We provide energy and facilities managers with some advice on putting a successful business case forward for Combined Heat and Power.
Energy and facilities managers in food and drink manufacturing are under pressure to cut energy costs and reduce CO2 emissions. Improving production line efficiency by eliminating fundamental areas of energy waste is a good starting point.
But what about the bigger picture?
- Do increasing energy costs affect your profits?
- Does the reliability and security of your energy supplies affect productivity and competitiveness - i.e. loss of revenue from process downtime?
- Are you meeting environmental performance and sustainability objectives, and complying with legislation?
What if you could generate your own energy and save money?
63% of food and drink manufacturers with processes that require heating, cooling and electricity have now invested in renewable/self-generation technology, including Combined Heat and Power (CHP).
Getting the business case for Combined Heat and Power approved:
‘Reducing energy consumption’ was previously seen as discretionary and non-essential, rather than a business priority.
Times have changed, but your business case still needs to demonstrate a clear and compelling return on investment. So, it needs to be fully appraised – technically, environmentally and financially.
You will need to convince your Finance Director (FD) of the real economic benefits of Combined Heat and Power. Indeed, it may be preferable to ask for your FD’s help when it comes to the detailed analysis of payback periods, discounted cash flows, internal rates of return, inflation, depreciation and taxation.
Financing your CHP project:
CHP financing is not always that straightforward - there are a number of important factors that need to be included in your business case.
- Equipment and installation costs.
- Existing or budgeted infrastructure costs/savings.
- Preventative maintenance costs/savings – set off maintenance backlog and production downtime costs.
Energy costs/ savings:
Compare energy costs and savings:
- For the new CHP plant.
- From conventional generation (imported electricity/heating from on-site boilers).
- From the potential income stream by exporting and selling energy generated to the local electricity network.
Optimising project income:
Include the government’s policies to support ‘good quality’ CHP.
- Carbon Price Support and Climate Change Levy . This is tax relief on primary fuel and power generated for accredited schemes.
- Business Rates Exemption provides preferential treatment for Combined Heat and Power assets.
- Renewable Combined Heat and Power users may also qualify for ROCs, RHI and FiT.
Initial fixed-cost outlay. Equipment becomes a fixed asset. Businesses can benefit from claiming 100% of their investment in the year of purchase as an Enhanced Capital Allowance (ECA).
- Capital purchase.
- Debt financing.
Two options with zero capital outlay:
1. Energy supply contract. Discount Energy Purchase (DEP) - the supplier:
- Finances the CHP project.
- Contracts to sell energy produced to the user at a discounted rate.
2. Energy Services Agreement (ESA). By using energy conservation measures (ECMs), including Combined Heat and Power, the service provider:
- Guarantees annual energy savings.
- Uses savings to pay for the ECMs.
Financial savings through compliance:
The implementation of Combined Heat and Power provides:
- Financial benefits gained through compliance with the EU Emissions Trading Scheme or CRC Efficiency Scheme.
- An identified, cost-effective energy efficiency opportunity under the mandatory audits required by the Energy Savings Opportunity Scheme (ESOS) legislation.
Find out how to show your FD that CHP will save them money. Get your free eGuide now: How to cut energy costs in your Food and Drink manufacturing plant
Topics: Energy Management