricity meters have recently been installed at a number of the stores to allow the comparison of energy use to operating hours. Analysis of the half-hour electricity consumption enabled the company to quantify the specific reduction opportunities identified using the site energy-mass balance. The following half-hour-interval profile shows the electricity savings achieved at one store.
Figure 2.1: Consumption rates, before and after

Consumption

Before After

0:00

1:00

2:00

3:00

4:00

5:00

6:00

7:00

8:00

9:00

10:00

11:00

12:00

13:00

14:00

15:00

16:00

17:00

18:00

19:00

20:00

21:00

22:00

Time

1.

Fixed load reduction. The stores lighting system was made more efficient by optimising the number of lights and replacing incandescent bulbs with-low wattage compact fluorescents. This, combined with reducing the overnight display lighting, resulted in an overall decrease in the energy use (see arrow 1). Process optimisation. Reducing the need for store preheating minimised the electricity demand in the hours before the store opened. Additional lighting control switches enabled individual area lights to be turned on rather than for the entire floor. This minimised the lighting load until the full store lights went on at opening time. Combined, these changes shortened the high electricity demand period (see arrow 2). Peak usage reduction. The major contributor to the 8 am peak load (see circle 3) was identified as individual heating, ventilating and air conditioning (HVAC) units being set higher than required. The peak load was minimised by changing to a centrally operated HVAC system.
7

2.

3.

(Source: The Carbon Trust Advanced metering for SMEs )

2.3 How to develop an energy measurement system

It is important to start capturing energy data where material gaps have been identified. While a site can improve the systems for data collection over time, access to basic data is essential. Failure to collect any data cannot be overcome. Once data have been obtained, they are then available for analysis. Without sufficient data, energy consumption cannot be measured, energy savings cannot be forecast, energy opportunities cannot be evaluated, and energy savings cannot be tracked or reported. Measurement system capabilities vary from site to sitefrom almost none to complete sub-metering with automated data management of individual items of equipment. The goal of this section is to provide a framework for developing a measurement system regardless of the current capability for energy data capture. There are six key steps in developing a best-practice measurement system: 1. define each process and its boundaries 2. establish the extent of current data capture capability 3. determine the critical metering locations 4. develop a metering and measurement plan 5. build capability to manage and store energy data 6. manage the quality of energy data.
7

The Carbon Trust. Advanced metering for SMEs (CTC713), UK: The Carbon Trust, available from (note that free registration is required before being granted access to this publication): http://www.carbontrust.com/resources/reports/technology/advanced-metering-for-smes

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23:00

Step 1Define each process and its boundaries

Metering and monitoring the energy consumed, the production inputs and outputs, as a well as other influencing factors, is integral to successful energy savings measurement. Quantifying energy and mass flows reveals where a site is consuming energy. It is generally most productive to install energy measurement for the most energyintensive process. While process/sub-process boundaries need to be determined on a case-by-case basis, the choice of boundaries may be influenced by the physical constraints of the processes involved. If possible, a metering system should be compatible with existing data management systems.

Step 2Establish the extent of current data capture capability

Developing a metering system involves investigating current data measurement and capture systems. This process may indicate more or less measurement capability at a site than expected. Creating a metering diagram is useful in establishing your current metering capability. Figure 2.1 shows an example metering diagram, and details which process parameters are being measured and the name of the meter, so that it can be readily located. Practically, this may mean searching through plant and processes for hardware and reviewing all supervisory control and data acquisition (SCADA) packages and other software. SCADA packages track and record numerous areas of process databut may not necessarily be fully used with respect to energy management. Often, data on production flows can be easily converted into energy data by applying energy factors or combining energy and production data. Existing information diagrams, such as process and instrumentation diagrams (P & ID), can also provide an indication of any installed metering around a process. Developing an energy-mass balance will help to establish the current capability of a measurement, metering and data capture system. The energy-mass balance will highlight gaps in the current metering system and identify further measurement required to accurately quantify energy consumption. After establishing the full extent of the data capture capability, it is important to document the capability of each component of the system for future reference.

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Figure 2.2: Layout of an existing metering system

Step 3Determine the critical metering locations

The process of developing an energy-mass balance and energy baselines often identifies the critical metering locations. In assessing each location, it is worth considering what useful information would be available by installing a meter and how this information could be used. Investigations to identify metering gaps should be carried out on a case-by-case basis. Each site or process has different limitations and constraints. When identifying metering gaps: investigate using any current SCADA system and production control software identified in Step 2, as a good starting point for establishing capability relate metering back to the process being investigated and the specific information outcomes required. Data gaps become more visible through the process of calculating the efficiencies of various systems and subsystems quantify areas of losses by selecting appropriate metering locations.

Step 4Develop a metering and measurement plan

Careful planning can clarify both metering and accuracy requirements before investing in equipment and installation. When problems are identified at an earlier stage of the project lifecycle, costs of modification are substantially lower. For example, installing insufficiently accurate meters may create unnecessary expense if they must later be replaced with better devices. It is unlikely that many sites will have all the metering systems required to understand energy consumption in the necessary detail. Often, there are gaps in data capture capability, even for critical (energy-intensive) processes. Plans should be developed to fill gaps in data capture capability. The priority for the installation of metering is to obtain high-quality, reliable data from critical locations as soon as 41

practically possible. The following questions can be used as triggers when creating your measurement plan: Is it better to use in-house labour or sub-contract to an expert? If suitable metering experience is not available in-house, it may be worth investing in external professional advice. Ensure your team works alongside any contractors so their knowledge is captured by your organisation. What are the target timescale and data resolution capture rates? What measurement units are required? During commissioning, confirm that the units being measured and transmitted are actually representative of the physical process. How can data be best transmitted? Is remote reading a possibility? Is wireless technology a better application? Are there data transmission and storage constraints (i.e. is the density of the data too much)? If the meters are in rugged, dangerous or isolated environments, how will they be accessed? Troubleshooting or resolving data-handling requirements (such as cabling) will be required. What is the lifecycle of a meter? How often will a meter require recalibration? Maintenance requirements of meters are an important consideration.

Tip: Often, energy flows and usage are routinely estimated or assumed without confirmation by measurement. Exploration of the validity of estimates and assumptions is a powerful way of clarifying the value of improved information to drive improved process and system management.

Tip: Wireless communication may be a good application for sites with energy use distributed over large areas (e.g. mines) since it avoids the need to install cabling.

Resources required for metering

Tangible resources required for metering include measurement equipment (meters), a means of capturing data (data storage) and a system for supporting analysis and reporting (database). Less tangible resources include factors such as commitment from senior management, site-specific knowledge about the company and expertise in energy efficiency. Many of the early problems encountered when developing a metering regime can be mitigated through appropriate allocation of time, money and responsibility, as well as by making strategic business cases. When evaluating a project, it may be possible to include energy meters as a component of the capital cost of the project.

Step 5Build capability to manage and store energy data

The configuration of dataflow to energy databases for storage and analysis is an important component of metering systems. The abilities to capture, store, retrieve and handle data are key features of any energy management 8 information system (EMIS) . Energy data should be transferable to other applications for further analysis. For example, data may be exported to Microsoft Excel so that more detailed investigations into energy trends can be completed, or data could be integrated into other business information systems, such as SAP. When selecting a system to manage energy data, a good energy management information system will provide the following: effective energy performance reporting early detection of poor performance support for optimisation of process performance support for decision-making auditing of historical operations support for analysis of energy efficiencies of sub-systems and tracking of energy losses identification and justification of energy projects evidence of success support for energy budgeting and management accounting the ability to transfer energy data to other systems.
8

TecMarket Works Framework Team (2004). The California Evaluation Framework, Chapter 13. Prepared for the California Public Utilities Commission and the Project Advisory Group, available from: http://www.cee1.org/eval/CEF.pdf

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Step 6Manage the quality of energy data

Control checks, especially in terms of reporting and verification requirements in the EEO Program, must be put in place to ensure the credibility and quality of data. There are numerous strategies for verifying the accuracy of measurements: complete a cross-check with retailer accounts establish regular meter calibration checks install temporary metering for independent verification of values and readings (particularly important for old meters which have not been, or cannot be, regularly calibrated) compare current readings against known historical values search for and detect anomalies. Two common anomalies are: data spikeserroneous meter readings which can result from incorrect data aggregation, a meter malfunction or external interference; and zero valueswhich can indicate that data capture or recording has failed at some point in the communication stream apply theoretical modelling or analysis to verify that the actual meter reading is within the same order of magnitude (common sense check) as shown on high-level meters (i.e. utility bills). Consult with suppliers, contractors, production teams or external experts to confirm that energy use is consistent with their data and experience. a. b. during the commissioning phase of meter installation if the energy data appears to be erroneous or recorded measurements are outside the normal range.

Regular maintenance and calibration of meters are important. Calibration of energy meters is essential:

The suggested frequencies for quality control checks on metering accuracy are dependent on the size and nature of the energy flow and the type of meter. Contact meter manufacturers for details. Tip: The importance of calibration and maintenance of meters cannot be overemphasised. All the benefits of modern control systems are of little use if the eyes, ears and noses are not functioning correctly.

2.4 Energy metering and data capture systems

2.4.1 Energy metering systems
Meter selection will depend on the application. Consideration should be given to the quality of the meters to ensure energy (and other essential) data captured is of sufficient accuracy and data density (frequency/resolution) to meet EEO Program requirements and internal diagnostic and management requirements. Correct installation is essential to ensure accurate metering. For example, a flow meter should be spaced a certain number of pipe diameters away from obstacles which disturb flow. These details will be meter specific, so it is important to confirm installation requirements with the supplier.
Table 2.2: Features of standard metering hardware

Meter Electricity meters

Features of the metering Simple and accurate Relatively cheap Poor turn-down ratio Majority of installation can be done while board is live Power factor can be determined from active and reactive power

Meter types Current and voltage Ammeters Boundary meter Utility meter Time-of-use meters Power factor

Typical accuracy range* 0.05 to 1%

43

Meter Flow meters

Features of the metering Can monitor a range of fluids Positive displacement meters are relatively cheap

Meter types Orifice plate Variable area Turbine Vortex shedding Electromagnetic Ultrasonic Rotating Rotary piston Diaphragm

Typical accuracy range* 0.5 to 5%

Gas meters

Temperature, pressure and calorific value compensation needed Relatively accurate

Turbine Diaphragm Rotating lobe Orifice plate Variable area Vortex shedding Rotary shunt

0.5 to 1%

Steam meters

Relatively expensive Accurate sizing very important accuracy varies with flow Temperature and pressure correction essential High maintenance costs Easily damaged by water hammer

1 to 5%

Compressed air meters

Relatively expensive Pressure and temperature compensation needed High maintenance costs

Orifice plate Variable area Turbine Vortex shedding Turbine Rotary piston

1 to 2%

Oil meters

Easy to install Relatively cheap Density (i.e. temperature) compensation needed

2 to 4%

*Based on manufacturer specifications for new meters installed and operated according to manufacturer instructions. Installation, calibration and operating range will impact on actual accuracy. Section 3.4 covers accuracy in more detail. Tip: Measurement of the amount of useful heat delivered to processes allows overall system efficiency to be estimated. Given the high cost and inaccuracy of some steam meters, a gas meter combined with a water meter on inlet water and condensate supply could provide data on the quantity of steam produced and energy input. A metering gap is a place or situation where more energy information is needed, but there are no means for gathering data. Metering gaps can be overcome through a number of strategies, and often without purchasing new hardware: use historical accounting or financial data for quantifying the process inputs/outputs identify a meter that is higher up the data stream (i.e. a boundary meter); estimating the proportional flow of energy to subsequent sub-processes will require inferences and assumptions establish a correlation with a parallel meterif there is insufficient metering to measure production units, it may be possible to develop an analogous relationship use data managed by a secondary party, such as an energy retailer or electrical lines company install temporary metering to establish consumption patterns

use virtual meters (example below). In some cases, these approaches may not be accurate enough to provide a permanent solution but may allow energy use to be estimated in anticipation of metering. 44

Figure 2.3: How to create a virtual meter Flow rate at virtual meter C = Flow rate at meter A Flow rate at Meter B.

Upstream (high-level meter)

Meter B

Meter A Virtual Meter C

Downstream (sub-meter)

Example
Information was required for the evaluation of an identified opportunity at a mining site. There was no existing metering for the amount of rock being processed. Energy consumption is proportional to rock processing speed. Processed rock has a uniform density of four tonne/cubic metre. The only measurement system available was a meter recording the speed of a conveyor carrying processed rock. Estimations of production rates could be established by correlation, assuming that: the speed of the conveyor belt is directly proportional to the rate of process output the rock is delivered onto the conveyor at a uniform rate. Conveyor dimensions: conveyor width 1 m (approximate onlyshould use the cross-sectional area of the material as it sits on the conveyor belt to take into account the angle of repose of different materials) conveyor wall height 0.25 m conveyor speed 0.5 m/s (this is the metered parameter). To calculate the volume of rock processed per hour: Volume processed per second = area length travelled per second 1 m 0.25 m 0.5 m/s = 0.125 m /s = 450 m /hr To calculate rock processing rate: Mass processed per hour = volume processed density 450 m /hr 4 t/m = 1,800 t/hr These estimates were used during a first pass investigation for preliminary estimation of the benefits of the opportunity while improved measurement systems were developed. Where there are issues with metering, an action plan or solution needs to be developed. Table 2.3 presents possible solutions to common metering deficiencies.
3 3 3 3

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Table 2.3: Solutions for common metering issues

Metering issue Data unavailable for a critical time period

Solution In the first stages of developing an energy-mass balance, estimates will need to be made based on data for different periods. Over the course of developing the energymass balance, arrange for data from the same period to be captured. Review sub-metering equipment and solutions to capture the data. In situations where equipment has incompatible communication protocols, it may be cheaper in the long-term to implement a new system. Switch on logging capability in SCADA.

Sub-meters in place, but no data loggers to store the data Sub-meters connected to a SCADA system, but data not logged Sub-meters in place, but not calibrated Sub-meters in place, but not connected to the correct load Data not managed to a central database

Investigate meter calibration or meter replacement, based on cost.

Depending on meter type, reinstall onto the correct load.

Investigate new software solutions.

2.4.2 Data capture systems

It is essential to construct a secure and robust data capture system. Data records need to be managed, as the information stream can be interrupted or corrupted at any stage. Regular maintenance of hardware, quality control checks and data back-ups are required. Meters are often able to record and store data locally for a period of days or weeks. While cabling is still standard for data transmission, wireless communications can also be used to transfer energy data to a central database. Emerging communication systems such as short-range local wireless networks are expected to be used more widely, reducing metering installation and communications costs. Wireless communication systems may suffer from interference in some operating environments. Data capture protocols should be developed which define the nature and frequency of data to be transferred, to allow the best integration between metering systems, data collectors and data management systems.

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Figure 2.4: Data capture process

Process
A physical process is measured. This typically involves measuring a force and converting it into an electrical signal e.g. using a strain gauge.

Meter

PLC/SCADA Package

The meter produces a signal that is sent to the PLC. This signal is typically a pulse output or a 4-20mA signal. The Programmable Logic Controller (PLC) then turns this signal into an engineering unit. So that history can be stored, the real-time data on the PLC/SCADA are averaged into a longer time-scale.

Energy management information system

Data are collated into useful information. This often involves rolling up data into daily/weekly figures. Budgets and targets are included at this point.

Energy reports
Analysts take information obtained from the energy report, investigate any anomalies, and report the results to management for further action.

Business documents
Appropriate monitoring frequency depends on the application. The monitoring frequency chosen must strike the correct balance between being able to detect important trends in performance and information overload leading to data storage issues. For energy-intensive processes, data should be collected on a daily basis at a minimum. Hourly or half-hourly averaged data is preferable. Intervals of less than half-hourly can lead to information overload, making it more difficult to discern energy trends. However, samples of high-frequency data records can be useful to increase understanding of details of operation (e.g. cycling of valves or start-up and shut-down phases). Samples of unusually high and low consumption should be reviewed to identify reasons for anomalies. If records of high consumption prove to be accurate representations, they should be investigated to identify and address causes of poor energy efficiency performance. For high-quality data collection, a process to systematically eliminate potential sources of error needs to be put in place.
Table 2.4: Solutions to common data collection issues

Type of data Production data

Data collection issue Presence of downstream production processes reduces overall output (e.g. generating loss or waste streams)energy use may not be directly related to output. Fuels (e.g. oil and coal) can be storedno direct link between energy purchase and use.

Solution Relate energy use to throughput at some point upstream.

Energy use based on purchases instead of actual use Using process input rather than output as the basis for calculating energy

Quantify storage levels, add or subtract the change in level to the purchased amount to obtain energy use.

A lower specific energy consumption based on input may mask deteriorating performance.

Relate energy to output (that is ultimately where costs are recovered). Judgement required on the measure of production to use.

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Type of data Production figures not synchronised with energy figures Changing calorific value of fuel

Data collection issue If energy and production data have not been recorded at the same time, it will be virtually impossible to establish a meaningful relationship between them. Fuels such as coal have a variable calorific valueapparent changes in specific energy consumption may be due to changing fuel grade and inappropriate conversion factors.

Solution Relate energy use to throughput at some point upstream if final output data not available.

Assumed calorific values and enthalpies should be checked. Compare against utility company data charging should be on an energy basis. Regular fuel sampling and laboratory analysis are recommended to determine calorific value variations over time. For constant energy use, use number of operating days as the basis. Be aware of weekends and holidays when a plant shuts down.

Monthly data

Not all months have the same number of days or weekends (e.g. in a five-week month, the fixed energy component is different for a fourweek data set). Check energy use has been correctly recordeda common error includes misreading meters (typically being out by a factor of 10). Inconsistency in type of unit used.

Data errors

Before reporting, run a common sense check on the data and, if enough metering is available, create some energy and/or mass balances to find discrepancies.

Units

Standardised units are especially important when measuring gaseous flow ratesthe basis adopted by the Australian gas industry for measuring natural gas flows is at standard conditions (Sm/h), determined at 101.325 kPa and 15C.

2.4.3 Cost guidance

Developing a system to best practice may involve significant resource input, and there is often resistance to expenditure. The following points offer support for overcoming these issues: improve management awarenessby promoting the benefits and importance of energy efficiency for business profitability and environmental compliance (see Section 2.5 for examples) prepare robust business cases that justify expenditure on the metering systems (see Section 2.5 for examples) communicate the improvement plan undertake a trial in one area to demonstrate benefits. The cost of providing advanced metering solutions to a site depends not only on the nature of the processes, but also on the existing metering installations at the site. There are many components contributing to the total metering cost. For example: for sites without interval metering systems in place, initial set-up costs include the cost of the meter and/or data logger, and the costs for associated ancillary items, communication systems and appropriate software, and charges associated with the actual installation of the meters (this cost may be covered by the metering company) meters and telemetry equipment costs are generally spread over a number of years software license costs are typically paid on an annual subscription basis if an independent service provider is used for installation of metering, costs to the customer vary depending on the level of service provided to the site. These costs are largely made up of data provision and the time for offering advice. These costs can be met by engaging the engineering team during standard working hours, or can be accounted for upfront as a component of an energy efficiency opportunitys capital cost the ongoing reduction in communication costs will likely further reduce some metering costs. Mobile networks make it simple to upload data from many disparate locations at relatively low costpreviously, this required a large number of expensive land lines maintenance costs.

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Meter and installation costs are proportionately lower for higher-volume processes. The EEO Program suggests that 1.5% of a sites annual energy spend should be apportioned to improve metering and data storage. This recommendation provides a practical starting point for budgeting of metering and installation costs. Metering and installation costs can vary due to market factors and geographic location, so actual costs may be higher. Tip: Accurate reporting of energy consumption and energy savings is of increasing importance to comply with state and federal legislation; especially now that emissions costs are priced. Investment in quality metering and energy management systems will enable improved reporting outcomes for the board, the public and the government.

Example
A process consumes $100,000 worth of electricity per year from a 400 V AC switchboard (Motor Control Centre MCC-A). The company is considering installing a power monitor. The monitor will be used to develop a baseline electrical demand profile for the process. From this baseline, it will be possible to accurately monitor changes to the process (motor upgrades). For a power monitor to be justified, it would have to offer everything needed to monitor an electrical supply voltage, current, harmonics, kVA and power factor. Using the EEO Industry Guidelines for appropriate metering expenses (~1.5% over a five-year assessment cycle) for the annual energy spend for the process, an investment of $7,500 in metering equipment should provide suitable coverage for all the metering costs. There are several existing conditions with the switchboard: the switchboard already has voltage and current gauges on the front so existing current transformers and voltage fuses can be used existing current transformers and voltage fuses, multi-drop RS485 communications via MODBUS between power monitor and energy management information system (EMIS) sufficient spare space in the MCC for the power monitor unit.

The following costs could be justifiably incurred: Power monitor Engineering and design Installation and commissioning Communications and EMIS configuration Total investment cost $1,250 ea $2,250 $1,360 $2,500 $7,360

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2.5 Investing in energy measurement systems

The three following worked examples demonstrate the cost and business benefits that result from investment in energy metering in industrial applications.

2.5.1 Using energy measurement systems to identify opportunities at a paint additive manufacturer

Example
A paint additive manufacturer has an annual energy utility bill of $2.7 million. The original energy measurement and management systems provided only basic measurement for energy flows. The senior management team desired improved energy management practices to meet new environmental standards. An improved energy measurement system was designed to enable: each of the 25 different product lines to be monitored weekly capture of higher-resolution energy data for energy baseline development the development of energy reporting systems for departmental managers. Several changes were made to the measurement and management system, with an investment cost of $60,000. Additions to the system included installation of: five more electricity meters (60 meters originally) three more water meters. The new energy measurement systems delivered improved energy performance monitoring. Through the monitoring of energy flows, several identified energy efficiency opportunities were investigated in detail and implemented. These opportunities included: optimal scheduling of process plant rationalisation of steam distribution mains improvement in efficiency of the compressed air system introduction of routine leakage checks on the water distribution system. Investment in the energy measurement and management system enabled detailed energy savings, costs and benefits from the opportunities to be presented to site management. The implemented opportunities resulted in cost savings of $120,000 per year. These opportunities result from changes to operational practice and consequently the cost of implementation was negligible. The payback scenario for the investment in the energy measurement system is: investment cost = $ 60,000 annual benefits resulting from investment = $120,000 (4.5% of annual energy bill) payback = 0.5 years.

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2.5.2 Using energy measurement systems to drive improved energy performance at a rubber processing plant

Example
A brewery has an annual utility bill of $1.3 million. A total of $96,000 was invested in upgrading the energy measurement and management system to identify and accurately measure efficiency opportunities. The key changes to the energy measurement and management system included: electricitysub-metered into 20 units, based on departments and main services steamfour meters installed to monitor each main department water/effluent16 meters installed, including five hot liquor meters to monitor heat recovery around the hot liquor system. The improved system provided the capacity to measure electricity consumption for each department. The greater monitoring capability facilitated the generation of weekly utility reports, (reviewed in weekly production meetings). New energy savings targets were also set by senior management. The targets were based on actual performance, and comparisons were made to the Brewers Association energy targets. Through the desire to meet the Brewers Association energy targets, several additional savings opportunities were implemented: better control of the hot liquor system reduced water consumption improvements in boiler efficiency, compressed air, refrigeration and process heat recovery. The improved energy monitoring capability enabled site management to quantify precisely the benefits of implementing these opportunities. Annual savings of $42,000 were achieved, which translated to a reduction in costs of 6% through reduced energy consumption. This investment had a payback period of 2.3 years.

2.6 Section summary

Metering is the hardware that enables measurement of energy flows. There are six key steps in developing a best-practice measurement system: 1. Define each process and its boundaries. 2. Establish the extent of current data capture capability. 3. Determine the critical metering locations. 4. Develop a metering and measurement plan. 5. Build capability to manage and store energy data. 6. Manage the quality of energy data. Resistance to the installation of additional metering is common, as are issues in the installation/operation of meters. It is vital to develop solutions or action plans to overcome each identified issue. A measurement system must have the capability to capture energy data of sufficient accuracy and density to meet the EEO Program requirements.

Key Elements addressed in Section 2: Key Element 3.2: Data collection process Key Element 3.3: Energy analysis

51

SECTION 3.0
Determining and improving accuracy
3.1 3.2 3.3 3.4 3.5 Overview of accuracy in opportunity evaluation Integrating accuracy into evaluations Statistics overview Determining accuracy Section summary

52

3.1 Overview of accuracy in opportunity evaluation

Purpose of this section
This guide shows how investment-quality information can be compiled and presented to decision-makers in a company, enabling accurate reporting to the public and government on the outcomes of energy assessments. Accuracy is vital for creating investment-quality information, and is only likely to be achieved when integrated into all aspects of energy analysis. Errors in energy analysis are most likely to arise from modelling, sampling and measurement. The key is to manage these errors to achieve a cost-effective analysis within the accuracy requirements. The purpose of this section is to provide guidance on how to determine the level of accuracy for the energy savings, costs, and benefits associated with each energy efficiency opportunity. To achieve this, several statistical tools and methods are needed. This section should be regularly referenced while working through the guide, as accuracy is integral to the evaluation process.

Using statistical methods for verifying energy savings

All estimates and measurements have an associated level of uncertainty. This section defines uncertainty in relation to energy savings, opportunity costs and benefits. Increasing the accuracy of estimated and measured energy flows usually increases the cost of the measurements. The uncertainty of the analysis should reflect the level of the proposed investment. Statistical methods can be employed to check energy savings estimates and measurements, and to verify that the estimated savings are statistically significant; i.e. the result of the energy-saving project as opposed to random variation. This is the key principle outlined in this section.

Quantifying the sources of error in the energy savings measurement

The three potential sources of error covered in this guide are: 1. Modelling errorsDue to use of inappropriate mathematical functions, exclusion of relevant variables, inclusion of out-of-range data, or insufficient data. Over-simplification of the model, through inappropriate simplification of complex phenomena, may also lead to error. 2. Sampling errorsResulting from measurement of only a portion of the actual values, or sampling bias. 3. Measurement errorsMay be caused by the inaccuracy of sensors, drift in calibration, unreliability of the data collection system, effects of the meter itself on the system, and the scale of the meter relative to the process its measuring.

