In the ideal environment, quality and quantity of crops are maximized. While sunlight is free, the energy costs involved with delivering the ideal environment are significant – on average, energy represents 40 per cent of the cost of sales. Of this 40 per cent, around 75 per cent relates to heating (typically natural gas, oil, propane, coal or biofuel) with 25 per cent being electricity. The high energy intensity in the greenhouse industry requires an industry focus that ensures the Canadian industry remains competitive and vibrant.
Energy is a commodity-based market, which means that the price of energy fluctuates in response to market supply and demand signals. Natural gas costs have softened over the last couple of years; however, there is an underlying trend of increasing electrical pricing. In Ontario, for example, the Ontario Power Authority (OPA) tells us that electricity prices will rise by 46 per cent over the next few years. These facts suggest upcoming challenges and opportunities in the greenhouse industry.
What can growers do to minimize energy costs and maximize profits?
Researchers in Europe have found a variance of about 25 per cent in energy usage between “best practices” and typical practices. For Canada, this would translate into a difference of around $10,000 (flowers) to $15,000 (vegetables) per acre for natural gas users! But wait a minute – what if your current energy performance is below average? Then the difference will be significantly higher. This also raises the question – do you know what your current performance is?
So, a simple question – are you interested in increasing your profits by $10,000 per acre? If the answer is yes, then you need an integrated approach to energy management. By integrated, we mean it is necessary to look at energy usage, energy supply, energy efficiency, management, data management and organizational integration.
A key part of this integration is understanding the fundamental principle of controlling energy costs – energy cost is the product of energy usage and energy pricing – to minimize the cost you need to minimize your usage at the best price.
Energy use is the backbone of energy management. Poor use of temperature, humidity, lighting, irrigation and ventilation controls can have significant impacts on energy use – and hence cost. Many growers will closely monitor the condition of their crop, but do not pay equivalent attention to their energy use. It is likely that as much as 10 per cent could be saved by simply reviewing settings and operations.
It also pays to keep up to date with the latest research in ideal growing conditions, as much of this research can have an impact on such areas of energy use as temperature integration and weather forecasting.
Understanding what drives your energy usage and monitoring when and where it is used is not only fundamental for usage optimization, but also essential in optimizing your procurement of energy. Keeping track of energy usage and its drivers allows you to work on the next part of the jigsaw: how to purchase it.
One of the first things to do is to determine your annual energy usage by square metre, or per acre. Are you “best in class” or a typical grower? That will
quickly motivate you in pursuing energy management
within your organization.
ENERGY SUPPLY MANAGEMENT
Supply management, or energy procurement, is incorrectly seen as the beginning and end of energy management for many growers. Many just look at commodity price and base their judgments on that alone – overlooking the fact that transportation and distribution costs “add on” approximately 40 per cent of the costs, which can make a significant difference. As with buying in any market, the buyer who has an internal process that allows a competitive process and pricing transparency, and has an ongoing understanding of market fundamentals and various player options, tends to make better deals.
In an attempt to get the best possible price for energy, there are a variety of options to assist growers in the procurement of energy. You can work with a single supplier (marketer), a broker and/or a consultant.
Using a single supplier or broker is seen as a money and time-saver. However, there are potential drawbacks and hidden costs that may be associated with this option. If you rely solely on a single supplier, your energy pricing for the commodity and/or transportation costs may not always be as low as market price.
If you choose to work with a broker, ensure you understand their supplier’s portfolio and book position. Brokers get paid by the supplier to sell their product. Ensuring a competitive process prevents a monopolistic setting where a single supplier can set prices as they see fit. It leads suppliers to offer the best available price with the hopes of being accepted. Requiring an open process can ensure that growers receive the best price from both the suppliers and the brokers. Remember: the less you know, the more money the supplier and broker make.
Consultants charge an upfront fee. A consultant’s scope of services and their activity should lead to a measurable scorecard benefit to the customer. It is essential that a consultant’s scope of services be made transparent and provide measurable results that benefit the greenhouse operation. An energy consultant should be looked at in the same manner as a grower consultant.
Improving energy efficiency is really about getting the biggest growing bang for your energy buck! By modifying or upgrading existing systems and installing new equipment, growers can run their greenhouses in a leaner, more profitable way.
One example of improved efficiency is combined heat and power (CHP), which provides heat, CO2 and electricity for the greenhouse at a more efficient rate than a typical boiler system.
Those sites that are not suitable for CHP can have their heating systems audited to find other ways of improving efficiency.
CHP also provides an opportunity for growers to increase revenue. The Ontario government has the Combined Heat and Power Standard Offer (CHPSOP) program. This allows growers to use the heat and CO2 they generate for the greenhouse, while selling off surplus electricity produced at a profit.
|A snapshot of forward pricing versus spot market prices.|
ENERGY DATA MANAGEMENT
Knowing how, when and where energy is used is integral to reaching the 25 per cent cost-savings available through “best practices.” The process of data management allows growers to track and understand energy usage and energy billing and use the information gathered to make better energy decisions.
There are multiple types of data that should be captured to accurately understand how energy is used within a greenhouse. Data such as monthly, weekly, daily and even hourly natural gas usage can be used to discover how efficiently equipment is working. It can also identify potentially costly abnormalities.
Once the necessary data is captured, it can be used to establish a baseline for evaluating both ongoing performance and the effectiveness of changes to both processes and equipment. By comparing current performance to the baseline established, growers can see whether the changes implemented have had the desired effect on energy usage.
The overarching principle behind energy management, which ties the elements together, is organizational integration. While savings can be achieved when managing in “silos,” a grower can only reach the full savings offered through “best practices” by integrating energy management into business management.
Having one person in charge of energy data management is pointless if they do not advise those who can change the usage. Likewise, having certain employees focus on improving the operational efficiency won’t work if they do not have a baseline against which they can compare results. Significant savings can only be achieved and sustained if there is a culture of energy management and energy conservation within the company.
The journey to excellence in greenhouse energy management requires both vision and planning. Those who set out on this journey need to be prepared and have a map so they know how well they are doing. Of course, as with any journey, it is absolutely essential to know your starting point.
Next year, 360 Energy and Greenhouse Canada will be writing about customers who have excelled in various areas, and will be offering growers the skills, tools and support they need for the journey to greenhouse energy excellence.
In a competitive market, what grower can afford to lose $10,000 per acre?
David Arkell is president of 360 Energy, one of North America’s leading energy services firms. • www.360-energy.net