Practical Problems Experienced with Industrial DSM Projects

Marius Kleingeld

15 August 2012

Introduction

Industrial Demand Side Management (DSM) projects reduced demand by 576 MW from 2003 to 2012

32% of Eskom Integrated Demand Management (IDM) expenditure in 2011 incurred in industrial sector

Industrial DSM projects present unique challenges Specific problems of industrial

ESCOs not widely known Hamper new entrants,

inexperienced ESCOs,

reduce savings

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% DSM Activities Focused on Industrial Sector

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Phases: Industrial DSM Project

Phase 1: DSM Investigation ESCO markets DSM, obtains letter of intent Detail investigation, measurements, designs, costing ESCO drafts proposal, submits to client & Eskom

Phase 2: Proposal Approval Internal client funding application Process proposal through Eskom-IDM PEC, CIC and Procurement Sign Eskom and client contracts, baseline reports

Phase 3: Implementation ESCO & client scope, tenders, orders, manage installations Various milestones such as equipment delivery, factory acceptance testing (FAT),

cold/hot commissioning

Phase 4: Performance Assessment Performance of project is assessed over three months Measurement and Verification (M&V) issues savings reports

Phase 5: Maintenance Project handed over to client Client maintains project to continue savings

Client

PEC

CIC

Procurement

ESCO

M&V

Client + ESCO Implementation

Project Approval Process

Can it work? Will it be sustainable? Costs? MW reduction targets

Capital Payback

Risk Profit

Safety & health Production Maintenance

Independent measurements

Savings reporting

Costs & commercial issues Discounts SD&L

Risk Capital Investment

required

DSM Investigation

Establish correct baseline Use metering or portable power loggers Verify measured energy readings: simulated results /

alternatives e.g. log sheets Always use safety margins

Confirm that planned results are viable Not submit new technologies – experiment first ESCO must familiarise itself with client operations and requirements Verify: simulations, calculations and tests Client cooperation essential

Other risks DSM interventions often seen as threat to job security e.g. pump attendants Highlight additional benefits to counter resistance e.g. increased safety

Secure Financing

Funding approvals Timing of client & Eskom funds Delay - client budget problems Delay - Eskom contract variances Stacks of paperwork - assist client Additional requirements e.g. SD&L Process: up to 24+ months

Funding availability Present scenario (MYPD2) ends March 2013 Previously (MYPD1) Eskom-money ran out – ESCOs without new

projects for more than 12 months Clients also experience reductions in capital spend Difficult to plan ESCO business with such interruptions and uncertainty

Be prepared for “hit rate” <100%

MeasureAnalysis

Cost

Proposal Risk

R&D technology

Client (e.g. safety)

DSM proposals do not allow for red “investments”

ESCO Process

ESCO skills requirements

Multi-disciplinary skills needed

May be problematic for small ESCOs – contract experts

Implementation: Client

Document trail Client signs scope document, specifying preferred suppliers,

equipment, procedures, etc. Ensure site personnel and head-office personnel

communicate with each other, and agree with all aspects of project

Ensures continuity with personnel changes Prevent scope creep and cost escalations Allow for scope changes e.g. new head office standard etc.

Implement: Safety & Access

Safety and health not negotiable Client induction requirements may change Unforeseen incidents e.g. accidents and site closures Additional costing must be absorbed

Limited access Project work areas may be restricted Some work e.g. mine shaft work limited to client personnel Limitations due to operation, maintenance schedules

Solution Resource planning Risk assessments

Implement: Subcontractors

Sub-contractor issues Aim for contract extensions e.g. delay tactics Limited communication and feedback, not attending meetings Failure to adhere to safety measures

Client issues Unnecessary holdups Placing additional orders on same sub-contractor

Solution: performance-based contracts with penalties

Performance Assessment #1/2

Savings targets: Performance Assessment (PA) Test evaluation conditions before official start of PA ESCO representatives to be present semi-permanently on-site

during PA

Manage PA process Feedback and corrective actions Beware of sabotage

(Client held to minimum ofPA performance or proposal)

Performance Assessment #2/2

System changes between proposal submission and implementation e.g. production increases

Duplicate measurements – do not rely exclusively on Eskom M&V

Maintaining Savings

Projects often underperform quickly after ESCO hands-over to client Client personnel have other focus e.g. safety, production Savings not linked to personnel performance indicators Personnel have limited knowledge of savings technologies Shortage of skilled maintenance personnel

Solution: Maintenance ESCO contract Performance-based Continuous training

Manage Client Perceptions (1/2)

Manage Client Perceptions (2/2)

Conclusion

Cost comparison Modern power plant: ± R26 million/MW Industrial DSM projects: ± R5 million/MW => 5 times less

Increase industrial DSM activities More ESCOs involved Additional MW-savings Save Eskom and client costs

South Africa Egypt Thailand Ukraine0

102030405060708090

% DSM Activities Focused on Industrial Sector

%