EEO Program requirements

Accuracy must be within 30% in the estimation of energy savings, project costs, and project benefits for each energy efficiency opportunity. Larger energy efficiency opportunities, which require significant capital investment, should aim to reach a higher degree of accuracy of 10%, or the level of accuracy required by the corporation's existing capital expenditure process. For all evaluations, a confidence level of 95% is recommended, as required by the National Greenhouse and Energy Reporting System (NGERS), when reporting on energy use. Opportunities that have immediate business benefits (low costs and immediate paybacks), or for which the cost of achieving accuracy is greater than the benefit, may be implemented or scheduled for implementation without being evaluated to within 30%. If practicable, data on these opportunities should be monitored following implementation, to evaluate and report on savings. If a series of small opportunities has been identified, they can be grouped together to facilitate post-implementation performance monitoring and reporting. Detailed investigation to reach an accuracy of 30% is also not required for those ideas for which it can be shown that a payback period of four-years or less is not possible, or those that prove not to be feasible for technical, safety or other genuine reasons. These should be documented and categorised as not to be implemented.

Section outcomes
At the end of this section, you will be: able to define the uncertainty range for each energy analysis familiar with the key analyses that determine whether the estimated savings are statistically significant able to determine the accuracy in energy modelling, process sampling, and energy measurement prepared to meet the EEO Program requirements by quantifying accuracy tolerances.

53

3.2 Integrating accuracy into evaluations

The calculation of energy savings for an opportunity requires the development of an energy baseline for the savings period, which is then compared to the forecast energy consumption during the same period (see Section 4). Both the baseline and forecast consumption contain sources of inaccuracy. Sources of inaccuracy include the relationship between the baseline function and the actual energy baseline, such as measurement uncertainties or the statistical range of results in the development of the baseline function. The projected consumption can have inaccuracies from statistical errors and assumptions made in the development of the projection, and also through propagation of uncertainties in the energy baseline. The non-energy cost estimates relating to an opportunity, including any capital investment, will contain sources of error caused by factors such as lack of detailed design, cost inflation and technology changes (see Section 5.2). Unknown, final operational parameters will also affect the accuracy of non-energy benefit estimates relating to an opportunity (see Section 5.3).

3.3 Statistical overview

3.3.1 Defining accuracy
Measured or forecast savings for an energy efficiency opportunity need to be expressed in conjunction with their accuracy. Accuracy has two components: the precision and the confidence level. The confidence level is the probability that the savings will fall within the precision range. Section 3.3.2 provides a list of these and other statistical terms and variables. For any distribution of values for a particular variable, a confidence interval represents a range within which a proportion of values would be expected to lie. For a normal distribution, the confidence level is defined by the t-statistic, which indicates the number of standard deviations (s) on either side of the mean that are required to reach a stated confidence level (i.e. 95%). For example, the 95% confidence interval for a normal distribution with infinite sample size and mean value of A is the range from (A - 1.96 s) to (A + 1.96 s). A statement of precision for expected energy savings is not valid statistically unless the confidence level is defined. The common standard for stating the accuracy of metering and measurement equipment is 95% and similarly for the evaluation of energy efficiency opportunities, the confidence level should be 95%.

Example
The following two confidence levels and precision ranges are for the same expected energy saving: Expected energy savings 20% at a 95% confidence level. There is a 95% chance the savings fall between 20%. Expected energy savings 8.5% at a 40% confidence level. There is a 40% chance the savings fall between 8.5%.

3.3.2

List of statistical terms and variables

Meanthe average value of a series of measurements Individual datum point value Number of units in the total population Total number of data points measured in a sample Variancemeasures the variability of the measurements Standard deviationmeasures variability in the units of the measurements Relative precision (also termed relative error) Absolute precision in the units of the measurement (also termed absolute error)

Y
Yi N n S s % Ab
2

54

SE t-statistic

Standard error for estimating precision Provides a method of assessing whether the means of two groups are statistically different from each other. Values of the t-statistic are tabulated for a given degree of freedom (df = number of measurements minus 1) and probability (or p-value). The t-statistic is also referred to as the t-value. Initial estimate of sample size Coefficient of variance for sample Precision requirement for sample The confidence interval represents a range within which a proportion of values would be expected to lie. For a normal distribution, the t-statistic for a given confidence level indicates the number of standard deviations (s) on either side of the mean that are required to give a certain level of confidence such as 95%. The probability that the true population mean will lie within the boundaries of the confidence interval. The common standard confidence level for stating the accuracy of metering and measurement equipment is 95%. Normal distribution value for the desired confidence level and infinite samples. Degree of freedom, which equals n1 (for a sample distribution) or (n - p - 1) for a regression model, where n is the sample size and p is the number of regression model variables. Probability value (p-value or observed significance level)the minimum probability that a test value will be outside the range predicted by the regression (i.e. the null hypothesis would be rejected).

n0 Cv e Confidence interval

Confidence level

z df

Coefficient of determinationthe estimate of how well a model approximates the real data points (e.g. how well a regression line approximates real data). Regression model coefficient

55

3.3.3 Using statistical terms

Mean ( Y ) probably the most commonly used measure of the central tendency of a variable (and frequently referred to as the average). It is determined by summing all the individual data points (Yi) and dividing by the total number of data points (n):

Y=

Y
n

Variance (S )the variance of a population determines the amount the measured values differ from each other. The greater the variance, the greater the uncertainty in the mean. The difference from the mean is squared to allow for values that are both greater and less than the mean value:

(Y

n 1

Standard deviation (s)square root of the variance to return a measure of variability, in the same units as the data:

s=

S
s n

Standard error (SE)the standard deviation divided by the square root of the number of sample points (n) used to state precision:
SE =

Precisionthe measure of the range in which the true value is expected to occur. This is stated in conjunction with a level of confidence, which is the probability that the quoted range contains the estimated variable. Absolute precision (Ab)determined from t SE t-statisticprovides a method of assessing whether the means of two groups are statistically different from each other. To calculate precision in the units of the data, a t-value (t-statistic) is derived from a t-distribution table. A t-distribution table (see Table 3.1 below) shows t-values for a given degree of freedom (dfequals n1 (for a sample distribution) or (n - p - 1) for a regression model, where, n is the sample size and p is the number of regression model variables.) and probability (or p-value). After the mean ( Y ),variance (S ), standard deviation (s) and standard error (SE) are calculated, the degree of freedom (n) and the required confidence level are used to select a t-distribution value from the t-distribution table. This t-value, multiplied by the SE, gives the absolute precision of the mean value at the specified confidence level. Selecting the t-value using varying confidence levels changes the precision of the mean value. If the confidence level is increased, the statement of the mean value will be less precise, and vice versa. Tip: The t-value is particularly important to multiple-linear regressions. If a variable has a low t-value (< 1), then that variable has so little effect that the regression is likely to be more accurate if that variable is omitted. The lower the t-value, the greater the likelihood that two variables are statistically independent of one another (i.e. there is a lower probability that the two variables are related). Regression analysis software packages, such as Microsoft Excel, provide t-statistic and p-values as an output of regression analysis.
Table 3.1: The t-distribution table
2

df 0.4 0.25 0.1 0.05 0.025 0.01 0.005 0.0005

1.376

2.414

6.314

12.706

25.452

63.657

127.321

1273.239

1.061

1.604

2.920

4.303

6.205

9.925

14.089

44.705

0.978

1.423

2.353

3.182

4.177

5.841

7.453

16.326

56

df 0.4 0.25 0.1 0.05 0.025 0.01 0.005 0.0005

0.941

1.344

2.132

2.776

3.495

4.604

5.598

10.306

0.920

1.301

2.015

2.571

3.163

4.032

4.773

7.976

0.906

1.273

1.943

2.447

2.969

3.707

4.317

6.788

0.896

1.254

1.895

2.365

2.841

3.499

4.029

6.082

0.889

1.240

1.860

2.306

2.752

3.355

3.833

5.617

0.883

1.230

1.833

2.262

2.685

3.250

3.690

5.291

10

0.879

1.221

1.812

2.228

2.634

3.169

3.581

5.049

11

0.876

1.214

1.796

2.201

2.593

3.106

3.497

4.863

12

0.873

1.209

1.782

2.179

2.560

3.055

3.428

4.716

13

0.870

1.204

1.771

2.160

2.533

3.012

3.372

4.597

14

0.868

1.200

1.761

2.145

2.510

2.977

3.326

4.499

15

0.866

1.197

1.753

2.131

2.490

2.947

3.286

4.417

16

0.865

1.194

1.746

2.120

2.473

2.921

3.252

4.346

17

0.863

1.191

1.740

2.110

2.458

2.898

3.222

4.286

57

df 0.4 0.25 0.1 0.05 0.025 0.01 0.005 0.0005

18

0.862

1.189

1.734

2.101

2.445

2.878

3.197

4.233

19

0.861

1.187

1.729

2.093

2.433

2.861

3.174

4.187

20

0.860

1.185

1.725

2.086

2.423

2.845

3.153

4.146

30

0.854

1.173

1.697

2.042

2.360

2.750

3.030

3.902

0.842

1.150

1.645

1.960

2.241

2.576

2.807

3.481

58

Example
Measurements were taken from a steam meter. The t-distribution table is used to analyse the data.
Table 3.2: t-distribution data analysis
2

Reading

Steam mass flow rate (t/h) 250 225 300 298 240 286 254 229 294 234 2,610 261

Readingmean

(Readingmean)

1 2 3 4 5 6 7 8 9 10 Total Mean Variance (S ): S

2
2

11 36 39 37 21 25 7 32 33 27

121 1,296 1,521 1,369 441 625 49 1,024 1,089 729 8,264

(Y

n 1

8,246 2 = 918 10 1

Standard deviation (s): s = Standard error (SE): SE =

s

S
n

= 918 = 30t / hr

30 10

= 9.6t / hr

Using the t-distribution Table (Table 3.1) for 10 measurements (degree of freedom = n1 = 9), and a confidence level of 95% (p = 0.05): t = 2.262 Absolute error (precision): t SE = 2.262 9.6 = 21.72 t/h Relative error (precision):

t * SE 21.72 *100 = = 8.3% mean 261

So it can be stated that, with 95% confidence, that the true mean steam consumption is 261 t/h 8.3%.

59

3.4 Determining accuracy

The previous section illustrated the statistical methods to determine the mean and its accuracy (confidence level and precision) for a set of measured values. This section demonstrates how to apply this understanding to the methods used for estimating energy consumption. The methods demonstrated are modelling, sampling and measurement.
Table 3.3: Common modelling errors

Error source Omission of relevant independent variables

Description Significant factor/s not included in the analysis. Can be caused by lack of process knowledge, a decision to limit the complexity of the model, or lack of available data.

Effect If a significant variable is not included, the model will not provide an accurate value of energy consumption.

Solutions A good understanding of the process will indicate which variables are relevant. Develop a more complex model or eliminate other less significant factors. Gather data for any variable suspected of having been omitted, and use in the analysis. Perform the analysis again, discarding the irrelevant factors.

Inclusion of irrelevant variables

Factor/s that do not have a relationship with energy consumption are included in the analysis. The model is built using data that does not represent the normal energy consumption. Can be caused by including data beyond the range of reasonable values. Modelling a non-linear relationship with a linear function. rd Modelling 3 order st relationships with a 1 order function. Process equipment not fully understood. Sampling frequency not high enough to capture relationships, or time period too short to cover all variations (e.g. seasonal variation).

If irrelevant factors are related to the relevant variables, the results may be biased.

Data out of range

Inaccurate predictions because the model is trying to predict normal operation based on data points that include errors.

Check data for spikes and irregularities before inclusion in a model.

Incorrect function

The function cannot accurately describe the relationship.

Use process knowledge understanding to identify nonlinear relationships and examine the form of the relationships to see if a higher order function might be appropriate. Consult equipment manufacturer for latest energy consumption data. Increase data capture frequency or reduce data averaging interval. Capture data to cover as many operating scenarios as possible.

Insufficient data

The functions developed will not have the detail required to identify the relationships. The functions will only be able to predict energy consumption for a specific subset of the operational hours.

3.4.1 Determining accuracy in modelling

One of the methods for determining an energy baseline and estimating and measuring energy savings is modelling the energy system. This can take the form of a statistical regression analysis, computer process simulations, or any other theoretical method that establishes a relationship between independent variables and energy consumption. Engineering analysis of thermal systems and fluid flows is often based on theoretical approximations in the form of estimated parameters and formulae. Such approximations can also introduce uncertainties that should be included in error analysis.

60

Evaluating the accuracy of models

Each form of modelling has its own methods for evaluating accuracy. Regression is a common form of energy modelling, and all spreadsheets and statistical software tools should provide the facility to calculate the coefficient 2 of determination (R ). R is a measure of the extent to which the variations in the dependent variable, Y, from the mean are explained by 2 the regression model. Values of R range from 0 to 1. A value of 0 indicates that the independent variables do not explain any of the variation in Y, while a value of 1 means that the model explains 100% of the variation in Y. The standard error is the measure of accuracy of the predictions produced by the model. Again, this calculation is normally performed in spreadsheets and by using statistical software tools. Tip: For the savings to be considered significant and able to be measured, they should be at least twice the standard error. The t-statistic can be estimated and compared to critical t-values from the t-statistic Table (Table 5.1), and if the value of the estimate is greater than the value from the Table, then the estimate is statistically valid. The t-value is estimated as:
t= b
2

SE

In this equation, b is the regression model coefficient that is the statistical estimate of the true relationship between an individual variable and the dependent variable (in this case, energy consumption). The variables b and SEb are outputs from statistics tools for each regression analysis calculation. (Refer to Section 12.1.4 for a list of useful tools in performing a regression analysis.) Once a baseline calculation (developed using a regression) is evaluated for a given period, the actual values of the outputs can be used to express the accuracy of the results in terms of precision and confidence level. There are five key steps in evaluating the accuracy of the regression: 1. Evaluate the mean energy consumptionusing the coefficients from the regression and input variables describing the period you are analysing. 2. Evaluate the energy consumptionusing the coefficients for either the lower 95 percentile or upper 95 percentile (for a symmetrical distribution) by entering the input variables used in step 1. These coefficients represent the upper and lower bounds of the confidence interval at confidence level of 95%. 3. Calculate the differencebetween the mean value and the 95% value. This is the absolute precision of the energy consumption. 4. Convert to a relative precision (% value). 5. State the resultin terms of mean value precision at the 95% confidence level.
th th

61

The process is illustrated in the following example.

Example
A regression is performed on the historical electricity consumption data of a process. A regression that relates electricity to operating days and throughput is developed. The output from the analysis is:

So the equation of the form, using the first column of the regression output table, becomes:

Elec = Opdays * 6.890 + throughput * 0.00337 + 0.972 MWh

To create a projection for a subsequent year based on this regression, the following input values were used: Opdays = 315 days Through-put = 2,000,000 t Evaluating the equation is using these values, the mean value of the electricity consumption for the year is:

Elec = 315 * 6.890 + 2,000,000 * 0.00337 + 0.972 MWh

Elec = 8,908 MWh To determine the range of values that can be expected, the relationship is evaluated at either the upper or lower bounds of the confidence interval by using the coefficients at the 95% confidence level:

Elec

+95

= Opdays * 8.21 + throughput * 0.00381 + 1.712 MWh

Elec+95 = 10,204 MWh Absolute precision = (10,204 - 8,908) MWh Absolute precision = 1,296 MWh Note that using the lower 95% values would have given the same answer. Finally: Relative precision = 8,908 *100 % Relative precision = 14.5% The statement of accuracy is: Electricity consumption for the process is projected to be 8,908 MWh 14.5% at a 95% confidence level
1,296

Tip: The results of a regression analysis may only be valid in situations where the input variables are of a similar magnitude to the data analysed. For example, a regression to determine the heat transfer rate through pipe-work insulation at low flow-rates will not be valid for much higher fluid flow-rates.

3.4.2 Determining accuracy in sampling

Sampling techniques are used to estimate the properties of a population (e.g. mean energy use) by analysing a sample of that population. When using sampling techniques, errors are introduced as not all data within the total population (of N) are being measured. The accuracy of sampling is inversely proportional to

n , the number of x.

samples taken. Increasing the sample size by a factor of x will increase the accuracy by a factor of The California Evaluation Framework discusses sampling in detail (see 12.2.1 Notes [7]).

Sample size
Increasing the proportion of the population included in the sample (n/N) improves the accuracy, but will also increase the cost. The final sample size may be limited to a maximum number of samples for cost reasons, and this may result in the accuracy being less than the original confidence and precision levels stipulated. Estimating and evaluating energy efficiency opportunities often involves a complex interaction of factors. Careful analysis of the 62

sampling results is required to ensure that the required accuracy level is being achieved. Table 3.3 discusses key factors that should be considered when sampling a population.
Table 3.4: Solutions for issues when determining accuracy in sample sizes

Issue The sample should be reflective of the entire population

Description A population can be made up of one or more identifiable groups based on product, season, occupancy, route etc. Each must be sampled fairly to avoid bias. Requirements for confidence and precision will influence sample size.

Effect Many samples are required to represent the entire population. The sampling method may favour one group over another.

Solution Each distinct group should be sampled separately.

Confidence level and precision requirements

Higher confidence levels and greater precision requirements require larger samples (e.g. to improve the precision from 20% to 10% requires four times the number of samples). Creates a starting point for calculation of sample size. Note that the time period for the measurements should be sufficient to cover known sources of variation in the data, such as seasonal variation.

Review the required confidence and precision levels in relation to the scale of the opportunity and keep the costs of sampling in proportion.

Estimate of sample size

Calculated before sampling begins. n0 =

Can use test measurements or previous data to obtain values for Cv.

z CV
2 2

Where: n0 = initial estimate of sample size Cv = coefficient of variance =

S Y

(until samples are taken 0.5 can be used as an estimate of Cv) e = precision requirement z = normal distribution value for the desired confidence level, taken from the t distribution Table using an infinite sample size. Allowance for small population size If the population is less than 20 times the sample size, the number of samples can be reduced. The sample size estimate (n0) is based on an assumed Cv. Once samples have been taken, early calculations can create the opportunity to reduce the number of samples or extend the sampling to achieve the required accuracy. Reduced sampling reduces cost. Adjust estimate.

Adjust sample size once sampling has begun

An underestimated Cv compared to the sample value will require more samples to achieve the accuracy objective. An overestimated Cv will achieve the required accuracy in less than the estimated number of samples.

Calculate a Cv for the sampling as it progresses, adjusting the sampling program to achieve the required accuracy. The maximum sample size will most likely be limited by cost.

63

Example
The example of steam meter readings (included in Section 3.3.3) will be used to step through the process of determining the number of samples needed to determine a mean value that meets accuracy requirements. For this example, the requirement is to evaluate the mean with an accuracy of 10% at a 90% confidence level. Estimating the number of samples required uses the following equation from Table 5.3:
n0 = z 2 Cv e2
2

z = t value for p = 0.1 (90% confidence) = 1.645, n = Cv = 0.5 (estimate before samples are taken) e = 0.1 (10% precision) Evaluating this formula gives: n0 = 68 The initial estimate of the number of samples required to estimate the mean steam flow value to an accuracy of 10% at a 90% confidence level is 68.

3.4.3 Determining accuracy in measurement

Measurement uncertainties should be a key consideration in the choice of a metering system, together with maintenance/calibration requirements and how applicable metering is to a particular application. For a given accuracy requirement, the more cost-effective metering systems will be those requiring less maintenance and less frequent calibration. An operational team should be involved in metering decisions to ensure that the chosen solution is suitable to the specific operating conditions of the plant, and integrated into operational procedures. As with other forms of measurement, metering accuracy should be stated in terms of precision and confidence level. Most manufacturers quote accuracy for their meters. The confidence level is likely to be 95% but should be confirmed. Be aware that the manufacturers statement of accuracy could overstate the accuracy of a meter operating in realworld conditions, and the actual error may be difficult to quantify. The overall error associated with the measurement of a particular parameter (for example flow rate) will need to take into account all the factors which could affect the accuracy of the final flow measurement (such as temperature, pressure, ambient effects, drift).
Table 3.5: Common metering errors

Error source Calibration

Description Meters need to be regularly tested and calibrated to maintain their accuracy. Meters should be correctly sized for the range of values likely to be measured. The meter itself can affect the variable being measured. In poor location (e.g. placed too close to pipe elbow) or not

Effect Accuracy reduces from manufacturers specification.

Solution Routine maintenance and recalibration against a standard instrument.

Incorrect sizing

Oversized meters may not be as accurate at the lower end of their range; similarly, undersized meters may not be able to capture the highest values. Installation of a flow meter can add restriction to a system and change the flow.

Process understanding is required to estimate the measurement range before installing meters.

Meter installation

Use manufacturers data to calculate the change to the system and, if the effect is significant, consider another method of measurement. Physically check meter location against manufacturers recommendations. Use energy-mass balance diagrams to assist in

Incorrect location

Meter readings not reflective of variable being measured.

64

Error source

Description measuring correct variable (e.g. wrong side of a heat exchanger).

Effect

Solution determining the appropriate location for variable to be measured.

Data transmission and storage

Telemetry, meter reading or database errors.

Loss of data, incorrect scaling, incompatible sampling rates.

Monitor data continuity, perform sense checks against higher-level data and process knowledge, and use a consistent sample rate for data.

3.4.4 Accuracy for non-statistical processes

Some aspects of the evaluation of an opportunity are not easily analysed using the statistical methods described in this section. An example is the use of an established process to produce capital cost estimates to a predetermined level of precision. It is not possible to allocate a confidence level to a single cost estimate developed using the process, but there must be a continuous assessment of the output capital cost estimates versus actual costs for implemented projects. Statistical analysis of the performance of the process will give confidence that the accuracy objectives are being achieved.

Example
The capital cost estimates prepared for a beverage manufacturing site using the standard process were analysed to assess the relationship to the actual project costs when implemented. The information gathered is shown in the following table:
Table 3.6: Capital cost analysed to assess relationship to project cost Item

Description

Target +/-

Estimation

Actual

Act/Est %

Act/Estmean

(Act/Est-mean)

1 2 3 4 5 6 7 8 9 10

Variable speed drive compressor Pump control system Air/air heat recovery Economiser boiler 1 Turning vanes ventilation duct Pump replacement Air leak detection survey + repair Steam trap survey + repair Regeneration on main air fan Chilled service storage tank

30% 30% 30% 30% 30% 30% 30% 30% 30% 30%

$900,000 $30,000 $1,500,000 $350,000 $15,000 $25,000 $50,000 $120,000 $110,000 $260,000

$725,000 $22,000 $2,100,000 $435,000 $22,000 $22,000 $35,000 $128,000 $77,000 $189,000

80.6% 73.3% 140.0% 124.3% 146.7% 88.0% 70.0% 106.7% 70.0% 72.7%

-16.7% -23.9% 42.8% 27.1% 49.4% -9.2% -27.2% 9.4% -27.2% -24.5%

0.0278 0.0571 0.1830 0.0733 0.2445 0.0085 0.0741 0.0089 0.0741 0.0602

Total Mean 97.2%

0.8114

Variance Standard deviation Standard error Degree of freedom Probability t-value Absolute precision Relative precision

0.0731 27.0% 8.6% 9 0.05 2.262 19.3% 19.9%

65

The accuracy of process used to develop the capital estimates can now be stated: The actual project cost will be 97.2% of the estimated project value, 19.9% at a 95% confidence level.

3.4.5 Methods of estimating accuracy

The precision of energy parameters and results should be expressed at the 95% confidence level wherever possible, as required by the National Greenhouse and Energy Reporting System (NGERS). Recommended approaches to 9 accuracy, partly adapted from US National Institute of Standards and Technology publications , are tabulated below, using a traffic light system to indicate statistical validity.
Table 3.7: Recommended approaches to accuracy

Traffic light

Data source Regression analysis

Formula for ~ 95% confidence level

Discussion Valid when the regression is valid, normal distribution assumed.

X k SE , where k is the value of the t- statistic for the sample size (n) used for the regression at the 95% confidence level for degrees of freedom of (n-1)
X k SE ,
where k is the value of the t statistic for the sample size (n) used for the regression at the 95% confidence level for degrees of freedom of (n-1) where is the instrument tolerance or uncertainty provided by the manufacturer, plus an allowance for human error (e.g. parallax error) if appropriate. For utility figures such as gas bills, is the magnitude of the smallest figure provided e.g. if a figure is 323.7GJ, the uncertainty would be 323.72(0.1) = 323.70.2 where is the uncertainty provided by the source

Measured result when several measurements of the same process are taken (e.g. n meter results for HVAC system air flow).

This assumes a normal distribution about the mean, and is statistically valid if that is the case.

Measured result from single metered measurement (e.g. from a utility provider).

X 2 ,

This does not deliver a statistically valid level of confidence, but may provide a first pass estimate if only one reading is available.

Published data, academic or trade journal or handbook figure with indicated error, or error margin provided by expert opinion.

X 2 ,

This does not deliver a statistically valid level of confidence, but may provide a reasonable estimate if only one figure is available. If the change in a parameter value does not affect the viability of an opportunity, or a certain option or range of options is consistently better than others, then the analysis is robust. Otherwise, further investigation and more rigorous valuation may be

Sensitivity analysis - to explore the possible effects of changes in parameter or variable values through the expected range. Sensitivity analysis provides a deeper understanding of which parameters are of primary importance in the evaluation, and also identifies where breakeven points and other milestones lie. One possible approach is Monte Carlo simulation, allows complex consideration
9

Evaluates the change in energy savings, costs or benefits as relevant variables or parameters are changed. Provides an indication of variation, but not a formal confidence level.

