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Is Gas Generation The Solution To Rising Energy Costs?

In an increasingly competitive world, UK industry needs to keep a tight lid on its energy costs, but, at the same time, is facing ever-increasing electricity prices. Craig Akers, Sector Team Leader at Aggreko says the answer might lie in taking advantage of the differential between electricity and gas prices.

By Craig Akers, Sector Team Leader at Aggreko

Gas vs Electricity Costs Aggreko - Shanghai Depot

Aggreko - Shanghai Depot

Rising energy costs

Nobody looks forward to their electricity bill coming through the letterbox, particularly after a long winter. But, spare a thought for industrial electricity users who don’t get the respite of a long hot summer.

Industrial users are often big consumers of electricity all-year-round and that reliance on the grid means they are highly exposed to seemingly ever-increasing energy prices.

In fact, statistics from the University College London demonstrate that UK industry pays on average a third more for electricity than their European counterparts. Heavy energy users, such as steel, chemicals, cement and ceramics are being placed in an extremely uncompetitive position compared to their European competitors and those from further afield.

By way of example, analysis by UK Steel, the steel industry’s trade association, demonstrates that higher electricity prices result in an extra £43 million in annual costs for the sector, which either must be absorbed or passed on to customers.

Crucially, the impact of rising prices is often heavily skewed towards smaller and medium sized users without access to the compensation support mechanisms, under the European Union Emissions Trading Scheme which are available to extra-large users.

Inevitably, the high electricity prices are impacting not only competitiveness, but also investment. The UK is already suffering from an ageing industrial asset-base that badly needs updating, not least to take advantage of new energy-efficient processes and technologies.

However, the price of electricity is, all-too-often, eating away at any spare cash that could be used for investment in those technologies – a sort of unvirtuous circle that many are struggling to free themselves from.

In fact, figures from IHS Market Research suggest that expected output in manufacturing has continued to drop over the last five years and that capital expenditure in the UK hit a seven-year low in 2018.

Many experts believe that this situation is only going to get worse. As coal-fired power stations are decommissioned, demand on the grid is expected to increase due to the anticipated growth in electric cars, for example. The real worry is that prices are only going to rise, with the grid at capacity.

The Gas vs Grid Differential

So, what is UK industry going to do, in order to reduce its exposure to high electricity prices.

The answer may lie in the differential between electricity and gas prices that offers the potential to reduce energy costs, whilst simultaneously improving energy security.

The differential can be best illustrated in the form of the graph below: ​

BEIS Graph

The figures from the Department for Business, Energy, Industry and Skills demonstrates that over a ten-year period, the differential between electricity and gas prices has risen, with the largest differential occurring in 2016 when gas was a full 6p per kWh cheaper than electricity.

All of this is very interesting, but how can industry leverage the difference to its advantage?

Modern gas generators could be the solution, which, combined with battery storage capability, can provide gas generated electricity that can be used as a primary power source for production processes or to power essential every-day requirements, including lighting, heat and IT capabilities, such as data centres.

Modern low emission generators can be powered by natural gas or alternatively, liquid natural gas and liquid petroleum gas.

They are also designed with a number of state-of-the-art features, including lean burn technology, spark-arrested silencing and turbo charged after-cooling. Crucially, they are heavy duty, usually equipped with a purpose-built alternator that makes them reliable in continuous operations and capable of being situated in a yard or even in the harshest environments, such as a quarry.

What’s more, the heat generated can also be used to produce hot water with combined heat and power (CHP) units, offering extra cost savings, particularly in processing environments.

Perhaps most importantly, the generator size can be matched to the requirements of the end-user.

The gas generator is then combined with a plug and play lithium ion battery storage solution, which combines inverters, HVAC and auxiliary components, all tested and pre-assembled.

The key point for end-users is that this type of technology can be deployed without making any significant changes to an end-user’s usual processes. The gas generator and battery storage are a plug and play solution that involves a simple switch from using mains electricity to gas generated electricity. While it still utilises some grid supply, it can significantly reduce the use and reliance on it, simultaneously reducing the costs.

Gas vs Electricity Costs Fujairah Union Cement Factory site

Fujairah Union Cement Factory site - AgrekkoDubai-23

How much can I save?

The key issue is, of course, the potential energy savings. This is best illustrated by using a series of potential scenarios for both small and large energy users to show how gas generators can provide savings.

All scenarios are illustrative of a manufacturer running an industrial process 24/7 and for 365 days a year, but with different output requirements. Based on projected running hours of 8,736 per annum, a manufacturer requiring 800 kW output which is currently paying an electricity price of £0.1016 per kWh, will run up a total electricity bill of around £650,000 per annum.

By switching to a gas generation, with a lower tariff of £0.0188 per kWh the manufacturer can potentially make savings of circa 10 per cent which equates to a total cost saving of £68,370 per year.

The second scenario involves a manufacturer requiring 1500 kW output and paying a similar gas and electricity price to the manufacturer in our first scenario. This manufacturer has an annual electricity bill of circa £1.7 million per annum.

This second manufacturer could potentially make a circa 20 per cent cost saving by converting to gas generation, with a projected annual saving of £272,395.

Our final scenario involves a user requiring 3,000 kW output. Again, the facility is working 24/7 for 365 days a year with an annual electricity bill of more than £2.6 million per year. In this scenario, the manufacturer could potentially make a 20 per cent saving that would equate to circa £544,791 per year, emphasising the benefit of a move towards gas generation.

While these costs don’t consider the cost of renting a battery, the savings generated will still be eye-catching for manufacturers with this cost accounted for. Additionally, these stats don’t include heat recovery opportunities, which would provide even greater savings.

Gas vs Electricity Costs


Unlocking the potential of DSR?

However, it is not only the direct cost saving that has the potential to appeal to industrial electricity users. Demand Side Response (DSR) is still regarded as something of a ‘black art’ by many energy users, but does offer a viable option to reduce electricity costs. 

DSR offers industrial and commercial energy users the opportunity to flex their energy demand from the grid during peak demand, by lowering their energy consumption for short periods of time in return for lower tariffs.

The key is careful analysis of energy forecasts and frequency response, in order to match the commercial energy needs of the business to its ability to lower or shift their electricity use at peak times.

Whilst many industries can take advantage of DSR, others, such as data centres or aluminium smelters, have been unable, or unwilling, to access the opportunities due to their need for constant access to power.

However, gas generation also offers a potential solution as a ‘gap fill’ enabling those with a constant power requirement to access DSR, with the gas generation and battery storage combination coming online, when required, for short periods of time.

This option does require careful consideration before being put into action and my advice would be to access expert energy support before putting a ‘gap fill’ plan in place.

The Capex conundrum

All of this may well sound very appealing to industrial energy users wrestling with spiralling electricity prices, but I suspect many readers will have a nagging doubt in the back of their minds due to potential capex restrictions.

Fortunately, there is a solution. The technologies described here are available as a long-term hire, off-balance sheet option offering a potential alternative to fixed plant.

What’s more, the rental solution also comes with maintenance capability, which ensures that generators will always be optimised and any downtime can be foreseen and minimised.

As UK industry continues to fall behind European countries, in terms of its electricity costs and its on-going effect on competitiveness, combined with the fact that grid supplies are only likely to be further stretched in the future, solutions like gas generation could play a pivotal role in the immediate future of UK industry.

Add in the benefits of rental power solutions, and manufacturers have a financially viable option that helps meet demand and reduced outbound costs.

Process Industry Informer

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