More and more industrial companies rely on their own renewable energy production facilities. The focus is on the supply of their own company and the advantages associated with it. Not only do the improvement of the CO2 balance or the concept of sustainability play a role, but the obvious economic advantages are convincing as well. The self-produced and locally consumed electricity is often much cheaper than the grid-related electricity. In addition, one can benefit from the better long-term calculability of the energy costs and the higher independence from the market price.
While this topic is still in its infancy in Switzerland, the trend is gathering momentum internationally.
Industry is the largest consumer of electricity
In Switzerland and many other countries, the industrial sector and industry are the largest consumers of electricity, and the trend is rising. A reliable and competitive power supply is a basic necessity for most (large) businesses, especially for energy-intensive industries. At the same time exactly these companies are also very price sensitive in terms of energy costs.
It is obvious that the development of electricity prices nationally and internationally is closely monitored by most companies. Although, depending on the country, lower tariffs are usually offered for industry and other large consumers (in comparison to households), fluctuations in the price of electricity are significant. The market price may have been low in Europe for some years, but it is subject to more or less volatility. In the medium and long term, most forecasts assume a rise in the market price worldwide.
Long-term, individually negotiated power supply contracts may help to reduce risk, but here too one is always dependent on a provider. In addition, not in all countries of the world applies the “pacta sunt servanda” equally, especially as the question of what happens after the expiry of the treaties arises.
Furthermore, with arrangements on the side of electricity purchase, you can only fix the price of the „commodity“. Cost risks associated with additional electricity price components such as conduction fees, taxes and fees, which today often represent the majority of the subscription price, can not be hedged.
What does own power production mean?
The (renewable) electricity is produced in own facilities and is consumed on its own premises – without going through the public grid. In most cases, the goal is not to achieve 100% self-sufficiency. Although this would be possible in many cases with the current state of storage technology, this is often not interesting in terms of cost. However, the first applications for breaking power peaks or stabilizing one’s own power supply in weak power grids are already applicable today, and enormous potential for the future is foreseen here. Depending on the location and availability of space, a substantial part of the electricity demand can be covered without storage by own facilities. Where an adaptation of consumption profiles (temporal adjustment of production processes) to the own electricity production is possible, further increases of the own current supply are feasible. The remaining electricity demand will continue to be covered by the public grid. Conversely, unnecessary self-generated electricity can in many cases be fed back into the grid on more or less favorable conditions.
Cost advantages through renewable energies
One of the significant advantages of self-current production by e.g. Wind & PV is that the costs per MWh are often cheaper than grid-related electricity. How high this cost advantage is depends on many factors, and must be analyzed in each case: location, grid costs and cost composition, size of plant, legal framework etc.
The reason for the now opening advantages is that the costs for wind and PV systems have dropped massively in recent years, and so have – depending on the location and conditions – the costs per MWh (compare table).
Another reason is that the spot market price for grid-related electricity is only a fraction of the total cost. In addition there are taxes, grid fees, levies and other charges. Since these are usually not incurred for self-generated and consumed electricity, even electricity costs of renewables that are above the spot market price are competitive. Nevertheless, an industrial company will generally still have to purchase grid power.
For the all-embracing calculation it is necessary to know how high the consumption-independent grid costs are (capacity costs), how consumption and production are distributed over the course of a day, week or year and on which terms any surplus electricity can be marketed.
The graph on the right sight illustrates that the Levelized Costs for Electricity LCOE for wind onshore, and PV in particular, have fallen sharply in recent years and will continue to decline. A value below 50 € / MWh is realistic for both technologies in the future – depending on the location.
Better calculability of energy costs, higher stability
Typically, for wind & PV plants the initial investment costs are dominant. The raw material wind or sun is available free of charge, which, in contrast to nuclear and fossil energy sources, keeps the operating costs relatively low and independent and above all makes it easy to calculate in the long term.
Service and maintenance of the systems can nowadays be outsourced easily and the costs are usually already known from beginning on. With good organization, little in-house capacity is required. With the generation of own electricity one increases the independence from the market price and price fluctuations. Particularly in energy-intensive industrial operations, where electricity costs represent a significant part of the operating costs, fluctuations in electricity prices have a noticeable impact. It is a great advantage e.g. for the calculation of product sales prices, if one is able to reliably predict the electricity costs over a longer period of time in order to be able to calculate more precisely and to shift released reserves into the core business.
An obvious advantage is that wind & PV plants produce electricity almost free of CO2 emissions. Emissions incur only in the manufacturing process of the plants, the so-called gray energy. However, in good locations, this will be compensated within a few months of operation, afterwards the plant produces more energy than needed to generate it (energetic amortization). A reduction in CO2 is interesting in order to achieve one’s own sustainability goals. On the other hand, it is to be expected that in the long term the price of CO2 will again reach significant levels. Then every ton of unissued CO2 means cash.
Greater independence from the power grid
Especially in countries with unstable grid conditions and frequent power black-outs, own power supply means greater independence. As long as one still depends on the public grid, at least in part, one will still be affected by power outages, but this may possibly make back-up systems smaller, which in turn leads to cost advantages. In addition, storage systems will be more and more used as cost-effective back-up systems in the future in order, for example, to maintain system-critical processes.
Careful analysis and planning are required
For all the advantages of the use of own renewable power production plants described above: it is by no means a self runner. Whether an investment in wind and PV pays off and is also implemented depends on many parameters and factors. Here are a few things to keep in mind:
- Which system sizes are feasible resp. make sense?
- The payback periods usually take longer than many industrial companies are used to. A challenge for internal financial models and think patterns.
- In order to be supported internally by the relevant bodies, there must be clear signals from the management to bring forward a renewable energy project. Otherwise, it risks getting lost in the pending core business.
- How can the best locations and projects be identified (“low hanging fruits”)?
- Organization and controlling of processes, responsibilities and operations.
- Which activities in the entire process are done internally, which externally?
For a successful implementation a good preparation and structuring are important. A careful calculation is essential, as well as a valid technical feasibility study and the analysis of the legal and political framework conditions and the natural resources.
Image 1: Development of the price index Phelix, EEX
Image 2: IRENA 2016
Image 3: IRENA 2018
Image 4: Dieter Schütz/Pixelio
Alexander Kupfahl, Co-CEO at New Energy Scout GmbH
New Energy Scout is an independent service provider for wind energy, solar energy and biogas. The company offers both engineering and planning services, as well as consultancy, due diligence and work studies. On the topic of own electricity production, New Energy Scout has been supporting major industrial customers worldwide for years.