Taylor, B N and Kuyatt, C E (1994). Guidelines for Evaluating and Expressing the Uncertainty of NIST Measurement Results, National Institute of Standards and Technology, US Department of Commerce, NIST Technical Note 1297, see http://physics.nist.gov/Pubs/

66

of many different parameters, allowing M&V design to focus expenditures where most needed to improve the overall accuracy of savings reports. Published data or handbook result without indicated error where is the order of magnitude of the smallest significant figure e.g. annual rainfall = 5762mm number of trips = 20,300200 engine efficiency = 0.250.02

required. Manufacturers correction curves can be useful for sensitivity analysis.

X 2 ,

This does not deliver a statistically valid level of confidence and is not valid for reporting purposes. It should be further investigated and refined. This method is not acceptable for reporting purposes.

Combining accuracy
Usually, more than one component is combined to calculate reported savings. To be able to make a statement about accuracy of savings, the accuracy of each contributing component must also be combined. This approach is particularly useful where a combination of analytical estimates or theoretical models and statistical analysis are used to estimate energy use. This approach can equally be applied to estimate the accuracy of a total when combining components of opportunity costs and benefits. Tip: Accuracy of components can only be combined if they are independent; that is, if the random errors affecting one component do not affect the other components.

Product
Where the energy savings are the result of the product of several individual components (Y=Y1 Y2 Yz), the standard error (SE) of the energy savings can be estimated by:

SE Y 1 + SE Y 2 + ... SE Yn (1) SE (energy _ savings) =

Or, using relative precision: (2) Accuracy _ Pr oduct (%) = Y1 (%) 2 + Y2 (%) 2 + ... + Yz (%) 2

Sum or difference
Where the energy savings are the result of the sum or difference of several individual components (Y=Y1Y2Yz), the standard error (SE) of the combined energy savings can be estimated by: (3) SE (energy _ savings) =

(SE ) + (SE )
2 Y1 Y2

+ ... +

(SE )
Yn

Or, using absolute precision: (4) Accuracy _ Sum( AP) = Y1 ( AP) 2 + Y2 ( AP) 2 + ... + Yz ( AP) 2

General functions
If the mathematical relationships between quantities are more complex, the general formula that may be used is the generic function Y = f(y1, y2,...yn): ______________________ (5) SE = (y1)2 + (y2)2 + ... + (yn)2, where Yi = (yi/Y)SEyi for all i = 1...n, the product of the partial derivative and standard error for each variable 10.

10 TecMarket Works Framework Team (2004). The California Evaluation Framework, Chapters 7 and 12. Prepared for the California Public Utilities Commission and the Project Advisory Group, available from: http://www.cee1.org/eval/CEF.pdf

67

Example
The following sets out how an estimate of the accuracy of the energy savings calculated for the Organic Rankine Cycle (ORC) heat recovery system (Section 9.4) would be performed. Accuracy (at 95% confidence level): RP (Tc), Relative precision clinker cooler air temp 1.5% RP (Qc), Relative precision clinker cooler air flow 5% RP ( c), Relative precision ORC system efficiency 10% These three components combined give an estimate of the accuracy for the ORC output using formula (1) above.
2 SE Qc + ... SEc SE (output ) = SE Tc + Q T c c c
2

SE (output ) =

AP T

Tc

t +
2

AP

t + Qc
Qc

AP

Where: SE(Y) = Standard error AP(Y) = Absolute precision Tc = Temperature of clinker cooler exhaust (C) Qc = Clinker cooler exhaust flow rate (kg/s)

C= Efficiency of ORC system

t = t-statistic for > 30 measurements, and 95% confidence level = 1.96
(0.015 320 ) (0.05 31.4 ) (0.117 ) 1.96 + 1.96 + 1.96 SE (output ) = 320 31.4 17
2 2 2

SE (output ) =

(0.00765)2 + (0.0255)2 + (0.051)2

= 0.058MW

AP(output) = SE(output) t = 0.11 MW So, the ORC output value of 1.05MWe is predicted to be 1.05 MWe .0.11 MW or 10% at the 95% confidence level.

Tip: Evaluation and tracking of accuracy and the assumptions made throughout the opportunity development process allow sensitivity analysis to be performed. When individual components are combined, the accuracy of the combined total must be evaluated. This section describes a method to estimate the accuracy of this total. Combining the accuracy of the components of both opportunity costs and benefits is very similar. The following example is taken from the minerals processing worked example in Section 8.3, and illustrates the calculation of accuracy when components are combined in a sum.

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Example
Cement manufacturer, Greystone Cement, is investigating the possibility of recovering waste heat from the clinkering process. It will be a major capital project to install the equipment required to capture the waste heat and convert it into electrical energy. The costs for the installed equipment have been estimated at $2 million 15% at 95% confidence level. Installation of the new equipment will involve the shutdown of the cement kiln for a period of three weeks. Two of these weeks will be timed to coincide with the annual maintenance shutdown of the plant, so the project will only cause one week of lost production. The return on cement is $20/t, the clinker production rate 2000t/day 10%, and clinker makes up on average 92% of final cement composition. Production losses = 2000t/day 0.92 t clinker/t cement 7 days $20/t Production losses = $304,348 10% Total project costs = $2.0m + $304,348 = $2,304,348 with an average annual cost over four years of: $500,000 + $76,087 = $576,087 To estimate the accuracy of the combined average, use the formula (4) above for the sum of accuracies:
Accuracy _ Sum( AP) = Y1 ( AP) 2 + Y2 ( AP) 2 + ... + Yz ( Ap) 2

= ($500,000 * 0.15)^ 2 + ($76,087 * 0.10)^ 2 = $75,385

Converting back into relative precision: Annual project cost = $576,087 13% The installation of the new heat recovery and electricity generation equipment will incur additional maintenance costs, which have been estimated at $20,000 20% per year; with 3% inflation, the average annual maintenance cost increase is $20,918. Similarly, the annual maintenance costs and accuracies can be combined with the project costs: Total annual costs = $576,087 13% + $20,918 20% = $597,005 13%

69

3.4.7 Evaluating and improving accuracy

The following example demonstrates the iterative process to achieve the EEO Program requirement of quantifying energy savings, non-energy benefits and costs to an accuracy of 30%.

Example
A mining company is planning a second plant, and is investigating an energy efficiency opportunity to replace compressed air use in a mixing process with a mechanical alternative. The current compressed air system does not have the capacity to supply the existing plants demand as well as the new plant; however, if the mechanical mixing opportunity is implemented, a new compressor will not be required. To justify the implementation of the mechanical alternative, the avoided costs of the purchase, installation and maintenance of the new air compressor will be included as non-energy benefits. This is expected to improve the companys sustainability credentials, which should result in a quantifiable improvement in the share price.

Savings component calculations (at the 95% confidence level)

Compressor capital cost avoidance: Capital cost estimate = $1,000,000 50% installed and commissioned. Using an interest rate of 14%, the annual cost of this capital is $140,000 50%.

Maintenance savings
The estimated annual maintenance savings from avoiding the installation of a new compressor = $200,000 50%. Share price improvement: This is estimated at $50,000 80%

Combined savings
Using the method described in Section 5.3.4 for combining sums: Total annual savings = $390,000 33% The accuracy of the total savings lies outside the EEO Program requirement for energy savings, opportunity costs and non-energy benefits to be evaluated to an accuracy of 30%. To improve this estimate and to bring it into compliance with the EEO Program, one or more of the components will need to be evaluated to an improved level of accuracy. It was decided to improve the capital estimate of the compressor plant installation. The revised estimate resulted in a capital cost of $1,150,000 30% which equates to an annual cost of $161,000 30%. The total annual savings ($411,000 29%) and the evaluation now comply with the EEO Program requirements for accuracy.

3.4.8 Project estimation methods: rules of thumb for capital cost uncertainty
Project estimation and costing guidelines can provide a useful indication of the accuracy of estimates. The following summary is adapted from Humphreys (2004), and generally applies to capital cost estimates, rather than energy 11 savings estimates.
12 The American National Standards Institute (ANSI, 1991) defines three types of estimates: order-of-magnitude, budget, and definitive:

1.

Order-of-magnitude estimates have an expected accuracy between +50% and -30%. These are generally based on cost-capacity curves and cost capacity ratios (i.e. rules of thumb) without any preliminary design work. Budget estimates are based on flowsheets, layouts, and preliminary equipment descriptions and specifications and have an accuracy range of +30% to -15%. Design generally must be 5% to 20% complete to permit such an estimate to be performed. Definitive estimates require defined engineering data, such as site data, specifications, basic drawings, detailed sketches, and equipment quotations. Design is generally 20% to 100% complete, and estimate accuracy should be within +15% to -5%.

2.

3.

The Association for the Advancement of Cost Engineering International (AACE) extended the ANSI estimate 13 classifications to five expected accuracy levels based on the extent of project definition, as discussed in Box 1.
Kenneth K . Humphreys, (2004), Project and Cost Engineers' Handbook, Fourth Edition, CRC Press, Pages 5786. ANSI Z94.01989. (1991). American National Standard Industrial Engineering Terminology. rev. ed. McGraw Hill Inc., New York and Institute of Industrial Engineers: Norcross, GA.
12 11

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Box 1. AACE Accuracy levels for project estimation (adapted from Humphreys (2004))

Accuracy of estimates hinges on the technological complexity of the project, appropriate reference information, and accounting for contingencies. The revised classifications are: 1. Class 5 estimates are very much a first-pass, order-of-magnitude estimate based on very limited informationproject definition is 2% or lesssuch as the proposed plant type, location, and capacity. Expected accuracy is -20% to -50% on the low side and +30% to +100% on the high side. Class 4 estimates are used for project screening, feasibility determinations, concept evaluation, and preliminary budget approval. Engineering is only 1% to 5% complete, withat a minimumplant capacity, block schematics, indicated plant layout, process flow diagrams (PFDs) for the main process systems, and preliminary lists of engineered process and utility equipment. Accuracy ranges are -15% to -30% on the low side, and +20% to +50% on the high side. This class of estimate falls into the ANSI budget estimate classification. Class 3 estimates form the basis for budget authorisation, appropriation, and/or funding, with project definition (i.e., completed engineering) 10% to 40% complete. At a minimum, this includes: process flow diagrams, utility flow diagrams, preliminary piping and instrument diagrams, plot plans, developed layout drawings, and essentially complete engineering process and utility equipment lists. Accuracy ranges for this class of estimate are -10% to -20% on the low side, and +10% to +30% on the high side. This class of estimate also falls into the ANSI budget estimate classification. Class 2 estimates fall into the ANSI definitive estimate category. Class 2 estimates are generally prepared to form detailed control baselines against which all project work is monitored in terms of cost and progress control. For contractors, this class of estimate is often used as the bid estimate. Typically engineering is 30% to 70% complete and comprises, at a minimum: process flow diagrams, utility flow diagrams, piping and instrument diagrams (P&IDs), heat and material balances, final plot plans, final layout drawings, complete lists of engineered process and utility equipment, single line electrical diagrams, electrical equipment and motor schedules, vendor quotations, detailed project execution plans, resourcing and work force plans, etc. Accuracy ranges are much tighter, from the low side they are -5% to -15%. On the high side, the ranges are +5% to +20%. Class 1 estimates are the most accurate category of estimates. Class 1 estimates are generally prepared for discrete parts or sections of the total project rather than for the entire project. The parts of the project estimated at this level of detail are typically used by subcontractors for bids, or by owners for check estimates. The estimate is often termed the current control estimate and becomes the new baseline for cost/schedule control of the project. Typically engineering is 50% to 100% complete and comprises virtually all engineering and design documentation of the projects, and complete project execution and commissioning plans. Accuracy ranges from -3% to -10% on the low side and +3% to +15% on the high side.

2.

3.

4.

5.

3.5 Section summary

Understanding the accuracy of energy measurements and savings is a key aspect of evaluating energy savings. Statistical methods can be used to define the accuracy of measurements, sampling and modelling. Statistical analysis can help determine whether estimated savings are statistically significant. Quantifying the accuracy of measurements, sampling and modelling, allows actions to be taken to improve accuracy if the EEO Program requirements are not being met.

Key Elements addressed in Section 3: Key Element 3.2: Data collection process Key Element 4.3: Investigation of opportunities

13 AACE International Recommended Practice No. 18R97. (1997). Cost Estimate Classification Systemas Applied in Engineering, Procurement, and Construction for the Process Industries. AACE International, Morgantown, WV.

71

PART 2ESTIMATING, EVALUATING, MEASURING AND TRACKING ENERGY EFFICIENCY OPPORTUNITIES

72

SECTION 4.0
Estimating energy savings for an opportunity
4.1 4.2 4.3 4.4 4.5 Overview of estimating energy savings Estimating energy savings Methods for estimating energy savings Estimating energy savings for the Fair Dinkum Milk Company Section summary

73

4.1 Overview of estimating energy savings

Purpose of this section
This section presents strategies for accurately estimating savings for energy efficiency opportunities. Estimating the energy savings that would result from implementing an opportunity involves calculating the comparison between baseline (historical) energy consumption and the energy consumption post-implementation of the opportunity. There are three main methods for determining energy savings: calculated savings, pilot studies and modelling/simulation.

Estimating energy savings

Estimating the potential energy savings of an opportunity involves forecasting the future energy consumption of a system, process or sub-process, relative to baseline energy use. The accuracy of estimated energy savings is highly dependent upon the accuracy of baseline energy use and the accuracy of data used to forecast future energy consumption. The three most common methods to forecast energy savings are calculated savings, pilot studies and modelling/simulation. This section provides guidelines for each of these forecasting strategies.

EEO Program requirements

The Energy Efficiency Opportunities program stipulates that the energy savings resulting from an energy efficiency opportunity that has a payback period of up to four years must be estimated to an accuracy of 30%. Opportunities requiring significant capital expenditure should be evaluated to within 10%. The guidance notes in the Assessment Framework provide additional clarification around accuracy requirements.

Section outcomes
At the end of this section, you will be able to: select and implement a strategy for estimating energy savings accurately estimate energy savings for each opportunity.

4.2 Estimating energy savings

In Section 1, energy-influencing factors were incorporated into the energy baseline to forecast the energy baseline at the end of the savings period if the opportunity was not implemented. This is the reference point from which an opportunity's savings are estimated. Comparing this reference point with a forecast of the energy baseline after implementation provides an estimate of the energy savings from an opportunity. Conversely, an opportunitys estimated energy savings can be calculated directly and used to forecast what the energy baseline will be after implementation. This principle is shown in Figure 4.1.
Figure 4.1: The principle of estimating energy savings

Forecast energy baseline Energy without opportunity implementation

Estimated energy savings Forecast energy consumption with opportunity implementation

74

4.3 Methods for estimating energy savings

For each opportunity it is important to specify a savings period, the metric for expressing energy and the energy type. The savings period (or reporting period) is the period over which the savings will be estimated and later measured. The savings period should capture one full cycle of energy use. Depending on the circumstances, the period may be a day, year, season or complete product cycle. Determine an appropriate metric for expressing the energy consumption. There are numerous options, such as using standard energy units (GJ), or energy use relative to production or relative to run hours (GJ/t or GJ/h respectively). Energy savings can apply to individual energy types or involve multiple energy types. Opportunities involving multiple energy types can either be reported individually or combined. If combining energy types particular attention should be paid to deciding which metric to adopt to express energy savings. It is important to document assumptions made during all levels of calculation to allow consistent calculation of savings if the opportunity is implemented. Assumptions should be reviewed regularly to ensure they accurately reflect the process. A number of methods can be used to estimate energy savings from an opportunity. Three common methods are covered in this section: 1. calculated savings 2. pilot study or bench test 3. modelling/simulation. The calculations made to determine energy savings can also be used to fill out worksheet 22 in the Assessment Handbook, the preliminary investigation report.

4.3.1 Method 1calculated savings

This is the most common method used to estimate energy savings. Engineering calculations can be used to estimate post-implementation energy consumption. This method is valuable when there is a high degree of process or equipment knowledge available. Applying the calculated savings approach to an energy efficiency opportunity typically involves the following steps: 1. Analyse the opportunity and its interactions with other processes. This ensures the full energy changes are being assessed. An energy-mass balance can be used to determine energy relationships between processes. 2. Forecast the post-implementation energy consumption. Use engineering principles and calculations. 3. Estimate energy savings. This involves comparing the post-implementation energy consumption forecast to the forecast energy baseline if the opportunity was not implemented (derived in Section 1). This is shown in Figure 4.1. Although this method appears simple, forecasting the post-implementation energy consumption in Step 2 can be complex, and input from site engineering teams, specialist consultants or equipment manufacturers and suppliers may be required.

75

Example 1
A company is replacing its fleet of cars with more fuel-efficient models. It has been calculated that the current cars consume 10 litres of fuel per 100 km. Step 1Analyse the opportunity Expressing the fuel-use relative to distance allows the fuel saving due to this opportunity to be isolated from other fuel reductions which may occur over the savings period. However, this metric is only applicable if the fuel remains the same. If the opportunity involves changing from petrol to diesel a more appropriate metric would be GJ/100 km. Step 2Forecast the post-implementation energy consumption A fuel efficiency of 6.5 L/100 km for the new cars was provided by the manufacturer. Step 3Estimate energy savings Value Current fuel efficiency Forecast fuel efficiency Estimated fuel savings Estimated energy savings, based on energy content of petrol 10 6.5 3.5 103 Units L/100 km L/100 km L/100 km MJ/100 km

The calculation used will depend on the nature of the opportunity and the energy type involved, such as heat, electricity or fuel. Forecasting the post-implementation energy use may involve manufacturer specifications, industry standards and/or engineering principles and calculations. If the opportunity involves new technology investments, the experience of suppliers with the technology and results achieved on previous installations can be used as benchmarks.

76

Example 2
A plant currently heats hot water to 80C using steam. An opportunity has been identified which would preheat the water to 45C to reduce the steam required. The following table calculates the current energy baseline. The operating hours of the system vary significantly, so the steam consumption is expressed in t/h. The heating required is calculated using the engineering equation Q=mCpT, with the variables tabulated below. Value Inlet water temperature Target water temperature Temperature change (T) Water flow (m) Specific heat of water (Cp) Heating required (Q) Steam enthalpy Steam required Step 1Analyse the opportunity It is assumed that there will be no changes to this system other than the opportunity implementation. In the absence of external influences on energy use, this becomes the forecast energy baseline. Step 2Forecast the post-implementation energy consumption The next step is to estimate the steam requirement post implementation. This is essentially the same calculation that was used to establish the energy baseline, but using the post-implementation inlet water temperature of 45C. 18 80 62 12,000 4.18 3.11 2400 1.296 Units C C C kg/h kJ/kg C GJ/h kJ/kg t/h =3.11 GJ/h (2400 kJ/kg 1000 kg/t 1000000 kJ/GJ) =mCpT Calculation

Value Inlet water temperature (forecast) Target water temperature Temperature change (T) Water flow (m) Specific heat water (Cp) Heating required (Q) Steam enthalpy Steam required Step 3Estimate energy savings 45 80 35 12 4.18 1.76 2400 0.733

Units C C C m /h kJ/kg C GJ/h kJ/kg t/h

3

The forecast energy consumption post-implementation is 0.733 t/h. To estimate the energy savings, calculate the difference between the baseline steam use and this forecast of post-implementation steam use.

Value Baseline steam required Forecast steam required Estimated steam saving Estimated energy saving 1.296 0.733 0.563 1.35

Units t/h t/h t/h GJ/h

77

For some opportunities, the energy savings can be estimated directly. When this can be done, a comparison between energy forecast with and without opportunity implementation is not required. However, the postimplementation energy consumption can be estimated by back calculation.

Example 3
A wide range of equipment (air motors in hand tools, spray guns, drills and grinders) used in a manufacturing workshop are powered by compressed air. To operate at optimum performance the equipment requires air at 6 bar. However, it was found that the compressed air system was operating at over-charged pressure of 7.0 bar. This was done to be on the safe side during rarely occurring pressure dips. An opportunity exists to improve energy efficiency by reducing the compressor air pressure. Step 1Analyse the opportunity The manufacturing work shop uses a 100 kW compressor. The compressor operates for 2,000 hours per year. Step 2Forecast the post-implementation energy consumption In this example the energy savings can be estimated directly and there is no need to forecast the postimplementation energy consumption. However, the post-implementation energy use can be back calculated once the energy savings have been estimated. Step 3Estimate energy savings Operating the system at the required 6 bar will reduce the system pressure by 1 bar. International research suggests that by reducing system air pressure by 1 bar, air compressor power consumption can be reduced by 810%. The company assumed conservative savings of 8% per bar. The energy saving can be estimated directly by using basic engineering calculations: Value Compressor power Annual operation Annual energy consumption Air compressor power reduction Estimated annual energy savings 100 2,000 200 8 16 Units kW hours MWh % MWh =200 MWh 8% =100 kW 2000 h 1000 kW/MW Calculation

The post-implementation energy consumption is estimated to be 184 MWh (i.e. 200 MWh 16 MWh = 184 MWh). An example of estimating energy savings using calculated savings is contained in the minerals processing worked example, in Section 8.3 of this guide. The National Greenhouse and Energy Reporting System (NGER) Determination Section 6.2 contains information for calculating energy savings due to changes in fuel consumption.

4.3.2 Method 2pilot study or bench test

The savings obtained during a pilot study or bench test can be used to estimate the energy savings that will be achieved once a technology is adopted within a site, company or industry. These methods provide valuable guidance on process risk and savings uncertainty before an opportunity is fully implemented. In a pilot study, an improvement is first applied to a single piece of equipment or process. Savings obtained in the pilot study can be extrapolated to estimate savings if an opportunity is implemented more widely. This method is commonly used when the opportunity involves technology which is, or will be, widely used within the site or company. Bench tests involve operating a small-scale version of the equipment or the process to assess performance. This approach is used when the opportunity involves a novel or unproven application of a technology. The savings obtained in the bench test generally allow an estimate of savings if a full-sized version is implemented. In an ideal pilot study, only the variable to be investigated will change; all other variables remain constant. However, to isolate the savings from the pilot study, it is important to adjust results for external factors which may have influenced energy consumption. Similarly, a bench-test model must represent the current process operating conditions. The only difference should be the implementation of the energy efficiency opportunity. 78

These methods usually involve the following steps: 1. Develop a study: - the pilot study may involve implementing the opportunity to one process, or studying the implementation of the opportunity on other processes or sites - the bench-test facility may be developed by your company or by equipment suppliers. 2. Analyse the results to determine: - appropriateness of the technology (can the technology be transferred?) - comparability with the opportunity (can the results be transferred?) - scale of use within the company (number of applications, volume of product processed and running hours) - energy savings. 3. Estimate the energy savings of implementing the opportunity: - the pilot study may be implemented numerous times - the bench tests may be scaled to a variety of sizes.

4.3.3 Method 3modelling/simulation

This method uses the ability to manipulate a models input variables to illustrate different energy scenarios. By manipulating input variables, modelling can be used to estimate energy savings if an opportunity is implemented. Modelling is also a method of establishing an energy baseline (see Section 1 of this guide). Models developed to establish an energy baseline can be used to meet the EEO Programs accuracy requirement of 30% for energy savings estimates. To verify accuracy, the model should be validated with historical data or sample measurements. This method allows forecasting the post-implementation energy baseline. To estimate energy savings using modelling, there are five key steps: 1. Establish a modelModels may already be developed, either in specialist software or easily modifiable spreadsheets. Models to establish an energy baseline, such as an energy-mass balance, can be used here. 2. Determine what effect implementing the opportunity will have on key operating variablesConsider engineering calculations, manufacturers data or pilot applications. 3. Input these variables into the modelThis will create the post-implementation scenario. 4. Run the modelThe new energy consumption is the forecast energy baseline if the opportunity is implemented. 5. Estimate energy savingsCompare this forecast of energy consumption if the opportunity is implemented to the forecast energy baseline if the opportunity was not implemented (see Section 1). This principle is shown in Figure 4.1.

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Example
The Dreamt-Up Drink Company identified an opportunity to reduce the amount of energy used to heat water. Increasing the inlet water temperature using a pre-heater reduces the amount of water heating required downstream. The Dreamt-Up Drink Company already has an existing energy-mass balance that can be used to estimate the opportunitys energy savings. The opportunity reduced the water heating required by 5 C. The new water heating requirement was entered into the existing energy-mass balance to create a post-implementation scenario. The following table is a summary from the full energy-mass balance for the Dreamt-Up Drink Company. Parameter Existing energymass balance 436,506,971 Postimplementation scenario Unit Data source

Water used in beverage production (m)

436,506,971

kg/year

Water temperature change (T)

28.4

23.4

Specific heat of water (Cp)

4.18

4.18

kJ/kg C

physical parameter

Energy used to heat water (Q)

51,819

42,696

GJ/year

= mCPT 1,000,000 kJ/GJ

Estimated energy saving

9,123

GJ/year

= (Existing postimplementation energy use)

The estimated energy savings is the difference between the two scenarios. The estimated annual savings for the opportunity is 9,123 GJ.

4.3.4 Common applications of estimation methods

Table 4.1: Common applications of estimation methods

Estimation method Calculated savings

Description Using engineering calculations and principles to estimate the energy consumption post-implementation.

Common applications - when it is a proven technology - when there is a high degree of process knowledge - where supplier-promoted opportunities exist (relies on suppliers experience). Performance guarantees may be available to indicate savings. - for replication of savings opportunities, where comparable operating conditions needed - when energy savings from the first installation can be used to estimate savings for further installations, e.g. upgrading motors to variable speed drive - when energy savings from implementing the opportunity at another site can be used to estimate savings for an installation under similar circumstances at your site. - when the opportunity involves novel technologies or the unproven application of the technology - instances of major process change - new technology when a supplier is able to use their small-

Pilot study

Operating (continuously or temporarily) an example of the equipment being considered. Monitor the change in energy use from the baseline. Extrapolate to plant/site/company scale.

Bench test

Operating a small-scale version of the equipment or the process to assess performance. Useful where there is risk in applying the option to production plant.

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scale model to estimate energy savings - an experimental process change that could first be trialled in the laboratory. Modelling/ simulation Extension of baseline energy consumption model to simulate energy efficiency opportunities. - processes with variable energy use - when there is a high degree of process knowledge - complex sites where implementation of the opportunity will affect energy use over a range of processes.

