IS HIGH ENERGY COST INCENTIVE OR DISINCENTIVE TOWARDS ENERGY EFFICIENCY?

IS HIGH ENERGY COST INCENTIVE OR DISINCENTIVE TOWARDS ENERGY EFFICIENCY?

As may be noted in developing nations, industrialization has suffered in various ways due multiple factors. Key factor has been cost of energy.

The chat above shows a summary of the total energy supply in Kenya. Hydro power supplies 52%, fossil fuel 33%, geothermal 13% and the rest take up 2%.

Fossil fuel cost is largely driven and determined by international prices which the consuming countries have little influence over.

While fuel oil experiences significant fluctuations over time, advocacy to review local taxes to cushion local consumers have always come up during unfavorably high pricing and soon after the price comes down fades away from lobbyists’ minds till the next cycle.

A large percentage of fuel oil normally ends up in automobile engines, however, similar grades and others that power electricity plants dents billing of electricity in the subsequent month of high pricing.

While Kenya is rich in renewable sources of energy for electricity generation, the grid would not do without thermal power generation. The nature of the grid has to be stabilized with generation from thermal plants strategically located in different regions in the country. Fuel cost charge in this regard, features in the billing which is often the reason for high electricity cost.

Electricity is a key driver for industrialization. Cost is one of the components that determine competitiveness of the production amongst nations. The generation mix, transmission and distribution losses are central to final costing of the consumer.

Cost of energy by default prohibits wastage and fosters minimization of losses. The efficiency of energy conversion at the industrial level as well as utilization efficiency contributes largely to the overall specific energy per unit of production which is a measure of energy consumed per unit production. The lower the value the higher the profit margins and vice versa.

Just like Newton’s law; every action has an equal reaction, energy efficiency similarly embraces the theory. For gains to be made there has to be effort put in. A simple version of the concept is that there has to be some financial, human resource or changes made or expended of proportionate magnitude to realize lower specific energy levels whether for equipment or overall plant energy consumption.

The need to expend funds towards improvement plays against proactive energy management. The perception of acquisition of low initial cost machinery/equipment and recovery of salvages have detrimental impacts in the long run as a result of high operational costs.

The iceberg theory clearly paints the life cycle cost of machinery utilized in production and related activities. Capital cost is a primary factor in consideration while setting up an industry. Whereas capital costs may pose a challenge in setting up, energy management advocates for continuous improvement where a recovery period is considered ultimately improving the profit margins of the organization.

There are two main fall back plans when investment into energy efficiency is not undertaken and the biting cost of energy becomes unbearable and business sustainability is at stake. First, through conjoined efforts would be to lobby for reduced energy prices with a justification on enhancing competitiveness and subsequent sustainability of businesses. A tag of war between the government and manufactures takes centre stage with the need for hard proof in relation to the expected impact from manufacturers.

Secondly, through internal deliberations, the alternative would be investment in self-generation using renewable energy sources. The hidden fact is that the sizing would be based on current consumption which factors inefficiency thereby making the investment high meaning the avoidable costs would still be paid for either way.

A pragmatic approach to managing cost of energy is primarily anchored on energy saving and secondary to that is cost saving. Other instances call for a two prong approach of the depending on the different circumstances. Cost saving approach considers cheaper alternatives of energy e.g. renewable sources like solar, hydro, biogas and briquettes. In this case the same amount of energy is consumed costing less.

Conclusion

    Low operation cost

 

 

Productivity

 

 Environmental impact

High energy costs fosters energy efficiency and vice versa. The concept may seem punitive to the manufacturer or otherwise industrialization vision but the bigger picture of environmental conservation is greatly overlook which is many times costlier than lower energy cost to promote industrialization. Japan is a country that best explains the concept of energy efficiency. Analogous to high energy cost vs energy efficiency is high water cost vs water efficiency. A case study country is Denmark.

In summary, energy efficiency looks at utilizing less energy for the same output/results without compromising quality or safety within a plant. High energy cost result in attractive return on investment for energy efficiency projects whereas if energy cost is low, payback is extended thus unattractive.

 

Jude Songok

 

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