Multiple benefits of energy efficiency: a practical approach to evaluation

An article written with Livio De Chicchis about a practical approach to the evaluation of multiple benefits of energy efficiency, based on the mbenefits methodology. The general approach is summarised here, together with two case studies in which we were involved.

The article was published on the magazine Process Industry Informer last March.

Multiple benefits are defined as those economic effects generated by an energy efficiency project that go beyond energy savings. Every energy efficiency project can be associated with positive effects, the so-called non-energy benefits (NEBs), and negative ones (non-energy losses). An assessment of these effects by energy managers and technology providers can be important for three main reasons:

  • It adds economic value to the project, improving its economic indicators.
  • Since it requires a more thorough analysis, it allows to operate in a de-risking perspective, reducing the perceived risk associated with energy efficiency.
  • It facilitates the acceptance of energy efficiency projects, since it allows to highlight to decision makers and managers in charge of different departments the effects of the energy efficiency projects that are in line with their specific targets and priorities. 

Considering that the cost of energy efficiency tends to rise over the years, due to the increasing difficulty in introducing additional optimisations, the evaluation of non-energy benefits allows to counterbalance such issue.

How to quantify NEBs: the M-Benefits approach

Identifying and qualitatively evaluating the multiple benefits of a project is already a very important step. However, the real challenge is to be able to quantify and therefore include them in the business plan of the project. The European project M-Benefits, of which FIRE was the Italian partner, has produced a methodology for evaluating such benefits, from their identification to their quantification (whenever possible). The methodology consists of five steps (also illustrated in Figure 1):

  1. Simplified business analysis of the enterprise 
  2. Energy analysis 
  3. Value-risk-cost analysis and quantification of multiple benefits
  4. Financial analysis considering multiple benefits
  5. Presentation of investment projects
Figure 1. Steps for multiple benefits evaluation.

An analysis of the company is necessary to understand the business model and the investment context since the project must be tailored to the customer’s needs. In order to highlight company’s investment priorities and value proposition, a powerful usable tool is the business model canvas, which visually represents the main features of each dimension of the relevant business model. 

Energy analysis allows to correlate the key processes of the company with energy services, identifying the appropriate efficiency measures, with their relative energy benefits and with a first approach to the identification of non-energy ones. For this purpose, a database of “operational excellence” indicators can be leveraged that provide a range of options to identify and quantify multiple benefits in the field of safety, quality, cost, and product delivery. 

Value-cost-risk analysis is the central part of the NEBs evaluation process (Figure 2). 

Figure 2. Value-cost-risk analysis schematization.

This step allows to identify the possible effects of a competitive advantage, through the evaluation of NEBs, in terms of value creation, cost reduction and risks to be incurred to meet the value proposition. 

The last step, before the presentation of the project to company’s management, is related to the quantification of multiple benefits. This is done using the traditional parameters of the financial analysis, characterized by the reference indicators (NPV, IRR, PBT*), introducing in their calculation the annual economic savings generated by non-energy benefits. 

The transversal key resources needed to successfully apply the M-Benefits methodology include effective communication between the various business functions, support from senior management and availability of qualitatively valid data. As part of the European M-Benefits project, FIRE supported the implementation of several pilot projects in which the methodology described was applied to real cases in Italy. Two examples are summarized below.

Optimization of compressed air system in a manufacturing company

The target company is active in precision mechanical manufacturing, with a value proposition aimed at producing sustainable, high-precision mechanical components for its customers while ensuring a high level of safety. Compressed air systems represent a robust and flexible technology that ensures the operation of the production machines of many manufacturing companies.

The audit of the compressed air system of the target company revealed two significant criticalities: the existing configuration compromised safety being hard to access (e.g., for leakage repairs) and the high pressure and noise levels introduced a risk for staff injuries. The audit also revealed significant cost savings opportunities.

The project consists in the rightsizing of the components on production machines, optimization of the distribution line to reduce pressure drops, and the reduction of compressed air demand by optimizing compressor room. Impacts were registered on following areas:

  • Safety. Most blowing applications used to clean surfaces operated under high pressure, risking employee safety and causing eye injuries. Reducing pressure levels and integrating efficient blowers creates safer working conditions. Moreover, new installation improves access of compressed air system for maintenance, reducing the risk of injuries.
  • Production quality. The condition monitoring system reduces idling of the machines, while maintaining consistency in production.
  • Time. The new monitoring system can detect problems faster, improve response time for repairs, and reduce equipment downtime.

Multiple benefits quantified in the financial analysis include energy savings, maintenance cost savings (20% of energy savings), and accident insurance cost reduction (10% of energy savings); their quantification allows to reduce payback time of the project from 1.9 to 1.4 years. 

Optimization of the production and usage of biogas in a wastewater treatment plant

The company involved provides biological treatment of urban wastewater and industrial wastewater coming from chemical-physical treatment. The aim of the project was to verify if there are further economic impacts that could affect the preliminary business plan developed for measures aimed at optimizing and enhancing the production of biogas in the company’s treatment plant. The proposed project is aimed at maximizing the production of biogas, through extraordinary maintenance and insulation of the digesters, and a biogas treatment system. A cogeneration plant will be installed, with a heat recovery aimed at keeping digesters at a fixed temperature.

More in detail, the measures identified within the project are the maintenance of the primary digester (testing of efficiency and removal of accumulated aggregates), the implementation of controllers for the management of sludge pre-thickening and anaerobic digestion phases, biogas purification, and the installation of a cogeneration unit capable of burning biogas and producing electricity and thermal energy to be used on site.

The maintenance costs incurred in the last three years on the system were analysed, to determine which of these can be reduced with the intervention, and to what extent: the result has been quantified basing on a rate of reduction. For the operating cost of the biogas treatment system, the experience gained on a similar plant was collected, where in a previous year a treatment system was installed capable of removing sulphur from the treated wastewater. The same pilot plant also allowed to collect the maintenance costs for a biogas cogenerators of the same size.

With the information available, maintenance costs are expected to increase following the intervention, as a combination of savings on maintenance and higher costs for the biogas treatment plant and the cogenerator (so this is a non-energy loss). Evaluation of the sludge disposal cost reduction determined that the volume of sludge to be disposed will yearly drop by with the intervention, guaranteeing an amount of economic saving. The safety issue was addressed involving the company’s Health and Safety department, from which a quantification of the economic impact associated with investments in safety and prevention was achieved. From the analysis lower annual operating resulted for safety.

Summarizing the different economic contributions associated with the points introduced above, the following representation is obtained:

Energy benefits only All benefits
CAPEX (€)1’200’0001’200’000
NPV (€)193’000850’000
IRR (%)8.13%16.1%
PBT (years)86
Table 1. Summary of economic performance indicators for the proposed project according to the traditional and the mbenefits approaches.

The analysis showed the importance of non-energy aspects for the project, allowing to considerably broaden the assessment typically considered for measures having a primary focus on energy consumption reduction.

* NPV: net present value; IRR: internal rate of return; PBT: payback time. Information on how to calculate them are easy to find on the web. Good references for practitioners in the energy sector are available in the ISO 50044 and EN 17463 standards.