4.4 Estimating energy savings for an opportunity for the Fair Dinkum Milk Company
This section continues the analysis of the Fair Dinkum Milk Companys identified opportunity to recover heat from the Plant 1 evaporators to heat the Plant 1 drier air and produce an associated reduction in gas consumption. The gas savings were estimated by applying engineering first principles through redesign of the process.

4.4.1 Estimating the energy savings

This section applies the calculated savings method (Section 4.3.1) to estimate energy savings and then presents an application of the calculated savings method. The gas savings were estimated by applying engineering first principles. 1. Analyse the opportunity. The schematics in Figure 4.2 and 4.3 show the current and proposed operation. The pre-heater is expected to increase the inlet air temperature from 17 C to 35 C. This will reduce the gas consumption required in the main heater to reach the target temperature of 184 C into the drier.
Figure 4.2: Current process for heating of Plant 1 air into the drier ( denotes efficiency)

Exhaust

Ambient air

17 C 1400 t/d

Main air heater = 85%

184 C

Drier 1

Gas

Figure 4.3: Proposed process for heating of Plant 1 air into the drier

30 C

Exhaust

Ambient air

17 C 1400 t/d

Pre-heater

35 C

Main air heater = 85%

184 C

Drier 1

45 C Condensate from Plant 1 evaporators

Gas

81

2. Forecast the post-implementation energy consumption. The calculation of the gas required by the main heater for the proposed opportunity (Figure 9.5) is shown in Table 4.2. The gas consumption postimplementation is forecast to be 248 GJ/d.
Table 4.2: Gas consumption forecast

Parameter

Symbol

Value

Precision Relative Absolute 0.35 1.84 1.87

Units

Calculation

T inlet T outlet Temperature change Air specific heat Air flow Heat flow Heater efficiency Gas required

T1 T2 T Cp m Q

35 184 149 1.01 1,400 211 85% 248

1.0 % 1.0 % 1.3 %

C C C kJ/kg.C T = T2T1

1.00 % 1.61%

14 3.39

t/d GJ/d Q = mCpT

1.61%

3.98

GJ/d

3. Estimate energy savings. The estimated energy savings, shown in Table 4.3, represent the difference between current operation and the forecast energy consumption post-implementation.
Table 4.3: Estimated gas saving*

Parameter

Value

Precision Relative Absolute 7.65

Units

Forecast gas consumption without opportunity implementation Forecast gas consumption with opportunity implementation Estimated gas saving Operating days per year Estimated gas saving

278

2.75%

GJ/d

248

1.61%

3.99

GJ/d

30 280 8,400

28.73%

8.62

GJ/d days/year

28.73%

2,413

GJ

* Refer to Sections 3.3 3.4 for further information regarding precision calculations

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Summary: The Fair Dinkum Milk Company estimated energy savings using the calculated savings method from Section 4.3.1. The results are shown on the following graph. The forecast energy consumption post-implementation was estimated to be 248 GJ/d 1.61%. The energy savings for implementing the opportunity are estimated at 30 GJ/d 28.73%, which meets accuracy requirements of 30% for energy savings under the EEO Program.
Figure 4.4: Drier 1 air pre-heater opportunity Estimating energy savings 280 270 260

278 Adjusted energy baseline without opportunity implementation

Estimated energy savings 30 GJ/d

GJ/d

250 240 230 220

248 Forecast energy baseline with opportunity implementation

4.5 Section summary

This section forecasts the energy consumption if an opportunity were to be implemented, while Section 1 forecast the energy baseline if the opportunity was not implemented. Energy savings are estimated by comparing the two forecasts. The three main methods for forecasting energy savings are: calculated savingsthe most common method pilot studybest used for widespread application of the opportunity modellingbest used for complex processes. The EEO Program requirements stipulate that all opportunities with simple payback periods of four years or less be evaluated (estimated) to an accuracy of 30%, with the more significant opportunities and those that are marginal evaluated to 10%.

Key Element addressed in Section 4: Key Element 4.3: Investigation of opportunities

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SECTION 5.0
Evaluating an opportunity
5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 Overview of evaluating an opportunity Financial analysis Valuing whole-of-business costs and benefits Prioritising the implementation of opportunities Developing business cases for decision makers Allocation of resources to evaluate energy efficiency opportunities Evaluating an opportunity for the Fair Dinkum Milk Company Section summary

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5.1 Overview of evaluating an energy efficiency opportunity

Purpose of this section
This section demonstrates how to evaluate and recommend the implementation of an energy efficiency opportunity in a successful business case to management. The full evaluation of an opportunity must enable the board to make a decision on the quantifiable whole-ofbusiness costs and benefits of the opportunity. This section supports Stage 6 of the assessment process by facilitating informed decisions on the value an energy efficiency opportunity may offer to a business if implemented. The financial aspect of the evaluation required by the EEO Program involves quantifying the payback period for each opportunity, incorporating whole-of-business costs and benefits. Whole-of-business considerations for an opportunity include the full implications resulting from implementing an opportunity (such as productivity improvements or reduced water usage) and should provide clear and accurate information on which to base a decision (see Worksheet 25 of the Assessment Handbook).

Quantifying financial viability of the opportunity

For the purpose of the EEO Program, the financial analysis of a potential energy efficiency opportunity involves calculating the value of the energy saved (Section 5.2.1), then taking into account the expected whole-of-business costs and benefits to determine its payback period. The financial payback period is determined by dividing the project costs by project benefits: project costs include all whole-of-business costs associated with implementation of the opportunity (such as capital costs and loss of production if a shutdown is required) project benefits include the annual energy savings and whole-of-business benefits flowing from the project. The prudent financial management of each opportunity requires a sensitivity analysis to account for any prospective changes to the costs or savings. Sensitivity analysis examines the impact of variations in key variables (such as prices) on project results.

Whole-of-business costs and benefits for an opportunity

The whole-of-business benefits and costs of implementing an opportunity need to be documented and quantified, where possible, and included in the evaluation. These can be defined as costs and benefits that accrue to the business, either directly or indirectly, and are not captured by the simple project costs or annual energy savings. Section 5.3 offers guidance on how to value and account for these factors.

Prioritising the implementation of opportunities

Several factors determine the optimal prioritisation of opportunities, which will lead to improved energy savings. This section introduces a system to provide guidance on opportunity prioritisation.

Developing successful business cases

Developing successful business cases for investment in opportunities is a key step in achieving energy savings. This section offers guidance on what information should be included in the business case, as well as how to present the information.

EEO Program requirements

All opportunities with payback periods of up to four years must be evaluated and reported. Energy savings, costs and benefits must be within 30%, subject to the guidance provided in the Assessment Framework.

Section outcomes
At the end of this section, you will: be able to identify and quantify, where possible, the whole-of-business costs and benefits resulting from an implemented opportunity be able to complete a financial analysis of an opportunity and calculate its payback period be able to account for a range of future changes that are likely to affect the financial return and viability of a project have a system for prioritising all the evaluated opportunities to maximise the value of energy savings.

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5.2 Financial analysis

To undertake a financial analysis of an energy efficiency opportunity, all the benefits and costs for the opportunity should be included. This includes direct energy savings, non-energy savings and the less easily quantifiable, but still important, whole-of-business costs and benefits. For guidance on how to value the whole-of-business cost and benefits, refer to Section 5.3. Once cost savings and capital cost have been estimated, the payback period for the project needs to be calculated.

5.2.1 Valuing the estimated energy savings

At the simplest level, estimated energy savings (Section 4) can be converted into financial terms by applying a marginal cost value to the estimated energy saving. The marginal cost is most likely the variable rate for that type of energy. Payback on energy efficiency opportunities is calculated over four years, so estimated inflation in energy prices must be included. There can be increased costs arising from implementation of an energy efficiency opportunity. The savings calculation will need to take into account these cost increases. In the following example, the net energy savings value is the required output. As is often the case with a heat-recovery opportunity, there is a small increase in electricity use. The cost of this additional electric power is deducted from the savings. Tip: Be aware that some energy saving projects may deliver energy savings but not cost savings. An example of this is a heat-recovery project to save cheap thermal energy that uses more, relatively expensive electrical energy. The EEO Program specifically requires a whole-of-business assessment, so such projects can legitimately be considered. However, a long payback period will give such projects a low priority.

Example
Heat recovery from the flue of a boiler is forecast to reduce gas use by 3.8 GJ/h, but will consume an additional 150 kW of electricity. Marginal costs of energy are gas at $4/GJ and electricity at $50/MWh. Annual plant operating hours are 6,000 hours/year. Value Gas reduction Marginal gas cost Annual gas saving Electricity increase Marginal electricity cost Annual electricity cost Energy savings 3.8 4 91,200 150 50 45,000 46,200 Units GJ/h $/GJ $ kW $/MWh $ $ 150 kW 1,000 kW/MW 50 $/MWh 6,000h/year Annual gas saving annual electricity cost 3.8 GJ/h 4 $/GJ 6,000h/year Calculation

Other factors may have to be considered to ensure the energy saving is valued correctly. For example, electricity saving measures often reduce peak demand charges, which are typically charged separately in energy billssuch savings should also be included.

Energy supply contracts

Many companies will have long-term supply contracts for different forms of energy. Maximising the value of these contracts requires that they are well understood. For energy efficiency opportunities, the keys points are: accurately determining cost savings, so that correct decisions are made reviewing the contracts for opportunities to drive energy savings. - Can the fixed (or quota) energy component be reduced to make room for energy savings? - When can that happen? - What savings are possible now and in the future? reducing energy use in one area can allow expansion in another area within an existing supply contract timing of implementation of an opportunity can be linked to renegotiation of contracts to maximise benefits. Conversely, poor timing could lead to penalty charges or delays in capturing full financial benefits.

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Electricity network charges

Electricity network charges are a specific subset of energy supply contracts. Energy efficiency opportunities that lead to a significant reduction or change in profile of a sites electrical load may result in a corresponding reduction in both the energy and network usage charges. Reducing the electricity taken from the transmission network reduces the variable transmission use of system (TUOS) charges. Similarly, reducing the energy taken from the distribution network reduces the variable distribution use of system (DUOS) charges (see Section 12.1.6). The structure of these charges should be assessed against the profile of the electricity reductions for the energy efficiency opportunity. Effective demand-management strategies, or back-up generation, can also reduce TUOS, DUOS and peak demand charges.

5.2.2 The capital cost of implementing the energy efficiency opportunity

Many energy efficiency opportunities will require a capital investment in order to be implemented. Capital costs will need to be estimated to allow evaluation of the opportunity. The capital cost will include all costs that can be capitalised and should include, but may not be limited to: pre-project expenses engineering and drafting procurement installation project management capitalised interest commissioning contingency allowance any change to working capital team training unavoidable lost production. Capital cost may be assessed more than once, and to a greater accuracy, as an idea progresses into a project. To ensure sufficient accuracy in the detailed capital costing, it is important to involve the right mix of engineers from electrical, mechanical and process disciplines, as well as experienced estimators.

5.2.3 Calculating the opportunity payback

For the purposes of this guide, the financial analysis of opportunities focuses on the simple payback period method as incorporated in the EEO Program requirements. More advanced financial modelling (such as discounted cashflow analysis, net present value and internal rate of return), may be required in some companies, particularly for large capital expenditure. Further details and examples of these methods are presented in Section 12.4. In preparing a high-quality business case for an opportunity, it is advisable to seek input from those who are responsible for financial investment and making business decisions (senior management). Such people have experience in preparing robust business cases, and may require consistency in the application process for capital funds. Energy efficiency opportunities should be evaluated in the same manner as other investment decisions. Approval for implementation of large capital projects, and those that have lower rates of return, will require more accurate energy and cost savings estimates and capital cost forecasts than smaller projects with higher returns. When a payback period is close to the four-year threshold, a more detailed calculation may be required to determine whether it must be reported under the EEO Program. Opportunities with longer payback periods may be voluntarily reported. The financial payback period is determined by dividing the net initial investment by the uniform increase in annual future cash flows. The annual future cash flow is determined by subtracting the annual project-related costs from the annual project-related benefits: Annual project costs are evaluated in the financial analysis, and include all costs associated with implementation of the opportunity (such as costs of metering and loss of production). Annual project benefits include the annual energy savings and whole-of-business benefits flowing from the project. The Assessment Handbook gives the formula for calculating payback period as:
Payback _ Period = Initial _ capital _ cos t Net _ annual _ saving _ including _ all _ bu sin ess _ cos ts _ and _ benefits

The initial capital cost is the price of the opportunity that must be paid before or at the time of implementation (including costs of metering etc. discussed in Section 5.2.2). The net annual savings are the savings within a year due directly or indirectly to energy savings (such as reduced fuel costs or increase in output), less the ongoing costs 87

to the business within that corresponding year (such as additional personnel costs, maintenance or metering costs). If the annual future cash flows are not uniform, the above equation will give inaccurate results. If, for example, the investment benefits are seen earlier on in the project, then the simple payback equation will overestimate the payback period, as demonstrated in the example below. While the converse can also occur, it should be noted that the simple payback equation must nevertheless be used for Energy Efficiency Opportunities program reporting purposes. Worksheet 25 of the Assessment Handbook shows a template for recording inputs into the payback calculation.

Example
A project investment is estimated to be $40,000. The whole-of-business savings estimates are as follows: Year 1 savings $20,000 Year 2 savings $15,000 Year 3 savings $15,000 Year 4 savings $10,000 Average $15,000

Payback = $40,000 / $15,000 = 2.7 years Greater savings are due in the earlier years, hence 2.7 years is an over estimate of the payback period. Actual payback = 2 years + $5,000/$15000 = 2.3 years

Other financial analysis methods

A number of other financial analysis tools or methods are commonly used by organisations for evaluating energy efficiency opportunities in line with their normal business decision making processes. These methods, which are not required by the EEO Program, include: 1. average rate of return 2. net present value 3. internal rate of return. A more detailed discussion of these financial analysis methods, with examples, is given in Section 10.4.

5.2.4 Sensitivity analysis (accounting for changing future conditions)

Accounting for variance in future conditions is critical to the development of a realistic simple payback period, and a robust business case. Sensitivity analysis explores the possible effects of changes in monetisation values from the original values assumed in the financial evaluation. Exploring these effects provides a deeper understanding of which parameters are of primary importance in the evaluation, and also identifies where break-even points and other milestones lie with respect to changes in particular inputs. The value of sensitivity analysis is that it helps assessors understand what effect variation has on decision-making or prioritisation of options. If the change in a parameter value across a foreseeable range does not affect the viability of an opportunity, or a certain option or range of options is consistently better than others, then the analysis is robust. If parameter changes do alter viability or option selection, however, this indicates that decision-making is sensitive to that parameter. Further investigation and more rigorous valuation may be required. This is especially pertinent for parameters that are hard to quantify in definitive terms. Sensitivity analysis allows the assessor to gain understanding of how changes in parameter values affect the viability of the opportunity and therefore its priority for selection. The points that follow highlight key factors to be considered when accounting for changes in future conditions. Working through these considerations should form part of the risk identification and management process undertaken before investment in an opportunity is approved. The following section provides guidance about a range of issues that may be significant. Some areas where changing conditions can impact on potential energy savings are: Variable energy savings. Energy savings may be realised to a greater or lesser extent than were initially projected. This can be due to incorrect application of analysis techniques, poor energy data, or an unforeseen project complication. For these reasons, it is imperative to complete a rigorous energy analysis, obtain high-quality energy data, and take a conservative approach to estimation of savings. However, shortfalls below expected savings may be related to commissioning problems, design flaws, or other factors 88

that can be remedied if the project is well-managed and adequate monitoring is in place for problem diagnosis. Energy costs (inflation, tariffs). Energy prices continue to rise in the long run. This is an important consideration during the calculation of payback periods. Energy contracts may provide an indication of future pricing. Financial discount rates (interest rates). The fluctuating value of money is a significant factor in realising capital projects. It is imperative to factor in potential interest rate changes and associated finance fees. Rising capital costs. Large capital projects have a wide range of suppliers and inputs. Project costs tend to increase with time. A sufficient contingency allowance should be integrated into capital costs to allow for increasing component costs, tighter delivery times and budget overruns. Site and company changes. Companies, plants and teams are dynamic entities. Team changes or changes in company strategy may result in altered production scenarios or focus within a business. These changes impact on operating conditions and, ultimately, financial returns. Product changes (quality, value). Altering the product mix has ramifications for the determination of savings. Changes in product may affect plant operational parameters, financial performance and payback periods. Plant reliability/availability changes. The implementation of a significant capital project (which may be unrelated to energy) may change the nature and balance of the plant/process. This can be avoided by ensuring that the energy efficiency opportunity is designed so that any negative impact on the existing plant is avoided. Appropriate monitoring and measurement systems can provide the necessary information to separate out the impacts of the energy efficiency measure from other changes. Production impacts, including production rate changes. Generally, lower production rates will reduce energy savings, although measures that reduce standby energy use or fixed energy overheads, or improve efficiency of low-load operation, will help to manage energy costs during times of lower production. Longer periods on standby, or low-load could increase the benefit of efficiency measures that reduce waste in these operating modes.

Tip: Long run energy prices have generally been increasing at rates well above general inflation. An allowance for future energy price inflation should be built into the analysis for any long-term project.

5.2.5 Factoring significant changes into the analysis

When companies expect (or are expecting) significant changes to their operations or plant, within the energy efficiency project life cycle, these changes should be planned (and designed) when evaluating opportunities. When undertaking an energy efficiency opportunities assessment it is important to determine if any significant changes to the operations or plant are envisaged, such as a major expansion, a major reduction in production (e.g. mine closure) or major process changes. These should be identified and factored into the analysis and measurement of the energy efficiency opportunities. Any expected major changes will need to be taken into account when analysing and calculating the payback period of energy efficiency opportunities. For example, if the expected payback period of an opportunity is determined to be four and a half years, yet the mine life is only three years, then the opportunity should not generally be implemented. Major changes or expansions offer an opportunity to replace old or inefficient plant or equipment, and so can enhance the business case for implementing efficiency opportunities. Such changes can potentially be incorporated into sensitivity analysis. It is also important to ensure that any energy efficiency opportunities identified are considered in any future changes or expansion, so that previous inefficiencies in design or operation are not carried forward and perpetuated.

5.3 Valuing the whole-of-business costs and benefits

Incorporating whole-of-business benefits resulting from energy efficiency projects makes the business case for implementation more compelling. This is because the impact of ancillary savings and production benefits can be quite significant. If ancillary savings and production benefits are left out of payback calculations, this results in an incomplete understanding of the benefits from energy efficiency initiatives and an underestimate of the impact on company profitability. Companies implementing energy efficiency opportunities are likely to achieve a range of non-energy financial benefits and, where quantifiable, these need to be factored into the financial evaluation of an energy efficiency opportunity. Where such benefits cannot be quantified, they should be noted in the evaluation so that they are 89

visible to decision-makers. Analysis of a large number of industrial energy efficiency projects and case studies has identified many nonenergy or whole-of-business benefits which can be divided into five broad categories or common themes, including (not in order of importance): reduced waste lower emissions improved maintenance and operating costs increased production better product quality an improved working environment.
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There are other benefits outside these categories, as shown in Table 5.1 (below).
Table 5.1: Non-energy benefits from energy efficiency improvements

Waste

Emissions

Operation and maintenance

Use of waste as fuels, heat, gas Reduced product waste Reduced waste water Reduced hazardous waste Materials reduction

Reduced dust emissions Reduced CO, CO2, NOx, SOx emissions

Reduced need for engineering controls Lowered cooling requirements Increased facility reliability Reduced wear and tear on equipment/machinery Reductions in labour requirements

Production

Working environment

Other

Increased product output/yields Improved equipment performance Shorter process cycle times Improved product quality/purity Increased reliability in production

Reduced need for personal protective equipment Improved lighting Reduced noise levels Improved temperature control Improved air quality

Decreased liability Improved public image Delaying or reducing capital expenditures Additional space Improved worker comfort/morale

Many non-energy or whole-of-business benefits (and costs) can be quantified. For example, social and environmental costs and benefits beyond those with an associated, well-recognised market value can be quantified usually in terms of the economic value of damage caused or avoided. A study of more than 50 industrial energy efficiency projects has shown that a 4.2-year payback based on energy savings can fall to a 1.9-year payback when the full productivity impacts of a project are included. If such costs or benefits are thought to constitute a significant component of benefits, then advice from appropriately qualified professionals should be sought. The value of possible business costs and benefits from implementing an energy efficiency opportunity is highly opportunity-specific and situation-specific. Therefore a structured approach to identifying and valuing potential costs and benefits is recommended so that wider business aspects are captured and valued effectively. The recommended approach is to conduct a framing workshop. One possible approach for evaluating the productivity (non-energy) benefits of energy efficiency technologies is laid out in the steps below. This approach begins by asking broadly: aside from energy conservation, what impacts does this technology have on the production process? In order to incorporate these factors into an economic analysis, the impacts need to be translated into economic terms wherever possible. This framework is useful for making the cost-benefit calculations and makes the evaluation process more transparent for the analyst. The steps are:
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Worrell, E, Laitner, J A, Ruth, M and Finman, H. (2003). Productivity benefits of industrial energy efficiency measures, Energy 28, pp. 1081 1098

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1. Identify and describe the productivity benefits associated with a given measure. This involves listing all the significant impacts of a measure aside from energy savings. These benefits will fall into the general categories listed in Table 5.1. Descriptions should be as specific as possible. 2. Quantify these impacts as much as possible. The benefits identified above should be quantified in the most direct terms possible. For example, if one benefit is the extended lifetime of electrodes in electric steelmaking, estimate the change in lifetime, or the reduced electrode consumption, per tonne of steel. Some benefits may be deemed non-quantifiable. For example, although adopting a technology may enhance the company reputation as an innovator and leader, this may be too intangible to quantify. 3. Identify all the assumptions needed to translate the benefits into cost impacts. The quantities identified in the first two steps should be direct measures of benefits, but these may not be directly related to the production costs of the firm. Making this connection to production costs will require certain assumptions or intermediate values. For reductions in electrode consumption, the cost of electrodes must be known. Other assumptions may involve greater uncertainty. 4. Calculate cost impacts of productivity benefits. Relying on the assumptions listed in the above step, the magnitude of the productivity benefits can be calculated in cost terms and incorporated into the cost calculation for the efficiency measure or technology. By following the framework detailed above, the cost evaluation of productivity benefits is formalised and transparent. Since there are sometimes ambiguities in the evaluation of productivity benefits, a transparent evaluation framework is important both to give credibility to the calculation and to provide flexibility.

Conducting a framing workshop

Framing workshops can be undertaken to determine the potential wider business costs and benefits applicable to the energy efficiency opportunity or opportunities being assessed. To capture these wider aspects, a diverse range of participants is recommended. Simply brainstorming within the immediate assessment or project team is unlikely to yield the necessary outcome. As each organisation is structured differently, the following list of recommended participants should be tailored and/or supplemented, according to your organisations structure: facilitator (ideally independent of the organisation) energy manager (if applicable) personnel involved in EEO Program assessments engineering manager or engineer finance manager health, safety, environment and community officer human resources manager quality/production manager. The format and length of the workshop is specific to the organisation and opportunity; however, a recommended format includes these aspects: overview of the opportunity brainstorming session to identify the wider business costs and benefitsto promote flow of ideas and encourage all ideas to be put on the table for consideration; it is best not to dismiss or limit any suggestions assessment of constraints and applicability of wider costs and benefitslist of agreed costs and benefits determined by discussing the brainstormed list and discounting those costs and benefits not applicable agreement on the method of valuation of costs and benefitsthis is not always possible at the workshop, and assistance from external experts may be required.

5.3.1 Valuing whole-of-business costs and benefitsdirect

Once the workshop is completed, the personnel responsible for the assessment of energy efficiency opportunities can then value the costs and benefits for inclusion in the evaluation. Where it is difficult to monetise or value costs and benefits, external expert assistance may be required. The remainder of this section provides examples of how this can be done. The examples are purely generic and are included to give an indication of how some of the wider costs and benefits may be valued. As previously discussed, valuations will be highly specific to the organisation and opportunity. Valuations should be prepared in close consultation with an organisations financial department.

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Tip: It is often not possible or practical to isolate the effect of each opportunity. This can be due to interactions between opportunities, or because it is cost-prohibitive to individually monitor results for each project, especially where the benefits of the project are small. It is recommended that opportunities are investigated even when their affects cannot be separately measured. Such opportunities can be reported together under a broad headline such as Improved driving techniques for iron ore trucking (savings would then be estimated based on reductions in overall site or fleet energy use). A range of direct benefits or costs can be identified as resulting from energy efficiency projects and these can usually be calculated with reasonable accuracy.

Cost reduction
Often the implementation of an opportunity will save other resources in addition to energy. Resources that can be conserved include: water consumables waste treatment and disposal repairs and maintenance labour.

Example
Increased heat recovery will enable the decommissioning of a cooling tower. The savings are in electricity (a 15 kW fan and a 37 kW pump, both operating at 90% of their maximum specified 3 3 power, with electricity price of 5c/kWh), water (200 m /d at a price of $0.50/m ), chemicals ($7,000 /year) and maintenance ($7,000 /year). Operating hours 6,000 /year, 250 d /year. Total savings = energy savings + water savings + chemical savings + maintenance savings = 3 3 ((fan [kW] + pump [kW]) electricity price [$] operating hours [h]) + (water flow rate [m /d] water price [$/m ] operating days [days/year]) + chemicals [$] + maintenance [$] = ((15 + 37) 0.9 0.05 6,000) + (200 0.5 250) + 7,000 + 7,000 = $53,040/year Implementing an energy efficiency project may result in an increase in the use of some resources that should be factored into the evaluation. In the preceding example, if the new heat recovery equipment required regular cleaning, then the additional costs of labour, chemicals, water and waste treatment would need to be included in the costs component of the evaluation. The management of chemicals will also have implications for occupational health and safety practices and costs.

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Salvage value of surplus assets

An energy efficiency opportunity can lead to assets becoming surplus to requirements. Such assets may have a salvage value that can be realised. This value should be recognised during the financial evaluation of the opportunity.

