In Focus: Performance Contracts Cut Abatement Costs
Because of the rapidly increasing cost of natural gas, the incentive to evaluate and improve RTO efficiency before any maintenance problems occur has never been greater. If the temperature rise across an RTO is about 110 to 150ºF or greater, energy recovery projects can usually be justified based on the utility savings alone. (Whether an energy efficiency project can pay for itself is a function of temperature rise and pressure drop across an RTO, the air volume being treated, the annual hours of RTO operation and other factors.)
One major concern with any energy-saving project is one of predicted savings vs. actual results. How can a plant be sure that the savings estimated are in fact realized after the project's completion? Are the predicted savings based on realistic assumptions? And more importantly, will the system continue to be operated at both startup and in the foreseeable future in a way that truly maximize savings?
A performance contract is a tool that can be used to resolve these concerns and guarantee a reduction in RTO operating costs, with no capital investment required.
Natural gas and electricity meters are installed to measure actual utility consumption in an RTO (called "the baseline consumption"). During plant downtime, some type of energy efficiency improvement is made to the RTO. Improvements include the addition of catalyst, installation of natural gas injection or a more efficient ceramic packing. The plant pays nothing for the improvements. After the unit is restarted, the utility meters continue to measure the utility consumption. Once a month, the meter readings are used to determine the actual savings realized: the baseline consumption (i.e., what would have been consumed if no improvements had been made) less the actual consumption.
Under some contracts, the plant keeps the first portion of the savings, up to a "guaranteed savings" value. Savings above the "guaranteed savings" are paid to the contractor that installed the project, up to a predetermined "savings target." Additional savings beyond the savings target are split between the plant and the contractor, often 50/50. When the contract expires, typically after four to eight years, the plant keeps all the improvements as well as all the savings.
Performance contracts feature strong advantages over simply purchasing and installing energy-efficient projects. Most importantly, performance contracts make the contractor responsible for making the predicted savings a reality. Any shortfall in savings impacts the contractor only. The plant no longer has to evaluate how reasonable the assumptions or calculations are. That task is left to the contractor.
The shared-savings feature means it is in the contractor's best interest to periodically fine-tune the system to minimize operating costs. The plant is assured of an efficient unit throughout the life of the contract. In most cases, the actual savings exceed the predetermined target savings, meaning the plant realizes savings greater than the guaranteed minimum, which further lowers its costs.
Because the contractor is optimizing the system at startup and throughout the life of the contract, the contractor is not simply taking a portion of the savings, he is increasing the amount of the savings.
An additional benefit of performance contracting is the "side repairs." When system modifications are being installed, it is relatively inexpensive to make other necessary repairs on items such as insulation and burners. System improvements such as value or control upgrades can also be funded by the savings guaranteed to the plant.
The most beneficial performance contracts are structured so it is in the best interest of both the plant and the contractor to do everything possible to maintain system performance at maximum efficiency. A well-structured performance contract places the plant and the contractor on the same side of the business equation.