Economic Framework for Power Quality

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Rosamond Bell
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1 Economic Framework for Power Quality Dr. R Venkatesh, Deputy General Manager, Switchgear-6 and Power Quality Business, Crompton Greaves Ltd., Aurangabad. 1. Background With the increasing emphasis on energy conservation, widening demand-supply gap in energy, proliferation of non-linear loads, increasing awareness of power quality aspects, stringent standards and guidelines have made power conditioning a necessity today. There is a distinct shift from the two-dimensional power (quantity & cost) to a three dimensional power (quantity, quality and cost) and the importance of power quality improvement is well understood and appreciated. But the actual improvement initiatives has not picked up due to the perceived high capital investment in power conditioning devices and not so clear benefits that could be directly quantified into monetary benefits for the purpose of computation of pay back period or cost benefit analysis. This has created an immediate need to establish a conceptual framework to quantify the cost of poor power quality or the benefits of power quality improvement / power conditioning. This paper aims at identifying and classifying the benefits of power conditioning and establishes a basic framework for the computation and quantification of benefits of power quality improvement. 2. Aspects of power quality The essential elements of quantification of cost of poor power quality include identification of the various aspects of power quality and their implications and evolve from first principles the cost associated with each of the aspect (issue) of power quality and the benefits of improvement. By the basic definition power quality is the product of voltage quality and current quality and the elements of voltage and current quality are: Voltage quality: Magnitude (steady state, short duration & transient) Shape (frequency, frequency content) Current quality: Magnitude (steady state, short duration & transient)

2 Shape (frequency, frequency content) The changes in magnitude and shape factor of voltage and current manifest itself in the form of certain common power quality issues as: Reactive power / power factor Harmonics Transients Unbalance Flicker Sags & swells Sequence components Frequency excursions Steady state voltage limits Black outs & brown outs Of all the aspects the three most common are the low power factor, harmonic distortion and transients and for illustrative purpose only two aspects namely reactive power (power factor) and harmonics are considered. 3. Implications of poor power quality Some of the implications of power quality, especially related to power factor and harmonics are: Increase in line & equipment current leading to additional ohmic loses Increase in line & equipment current leading to blocked capacity and/or increased capital investment. Increased losses leading to higher operating temperatures and consequent reduction in life of equipment. Premature failure of equipment due to increased electrical and thermal stresses. Mal function of equipment Poor quality of production Unplanned outages leading to loss of production 4. Solutions for power conditioning /Custom power solutions Most of the power conditioning devices are custom built to meet a certain customer technical performance requirement and a target cost. While the technical performance is driven by the statutory & regulatory requirements, compliance to standards etc., in most cases the major driver

3 is the financial incentive arising out of power conditioning. This requires that the solution is optimal and offers the highest benefit to cost ratio. To ensure optimality of the solution it is necessary to capture all the performance requirements, cost and benefit elements and arrive at an optimal solution through an iterative process within the specified boundary conditions. To facilitate such an iterative process one important aspect s to understand and quantify all the benefit and cost elements and define the boundary conditions. While the method of defining the boundary conditions and developing the iterative process is important, this paper deals only with the capturing and quantifying the benefit and cost elements to serve as a base for the development of a holistic economic fame work for power conditioning solutions. 5. Choosing the appropriate solution Tools & Techniques Most of the business decisions, especially those related to purchase decisions revolve around two main questions, To buy or not to buy and which is the best buy. These two questions an be further broken down to a series of questions related to what to buy?, when to buy?, from whom to buy?, what should be he target cost? Etc. The concept of Value for Money in its simplistic form can be converted into a more industrial language and aims at answering the fundamental questions 1. Where to invest the money: to compare, evaluate and choose amongst the competing customer / user requirements with a limed funds to spend. (Decision to choose the area) 2. Where to source the product/service from?: Having chosen the area for spend to compare, evaluate and choose among competing products /technologies. (Decision to chose the supplier) The basic tools se for these are i. Benefit-Cost analysis ii. Pay back calculation iii. Life cycle costing. While the first two tools are generally used for identifying the best investment area the last tool is best used for comparing and evaluating competing products / suppliers. 5.1 Benefit-Cost analysis This is a very simple technique used to compare amongst competing needs to identify the best investment. The technique an also be used for comparing competing products / technologies using marginal cost marginal benefit method.