Example
Continuing the cooling tower example: The decommissioned cooling tower has a salvage value of $10,000. There is a $10,000 credit to the energy efficiency project in the year in which the salvage value is realised.

Avoided or deferred capital expenditure

Reduced energy consumption may create sufficient spare capacity in a utility or process to avoid the need to install extra capacity for other expanding loads. This value needs to be recognised in the evaluation of the opportunity.

Example
Minimisation of inappropriate air use (by installing a dedicated blower) means a new air compressor is not required to run a new packing line. The avoided capital cost of $125,000 for the new air compressor is factored in as a benefit in the air blower project in the year in which the capital expenditure is spent.

Productivity improvements
Implemented energy efficiency opportunities may lead to productivity improvements. On sites where energy supply is the capacity constraining factor, reducing energy consumption in one part of the operations can enable a capacity increment elsewhere. Such productivity improvement is likely to be a valuable result of the energy efficiency opportunity. An example of an opportunity with multiple benefits is provided in the Lucky Mining industry example in Section 8.4. On occasion, an energy efficiency opportunity may cause a productivity decrease. This should be foreseeable, and be presented as a cost in the evaluation process. Undertaking a detailed energy-mass balance helps to identify and quantify such interactions between energy efficiency opportunities and other processes at a site. For reporting purposes, pre-existing energy efficiency projects, or energy savings which result from business as usual production efficiencies, should not be reported under the EEO Program. The Program guidelines provide specific guidance on which projects should be reported.

Example
The purchase of a new truck, which has a more energy efficient engine, should not be included as an opportunity for reporting purposes under the EEO Program legislation, unless the purchasing decision arose directly from the energy efficiency assessment process. Although there is an energy efficiency improvement resulting from the newer engine, this should only be counted if the EEO assessment recommended accelerated vehicle replacement or altered the choice of vehicle.

Product quality improvements

Energy efficiency opportunities may lead to product quality improvements. For example, installation of additional metering and data management systems as part of energy assessment will generally promote improved quality control. This could occur where better control of an energy input also reduces variability in a production operation resulting in a more consistent product. Such quality improvement is likely to be a valuable result of an energy efficiency opportunity, and can potentially be estimated from reductions in scrap, or using quality control approaches such as the Taguchi loss function for manufactured goods. For mineral extraction or metals processing industries the benefits of improved quality can be calculated from the proportion of different grades of product 15 based on international prices . In some circumstances, an energy efficiency opportunity may result in a production quality decrease. This should also be foreseeable, and be accounted for as a cost in the evaluation process.
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Groover, M, (2001). Automation, Production Systems, and Computer-Integrated Manufacturing, Upper Saddle River: Prentice Hall, Chapter 20.

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Greenhouse gas emissions reduction

With the introduction of the carbon price, carbon dioxide equivalent (CO2-e) emissions are costed and many larger companies are required to cover their annual emissions costs. Emissions costs will flow into energy costs either directly or indirectly. Improving energy efficiency will produce corresponding greenhouse gas emission reductions and reduce emissions costs, increasing the returns from energy efficiency opportunities. As well as the corporation having to cover the direct costs of its own emissions, the costing of emissions will also lead to an increase in indirect costs for materials and inputs to the process. This includes imported energy, as well as other inputs and consumables for the process. Corporations that do not bear a direct emissions cost liability will still incur some indirect energy costs due to the pass-through of carbon costs by the energy provider. In turn, plant costs will increase because of the embodied carbon in materials needed to build a plant must be paid by the manufacturer. Both the direct and indirect costs of CO2-e emissions could be factored into the financial evaluation of an energy efficiency opportunity. The National Greenhouse Emissions Reduction (NGER) Determination for the latest year provides extensive detail on how to measure and calculate both emissions and energy savings from fuels. It provides lists of relevant fuels for energy and their associated energy content factor, carbon emissions factor and other necessary standards. Greenhouse gas emissions from energy use can be calculated using National Greenhouse Accounts Factors published by the Clean Energy Regulator. These factors provide a straightforward method for converting energy use from a variety of sources into an equivalent tonnage of carbon dioxide emitted. Tip: Be aware some energy opportunities may deliver dollar savings without necessarily reducing the amount of energy consumed. Examples are power factor correction and fuel switching. However, these opportunities may reduce greenhouse gas emissions and associated costs. Over time, the market price of greenhouse gas emissions will vary. Using different values of greenhouse gas emission costs can highlight the robustness of price selection in a changing business environment. A minimum of three scenarios (low, medium, high) should be used, one of which will be the base case for the initial analysis.

Example
The scenarios that follow relate to the cooling tower decommissioning examples already discussed. Total energy savings were 280,800 kWh per year, which equated to $53,000. Using an average emissions factor for grid electricity of 1.06 kg CO2-e / kWh (as in NSW), and shadow emissions costs of $25, $30 and $40/t CO2-e per year: Total emissions saved = 280,800 kWh 1.06 kg CO2-e/kWh 0.001 (kg/t) = 298 t CO2-e/year Cost of emissions = 298 t CO2-e $25/t CO2-e = $7,450 /year at $25/t CO2-e At $30/t CO2-e, the corresponding value of emissions saved would be $8,940, which would rise to $11,920 for an emissions cost of $40/t CO2-e. Depending on the emissions cost per tonne, these emissions savings correspond to between 14% and 22% of the energy savings of $53,000 per year calculated previously. The indirect costs of CO2-e emissions are more difficult to calculate, and depend on the nature and complexity of the manufacturing chain for the input and amount of embodied carbon it contains. Prices for products with significant embodied energy and process carbon emissions would be expected to be most sensitive to the cost per tonne of carbon emissions. The possible impacts of the indirect CO2-e emissions costs can be examined using sensitivity analysis. Reductions in other non-energy consumables from implementing the energy efficiency opportunity, including the value of their indirect carbon costs, should also be included in the whole-of-business analysis. Greenhouse gas emissions will have both direct and indirect financial impacts. Direct financial impacts will be experienced through energy or other input costs increasing. Indirect financial impacts occur around the perception of the companys greenhouse gas emissions management, the level of investment risk, public perceptions of corporate social responsibility and business sustainability. Perceptions that companies are not responding to the need to reduce emissions can affect both share prices and capital availability, imposing financial costs. These latter impacts are more difficult to quantify, but should be articulated in the business case for energy efficiency improvements. Both direct and indirect financial impacts are likely to vary over time, and thus represent changing business risks.

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The role of energy efficiency in developing a greenhouse gas emissions reduction strategy
As discussed above, there are many drivers for companies to reduce their greenhouse gas emissions. Energy efficiency is the first and usually most cost-effective manner to reduce greenhouse gas emissions, and forms the first strategic approach in a greenhouse gas reduction strategy. There is an old adage that the cheapest energy is the energy you dont use and in the same way the cheapest greenhouse gas emissions are the ones you dont generate. International experience shows that the greenhouse gas reduction strategies with the most community credibility consist of four elements: the four Rs. In order of preferred implementation priority these are: Reduce the amount of energy used, or greenhouse gases produced in the process. The reduction can occur from either the use of a different technology/process or operational/behaviour change. This component of the strategy is the focus of the EEO Program. Replace carbon intensive energy or process feedstock with those with lower carbon content. This includes the use of renewable energy, and alternative feedstock, such as using biomass as a reductant in industrial processes such as iron and steel production. Remove the emitted carbon dioxide by locking it up in bio-sequestration (forests or plantations) or geosequestration sinks. Reconcile any remaining emissions with recognised offsets or credits. Analysis and experience has shown that energy efficiency usually has the lowest marginal abatement cost, with this often being negativemeaning it generates a profit. The indicative marginal cost of various greenhouse gas abatement options can be presented using a marginal cost of abatement curve. Note that costs for renewable energy vary substantially depending on the technology chosen and location, and tend to decline over time as technology improves and economies of scale are obtained. According to the International Energy Agency, energy efficiency measures offer some of the least-cost abatement options in industry. Implementation of best available technology could reduce current emissions by 12% to 23% for 16 various industries relative to 2006 levels . Analysis of government reports submitted by EEO Program companies indicates that energy efficiency opportunities have yielded net financial benefits of around $100 per tonne of emissions abated, including all net annual benefits. Investment in energy efficiency opportunities not only demonstrates a companys commitment to address the root cause of its emissions (rather than just paying its costs or purchasing offsets) but will usually be the most costeffective form of greenhouse gas abatement. Energy efficiency investments can therefore be a powerful indicator of management performance for stakeholders.

5.3.2 Valuing whole-of-business costs and benefitsindirect

Indirect benefits should also be included in the evaluation of an energy efficiency opportunity. These benefits are more effectively included in the evaluation where there is: Improved leadership. Apart from involvement of engineers or environmental managers, energy efficiency projects can benefit from input from other functional areas, such as finance, marketing or public relations. Better understanding of the whole system. When energy efficiency projects are viewed as integral to operational efficiency and productivity rather than only as environmental initiatives, an organisation will benefit. As environmental awareness increases, internal and external stakeholder perceptions have a growing influence on business outcomes. Stakeholder perceptions have an impact on staff retention and recruitment, the availability of equity funding from ethical investors, and share prices.

Occupational health and safety

An energy efficiency opportunity could lead to a reduction in occupational health and safety incidents (e.g. lagging a steam pipe to reduce heat losses to minimise burn incidents associated with that pipe), or improved working conditions. Occupational health and safety incidents often have significant associated costs, both direct and indirect. Costs may include loss of production, sick leave, time spent by management investigating the incident, medical expenses and impacts on affected employees and their relatives. Morale can also be affected. Past incidents can be used as a guide to estimate these costs.

Security of supply
Reduced energy consumption can reduce the reliance on external fuel supplies or minimise the need for operation of inefficient, site-based generation to manage peak loads. If the frequency of disruption can be identified, it may be possible to quantify the value of supply disruptions in terms of lost output or delayed cash flows.
16 Canada. Canadian Industry Program for Energy Conservation (CIPEC) (2000). Energy Management Information SystemsAchieving Improved Energy Efficiency. Ottawa: Office of Energy Efficiency of Natural Resources Canada. Available from: http://oee.nrcan.gc.ca/publications/industrial/EMIS/8569

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Regulatory approvals

Example
A manufacturing site is planning an expansion by adding a new processing plant. This plant requires 75 m /min of compressed air for operation. The existing equipment on site uses 520 m /min of air. The company decides to invest in a compressed air energy efficiency initiative to reduce consumption by 15% and allow the new plant to be supplied with the existing equipment. The implementation of energy efficiency opportunities may lead to easier approvals for future projects or expansions. This can occur in two ways: Approval from industry regulators. Energy efficiency improvements can provide evidence to regulators that the company has sound processes in place, which could facilitate approvals. Approval from utility suppliers for plant expansion. Plant expansion may require an increased energy supply to the facility. If the facility is energy-constrained, improved energy efficiency may permit expansion. The potential benefits resulting from easier and/or more expedient approvals range from the obvious (e.g. gaining approval where otherwise it may not have been possible) to the less obvious (e.g. reduction/elimination of delays and increased productivity). These benefits can be relatively simple to calculate in terms of improved productivity and financial returns.
3 3

External stakeholder relations

If properly publicised, the implementation of energy efficiency opportunities is likely to bolster the reputation of a company as a responsible corporate citizen. This can be advantageous for a number of reasons, many of which will be company-specific. Examples include: assisting the company to become a supplier of choice attracting ethical investors, who are looking to invest in responsible companies assisting in community relations, which is important during environmental impact assessments helping to raise the profile of the company, both to potential customers and shareholders, and within industrythis may include reduction in perceived exposure to carbon price risk assisting with the license to operate conceptwhich enables a business to be maintained and also expanded (e.g. a mining company may be permitted to acquire new leases).

Example
A petrochemical company, Company A, is assessing whether to undertake certain energy efficiency measures. Recently, a similar-sized petrochemical company, Company B, running a similar facility received bad press after poor energy conservation was highlighted in an audit conducted by regulators. Company Bs share prices dropped by 3% immediately following this bad press. Company A estimates that the potential severity and likelihood of bad publicity (and a corresponding drop in share price) from not undertaking efficiency measures, and hence being viewed as a company with high environmental risks, is likely to be approximately 30% of that experienced by Company B. This represents a possible loss of 1% of share price, and consequently 1% of market capitalisation (currently $50,000,000). Value (benefit) = 1% of $50,000,000 = $500,000 Company A makes the decision to invest $500,000 in energy efficiency, and creates a fund to support energy efficiency initiatives. Any savings from projects implemented under the scheme are returned to the fund to sustain future initiatives.

Internal stakeholder relations

Improved corporate responsibility credentials can also assist internal stakeholder relations. Positive effects on employees include: improved satisfaction with the workplace, with associated enhanced morale and productivity ability to retain employees, thus retaining knowledge and reduced costs associated with replacing team members 96

 ability to attract employees wanting to work for an environmentally responsible company. This may alleviate resource issues and reduce recruitment costs.

Example
The human resources department of a large employer estimates that implementation of energy efficiency opportunities will significantly raise the companys profile in terms of corporate and environmental responsibility. Putting in place these measures could reduce turnover by approximately five team members per year. Turnover costs are estimated by HR to be $75,000 per employee lostin terms of lost productivity, recruitment fees, team handover and training of new team members. Saving (benefit) = 5 employees $75,000/employee = $375,000 The accuracy to which whole-of-business benefits are quantified will depend on the nature of the saving (some are easier to quantify more accurately than others) and the potential magnitude of the saving (resources expended should be proportionate to the projected saving). Experience has shown that calculating the whole-of-business benefits and including them can greatly enhance the business case for an opportunity. This benefit will, however, need to be balanced against the additional effort required to quantify the business case. Whether they are quantified or not, it is always helpful to identify and include any additional whole-of-business benefits in any business case for energy efficiency opportunities.

5.4 Prioritising the implementation of opportunities

An EEO Program assessment will generate a list of ideas and opportunities for saving energy. This section provides guidelines for developing this list, and managing it to ensure the assessment effort is focused on the highest priority opportunities.

Prioritising energy efficiency opportunities

All energy efficiency ideas and opportunities need to be screened and prioritised. A large number of ideas will ultimately be reduced to a smaller number of viable opportunities and, finally, implemented projects. Effective implementation requires ideas to be screened and prioritised as they progress into opportunities and finally to projects. This ensures that a companys limited resources are directed to those projects most likely to deliver early and high-value benefits: the best bang for the energy efficiency buck. In some cases, project viability may depend on timing (e.g. inclusion in a scheduled plant shutdown, dependence on planned replacement of another item of equipment). This dependence may affect the opportunitys priority rating. It is important to evaluate prioritisation results. Any prioritisation system will be imperfect and may require adjustment from time-to-time, as conditions change. Reviewing the prioritisation results ensures that appropriate changes are made so that sensible results can be obtained. Tip: A simple way to present and prioritise opportunities is to plot the ease of implementation against the value. The ease of implementation axis is somewhat subjective, but is based on technical feasibility and resource availability. Opportunities which fall into the shaded quadrant are the 'low hanging fruit' which provide large savings relatively easily.

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Figure 5.1: Ease of implementation

Value

Complex complex

Simple simple

Ease of implementation

Screening is the process of deciding whether or not to allow an idea to proceed to the next step in the project development process. If the idea is highly unlikely to obtain a four-year payback, it may be screened out for the purposes of the EEO Programs requirements. Screening should occur at key steps in the development of a project. However, it is worth keeping a register of projects which have been screened out. These projects should be reassessed later if the conditions or assumptions used to evaluate the opportunities change, or if longer payback periods are also consistent with business objectives. Tip: Consider implementing low and no-cost measures first. These initiatives can generally be implemented much more quickly than capital projects, and will give decision-makers confidence that energy saving projects will be successful. Often, the savings can be used to provide finance for capital investment in energy efficiency. Prioritising is the ranking of opportunities that pass screening. Screening and prioritising can use the same criteria and system. Factors to consider may include: alignment of opportunity to business priorities economics and financial feasibilitythe payback period ease/difficulty of implementation magnitude of energy and greenhouse gas emission savings the level of technical risk in proposed changes, which impacts on evaluation of costs and benefits. Other factors that may be of use when prioritising include: magnitude of capital investment resources required impact of other license to operate, regulatory compliance, and occupational health and safety issues environmental impacts impact on wider stakeholders. The energy-mass balance and other parts of the evaluation will help provide the information needed on many of these factors. It is important that ideas and opportunities are screened and prioritised based on valid data rather than historical or personal assumptions. The form of the prioritising system could be a spreadsheet or a database. For a small company, a spreadsheet would likely be more suitable, while for a large company, a database would be ideal. It is preferable for the prioritising system to be built into the project register (see Section 10.3 for an example opportunity tracking register). The project register should provide the dual benefits of holding information currently in use and keeping historical records. A prioritisation system should be customised to meet the needs of your company and should be consistent with the criteria used for core business decision-making. Each identified energy efficiency opportunity may be ranked in order to give a priority to each project.

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Strategic alignment
Ask the question Is the opportunity aligned to the business priorities? If the response is yes, the opportunity remains live. If no, the opportunity status changes to not to be implemented. Table 5.2 provides an example of typical values scores for a strategic alignment test range from 04.
Table 5.2: Strategic alignment test

Strategic alignment Total alignment with business priorities Strong alignment with business priorities Some alignment with business No alignment with business priorities Counter to business priorities

Score 4 3 2 1 0

An example of an opportunity having strong alignment with business priorities is an opportunity that has a significant occupational health and safety benefit, complementing a company-wide initiative to reduce accidents and injuries.

Economic viability
Payback is used to apportion a priority to the energy efficiency opportunity according to the economic viability of capital investment. It is a quantitative measure and simple to understandthe lower the payback, the higher the rating. Table 5.3 presents a possible prioritisation scoring system based on payback.
Table 5.3: Economic viability test

Payback < 1 year 1 2 years 2 4 years 4+ years

Score 3 2 1 0

Under the EEO Program, all opportunities with a four year payback or better must be reported and tracked.

Difficulty of implementation
This measure is designed to indicate the effort required to implement an opportunity.
Table 5.4: Difficulty of implementation test

Difficulty of implementation Easy Medium Hard

Score

Suggested guidelines

3 2 1

Technically simple, easy to implement. Moderate technical difficulty, some plant and operating changes. Serious technical change, major plant and operating change.

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Magnitude of energy savings

As stated, the EEO Program requires investigation of projects that produce energy savings with paybacks of up to four years. This measure gives priority to those projects that make larger savings.
Table 5.5: Magnitude of the savings

Magnitude of the savings Very high High

Score

Suggested guidelines

4 3

Energy savings of > 10% of site energy use Energy savings of 3 10% of site energy use Energy savings of 1 3% of site energy use Energy savings of < 1% of site energy use

Medium Low

2 1

Level of risk
Evaluate risks inherent in the assumptions and calculations underpinning the estimated energy savings, benefits and costs of the opportunity.
Table 5.6: Risk test

Risk Low

Score 3

Suggested guidelines Easy to assess benefits and costs, little risk that energy efficiency opportunity will not be realised or costs increased. Moderate effort to assess benefits and costs, reasonable uncertainty in proposed energy efficiency. Significant research needed to assess benefits and costs. Significant unknowns in proposed energy efficiency outcome. Some manageable risk to plant, process or production. Significant risk to safety, plant, process or production.

Medium

High

Extreme

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Prioritisation score
The scores for the different factors are multiplied to give the prioritisation score. The higher the score, the better the assessed prospects of the opportunity.

Example
A company has identified three energy efficiency opportunities: Project A is the insulating of a siloa 4.5-year payback. Project B is air compressor automationa 1.7-year payback. Project C is photovoltaic panels for forklift recharginga 7-year payback. For each opportunity, the total points column is the product of the scores for each of the criteria. Project Strategic alignment 1 1 1 Payback Difficulty of implementation 3 3 2 Magnitude of Risk energy savings 1 2 1 3 3 2 Total points 9 54 2 Priority

A B C

1 3 0.5

3 1 2

From the prioritisation table, the company decided that Project B, air compressor automation, should be the first energy efficiency opportunity to be implemented.

Tip: Prioritisation systems often multiply the various factors, placing the opportunities in order of value. This does not provide an indication of the relative value of each opportunity. For example, an opportunity with a score of 80 does not necessarily provide 10 times the value of a score of eight.

5.5 Developing business cases for decision-makers

The steps outlined so far in the guide have presented a range of approaches and tools to support the decision regarding which opportunities to implement. At this stage, every opportunity has been evaluated against the following measures to an accuracy of 30%: energy savings costs benefits. And a simple payback has been calculated. The information now needs to be collated into a business proposal so that all opportunities can be considered for implementation. It is advisable to maintain an opportunity tracking register, containing all the key information used to evaluate each opportunity and data resulting from the evaluation and prioritisation of each opportunity. This information provides the basis for the development of the business case for either an individual opportunity or a combination of opportunities. An EEO Program opportunity tracking register should contain all opportunities with a less than four-year payback. The accuracy of the energy savings, cost and benefits should be within 30%. Each opportunity will have a supporting document and calculations to provide background to the data in the opportunity tracking register. Figure 5.3 is an example of a supporting document for an energy efficiency opportunity at the Fair Dinkum Milk Company.

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Figure 5.2: Opportunity supporting documentFair Dinkum Milk Company example

This Savings Bulletin has been prepared to support the application for $90,000 of capital funding. Approval for this opportunity is being sought at site manager level and in this case the site manager has an approval limit of $100,000.

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Business cases must be developed for all opportunities that will be progressed to the capital expenditure or implementation phase. The important function of any business case is to take the data from the evaluation and turn it into reliable business information, presented in a way that allows decision-makers to assess the merits of each opportunity or combination of opportunities. The seven key steps in the preparation of the business case are: 1. Prioritise the opportunities. Use a process that encompasses all the key factors affecting the business decision. 2. Identify the best opportunities for development of business cases. Use the priority rating. 3. Identify the decision maker. Tailor the business case to suit the level of approval required. 4. Review the opportunity to identify how the opportunity affects the risks profile of the company. Which risks are mitigated, minimised or reduced? 5. Investigate barriers to approval. Why have energy efficiency opportunities not been implemented in the past? 6. Consider aggregating opportunities. A combination of energy efficiency opportunities may deliver a benefit more effectively than other initiatives. 7. Gather support as the opportunity progresses through the approval process. Try to find a champion at each level to support the application. A business case should contain the following information about the opportunity: locationsite, plant, process naturepeople, process etc. fuel type being savedelectricity, gas, coal amount of energy savedGJ and $ CO2 emissions avoided and how the emissions profile of the company will be affected potential for this opportunity or a combination of opportunities to achieve an important strategic goal cost to implement the opportunity

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 analysis of project risks (including the benefits of any risk reduction impact) wider business costs and benefits. The supporting document created for each opportunity will form the basis for the business case, but its important to consider who may be reviewing and making the decision on the business case. Operational or low-cost opportunities are likely to be within the approval level of the maintenance or engineering manager, although for process changes it is likely that approval will be needed from the operational side of a business. To achieve maximum support from these people, anticipate any technical questions that may arise especially in relation to the effect on the operation of the plantdowntime required, maintainability, and nonenergy costs and benefits. Minor capital opportunities usually fall under the responsibility of the engineering or site manager, who will expect that prior approval has been gained from the operations and maintenance functions. In addition, information may be required that puts the opportunity into context within the site energy system and the organisation as a whole. This could include how this opportunity can combine with other opportunities to deliver an aggregated benefit to the business. The site energy-mass balance can be used to analyse these interactions. Major capital expenditure will generally have to be approved at CEO or board level, and that may require additional consideration of how the opportunity can help the business achieve its key strategic goals. These goals could be measurable (e.g. reduce energy intensity by 10% within three years) or aspirational (e.g. become more sustainable). Addressing these goals requires awareness of the businesss strategic goals, but also awareness of other initiatives being developed within the business. Generally, capital is limited within a given financial year, so other initiatives that deliver similar benefits to energy efficiency may be competing for the same funding. At all approval levels, the information needs to be delivered in a way that clearly shows the benefit of the opportunity or combination of opportunities. If competing for funding, it can be useful to provide a graphical presentation of the benefits of the energy efficiency opportunity versus other options. This will allow decisionmakers to weigh up the relative merits on a wide range of costs and benefits, and make a decision not based purely on financial returns. The following carbon abatement chart (Figure 5.4) indicates the cost and amount of greenhouse gas abatement from a range of opportunities on a food manufacturing site.
Figure 5.3: Marginal cost of abatement curve for various energy efficiency opportunities

Tip: For more information about developing a business case refer to the Canadian Industry Program for Energy Conservation 17 (CIPEC): Energy Management Information SystemsAchieving Improved Energy Efficiency .

17

International Energy Agency (IEA) (2009). Energy Technology Transitions for Industry: Strategies for the Next Industrial Revolution, OECD/IEA, Paris: Section 1

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5.6 Allocation of resources to evaluate energy efficiency opportunities

In many companies, energy and energy savings are not seen as significant compared to other business opportunities. Obtaining sufficient allocation of resources for energy efficiency opportunity evaluation can therefore be problematic. Often, the cost of the resources needed to identify and then investigate energy savings opportunities is not articulated in terms of the savings and other benefits from successful implementation. Business cases for undertaking investigations should be prepared showing the expected direct and indirect benefits relative to the expected resources required. If the assessment phase has not started, then a business case could be prepared for the whole process. Experience undertaking energy efficiency assessment has shown that corporations can achieve between 10% and 30% savings on their energy costs, especially if they do not have a history of undertaking such assessments. When preparing the business case, the potential savings value can be estimated based on annual energy expenditure. The business case should also articulate the other potential whole-of-business benefits that can be expected from undertaking the assessment process. Examples and case studies now exist for various organisations and sectors, demonstrating the benefits obtained from undertaking energy efficiency assessment programs, or by implementing energy efficiency initiatives. These can be used to support the business case. Case studies are available from a range of sources, both Australian and international. Some of these are listed on the EEO Program website and on the Energy Efficiency Exchange website, www.eex.gov.au. Another option for building a business case and obtaining resources for energy efficiency identification and evaluation is to identify and implement a number of easily-executed quick win projects, which do not involve significant investment of resources and money. The savings achieved can then be used to support the business case for implementing a more extensive energy efficiency assessment program. If the opportunities have been identified already, and ranked in order of potential savings versus difficulty (and cost) of implementation, this ranking can assist in developing the business case for those projects with a potentially high savings value. Again, both potential direct cost savings and whole-of-business benefits should be included in the business case.

