To avoid high electricity prices, some organizations are wondering if they should generate power for themselves. Companies that sell generators, fuel cells, batteries and more are certainly promoting the idea. And, the claims they make sound appealing. But is generating and storing your own electricity really a smart choice for you?
Here are some things we’ve learned, working with our clients to answer this question:
- Check out supplier options: Your choice should be more than just picking a technology. Each technology has diverse suppliers and business models. Setting up a competitive proposal process will help produce the best deals to evaluate. If you have only been approached by battery providers for example, consider looking at other technologies that provide an equivalent service. You can see if proponents use the same savings estimates or economic assumptions. Explore any large differences you uncover.
- Evaluate purchasing options: Suppliers offer multiple purchasing options. You can buy a technology outright. You can lease-to-own. Some have savings sharing offers. Each comes with its own pros and cons. Buying a product tends to have the greatest upfront risk as well as the greatest savings potential. A savings sharing agreement generally has lower risk and lower reward.
- Know how you use electricity and how your rates are calculated: In Ontario for example, the Industrial Conservation Initiative (ICI) is driving industrial utility consumers to consider on-site power generation. The ICI provides an incentive to draw less power from the grid during the five highest-demand hours of the year across five days. The cost savings realized in those five hours often determine your return on investment. Any project that doesn’t reduce costs in those five hours, or operates well beyond them, can have a significantly reduced payback.
- Know your contract: Once you have narrowed your options, look very carefully at the contracts you are being offered. Pay attention to items that are different from the presentation, seem unusual, or have the potential to tilt things in your supplier’s favour. It can be tricky to assess these offers unless you first know your power rates and usage.
- Talk with your utility representative: Any big changes to your energy use could impact your local distribution network. Charging batteries, for example, could add load to your local electric system. Turning on generators and batteries could drop the network load at your site or could even export your power onto the grid. Discuss your plans in advance with your utility’s account representative. If you charge your batteries off-peak, what might it do to your peak demand or to any transformer you have on-site? Determine in advance if any local network upgrades might be required.
- Know the financial implications. Understand how a gas generator would impact your natural gas contract, or your carbon tax costs. Ensure your CFO and procurement group are involved. Your tax accountant could be valuable in reviewing the business case.
Are sales people inundating you with boilerplate or cookie-cutter proposals? Their solutions may not be appropriate for your business operations or circumstances. Who can you turn to? Use this checklist to help address the potential risks. Consider getting energy market advice from a credible third party such as 360 Energy.
Generating your own power can be a smart way to avoid energy costs. Producing power on-site can also give you greater management control, flexibility, and environmental benefits.
As with any capital project, be smart in how you plan and pull it off.