# Business Case Framework for Industry Investment in Compressed Air Technical Analysis and Upgrades

May 2006

### I. Introduction

According to a recent US Department of Energy (USDOE) study,
opportunities for saving energy from industrial compressed air systems
are substantial. Compressed air use within industry is widespread.
According to this study, "Compressed air systems account for 10 percent
of all electricity and roughly 16 percent of all motor system energy use
in US manufacturing industries. Seventy percent of all manufacturing
facilities in the US have some form of compressed air system. Most of
these systems provide compressed air to drive a variety of equipment
within a given plant, including machine tools, painting booths,
materials separation, and materials handling."[^1]

This study also notes the significant savings opportunities that are
available from relatively low cost projects by making the following
points[^2]:

-   Compressed air system measures identified in energy audits of small
    to medium-sized industrial facilities by the Industrial Assessment
    Centers had average projected savings of 15 percent of compressed
    air system usage with simple paybacks in less than 2 years.

-   The Motor Market Assessment estimated that compressed air system
    energy use in the typical manufacturing facility could be reduced by
    17 percent through measures with simple paybacks of 3 years or less.

-   In addition to energy benefits, optimization of compressed air
    systems frequently results in corresponding improvements in system
    reliability, product quality, reduced capital cost and overall
    productivity.

### II. Discussion of Options for Improving Compressed Air Energy Efficiency

Many options are available for improving industrial end-user systems and
end-use efficiency. Most of these measures are highly cost-effective,
paying for themselves within 3 years or less. These measures fall into 5
general categories:

-   **Reduce Overall System Requirements.** This refers to savings
    associated with better system design, leak reduction, elimination of
    poor or unnecessary applications of compressed air, decentralization
    of compressed air system components such as receivers, and improved
    supply conditions (i.e., using outside air). These measures have
    been shown to produce 10-20 percent savings.

-   **Match Compressor Size to Load.** This refers to savings realized
    from proper staging and sizing of compressors for maximum
    efficiency. Compressors could be staged so that the base load is
    supplied by compressors running at the design load, while a trim
    compressor is supplying the variable load. These measures have been
    shown to produce 10-30 percent savings.

-   **Compressor Control.** This category involves 4 control
    strategies: (1) use of standard part-load controls with automation
    and storage; (2) use of microprocessor controls on the compressor
    system; (3) use of parallel compressors and installation of
    multi-unit controls to reduce compressor part loading; and, (4)
    installation of variable frequency drives on rotary compressors with
    variable loads. Savings from these 4 measures average 10-25 percent.

-   **Improve Compressor Components.** This category includes
    replacement of older single stage reciprocating compressors and
    symmetrical screw compressors with more efficient models. These
    measures achieve an average of 5-15 percent savings.

-   **Improved Operation and Maintenance.** There are several improved
    O&M measures for compressed air systems: ongoing leak detection and
    leak reduction; improved maintenance on the compressor and, changing
    compressor filters and point of use regularly to reduce pressure
    drops. Savings from improved O&M can be up to 50 percent!

### III. The Economics of Improving Your Compressed Air System

Considerable savings are possible from upgrading your compressed air
system by installing the cost effective compressed air energy efficiency
measures discussed above. This section provides some sample
calculations, to illustrate the cost savings that could be realized by
installing these measures. It also discusses important concepts such as
lifecycle cost analysis, which are critical to proper understanding of
the cost savings that can be achieved by upgrading the energy efficiency
of your compressed air system.

-   **Decision Making Based on Lifecycle Costs.** Due to the relatively
    low initial cost of the compressor when compared to its lifetime
    electricity expenses, users should utilize lifecycle cost analysis
    when making decisions about compressed air systems. Lifecycle cost
    analysis takes into account the total fixed and variable costs of
    installing, maintaining and operating a compressed air system over
    its useful life. Decisions based on financial criteria such as
    simple payback or low initial costs ignore critical operating and
    maintenance costs over the equipment life, which can be
    considerable. Use of these criteria will lead to the wrong equipment
    choices, and resultant cost penalties relative to decisions based on
    lifecycle cost analysis.

> In addition, overall compressed air system efficiency is the key to
> maximum cost savings and lowest lifecycle costs. A thorough analysis
> and design will be required to obtain an efficient system. Many
> compressed air system users neglect these areas, thinking they are
> saving money, but end up spending more in energy and maintenance
> costs. It pays to spend more time and money up-front designing an
> efficient compressed air system that takes into account all costs of
> installing and operating the system over its life.

-   **Cost of Operating Your Compressed Air System.** Below are some
    sample calculations of the cost of operating a hypothetical 100
    horse power (HP) compressor that does *not* incorporate any of the
    energy efficient measures described above. These calculations serve
    two purposes: (1) they illustrate the substantial energy costs of
    operating the compressor; and (2) they provide a baseline that will
    be used next to compute the energy cost savings associated with the
    measures discussed previously.

#### Calculation Based on Full-Load Operation, 100 HP Compressor. [^3] The following formula is used to calculate the annual electricity costs for a 100 HP air compressor operating 8,760 hours per year.