5.7 Evaluating an opportunity for the Fair Dinkum Milk Company

The Fair Dinkum Milk Company identified an energy efficiency opportunity to reduce gas consumption. Heat will be recovered from the hot condensate from the Plant 1 evaporator to preheat the air feeding into the drier.

Forecast cost savings

The forecast annual cost savings are based upon a gas price of $6.00/GJ = 8,400 GJ x $6.00/GJ = = 29.67 $50,400.00 $14,953.68

Whole-of-business benefits for the Fair Dinkum Milk Company

The reduced energy consumption provides a benefit to the Fair Dinkum Milk Company by reducing greenhouse gas emissions from thermal energy consumption in the drier. Not only will the company be saving $50,400 per year on its gas bill, it will also receive the value of the saved greenhouse gas emissions costs. The annual tonnes of carbon dioxide equivalent (CO2-e) saved from the implemented opportunity are based on a carbon dioxide emission factor of 51.3 kg of CO2e per GJ of gas. Annual expected CO2 savings Assuming 1 tonne of CO2 equivalents at $20. = 51.3 kg CO2e /GJ 8,400 GJ /1000 = 431 t/CO2e = 431 t/CO2e $20/t CO2e = $8,620 29.67% 29.67% 29.67% 29.67% $2,557

To consider the potential effect of carbon pricing on the opportunity, the CO2-e savings were also evaluated at rates 105

of $50 and $100 per tonne. Under these scenarios, the forecast CO2e savings are $21,550 and $43,100 respectively. This opportunity meets the strategic direction of the company, because it delivers energy and cost savings for Plant 1, and could also be deployed at similar sites within the wider group of the Fair Dinkum Milk Company.

Cost of the opportunity

The capital cost estimate of $150,000 30%, estimated using a process engineering contractor, includes equipment, materials, labour and commissioning. There is no loss of plant production time because the installation is scheduled during the dairy off-season when no milk is processed.

Calculating expected payback period

The payback was calculated over four years assuming energy inflation of 3%.
Table 5.7: Estimated payback for projected project

Year 1 savings $59,020 $17,509

Year 2 savings $60,791 $18,035

Year 3 savings $62,614 $18,576

Year 4 savings $64,493 $19,133

Average savings $61,729 $18,313 29.67 %

Payback (years) Error calculation

= $150,000/$61,729 =

= 2.43 years = 42.19 %

(30 2 + 29.67 2 )

= 1.03 years If the calculations for alternative CO2e costs of $50 and $100 per tonne are adopted for the payback analysis using the previous 3% inflation figure for energy and emissions, then the paybacks are 1.99 and 1.53 years respectively. The Fair Dinkum Milk Company evaluated the energy savings, implementation costs and non-energy costs and benefits to an accuracy of 30%, and the payback met the company criteria of having less than a four year payback. Taking into consideration the wider business benefits from the opportunity (reduced environmental compliance costs and a reduction in the plants carbon footprint), the Fair Dinkum Milk Company decided to proceed with the implementation of the project. As this is an opportunity requiring significant capital expenditure to implement, the next step is to evaluate the energy savings, implementation costs and non-energy costs and benefits to an accuracy of 10%, before making a capital expenditure application. Summary: The financial savings of the opportunity include the gas saving and the associated CO2e emissions reduction. The total annual savings are estimated at $59,020. The capital cost of implementing the opportunity has been estimated at $150,000giving an expected payback of 2.43 years.

5.8 Section summary

The financial feasibility of an opportunity is determined by completing a payback analysis, as required by the Energy Efficiency Opportunities program. Completing a sensitivity analysis is important for a thorough and robust evaluation of an opportunity. The wider business cost and benefits must be considered during opportunity evaluation. Once all opportunities have been evaluated, it is important to prioritise them. This allows for rapid and effective implementation of energy savings solutions. Graphical comparison of options or scenarios can be a powerful tool to engage decision makers who may not have the time to read lengthy technical papers.

Key Element addressed in Section 5: Key Element 4.3: Investigation of opportunities & whole-of-business costs and benefits

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SECTION 6.0
Measuring energy savings for an opportunity
6.1 6.2 6.3 6.4 6.5 Overview of measuring energy savings Measuring energy savings Methods for measuring energy savings Measuring energy savings for the Fair Dinkum Milk Company Section summary

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6.1 Overview of measuring energy savings

Purpose of this section
Once an energy efficiency opportunity has been implemented, the resulting energy savings need to be measured to determine the success of the opportunity. This section of the guide outlines the steps involved in measuring energy savings. Measuring actual energy savings will verify if the estimated benefits are being delivered to the business. This is essential for post-implementation evaluation, to determine whether the project is delivering the forecast energy savings. Measured results provide the opportunity to identify what aspects of your forecast were accurate, and if the information/data used in the analysis was appropriate and of sufficient quality. Any key learnings on what was successful and which elements require refinement can be incorporated in subsequent forecasts.

Measuring energy savings

This section details three energy savings measurement options, each of which is suited to different applications: partial measurement full measurement measurement via modelling.

Section outcomes
At the end of this section, you will be able to: select and implement a suitable method for measuring energy savings accurately measure energy savings for each opportunity.

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6.2 Measuring energy savings

Section 1 described how to develop the forecast energy baseline by adjusting the current energy baseline for energy influencing factors. The forecast needs to accurately represent the energy baseline if the opportunity had not been implemented. The forecast energy baseline should be revised at this stage. As previously identified, there are several factors which influence the consumption of energy over time. Any changes since the initial analysis need to be incorporated into the energy baseline. The revised energy baseline becomes the reference point from which an opportunitys savings are measured. This will ensure the measured energy savings represent only energy savings directly related to the implementation of the opportunity. Comparing this reference point with the actual measured energy consumption after implementation allows calculation of the opportunitys energy savings. This principle is shown in Figure 6.1.
Figure 6.1: The principle of measuring energy savings

Revised energy baseline Energy without opportunity implementation

Measured energy savings Measured energy consumption after opportunity implementation

6.3 Methods for measuring energy savings

Three generic methods can be used to measure the savings post-implementation of an energy efficiency opportunity.

6.3.1 Method 1Partial measurement

This method applies when only limited data and metering are available. It involves using existing measurements for measured processes and estimating other variables based on engineering calculations and assumed parameter values. The steps involved are: 1. Identify all parameters, as required to measure the post-implementation energy consumption. 2. Gather measured data for as many parameters as possible. 3. Develop estimates for the remaining parameters. Estimated parameters can potentially be obtained from engineering handbooks, product specifications, and journal articles. 4. Combine to show post-implementation energy use. 5. Measure energy savings by comparing post-implementation energy consumption with the forecast energy use if the opportunity was not implemented. This principle is shown in Figure 6.1 (above). The accuracy of partial measurement is inversely proportional to the complexity of the energy projectgreater certainty can be obtained for relatively simple projects. Where greater accuracy is required, the methods that follow should be considered. For the partial measurement method, particularly, keep a record of the assumptions made, the estimated level of accuracy of assumed parameters and the reasons for adopting each assumption. These records are important for verification purposes. Periodic emissions monitoring, described in the National Greenhouse and Energy Reporting System Determination, is a similar method. It may be useful to refer to the NGER Determination to ensure that measurement systems comply with the NGER system.

Method 2Full measurement

This method applies when the measuring, metering and data capture systems are robust enough to obtain all required data. In many cases advanced sub-metering may be necessary for this option to be implemented effectively. For stable processes, short-term metering may be sufficient to measure the post-implementation energy use. 109

This method is similar to partial measurement except that all parameters are measured. Depending on the level of measurement, metering and data system developed (see Section 2), this method is potentially the simplest. The steps involved are: 1. Measure energy use to ensure this is an accurate reflection of post-implementation consumption. 2. Measure energy savings by comparing post-implementation energy consumption with the forecast energy use if the opportunity was not implemented. This principle is shown in Figure 6.1. If there have been multiple opportunities implemented at once, it can be difficult to separate the energy savings attributed to each individual opportunity. Extending the boundary to incorporate the entire process or site will enable measurement of the whole-of-process savings using this method.

Example
An oversized pump was identified as an energy efficiency opportunity. The pump was resized to reduce its electricity use. Pre-implementation: A short-term meter was installed and the pumps electricity use measured for one month. During the month, the outlet flow was also recorded. The pump energy intensity is stated in 3 terms of kW/m of fluid pumped. Post-implementation: Again, the short-term meter was installed and the pumps electricity use measured for a month. Flow data for the same period was collected. The difference between the two energy intensity measurements is the measured energy savings. Energy intensity was selected as the best measurement of energy use for the pump. Focusing on the intensity rather than the total electricity used during the month isolates the savings due to resizing the pump from any changes to operating hours.

6.3.3 Method 3Measurement via modelling

Models developed to establish an energy baseline (Section 1.4.2) can be used to estimate and measure energy savings. This method uses the manipulation a models input variables to illustrate different energy scenarios. By inputting post-implementation measured variables, the model can be run to calculate post-implementation energy consumption. This method is similar to estimating energy savings using modelling (Section 4.3.3), except that post-implementation variables are now measured, not forecast. To measure energy savings using modelling, there are five key steps: 1. Establish a model, noting that models may already be developed. The energy-mass balance or regression analysis developed in Section 2 can be used here. 2. Measure key operating variablesthis is done post-implementation. 3. Input these variables into the model, to create the post-implementation scenario. 4. Run the model to determine the post-implementation energy consumption. 5. Measure energy savings by comparing post-implementation energy consumption with the forecast energy use if the opportunity was not implemented. This principle is shown in Figure 6.1. If the opportunity involved new equipment or processes being installed, these pieces of plant or equipment will not have a measured baseline energy consumption. However, savings can be measured at a whole-of-process level, which will determine the overall energy savings. To do this, the model should be updated to include the new plant. This method can then be used to calculate the post-implementation energy use.

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Example
Monthly electricity billing data was available for the base year for a particular building in the Northern Territory. A number of energy efficiency opportunities were implemented, and billing data analysed for one year postimplementation. Total annual consumption for 200405 (kW) Total annual consumption for 200506 (kW) Energy saving (kWh) 1,605,138 1,597,135 8,000

On the surface, it would appear that the total consumption has reduced by 8,000 kWh (0.5%) relative to the base year. However, examination of weather data showed a considerable increase in the total annual cooling degree days (CDD) in the reporting year relative to the base reference year, indicating that the summer in the base year was much cooler than in the reporting year. As a result, the baseline energy consumption needs to be adjusted to take into account the influence of the climate. Linear regression was used to define the relationship between electricity consumption and temperature. The overall relationship between monthly consumption and the number of CDDs was represented by the following baseline equation: Baseline (kWh/month) = 471.08 No. of Days + 1,026.24 number of CDDs The model was used to adjust the base year data to the same weather conditions as in the reporting year. The actual annual energy saving is thus calculated as follows: Total weather-corrected annual baseline energy for 200405 (kWh) Total annual consumption for 200506 (kWh) Energy saving (kWh) 1,775,546 1,597,135 178,411

Adjusting the baseline energy consumption allowed the energy savings due to the opportunity to be isolated from the total change in energy consumption. The resultant corrected saving attributable to the implemented opportunities was 178,411 (10%) relative to the base year.

6.3.4 Selecting the energy savings measurement method

Having understood the various methods available for energy savings measurement, the next step is to select the most appropriate method for your circumstances. Table 6.1 illustrates how each method applies to each application.
Table 6.1: Measuring energy savings methods and their applications

Opportunity measurement method Partial measurement

Description of measurement method

Common applications

Engineering calculations using shortWhere the cost of measurement is not term or continuous measurements, plus justified by the value of the improved accuracy. estimates of the other factors that influence energy use. Engineering calculations using shortterm or continuous measurements. Where metering exists to record energy use as per the defined boundary of the opportunity. Where all relevant performance and operational factors affecting energy use can be measured.

Full measurement

Measurement via modelling

Adjusted base-year energy consumption Where limited metering and/or pre-project measurement data are available. and demand are generated by a simulation model. To isolate opportunity savings where complex relationships exist.

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6.4 Measuring energy savings for the Fair Dinkum Milk Company
To determine the gas saving, the Fair Dinkum Milk Company compares the actual gas consumption in the postimplementation period to a revised energy baseline if the project had not been implemented. The revised energy baseline, had the project not been implemented, is determined by entering actual post-implementation production data into the original regression equation.

Baseline measurement
The forecast energy baseline needs to be revised by entering actual production rates post-implementation. This is required to isolate the opportunitys gas savings from the overall gas consumption changes during the savings period. Applying the original regression equation to post-implementation production rates provides the revised energy baseline, which represents what the gas consumption would have been if the heat recovery system had not been installed. The revised energy baseline becomes the reference point from which energy savings are to be measured. The energy baseline was forecast to be 278 GJ/d based on the production forecast available. The actual production rates had dropped further than originally forecast. The revised energy baseline is 275 GJ/d.

Measuring energy savings

Because the gas is metered, the post-implementation energy consumption can be measured. The following steps refer to Method 2Full measurement (Section 6.3.2) which is used here to measure the opportunitys energy savings. 1. Measure energy use The actual gas consumption was metered and data captured frequently. The average measured gas use postimplementation was 247 GJ/d 0.5%. 2. Measure energy savings The actual post-implementation gas consumption was compared with the revised energy baseline had the opportunity not been implemented. This comparison is shown in Figure 6.2. The red line is the actual measured data post implementation, while the blue line is the revised energy baseline, established by entering actual production rates into the original regression equation.
Table 6.2: Measured energy savings for the Fair Dinkum Milk Company

Value Revised energy baseline (GJ/d) Measured energy consumption (GJ/d) Measured energy savings (GJ/d) 275 247 28

Precision 2.86 0.5% 28.43%

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Figure 6.2: Comparison of the measured gas consumption and the revised energy baseline for the Fair Dinkum Milk Company
400 350 300 250 200 150 100 50 0 Jun Jul Aug Sep Oct Nov Season 2 Season 2 - Measured Gas Consumption Season 2 - Revised Energy Baseline Dec Jan Feb Mar Apr

Gas consumption (GJ/d)

The shaded area on Figure 6.2 (early October through to November) shows a period when there appears to be no gas savings. The production team investigated and found that during that time, the pre-heater had not been operated. This period of data was removed from the analysis, as it did not reflect the true postimplementation scenario where the pre-heater will operate continuously. The difference between the measured post-implementation energy consumption (247 GJ/d) and the revised energy baseline (275 GJ/d) is the measured energy savings (28 GJ/d). The measured energy savings of 28 GJ/d is lower than the estimated value of 30 GJ/d. The net annual savings resulting from implementing the opportunity can be calculated based on 280 operating days per year: The annual cost savings are based upon a gas price of $6.00/GJ: = 7,840 GJ $6.00/GJ 28.43 % $47,040.00 $2,229

Payback for the project

The project saving of $47,040 was 7% less than the forecast of $50,400. The payback was calculated using an energy inflation rate of 3% per annum, gas prices of $6.00/GJ (Season 1) and $6.18/GJ (Season 2), and CO2e of 51.3 kg/GJ at $20/tCO2e.
Table 6.3: Payback calculation for the Fair Dinkum Milk Company

Year 1 savings $55,084 $15,662 Payback (years)

Year 2 savings $56,736 $16,132 = $150,000/$57,613

Year 3 savings $58,438 $16,616 = 2.6 years = 41.33 % = 1.07 years

Year 4 savings $60,192 $17,115

Average savings

$57,613 16,381 28.43%

Error calculation =

(30

+ 28.432

If this project continues to deliver energy savings at the current rate, the energy efficiency project will have fully refunded itself within four years. This is a great result for the Fair Dinkum Milk Company.

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Summary: The energy baseline was revised by entering actual post-implementation data into the original regression equation to determine what the energy consumption would have been had the opportunity not been implemented. This was compared to the metered gas use post-implementation to give the measured energy savings of 28GJ/d. This resulted in a payback of 2.6 years.
Figure 6.3: Drier 1 air pre-heater opportunity

Drier 1 air pre-heater opportunity Measuring energy savings

280 270 260 275

GJ/d

250 240 230 220

Revised energy baseline without opportunity implementation

Measured energy savings 28 GJ/d

247

Measured energy consumption after opportunity implementation

6.5 Section summary

Post-implementation energy savings are measured by comparing the revised energy baseline and measured energy consumption. The three methods for measuring actual energy savings are: partial measurement full measurement measurement via modelling.

Key Elements addressed in Section 6: Key Element 3.2: Data collection process Key Element 3.3: Energy analysis Key Element 4.3: Investigation of opportunities & whole-of-business costs and benefits

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SECTION 7.0
Tracking energy savings for an opportunity
7.1 7.2 7.3 7.4 7.5 7.6 Overview of tracking energy efficiency opportunities Tracking the energy savings outcome Establishing an opportunity tracking register Managing energy performance Energy monitoring for the Fair Dinkum Milk Company Section summary

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7.1 Overview of tracking energy efficiency opportunities

Purpose of this section
This section outlines how to track the energy savings from implemented opportunities. To ensure energy efficiency savings are realised, it is important to monitor energy efficiency performance and report progress on a regular and ongoing basis.

Tracking energy savings

The measured energy savings for an opportunity must be compared to the estimated energy savings. For an opportunity where actual savings vary significantly from the estimated savings, this variance should be explained. Creating a tracking system is essential for tracking the energy savings outcome.

Reporting
Tracking the energy savings of implemented projects is critical to meeting the reporting requirements of the EEO Program. The EEO legislation stipulates that evaluated opportunities and their associated energy savings be reported to the business decision makers, the companys board, the public and government. This involves tracking the energy savings outcome for each opportunity and aligning the reporting of its progress with the EEO Programs reporting requirements.

Managing energy performance

Effective energy monitoring reports are essential for ongoing energy management. Reports should provide recipients with clear and concise energy information at a frequency which allows anomalies to be identified and resolved. Successful energy monitoring involves comparing actual to expected performance. Key performance indicators and energy targets should be developed for use in energy monitoring. Monitoring and reporting energy use provides feedback on the value of an energy efficiency opportunitys investment and can be used to drive energy performance. It is not simply enough to capture and manipulate energy data. What really achieves energy savings is taking action. Energy performance should be managed by detecting trends and exceptions, and taking action to rectify anomalies.

Section outcomes
At the end of this section of the guide, you will: be capable of establishing a tracking system to track implemented opportunities be able to sustain energy savings over time through effective energy performance monitoring be able to meet EEO Program reporting requirements.

7.2 Tracking the energy savings outcome

7.2.1 Tracking energy savings
To ensure an opportunitys energy savings are realised, you need to track energy efficiency performance and report progress on a regular and ongoing basis. Tracking energy savings during the expected payback period will provide investors with feedback on the performance of their investment. Once an opportunity has been implemented and the resulting energy savings obtained, the actual measured energy savings (Section 6) will be reconciled against the estimated savings (Section 4). This is especially important if there has been an investment or cost associated with the implemented opportunities. Reconciliation ensures that payback criteria for the energy efficiency opportunities are being met and business goals achieved.

7.2.2 Reporting energy savings

Key Element 6 of the EEO Assessment Framework stipulates that the reporting of energy efficiency opportunities is to be communicated to each companys respective boards and the Australian Government as well as reported publicly. Summarising the status of each implemented opportunity for the public and government reports is essential for compliance with EEO Program requirements. The measured energy savings determined in Section 6 of this guide should feed into an opportunity tracking register (Section 7.3) which contains the relevant data required to compile annual public reports and EEO reports. These reporting requirements are tabulated in the Energy Efficiency Opportunities Industry Guidelines, which may be accessed at www.energyefficiencyopportunities.gov.au. 116

Producing a specific project close-out report is recommended as it promotes learning within the organisation and recognition of achieved energy savings. A specific project close-out report often becomes a useful reference for future projects. A close-out report should typically: describe the individual opportunity or range of opportunities implemented if savings have been determined at a whole facility level summarise the energy savings achieved by energy type report on the benefits associated with the implemented opportunity, especially by taking into account actual utility charge-out rates to show the total cost savings to the company report on the final costs associated with implementation of the opportunity show the final payback result explain any variation in actual and estimated costs and benefits, and the reasons for these variations include recommendations for future energy efficiency projects. Close-out reports are necessary in that they demonstrate the success of an energy efficiency project and allow project outcomes to be reported to meet both internal and external reporting requirements. Close-out reports also ensure that evidence is gathered and maintained for verification and auditing purposes. As EEO is a mandatory program, it is important for companies to ensure they meet an appropriate standard in the way assessments are conducted and the accuracy of the information reported. This will also ensure that when companies are selected for verification, all of the relevant information is recorded clearly and efficiently to demonstrate compliance with program requirements. The figure below provides an example of the type of information typically included in a close-out report.

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Figure 7.1: Close-out report

Energy Efficiency Opportunity Typical contents of a close-out report

Opportunity description [provide detail on the scope of the project, project boundary, energy baseline, estimated costs and savings, estimated payback period, metering techniques] Resources [including the project champion and other key personnel identified in Stage 1 of the assessment process] Business response [highlight key elements of the process and the action taken] Performance of implementation of the opportunity [actual energy saved, actual costs and benefits to the business, actual payback period, important performance results] Reset baseline [re-define the energy baseline post payback period of opportunity for future projects Lessons learnt Audit of energy saving (if applicable)

7.2.3 Taking action

For an opportunity where measured savings vary significantly from the estimated savings, the variance should be explained. The process of investigating the reasons for this discrepancy may involve the following: revising the initial assumptions made (e.g. operating hours, production rates or the percentage savings expected) investigating the actual measured energy results recalculating the estimated energy savings and the accuracy range. In the case of greater-than-expected savings, it would be useful to evaluate the causes of the improved performance to provide better information for the assessment of similar opportunities. Where expected savings are significantly less than expected, the causes should also be investigatedthe implementation of other, similar opportunities may need to be re-prioritised.

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Tip: Variation can be positive or negative. It is just as important to investigate a good result as it is to investigate a bad result. This can help highlight an improvement that can be isolated and repeated at a further energy saving opportunity. As teams learn from past experiences, improve their evaluation skills and understanding of processes while revising incorrect assumptions, the variation in expected energy savings outcomes should reduce. To gain the confidence of business decision-makers, lessons learnt need to be documented to refine future assumptions and avoid repeating past errors.

7.3 Establishing an opportunity-tracking register

It is important to track an opportunitys progress from conception. This requires capturing the right information in the tracking system to ensure that required outputs can be monitored. An opportunity-tracking register is a system for recording all identified energy efficiency ideas and opportunities and tracking energy savings. Comprehensive registers allow deviations from the opportunity plan to be promptly identified, enabling remedial action to be taken in a timely matter. Well updated, robust registers will capture information in an orderly and easily retrievable form. This facilitates reporting for both internal purposes and regulatory requirements. Summarising all identified opportunities in one place allows for rapid comparison between those opportunities. These comparisons can be useful when prioritising opportunities for implementation (as discussed in Section 5.4). The register provides a historical record of identified ideas and possible future opportunities. It also allows analysis of performance (e.g. conversion rate of ideas to implemented projects, how many projects are at each stage of a specific process, or comparison of forecast savings to those actually achieved). Ideas that are not currently viable are retained in the register for possible future implementation. The form of the tracking register could be a spreadsheet or a database. While either could be used regardless of business size, a spreadsheet would likely be more suitable for a small company or a site, while a database would be better suited to a large company. The following list outlines recommended features of an opportunity tracking system.

Identification
A unique project identifier or numbering system. Use something that will stand the test of time (e.g. Energy Efficiency Opportunities0001). A project name. Include a brief, clear name, possibly including the site location. A short but detailed description of the project. Once the number of projects starts to increase, this will be important for ease of project identification and understanding. A location. Identify the factory, site, process area or a more specific locator (whatever is appropriate for the project and the size of the operation).

Current status
Current status. The status of the project should be defined along the lines of identified, under investigation, to be implemented, implementation commenced, implemented, not to be implemented. A more detailed list could be used if greater segmentation is desired. Comments on current status. There is value in being able to enter project-specific comments (e.g. Awaiting health and safety approval of design). Next steps. An indication of the next stages required to progress the opportunity.

Other factors useful for inclusion in the tracking system

Team. Identify the key personnel responsible for each energy efficiency opportunity. Timing. Capture key project dates such as when the idea was identified, approved, implemented or shelved. Capital costs. Include a figure for the total capital cost of a project. Energy type and cost. The type/s of energy being saved and the unit variable cost/s (e.g. gas, coal, steam). Energy savings. Expressed as MWh for electrical savings (equivalent to 3.6 GJ), GJ for thermal or fuel savings, and GJ for totals. Energy cost savings. Expressed in Australian dollars. 119

 Non-energy costs and savings. The balance of whole-of-business costs and savings ($ value). Economic analysis. Calculate the payback period from the capital costs, energy savings and other savings. Accuracy. A summary of the accuracy ( %) of calculations. Prioritisation record. The project rating from the prioritisation assessment: high, medium or low. Greenhouse gas emissions. Including the expected value of emission costs saved. Source of ideas. Explain how the ideas for the implemented projects were generated. Post-implementation review. Record actual performance and actual savings, and compare against forecasts. Tip: The business case for implementing the opportunity may have involved perceived benefits such as reduced maintenance costs or improved productivity. After implementation it may also be necessary to track wider business savings that result from the opportunity. The tracking of these benefits is equally important from a financial perspective. See Section 12.3 for an example of an opportunity tracking register.

7.4 Managing energy performance

Monitoring and reporting for internal purposes are useful tools to drive energy performance for a process, site or company. Energy performance can be monitored at a company, site or process level, by comparing actual and target energy consumption. Energy monitoring should target the process to a level that ensures any significant exceptions in energy performance can be detected, investigated and rectified if necessary.

7.4.1 Energy performance monitoring 18

Energy performance monitoring involves the comparison between actual and target performance. This can be done at a company, site or process level in a similar manner as for individual opportunities (Section 7.2). To monitor overall energy efficiency, key performance indicators (KPIs) and targets should be developed and compared. Under Key Element 3 (KR3.3(a)), EEO also specifies the use of energy performance indicators, established at the appropriate level, with consideration of variations over time and major factors that affect energy performance. While the Department does not have a recommendation for an appropriate corporate or site-level energy performance indicator, it is recommended to select an indicatoror a range of indicatorsthat can contribute to the management of energy performance. KPIs should be selected to quantify the company, site or process energy goal. When a process uses multiple energy types, it may be appropriate to define an overall energy KPI for the process that combines energy types. To develop an overall energy KPI, energy types will need to be expressed in common units. Care must be taken during unit conversion. For some processes, the use of energy sources may not be closely related, and an individual KPI for each energy source may provide a clearer picture of energy consumption. An ideal performance indicator will typically account for at least one major source of variability in performance. For example, in transport (freight) operations an effective indicator might be GJ/tonne.km, which accounts for both the mass of freight and the distance travelled. For pumping systems, an ideal (instantaneous) performance indicator could be MW/(flow rate) (hydraulic head in metres). This is a particularly effective performance indicator because the head component accounts for both static and dynamic flow resistance, i.e. the speed of the flow and the piping system. EnPIs can also be developed using a formula or statistical model (such as a regression equation) incorporating a range of variables affecting energy use. If this approach is taken, then the frequency of data collection should be high enough to account for the major sources of variation, to avoid misleading results. Some useful performance indicators may be related to energy performance yet not have an explicit energy component. Examples include cooling water and condenser temperatures, condenser vacuum pressure or the excess air ratio for a boiler. Such indicators can be a useful supplement to energy performance indicators for monitoring and managing energy performance, and for identifying and investigating opportunities.

18 This section has been developed with reference to an unpublished working draft ISO standard, ISO/CD 50006, Measuring Energy Performance using Energy Baselines and Energy Performance Indicators General Principles and Guidance, being developed under the ISO Energy Management technical committee.

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Table 7.1: Common key performance indicators (KPIs)

System Compressed air Transport Processing Cooling

Example KPI Specific energy consumption Specific energy consumption Specific energy consumption Coefficient of performance

Units kW/(m /min) L diesel/m delivered GJ/t (kW cooling/kW electrical)

3 3

It is vital to set a target for each KPI developed. The target can be based on previous best performance from historical data, accepted industry goals, benchmarking against similar plants, or set against ideal performance. Target selection is important. Targets that are too easily achieved can result in a relaxation in energy performance. Conversely, an unrealistic energy target makes reporting against such a goal meaningless and can also be de-motivating for staff. One KPI may have several targets. The target for the KPI may vary with process conditions such as seasonality, product specifications and mode of operation (i.e. operation, start up, cleaning cycles). A target should be regularly reviewed to ensure it remains appropriate. When monitoring energy performance, the energy KPI can be expressed as a percentage of the target: Less than 100% indicates that actual consumption is below the target. (When examining target energy performance, the target is the budgeted/anticipated amount. Thus consumption below target represents a positive energy savings resultless energy was consumed than was budgeted for.) Greater than 100% represent consumption above the target. (Consumption above the target represents a negative energy savings resultmore energy was consumed than was budgeted.)

7.4.2 Energy performance reporting

Energy performance information should be presented in a simple way that can be readily interpreted. With energy reporting, as well as monitoring energy trends, it is useful to summarise the results of the average actual performance against the expected performance during the reporting period in a clear, concise wayand to highlight exceptions requiring immediate action. The content of an effective energy monitoring report must therefore: be accurate clearly and concisely summarise performance reach the right people. The main objective of energy reporting is to provide feedback to operators, designers and other relevant stakeholders. Extraneous information should be eliminated to avoid clouding the key objectives of the report. It can be useful to liaise with each recipient regularly and obtain their feedback to determine if they are receiving the right information in the right form. The use of standardised graphic presentations is a common technique to express energy performance. Adding KPIs and targets to real-time trends allows process operators to track and react to changes in energy performance. KPI values can be summarised daily or per shift so information can be easily discussed at team meetings.

Example
A manufacturing company uses traffic light colour-coding to express energy performance. The immediately recognisable colours indicate status: green = consumption is below the target amber = consumption is moving above the target red = consumption is significantly above the target.

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Site Electricity 98% of target Plant 1 Electricity 98% Steam 96% Steam 101% of target Plant 2 Electricity 97% Steam 105%

During the report period, the sites electricity consumption is below target, indicated by green. The sites steam consumption is not yet critical but has moved above the target, indicated by amber. Within the site, Plant 1 is performing well, the green colour indicating that the plants energy consumption is below target for both electricity and steam. Electricity consumption is also below target for Plant 2. However, Plant 2 steam usage is above target, indicated by red. Factors contributing to high steam use in Plant 2 should be investigated. Energy consumption trends will highlight energy patterns and detect exceptions and anomalies in site or plant performance. When an exception or anomaly is detected in the overall energy performance, an investigation should be instigated to find out the cause. The report recipient, or the person responsible for energy consumption in the relevant area, will need to examine the process and energy data to determine the cause. The aim is to bring the actual performance back in line with expected values within the shortest possible time frame.

Example
The actual electricity use for a plant is reported on a daily basis. The actual performance is shown as a percentage of the target electricity consumption. The following control chart shows an exception on 11 October. Investigation of the maintenance logs on these date revealed an intermittent fault with an item of equipment. The faulty equipment drew elevated levels of electricity. Energy performance improved once the fault was identified and repaired.

Electricity consumption vs target

140% 120% 100% 80% 60% 40% 20% 23-Oct 25-Oct 27-Oct 29-Oct 09-Oct 13-Oct 17-Oct 05-Oct 01-Oct 03-Oct 07-Oct 19-Oct 11-Oct 15-Oct 21-Oct 31-Oct 0%

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7.5 Energy tracking for the Fair Dinkum Milk Company

To monitor the performance of the opportunity on an ongoing basis, the Fair Dinkum Milk Company developed a utility management status report, shown in Figure 7.2. The report includes control charts, colour coding and site summaries.
Figure 7.2: Energy monitoring report for the Fair Dinkum Milk Company UTILITY MANAGEMENT STATUS REPORT
Fair Dinkum Milk Co.

Plan1 Fair Dinkum Milk Co.

Season 2 Season 2
$1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $Gas to site

Week ending 30th September

Cond return 74%
Season 2

Site gas 75% Tgt

Season 2

Plant steam 81% Tgt

Season 2

ChW COP 2.3

Season 2

Site daily utility cost vs target ($/day)

Product processed
Actual Target

Actual 12,526 m

Daily averages Target Act/Tgt

$ var

Gas to site

253 GJ

336 GJ

75%

$376

$2,500 $2,000 $1,500 $1,000

200% 175%
$500 $0

#REF! #REF! #REF!

Plant 1 gas use vs target

150% 125% 100% 75% 50% 25% 0% 24 Sep

25 Sep

26 Sep

27 Sep

28 Sep

29 Sep

30 Sep

Commentary:

7.6 Section summary

Tracking energy savings outcomes from each opportunity is vital for compliance with the EEO legislation. Producing a tracking system for all energy efficiency projects is important, because it helps to effectively monitor performance and learn from past projects. Energy monitoring and reporting are imperative for managing energy performance. Energy monitoring will enable you to drive improved energy performance by: comparing actual performance with expected performance providing feedback to operators, designers and other relevant people, through energy reports.

Key Elements addressed in Section 7: Key Element 5.2Evidence showing decisions of management Key Element 5.3Allocation of timelines, resources and accountabilities Key Element 6.1Presentation to the Board

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PART 3ADDITIONAL GUIDANCE, USEFUL CALCULATION TOOLS AND REFERENCES

124

SECTION 8.0
Energy-mass balance development
8.1 8.2 8.3 8.4 8.5 8.6 Introduction Defining energy-mass balance How to develop an energy-mass balance Dreamt-up Drink Company worked example Additional energy-mass balance examples Section summary

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8.1 Introduction
Purpose of this section
This section provides guidance on how to develop an energy-mass balance (EMB). An EMB is an analysis of the energy and mass flows for a site or fleet. One of the most challenging parts of an EEO assessment is the collection of data and analysis of energy and material flows through the site or fleet and its processes, systems and equipment (using an EMB or similar technique appropriate to the type of activity). The section explains the impact of energy and material flows within a site on energy savings. An EMB is one method that can be used to break down and model processes to produce detailed energy savings estimates that incorporate the interactions between the various processes at a site. The EMB can also be used to establish an energy baseline and as a tool (model) for estimating and measuring energy savings. An EMB can be developed for any site or process, depending on where the system boundaries are set. This section focuses on quantifying the energy flows within a site or process to develop an EMB. Most companies will have developed a preliminary site EMB to identify energy efficiency opportunities during the initial assessment phase. The EEO legislation requires the site energy and mass flow analysis (or EMB) to cover 80% of site energy use and all processes not already included which consume 0.1 PJ of energy per year or more. The EMB must be defined to an accuracy of 5%. There is scope for error margins wider than 5% for some flows or items of equipment at a site, provided the overall assessment data accuracy requirement is met. Wider error margins will typically apply for those energy and material flows that cannot be accurately measured and therefore may require engineering calculations or estimates. For example, data on the heat released from furnaces, grinding mills and boilers might have higher error margins. Accuracy requirements should not be seen as a disincentive to detailed investigation of energy and material flows. An EMB can be developed for any site or process, depending on where the system boundaries are set. Developing an EMB is an excellent way to achieve a comprehensive understanding of energy consumption. Well-developed EMBs will provide a robust basis from which to measure energy savings. EMBs can be used at several stages in the assessment process outlined in the guide: as a method of establishing an opportunitys energy baseline (Section 1.4) to identify current metering gaps and necessary measurement locations (Section 2) as a modelling method to estimating an opportunitys energy savings (Section 4.3.3) as a modelling method to measuring an opportunitys energy savings (Section 6.3.3).

8.2 Defining energy-mass balance

An EMB maps out the interrelationships among processes, and is a comprehensive modelling method for establishing an energy baseline. An energy baseline quantifies energy consumption and incorporates external factors to provide the basis for measuring an opportunitys energy savings.

Mass balance definition

A mass balance is an application of the principle of conservation of mass to the analysis of physical systems. By accounting for material entering and leaving a system, a mass balance is used to estimate a flux that otherwise cannot be easily measured. More practically, it can be used to verify the accuracy of the budget of material inputs. There are two types of mass balances: Differential balance is a balance taken at a specific instant in time. It is generally applied to a continuous process. Integral balance is a balance taken at two specific instances in time. It describes what has happened over the time period between two points. An integral balance is generally applied to the beginning and the end of a batch process.

Energy balance definition

An energy balance is a mathematical statement of the conservation of energy, and it is a systematic accounting for energy flows and transformations in a system. The theoretical basis for the energy balance is the first law of thermodynamics, which states that energy cannot be created or destroyed, only modified in form. Contrary to mass balances, a system can only have one energy balance that describes it, since different types of energy are considered, mathematically, to be interchangeable. Specifically, the change in energy for a system equals the heat transferred into the system minus the work done by the system plus the net energy input associated with mass flows. Mass flows carry enthalpy, kinetic and potential energies. 126

8.3 How to develop an energy-mass balance

The development of an EMB is an iterative process. It involves the calculation of both energy and mass flows for a system. There are six steps required to complete an EMB: 1. develop a plan 2. identify boundaries that define inflows/outflows 3. identify and capture the required data sets 4. calculate energy and mass flows 5. analyse the results 6. document the EMB.
Figure 8.1: The inter-relationship of steps involved with creating an energy-mass balance

Step 1Develop a plan

Establishing a plan for the development of an EMB involves determining the system to be analysed (the boundaries), how this will be done (data capture), and who will undertake the process. There are several different drivers for developing an EMB including: a completed EMB promotes increased awareness of energy usage using an EMB assists with capturing whole-of-business costs and benefits and establishing your energy baseline developing an EMB can help you define boundaries for your energy baseline by identifying areas of high energy consumption; this may lead to further opportunity identification discrepancies shown by your EMB may prompt further EMBs on specific processes to accurately assess the process energy use developing your EMB may highlight areas of incomplete data and inaccuracies, and rectifying these will ensure an accurate baseline a well-presented EMB can open up processes to scrutiny by a wider range of people, promoting discussion and facilitating innovation to reduce your sites energy use 127

 the EMB can be used to estimate and measure project savings; its a way of modelling your processes. Data needs to be collected over a time period sufficient to incorporate the full range of process conditions. Factors such as seasonality, start-up and shut-down transients, product changes and other process conditions should be considered.

Step 2.1Identifying boundaries for systems

The system boundary can be high level (such as an entire processing site, a commercial building or rail route) or further divided into individual processes (such as coal transportation, a chilled-water loop or a distillation column). A boundary can be defined anywhere that involves the transfer of mass and energy. Refer to Section 1.3.1 (Determining the boundaries for energy baselines) for further guidance on EMB boundaries. Sketching a schematic of a process will help to establish all the ways that energy and mass can enter or exit the process. It will also establish if there are any internal sources or transformations of energy within the control process. Usually, these mechanisms are identified on the schematic to aid this process. A process can be viewed overall or as a series of sub-processes or units. Each sub-process is a discrete operation that can be represented by a box (see Figure 8.2).
Figure 8.2: An example schematic of a process

Wasted energy

Raw materials

Sub-process 1

Sub-process 2

Sub-process 3

-Products -By-products -Wastes -Energy

Capital Energy

Labour

Control

Process boundary Sub-process boundary

The raw materials and energy enter the system boundary. Outputs from the boundary are the desired products, by-products, wastes and energy. The mass flow in and out of a control box (through a physical or virtual boundary) must be equal.

Step 2.2Identify and capture the required data sets

The next step is to identify what data need to be collated to calculate the energy and mass flows required to form the balance. Each process will require a unique data set, depending on the industry, the selected boundary and the original drivers for the EMB. Tables 8.1 8.4 provide examples of typical data sets that may be useful in the development of EMBs across all the major industry sectors. Note that the International System of Units (symbolised as SI) and their derivatives should be used rather than imperial units to minimise errors from unit conversions. Capturing complete and accurate energy data is vital in developing an accurate EMB. Some potential data sources are: electricity/gas/water company invoices inward goods/production/dispatch records manufacturer/contract/design/recipe data physical/chemical property tables measured data calculated data estimated data. For assistance on how to meter, measure and capture energy flows, refer to Section 2. Note: An EMB is one relevant method for establishing your energy baseline. The key to developing a useful EMB is to invest time in identifying your system boundariesthis is particularly useful for non-production based sectors (such as transportation and commercial buildings). For example, transport system EMBs could be completed per truck, per route or per depot while a commercial EMB may be completed per building, per floor or per work team. 128

Table 8.1: Typical data sets for participants in the manufacturing sector

Category Mass balance Water

Quantifiable parameter Incoming to site Discharge to sewer Water flows in each process and individual equipment Process streams Raw material purchased Ingredients produced in factory Material flows through each processing stage Waste product Finished product

Units m /y m /y
3 3

m /y t/y t/y

t/y t/y t/y C C C C kWh/y t/y GJ/year or 3 m /year kWh/year m /year kWh/year m /year
3 3

Energy balance

Process water

Temperature before heating/cooling Temperature after heating/cooling

Process streams

Temperature before heating/cooling Temperature after heating/cooling

Electricity Steam

Electricity Steam flow

Gas Chilled water

Gas flow Chilled water load Chilled water flow

Hot water

Hot water load Hot water flow

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Table 8.2: Typical data sets for participants in the mining and mineral processing sectors

Category Inputs Potable water

Quantifiable parameter Bore field Plant Process water Rainfall Surface run-off Mine dewatering Electricity Automotive consumption Electricity Automotive diesel oil Lubricants Tyres Spare parts / Consumables Explosives Cement For instance drills, rock bolts, mesh, etc Explosives Cement Mined material Surface ore Underground ore Transfer Recycle Ore transferred to treatment plant Used tyres to off-site recycle Used lubricants to off-site recycle Waste Mullock, dust Waste to landfill Waste to incineration Sewage Mine water

Units m /year m /year m /year m /year m /year kWh/year L/year L/year t/year t/year GJ/year t/year t/year t/year t/year t/year t/year L/year t/year t/year t/year m /year m /year
3 3 3 3 3 3 3

Outputs

Extraction Recovery

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Table 8.3: Typical data sets for participants in the transport sector

Category Fleet Fuel

Quantifiable parameter Number of trucks, vans, cars, air freights, etc. Individual/total vehicle depot fuel Individual/total vehicle on-road fuel purchases

Units No. kL/year kL/year

Distance

Individual/total vehicle distance and distance each item or passenger is transported Travel time Idle time

km/year h/year h/year kt/year m /year No./year

3

Time

Goods moved

Total weight Total volume

People moved

Total number of people moved

Note to participants from the transport sector

In the transport sector, energy and mass flow analysis may not currently be known as an EMB. Although an EMB may not seem to apply to transport the same way as it does to other sectors, the principle of mapping energy and mass flows can be effectively undertaken in the transport sector. Energy and mass flows can be mapped by investigating the inputs and outputs for a system as for other sectors, and will also focus on the changes that occur through the transportation process. For example, for trucks transporting freight, it is important to know fuel types, quantities of fuel consumed, distances travelled, weights of freight and travel times. Route gradients, typical travelling speeds and traffic congestion will also impact on energy use. Only by monitoring and tracking the effect of these factors on energy consumption can you develop a true picture of operations. The Department of Resources, Energy and Tourism has developed an EMB guidance document, Energy-Mass Balance: Transport, and an example in the worked examples Annex to this document to provide specific guidance. The Department has also developed another guide, Measurement and Opportunity Evaluation in the Transport Sector: Supplementary information for EEO participants, available on the EEO website.
Table 8.4: Typical data sets for participants in the commercial buildings sector

Category Electricity

Quantifiable parameter Lighting Pumping Fans Heating Cooling Office equipment Catering equipment Ventilation Lifts and escalators

Units kWh/y kWh/y kWh/y kWh/y kWh/y kWh/y kWh/y kWh/y kWh/y

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Category Gas

Quantifiable parameter Boiler Hot water heater Kitchen cooking appliances

Units m /y m /y m /y m /y m /y
3 3 3 3 3

Water

Incoming water Effluent

Note to participants from the commercial building sector

The control of building environments is essentially an implementation of heat and mass transfer principles. Within the boundary of a commercial building there are several systems which should be incorporated into an overall EMB, such as heating, ventilating and air conditioning (HVAC), refrigeration, lighting, lifts and escalators. The overall energy use and how these individual systems interact provide the basis for an EMB. The application of mass flows for a commercial building may not be immediately apparent. However, examples include occupancy rates, stock, products, hot water and airflow in and out of the building. Depending on the design and location of the building, solar gain can be manipulated to provide energy savings by reducing heating needs in winter and reducing incoming heat in summer. Since passive solar gain influences the 2 energy requirements of a building, this energy input (solar gain of 1kW/m in full sun) could be included in an EMB, depending on the design of the building.

Step 3Calculate energy and mass flows

When calculating mass and energy flows, it is essential to document the assumptions made and the calculations used. These will have a large impact on the accuracy of an EMB and should be reviewed once the process is completed.

Calculating the mass flows

The mass balances should be completed first, as this will provide the basis for the energy balance calculations. There may be multiple mass balances within a system boundary referring to individual products or processes. Mass balance calculations are based on the conservation of mass principle. Comparisons should be made to verify the calculations. The calculated mass flow should be compared to a measured flow, production records, invoices or inward goods records and any differences represented as a percentage. The lower the percentage, the more accurate the mass or energy balance. Where mass flows are estimated from volumes, the effect of temperature on density should be considered.

Calculating the energy flows (thermal energy)

Technical assistance may be required to perform energy calculations depending on the complexity of the processes being analysed. All heating and cooling streams should be identified, taking particular care to identify heat exchange between streams or phase changes. In general, if there are several successive energy conversion processes, the overall efficiency is the product of the conversion efficiencies for each process. For process flows, the theoretical energy required for heating is calculated from the equation Q = mCpT, where m is mass flow, Cp is specific heat, and T is the change in temperature. Other parameters may be needed to complete calculations. For example, boiler efficiency and hot water loop heat transfer efficiency information can be obtained from test results or the manufacturer.

Steps 4-5Analyse the results

A vital step in the development of the energy-mass balance is checking that the balance is representative of actual operation. The calculations used, and the assumptions made, need to be rigorously tested for errors and the data screened for erroneous values. If illogical results are apparent, revisit the step or steps involved. Points to consider when analysing the results include: Does this EMB correlate and reconcile with accounts and metering information? How could this EMB be improved to better represent what is actually occurring? What assumptions need to be revisited? How can data of higher quality be obtained? 132

It is important to investigate the accuracy of the mass and energy flows for each process. This check is done to ensure that the energy-mass balance is accurately representing the actual process. Examples of causes of inaccuracies include: unaccounted losses (e.g. steam in the distribution system or heat loss from components) incorrect assumptions use of poor data during the calculations faulty or poorly calibrated meters. These causes of error should be systematically identified and eliminated wherever possible. This may require reviewing some, or all, of the Steps 2 to 6 of the EMB development. The accuracy of the EMB the difference between inputs and outputsshould be determined. If the percentage is too high, the analysis should be revisited.

Step 6Document the energy-mass balance

A well-documented EMB should: indicate a balance of mass and energy flows include details of assumptions, data sources and methods used have a clear and well-organised structure, that is easily read and updated include diagrams and schematics that simply and clearly, illustrate the process. The Worked Examples Annex to this document contains the full EMB example for the Dreamt-Up Drink Company.

8.4 Additional energy-mass balance examples

The Department of Resource, Energy and Tourism has developed EMB guidance documents for resource processing, mining and transport operations under the EEO Program. These provide additional useful information about preparing EMBs for different sectors. These documents are available on the programs website: www.energyefficiencyopportunites.gov.au.

8.5 Section summary

There are six steps to completing an EMB for a site/processes. These are: 1. develop a plan for energy-mass balance development 2. identify boundaries that define inflows/outflows 3. identify and capture the required data sets 4. calculate energy and mass flows 5. analyse the results 6. document the EMB. A well-developed EMB will: provide an understanding of energy consumption promote discussion and facilitate innovation aid in identifying the most valuable improvement opportunities provide a platform for establishing an energy baseline aid in estimating and measuring project savings.

Key Elements addressed in Section 8: Key Element 3.1Data collection plan Key Element 3.2-3.3Energy and material flows

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SECTION 9.0
Appendices
9.1 9.2 Useful benchmarking and calculation tools Citations

NOTE: The Australian Government Department of Resources, Energy and Tourism has provided links to external websites purely for the assistance of the reader. The Department has no direct control over the content of any linked websites, or the changes that may occur to the content of those websites. Links to external websites are provided in good faith, but it is the responsibility of the user to make their own decisions about the accuracy, currency, reliability and correctness of their information. Accordingly, all readers should independently verify the contents of the sites, currency, completeness, and relevance for their own individual purposes, and should obtain appropriate professional advice before making any decision based on the information and tools. Links to external websites do not constitute an endorsement or a recommendation by the Department of the information, tools, products or services provided by that person or organisation or of any third party information, tools, products or services offered by, from or through, those websites. The Department does not consider this to be an exhaustive list of information, tools, products or services available to the market. Users of links provided by this website are responsible for being aware of which organisation is hosting the website they visit. These links are correct as of January 2013. 9.3 9.4 Example of an opportunity tracking register Other financial analysis methods

9.5 How the guide can be used in conjunction with the National Greenhouse and Energy Reporting Scheme (NGERS)

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9.1 Useful benchmarking and calculation tools

Specific links to the resources in this section can be found at www.energyefficiencyopportunities.gov.au.

9.1.1 Unit conversion tool

Location: www.unitconversion.org/ Application of tool: A free online resource for unit conversion. It converts from one unit of measurement to another unit. To use, simply select the appropriate unit converter from the lists on screen and type in the input value.

9.1.2 Daily weather observations

Location: www.bom.gov.au/ Application of tool: This site provides observations of weather elements daily, has information available for a wide variety of locations across Australia, and has climate statistics (including long-term average temperatures) which may be useful for determining your local ambient conditions.

9.1.3 Regression analysis tools

Application of tool: There are several different software applications which might assist in performing a regression analysis on energy data. Conduct your own investigations to determine which best suits your individual needs. Three of the more commonly-used applications follow. 1. Location: http://office.ms.com/ Microsoft Excel 2003 Tutorial covers the following topics: regression calculating linear regression calculating exponential regression. 2. Location: http://www.nlreg.com/ Non Linear Regression and Curve Fitting NLREG is a powerful statistical analysis program that performs linear and nonlinear regression analysis, surface and curve fitting. 3. Location: http://www.mathworks.com/ MATLAB has data-fitting capabilities for linear regression analysis. glmlab is a free MATLAB toolbox for analysing generalised linear models. It can fit all types of generalised linear models, including (among others) multiple regression, log-linear models, logistic regression, and weighted regression.

9.1.4 PumpSave Energy Saving Calculation Tool and FanSave Energy Saving Calculation Tool
Location: www.abb.com/ Application of tool: ABB has developed the following calculation tools for estimating the energy savings that become available when applying electric speed control to certain flow machines: PumpSave Energy Saving Calculation Toolfor comparing AC drive control against throttling, on/off and hydraulic coupling control in pumps. FanSave Energy Saving Calculation Toolfor comparing AC drive control against traditional flow control methods in fans.

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These tools are directly applicable to ABB drives, but may be used to provide an indicative figure for other brands of drives. Refer to manufacturers data to determine whether these tools will suit your needs. The tools may also be used to provide financial figures for assessing the profitability of purchasing an ABB drive. PumpSave and FanSave run in Microsoft Excel and use VBA macros.