> Annual Electricity Costs = **(**\[Full-load amps x volts x 1.732 x
> power factor\]/1000**)** x Annual Hours of Operation x Electricity
> Cost in \$/kWh.

Using this formula and the assumptions below, annual electricity cost
under full-load operation is \$34,111

-   Full-load amps = 115 amps

-   Voltage = 460 volts

-   Full-load power factor = 0.85

-   Annual hours of operation = 8,760 hours (3-shift, continuous
    operation)

-   Cost of electricity = \$0.05/kWh

-   Correction factor for 3 phase power = 1.732

Annual electricity costs = (115 amps x 460 volts x 1.732 x 0.85 / 1000)
x 8,760 hours x \$0.05/kWh = \$34,107/year.

**Savings Available from Energy Efficiency Measures.** Using the
\$34,111 operating cost as the baseline, the following calculations
illustrate the savings that can be realized from installing the
compressed air energy efficiency measures discussed previously.

-   **Reduce Overall System Requirements.** Assuming savings averaging
    10 percent of the compressed air load, the annual savings equals
    \$3,411.

-   **Match Compressor Size to Load.** Assuming these measure category
    produce average 10 percent, annual average savings of 3,411 can be
    realized.

-   **Compressor Control.** Assuming savings from these 4 measures of 10
    percent of compressed air load, these measures would on average or
    \$3,411.

-   **Improve Compressor Components.** Annual savings of \$1,700 (5
    percent) could be achieved, based on the assumptions that these
    measures are associated with 5 percent of compressed air load.

-   **Improved Operation and Maintenance.** The highest cost saving
    potential comes from improved O&M practices. Assuming savings from
    improved O&M practices average 20 percent would produce savings of
    \$6,800.

```{=html}
<!-- -->
```
-   **Total Savings.** If all of the measures were installed, due to the
    interactive effect of the compressed air system components, the sum
    would not create savings of 55 percent, but it is not uncommon for
    energy savings of a compressed air retrofit to be 30-50 percent.
    Using that range, the installation of these measures could save a
    total of \$10,233 to \$17,050 per year on electricity costs. All of
    these measures generally have a payback of 3 years or less.

### IV. Selling the Project to Your Organization

Getting senior management and other key decision makers within your
organization (such as those in purchasing or accounting) to approve the
energy efficiency upgrade is another critical step. Without these
approvals, no energy efficiency upgrades can take place, no matter how
favorable the economics are.

Most firms fund these types of upgrades through their annual capital
budgeting process. These energy efficiency investments must compete with
other capital improvements. In many firms, capital investments that
improve productivity or increase output have traditionally beat out
energy efficiency investments, even though the economic benefits of the
latter may be more favorable. However, with the recent trend toward
higher energy prices, that approach is slowly changing as firms adopt a
more energy friendly decision process.

There are many approaches designed to raise senior management's
awareness of corporate energy use and secure their ongoing commitment to
pursue energy efficiency. One of these is described below.

### V. Corporate Energy Management

One new approach, being promoted by the USDOE's Industrial Technologies
Program (ITP), is called Corporate Energy Management (CEM). According to
ITP's website[^4]:

"CEM refers to sets of actions that move accountability for energy
outcomes to upper levels of the firm. With CEM, energy is no longer the
sole responsibility of plant managers and engineers; in fact, CEM
programs are designed to involve many areas of business activity, such
as accounting, marketing, and others that were not traditionally
concerned with energy. Bringing corporate-level attention and management
into the picture helps to ensure enterprise-wide opportunities are
explored."

The CEM approach relies on firms' commitment to the following
principles:

1.  Commitment by upper level management;

2.  Development of management strategies;

3.  Clearly stated goals on energy efficiency, waste reduction, and
    sustainability;

4.  Communication of goals, tactics, and achievements throughout all
    levels of the firm;

5.  Delegation of responsibility and accountability to the appropriate
    personnel;

6.  Sustained tracking and assessment of energy use and technology
    application;

7.  Continuous investigation of potential energy reduction projects;

8.  Application of business investment models to energy projects; and

9.  Establishment of an internal recognition and reward program for
    achieving energy goals.

    Once energy management decision-making is institutionalized in this
    manner, getting management's approval for energy savings projects is
    more automatic.

To see another approach, check out the Industrial Efficiency Alliance's
website at www.industrialefficiencyalliance.org.

[^1]: Unless otherwise noted, information in this section is taken from
    XENERGY, Inc. (1998) United States Industrial Electric Motor Systems
    Market Opportunities Assessment. Washington, D.C.: USDOE, Office of
    Industrial Technologies, and Oak Ridge National Laboratory. The
    study is hereafter referred to as the Motor Market Assessment. From
    XENERGY, Inc. (2001) Assessment of the Market for Compressed Air
    Efficiency Services, Oak Ridge National Laboratory and Lawrence
    Berkeley National Laboratory.

[^2]: Ibid, pg. 2

[^3]: Calculations were obtained from the Compressed Air Challenge's
    fact sheet entitled "Compressed Air System Economics".

[^4]: From
    http://www1.eere.energy.gov/industry/bestpractices/corporate_energy.html