9.1.5 Spirax Sarco Steam Tables

Location: www.spiraxsarco.com/ Application of tool: The Resources section of this website provides a complete set of steam tables, consisting of the five regions from sub-saturated water through to superheated steam: sub-saturated water region saturated water line wet steam region dry saturated steam line superheated steam region

9.1.6 Spirax Sarco Steam Engineering Tutorials

Location: http://www.spiraxsarco.com/ Application of tool: The Resources section of this website provides tutorials that explain the principles of steam engineering and heat transfer. They also provide a comprehensive engineering best practice guide for all aspects of steam and condensate systems.

9.1.7 Metering rules

Location: http://www.aemc.gov.au/ Application of tool: The purpose of the metering rules is to set out the rights and obligations of Registered Participants in the Australian electricity market and the rights, obligations and qualifications of Metering Providers associated with the measurement of electrical energy, and the provision of metering data and business-to-business data and the performance of business-to-business communications.

9.2 Citations
9.2.1 Notes
1. 2. 3. 4. 5. (p.14) All corporations must assess at least 80% of their corporate energy use and all sites that use more than 0.5 PJ of energy per year in their first five-year cycle. This increases to 90% of energy use for subsequent cycles. (p.23) Clean Development Mechanism (CDM) Approved Baseline and Monitoring Methodologies are available from: http://cdm.unfccc.int/methodologies/ (p. 23) TecMarket Works Framework Team (2004). The California Evaluation Framework, Prepared for the California Public Utilities Commission and the Project Advisory Group, available from: http://www.cee1.org/eval/CEF.pdf (p. 23) This section has been developed with reference to an unpublished working draft ISO standard, ISO/CD 50006, Measuring Energy Performance using Energy Baselines and Energy Performance Indicators General Principles and Guidance, being developed under the ISO Energy Management technical committee. (p. 26) Canada. Canadian Industry Program for Energy Conservation (CIPEC) (2000). Energy Management Information SystemsAchieving Improved Energy Efficiency. Ottawa: Office of Energy Efficiency of Natural Resources Canada. Available from: http://oee.nrcan.gc.ca/publications/industrial/EMIS/8569

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6. 7. 8. 9.

(p. 29) USA. Department of Energy, Efficiency Valuation Organization (EVO) (2007). International Performance Measurement and Verification Protocol (IPMVP) Springfield: US Department of Commerce, Volume 1, Section 1.4. (p. 39) The Carbon Trust. Advanced metering for SMEs (CTC713), UK: The Carbon Trust, available from (note that free registration is required before being granted access to this publication): http://www.carbontrust.com/resources/reports/technology/advanced-metering-for-smes (p. 42) The California Evaluation Framework (Note 3), Chapter 13 (p. 68) Taylor, B N and Kuyatt, C E (1994). Guidelines for Evaluating and Expressing the Uncertainty of NIST Measurement Results, National Institute of Standards and Technology, US Department of Commerce, NIST Technical Note 1297, see http://physics.nist.gov/Pubs/

10. (p. 70) The California Evaluation Framework (note 2), Chapters 7 and 12 11. (p. 72) Kenneth K . Humphreys, (2004), Project and Cost Engineers' Handbook, Fourth Edition, CRC Press, pp. 5786. 12. (p. 72) ANSI Z94.01989. (1991). American National Standard Industrial Engineering Terminology. rev. ed. McGraw Hill Inc., New York and Institute of Industrial Engineers: Norcross, GA. 13. (p. 73) AACE International Recommended Practice No. 18R97. (1997). Cost Estimate Classification Systemas Applied in Engineering, Procurement, and Construction for the Process Industries. AACE International, Morgantown, WV. 14. (p. 92) Worrell, E, Laitner, J A, Ruth, M and Finman, H. (2003). Productivity benefits of industrial energy efficiency measures, Energy, 28, pp. 1081 1098 15. (p. 97) Groover, M, (2001). Automation, Production Systems, and Computer-Integrated Manufacturing, Upper Saddle River: Prentice Hall, Chapter 20. 16. (p. 98) Energy Management Information SystemsAchieving Improved Energy Efficiency (Note 3). http://oee.nrcan.gc.ca/publications/industrial/EMIS/8569 17. (p. 108) International Energy Agency (IEA) (2009). Energy Technology Transitions for Industry: Strategies for the Next Industrial Revolution, OECD/IEA, Paris: Section 1 18. (p. 125) This section has been developed with reference to an unpublished working draft ISO standard, ISO/CD 50006, Measuring Energy Performance using Energy Baselines and Energy Performance Indicators General Principles and Guidance, being developed under the ISO Energy Management technical committee.

9.2.2 References
Canada. Canadian Industry Program for Energy Conservation (CIPEC) (2002). Energy Efficiency Planning and Management Guide Ottawa: Office of Energy Efficiency of Natural Resources Canada. Available from: http://oee.nrcan.gc.ca/publications/industrial/cipec/efficiency/761 Canada. Canadian Industry Program for Energy Conservation (CIPEC) (2003). Energy Management Information SystemsAchieving Improved Energy Efficiency. Ottawa: Office of Energy Efficiency of Natural Resources Canada. Available from: http://oee.nrcan.gc.ca/publications/industrial/EMIS/8569 The Carbon Trust (2005). Good Practice Guide 352: Introductory Guide to Energy Performance AssessmentAnalysing Your Own Performance (GPG352). United Kingdom: The Carbon Trust. [Note: this guide is no longer available, has been replaced by other publications at: http://www.carbontrust.com/resources/guides/energyefficiency/technology-and-energy-management-publications] The Carbon Trust (1996). Good Practice Guide 112: Monitoring and Targeting in Large Companies. United Kingdom: The Carbon Trust. [Note: this guide is also no longer available, has been replaced by other publications at: http://www.carbontrust.com/resources/guides/energyefficiency/technology-and-energy-management-publications] Clean Development Mechanism (CDM)Executive Board (2006). Methodology for improved electrical energy efficiency of an existing submerged electric arc furnace used for the production of SiMn, Approved baseline and monitoring methodology AM0038, UNFCCC/CCNUCC. Available from: http://cdm.unfccc.int/methodologies/PAmethodologies/approved.html

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Commonwealth of Australia and the Australian Energy Performance Contracting Association (AEPCA) (2004). A Best Practice Guide to Measurement and Verification of Energy SavingsA companion document to A Best Practice Guide to Energy Performance Contracts. Canberra: Department of Innovation, Industry, Science and Research. Available from: www.eec.org.au/UserFiles/File/docs/Best%20practice%20guide%20to%20measurement%20and%20verification.pdf Commonwealth of Australia. BMRC, The Centre for Australian Weather and Climate Research, Global Guide to Tropical Cyclone Forecasting: Chapter 9: Ready Reckoner. Available from: www.bom.gov.au/bmrc/pubs/tcguide/ch9/ch9_6.htm Commonwealth of Australia. Department of Resources, Energy and Tourism (2006). Energy Efficiency Opportunities Assessment Handbook. Canberra: Department of Resources, Energy and Tourism. Available from: www.energyefficiencyopportunities.gov.au Commonwealth of Australia. Department of Resources, Energy and Tourism (2006). Energy Efficiency Opportunities Industry Guidelines. Canberra: Department of Resources, Energy and Tourism. Available from: www.energyefficiencyopportunities.gov.au Ernst Worrell, John A. Laitner, Michael Ruth and Hodayah Finman (2003). Productivity benefits of industrial energy efficiency measures, Energy, 28, pp. 1081 1098 National Greenhouse and Energy Reporting Determination 2008. Part 1.3, Division 1.3.3. National Greenhouse and Energy Reporting Determination 2008, Section 6.2. TecMarket Works Framework Team (2004). The California Evaluation Framework, Prepared for the California Public Utilities Commission and the Project Advisory Group. Available from: www.cee1.org/eval/CEF.pdf USA. Bonneville Power Administration, Portland. Impact of Interior Lighting Power Reductions on Commercial Building Energy Use. International Building Performance Simulation USA. Available from: www.ibpsa.org/proceedings/BS1989/BS89_060_67.pdf USA. Department of Energy, Efficiency Valuation Organization (EVO) (2002). International Performance Measurement and Verification Protocol. Springfield: US Department of Commerce. Available from: www.nrel.gov/docs/fy02osti/31505.pdf USA. Department of Energy, Federal Energy Management Program (2000). M&V Guidelines: Measurement and Verification for Federal Energy Projects (Version 2.2). Springfield: US Department of Commerce. Available from: www.nrel.gov/docs/fy00osti/26265.pdf World Business Council for Sustainable Development website: http://www.wbcsd.org Note: the above links are correct as of 17 January 2013.

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9.3 Example of an opportunity tracking register

Project ID Site Project title Current status Comment Next steps Project Capital sponsor cost Thermal energy (GJ) Electrical energy (MWh) Total Energy Net other Total energy (GJ) savings ($) savings ($) savings ($) Payback (years) Priority Carbon Post -implementation (tCO2-e) Actual Actual Actual Actual capital savings savings payback (GJ) EEO0001 North Economiser Implemented for boiler Review actual performance in three months No economic heat source Higher gas price would make more economic $ savings, not GJ EEO0004 North Insulation of plant silo 2a EEO0005 North Air Under compressor investigation automation Implemented Rollout to silos 2b, 2d, 3b, 3d to be evaluated Looks good, but need to deal with leaks first to get decent baseline J Brown $150,000 0 1100 3,960 $55,000 $0 $55,000 2.7 1 660 J Brown $45,000 1,714 1,714 $12,000 $12,000 3.8 1 89 $44,500 1,800 $14,400 3.1 L Black $250,000 0 0 0 $0 $33,000 $33,000 7.6 3 0 K White $85,000 1,875 0 1,875 $15,000 $0 $15,000 5.7 3 98 J Brown $250,000 11,250 0 11,250 $90,000 $5,000 $95,000 2.6 1 585 ($)

EEO0002 South Boiler feed Not to be water pre- implemented heat

EEO0003 East

Steam

Not to be heating coil implemented in gas dryer

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Project ID

Site

Project title

Current status

Comment

Next steps

Project Capital sponsor cost

Thermal energy (GJ)

Electrical energy (MWh)

Total Energy Net other Total energy (GJ) savings ($) savings ($) savings ($)

Payback (years)

Priority Carbon Post -implementation (tCO2-e) Actual Actual Actual Actual capital savings savings payback (GJ) ($)

EEO0006 West Electricity

To be metering implemented plant level

Approved, but must be implemented in tandem with motor control centre replacement (not yet approved)

M Green

$50,000 0

300

1,080

$15,000

$2,000

$17,000

2.9

180

EEO0007 West Steam trap Implementation testing commenced

M Green

$45,000 6,400

6,400

$51,300

$5,000

$56,300

0.8

333

EEO0008 South PV panels for recharging forklifts

Not to be implemented

PR/ intangible benefits available, but long payback expected

Watching brief on technology

K White

$0

EEO0009 North Power factor correction

Implemented

$ savings, but not GJ

J Brown $25,000 0

$0

$8,000

$8,000

3.1

$21,000 0

$5,000

4.2

EEO0010 South Main water Implemented feed pump VSD

K White $75,000 0

500

2,180

$30,000

$0

$30,000

2.5

360

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Project ID

Site

Project title

Current status

Comment

Next steps

Project Capital sponsor cost

Thermal energy (GJ)

Electrical energy (MWh)

Total Energy Net other Total energy (GJ) savings ($) savings ($) savings ($)

Payback (years)

Priority Carbon Post -implementation (tCO2-e) Actual Actual Actual Actual capital savings savings payback (GJ) ($)

EEO0011 East

Main office Under investigation HVAC control and heating

Proving difficult to get accurate data, metering required

L Black

$0

EEO0012 North Redesign

To be and rebuild implemented condensate return from plant

Implementation J Brown $100,000 6,250 in next shutdown

6,250

$50,000

$3,300

$53,300

1.9

325

EEO0013 North Plant heat recovery project EEO0014 South Micro turbine on pipeline from water dam EEO0015 West Drier air preheat

To be implemented

Implementation J Brown $750,000 50,000 in next shutdown $ savings but not GJ KW to discuss with supplier first K White

150

49,460

$392,500

$392,500 1.9

2510

Idea

Idea

MG evaluation

M to commence in Green 1 month Electrical saving plus possible OH&S benefit M Green 0

EEO0016 West Automate Idea site lighting

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Project ID

Site

Project title

Current status

Comment

Next steps

Project Capital sponsor cost

Thermal energy (GJ)

Electrical energy (MWh)

Total Energy Net other Total energy (GJ) savings ($) savings ($) savings ($)

Payback (years)

Priority Carbon Post -implementation (tCO2-e) Actual Actual Actual Actual capital savings savings payback (GJ) ($)

EEO0017 North Automation Idea of product conveyors

Some labour

JB to review with J Brown

packing benefits as supervisors well as electricity savings

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9.4 Other financial analysis methods

9.4.1 Introduction
Managers evaluate an energy project based on a range of financial measurement tools depending on the financial decisionmaking processes used by that organisation. Each tool adds value to the quality of the investment decision. In addition to the simple payback period (discussed in detail in Section 5.2.3), financial managers also analyse options using other methods, including the average rate of return net present value and the internal rate of return. This section illustrates the use of these different methods in a worked example, MFC Inc. MFC Inc. is a moderately successful metal fabricating company which has identified energy efficiency opportunities related to energy efficient lighting, heating and production machinery. The owner is considering two investment options, Project A and Project B. The indicative cash flow statements for each proposed project are given in Tables 12.1 and 12.2. The initial one-off costs are shown in year one. The following assumptions should be noted: the benchmark for returns on investments under average rate of return has been set at 40% for simplicity, income tax and depreciation considerations have been ignored it is assumed that each alternative is mutually exclusive. That is, the acceptance of one proposal precludes the acceptance of the other, and the cash flows of each proposal remain unaffected by the acceptance or rejection of the other proposal. 1 -22,750 2 11,200 3 9,450 4 5,350 Total 3,250

Table 9.1: Indicative cash flows for Project A for MFC Inc.

Years Net cash flows ($)

Table 9.2: Indicative cash flows for Project B for MFC Inc.

Years Net cash flows ($)

1 - 28,750

2 2,000

3 4,000

4 28,600

Total 5,850

9.4.2 Simple payback period

Simple payback period measures the time it takes for the energy savings to payback the initial cost of the project. This calculation determines the time period it takes to recover the initial investment by dividing the initial investment by the estimated energy saving and other savings. Because it is a requirement of the EEO Program, this method is discussed in detail in Section 5.2.3. This method is effective for establishing the time period required to recover your initial investment. While simple to calculate, it does not consider three important factors: 1. Energy savings continue for the life of the equipment or project lifepayback does not take into account the life of the equipment. 2. A safe dollar is worth more than a risky onepayback does not allow comparison of the option with other investments. 3. A dollar today is worth more than a dollar tomorrowpayback does not take the time value of money into account. Caution is advisable when relying on this technique alone as it is not a reliable indicator of profitability; rather, it should be calculated and compared with pre-determined time frames for the recovery of funds used elsewhere in the business. Due to its simplicity, simple payback may be a useful criterion for initial ranking and prioritisation of opportunities.

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9.4.3 Average rate of return

The average rate of return technique represents the ratio of average net cash flow to the initial cost of the project. It is quick and simple to calculate and can be used where two or more alternatives have similar income streams and costs, but differ because of the initial capital outlay. Once the average rate of return has been calculated, it can be compared with alternatives and against a businesss required rate of return. It is, however, limiting in its application, as it represents only approximations for assessing the economic worth of the investment, rather than actual results. Furthermore, it also fails to recognise the timing of cash inflows and outflows. Average rate of return should not be confused with the accounting rate of return, which considers depreciation.

Example
MFC Inc.s benchmark for returns on investments using average rate of return has been set at 40%. Applying this technique to the cash flows in Tables 9.1 and 9.2 the average rates of return are calculated as follows: Project A Net cash flows per year: Year 2 Year 3 Year 4 = Average net cash flow $ 11.200 9,450 5,350 $8,666 Project B $ 2000 4,000 28,600 $11,533

Average rate of return: Cost of energy saving asset Cost of asset Average rate of return $8,666 $20,750 41.75% $11,533 $26,750 43.1%

Based on the average rate of return, Project B appears to be a better project and would probably be selected over Project A if no other evaluation methods were applied.

9.4.4 Net present value

The net present value measures the increase in value of the investment based on the rate of return required by the company. As the name of the technique suggests, all future net cash flows are discounted back to their present value to account for the effects of inflation and the interest available from alternative investments. Companies typically require a minimum rate of return for all investment projects. This benchmark rate of return is used as the discount rate when calculating the net present value of future cash inflows. Using the company discount rate future net cash flows are converted into current dollars to determine whether these cash flows will in fact be positive. The net present value method takes into account the equipment life, the risk of the investment and when the energy savings will be delivered. It is simple to calculate using the net present value function in a spreadsheet program. Financial calculators also incorporate the net present value formula, which also makes the process of calculation relatively straightforward. If the sum of the present values of the expected annual savings is greater than the initial energy investment, the net present value of the project will be positive and should be undertaken. The risk of the project is taken into account by selecting an appropriate discount (hurdle) rate for the investment. Net present value = initial investment + sum of the present values of the estimated energy savings (life of the project) = -CF0 + [CFt/(1+k) ] Where: CF0 = the cash flow at time zero (initial investment) CFt = the cash flow at time period t (energy savings) k = the discount rate (based on risk of project) 144
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t = time period of cash flow from time zero (number of years) Note that the net present value is highly sensitive to the chosen discount rate, especially for longer term investments. At high discount rates, savings made well into the future approach zero, as the example below demonstrates. Other methods of project evaluation will therefore be needed for longer term capital investments.

Example
The net present value calculations for MFC Inc.s initial cash flows provided in Tables 12.1 and 12.2 are as follows. This example assumes a discount rate of 10%. Given the calculations, Project A and B have a negative discounted cash flow of ($739) and ($2,138) respectively. Because these are negative, neither project seems to meet the investment standards of the business at a rate of 10%. Project A Net present value = (discounted cash flows) (initial cost of the project)
11,200 5,350 22,750 3 1 1.1

(1.1) (1.1) ( )
1 2

9.450

(This is elaborated on in the table below)

= $ -739 Project B Net present value = (discounted cash flows) (initial cost of the project)
2,000 28,600 28,750 3 1 1.1

(1.1) (1.1) ( )
1 2

4,000

(This is elaborated on in the table below)

= $ -2,138

PROJECT A Interest rate Year Net cash flow Present value factor Present value of cash flow Cumulative present value Net present value 10% 0 (22,750) 100% (22,750) (22,750) (739) 1 11,200 91% 10,182 (12,568) 2 9,450 83% 7,810 (4,758) 3 5,350 75% 4,020 (739)

PROJECT B Interest rate Year Net cash flow Present value factor Present value of cash flow Cumulative present value Net present value 10% 0 (28,750) 100% (28,750) (28,750) (2,138) 1 2,000 91% 1,818 (26,932) 2 4,000 83% 3,306 (23,626) 3 28,600 75% 21,488 (2,138)

If we assume a revised benchmark rate of 7%, Projects A and B would be assessed as follows. Project A Net present value = (discounted cash flows) (initial cost of the project)

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11,200

(1.07) (1.07) (
1 2

9.450

5,350 22,750 3 1 1.07

= $ 338 Project B Net present value = (discounted cash flows) (initial cost of the project)

2,000

(1.07) (1.07) (
1 2

4,000

28,600 28,750 3 1 1.07

= $ 41 Based on this analysis, the best investment decision would be to accept Project A (at a discount rate of 7%) and reject Project B.

9.4.5 Internal rate of return

The internal rate of return follows the same reasoning as the net present value method. The main difference is that rather than picking a discount rate depending on the risk of the project, this method relies on an iterative solution to determine the discount rate that will yield a net present value for the project of zero. Internal rate of return is calculated by trial and error by varying the discount rate in the net present value formula until the net present value is equal to 0. The easiest method is to use a calculator or spreadsheet internal rate of return function that is programmed to calculate the iterative solution. Net present value = -CF0+[CFt/(1+IRR) ] = 0 The resulting internal rate of return can be used to evaluate the profitability of projects and to make direct comparisons with alternative projects and investments. The time value of money, timing of cash flows and project length are taken into account in this analysis. It indicates whether the funds to be spent on energy saving investments could be better deployed elsewhere in the business, either through an alternative project, or by placing the funds in an interest bearing account. The selection of a rate of return will vary from organisation to organisation and industry to industry, and like other benchmarks all the peculiarities of the particular organisation will need to be considered when determining a suitable rate of return. If a projects internal rate of return, as calculated using the formula, is greater than the required rate of return (also known as cost of capital) then it can be accepted. Choose a project if, and only if, the internal rate of return is greater than the cost of capital. Cash outflows occur in the early years and cash inflows in later years. If the internal rate of return falls below the required rate of return, then it should typically be rejected. Acceptance of such a project would result in the lowering of the performance of the business against the standards already used. The internal rate of return should not be confused with the average rate of return. The internal rate of return measures the opportunity cost of using funds to purchase assets, whereas the average rate of return only measures cash flows as a percentage of the total cost of the asset in isolation. The average rate of return does not measure whether the funds are used to best effect.
t

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Example
The internal rate of return calculations for MFC Inc.s initial net cash flows provided in Tables 12.1 and 12.2 are as follows:

Net cash flows 0 Project A Project B (22,750) (28,750) 1 11,200 2,000 2 9,450 4,000 3 5,350 28,600 Total 3,250 5,850

Looking first at project A, the internal rate of return can be calculated by solving the following equation:

22,750 =

11,200 9,450 5,350 + + The iterative solutions are tabulated below for Projects A and B. (1 + r )1 (1 + r )2 (1 + r )3
7% Year 0 (22,750) 100% (22,750) (12,283) 8% 7% Year 0 (28,750) 100% (28,750) (26,881) 7% 2,000 93% 1,869 5,363 11,200 93% 10,467 18,721 PROJECT A 1 9,450 87% 8,254 12,621 2 5,350 82% 4,367 4,367 3

Cost of capital Net cash flow Present value Present value of Net present value Internal rate of

factor cash flow

return

Cost of capital Cash flow Present value factor Present value of cash Net present value Internal rate of

PROJECT B 1 4,000 87% 3,494 26,840 2 28,600 82% 23,346 23,346 3

flow

return

Project A gives an internal rate of return of 7.94% and Project B results in an internal rate of return of 6.96%. Project A has an internal rate of return greater than the cost of capital, while Project Bs internal rate of return only equals the cost of capital. If the business benchmark was greater than 7.94%, then both projects would be rejected; as the net present value of cash flows is negative, and hence the benchmark has not been achieved. If however, the benchmark was 7% then Project A would be accepted and Project B rejected, as project B would not have reached the required benchmark.

Conclusion
Based on the various financial analyses, Project A would appear to result in greater returns on investment over Project B. MFC Inc. would proceed to further evaluate Project A using sensitivity analysis and other whole-of-business factors. The example illustrates that it is important to use various analytical tools in the process of making a business case for an energy efficiency opportunity from the point of view of an investment decision. The tools used in this section are by no means exhaustive.

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9.5 How the guide can be used in conjunction with the National Greenhouse and Energy Reporting Scheme (NGERS)
9.5.1 Introduction
The National Greenhouse and Energy Reporting Act 2007 establishes a national framework for corporations to report greenhouse gas emissions and energy consumption and production. The Act makes registration and reporting mandatory for corporations whose energy production, energy use or greenhouse gas emissions meet specified thresholds. Those corporations that have met the specified thresholds are required to collect, and report, the following data from facilities they control: the energy consumed, by energy type the energy produced, by energy type the activity data for greenhouse gas emissions, by source.

Corporations are expected to prepare their estimates of greenhouse gas emissions and energy production and consumption in accordance with the following principles: a. Transparency. Emissions estimates must be documented and verifiable. b. Comparability. Emissions estimates using a particular method and produced by a registered corporation in an industry sector must be comparable with the emissions estimates produced by similar corporations in that industry sector using the same method and consistent with the emissions estimates published by the Clean Energy Regulator in the National Greenhouse Accounts. c. Accuracy. Having regard to the availability of reasonable resources by a registered corporation and the requirements of the Determination, uncertainties in emission estimates must be minimised and any estimates must neither be over nor under estimates of true values at a 95% confidence level. d. Completeness. All identifiable emission sources within the energy, industrial process and waste sectors identified by the National Greenhouse Inventory Report must be accounted for. While prepared for the EEO Program, the methods in this guide are consistent with, and could be used to help prepare, a companys responses to the energy consumption component of the NGER Program. In particular, the following methods, and sections of the guide, are of relevance: 1. Section 8Developing an energy-mass balance. The development of an energy-mass balance for a facility will assist in identifying and quantifying energy use and generation in the facility. This will help meet the principle of Completeness in relation to energy consumption, generation, and energy related emissions. Identifying the mass flows, and associated processes will also assist to identify non energy emissions sources such as industrial process and waste related emissions. 2. Section 2Measuring, metering and capturing energy data. Accurate energy data is a requirement of the EEO Program, and underpins the estimation, evaluation, measurement and tracking of energy efficiency opportunities. This section of the guide provides very useful information on using and improving existing metering and data capture systems to obtain accurate energy consumption and generation data, which will assist in meeting the reporting requirements for the NGER scheme. This will help meet the principle of Accuracy in relation to energy consumption, generation, and energy related emissions. 3. Section 3Determining and improving accuracy. All estimates and measurements have a level of uncertainty associated with them. Accuracy in relation to energy consumption, generation, and energy related emissions is a requirement of the NGER scheme. The guidance and methods in this section on how to determine, and improve, the level of accuracy for the energy savings, costs and benefits associated with each energy efficiency opportunity are relatively generic. Therefore it provides methodologies and guidance for assessing and improving the accuracy of the energy consumption and generation, and emissions data for the NGER. Further information regarding the specific requirements of the NGER Scheme is accessible at: www.cleanenergyregulator.gov.au

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