4 The area / the product that offers the highest benefit to cost ratio (BCR) is the obvious choice. In any case it is expected that the ratio is more than 1 and higher the ratio better the investment. While using the tool it should be ensured that all benefits (tangible & tangible) and costs (direct & indirect, quantifiable & non-quantifiable) are captured to facilitate a correct decision. One variation of the technique could use two separate rations for tangible & intangible benefits and corresponding factors on cost. The tool can be used also to compare competing products using marginal/incremental cost to marginal benefit ratios. 5.2 Pay Back Calculation This is similar to ROI calculation and aims at computing the period over which the investment would pay for itself and then start making profits. Here again the benefit and costs are quantified in monetary terms and additional parameters such as cost of finance, interest, depreciation etc. are used to arrive at the pay back period. This technique also requires that all benefits & cost be captured and quantified. 5.3 Life Cycle costing The fundamental of life cycle costing is to identify and quantify the various cost elements in purchasing and using a particular product or service and estimating the annualized life cycle cost. Here again the trick les in identifying and quantifying the various cost elements correctly and estimating the added dimension of estimated /probable useful life. 6. Cost of power conditioning some aspects As illustrated above all the techniques require that the cost elements are captured and quantified. The various elements of the cost are Pre-Purchase cost Purchase cost Installation cost Operating cost Maintenance cost Disposal cost Apart from these cost elements we also need to estimate the most probable lie to compute the annualized life cycle cost. The various elements are illustrated in this section.

5 Pre-Purchase cost This involves the cost incurred from the time of decision to but to the actual purchase decision. This involves the cost associated with evaluating the need, understanding requirements, drafting specifications, tendering, evaluating vendors, releasing order etc. The cost is negligible for standard items and can be a very significant part for customized industrial products. In some cases this could involve consultants fees for specifying products and evaluating suppliers. Due credit should be given to suppliers who do a part of understanding the requirements, help select the appropriate product, do application engineering and offer a value added package. Purchase cost Is the actual landed cost and is the most clearly visible part of the total cost. This included the basic price, taxes and duties, freight & insurance etc. It would be gross mistake if only this cost is considered for evaluating the competing vendors / products/technologies as this could represent only a small fraction of the total cost. Installation cost Is the cost that is required to install the product as to enable it function properly. This cost includes cost of civil work, structural work, cabling, ducting, auxiliaries, labor for erection etc. Obviously that product that offers a complete solution, is easy to handle, transport, store & install gets a higher score (or a lower installation cost in absolute terms). In some cases the physical space required for installation (compactness) can be a major cost factor where space is at a premium. Operating cost This is the second most important cost element after purchase cost. This includes the money that has to be spent over the entire life for the proper operation / functioning of the equipment. This typically includes consumption of resources such as energy/power, water, air, oil etc. This could also include the training cost, cost of skilled personnel for operation etc. This is an important consideration for energy efficient equipment such as motors and transformers. Typically for a motor this fraction of the cost represents about 90% to 95% of the total life cycle cost as against only 2% to 8% of the cost fraction assignable to the purchase cost. Maintenance cost This is the third most important factor and this includes the cost of maintenance including consumption of material, labor, training cost for maintenance team etc. Obviously products that are maintenance free have a higher score and contribute to a lower absolute value in the life cycle

6 costing. The cost also could include factors such as MTDF, reliability & average life of the equipment. As an example dry type products current transformers score better than their oil filled counterparts in this cost factor. Disposal cost This is the cost that needs to be incurred in disposing off the product at the end of useful life. This cost factor could have a positive or a negative sign. Where one needs to pay to get the products disposed off, the cost has a positive sign and if the product could be sold off (either as scrap or seconds) then the cost has a negative sign. The cost of disposal should consider the product life cycle, eco-friendliness, and environmental aspects in assigning a cost to this fraction. Products that contain materials that are banned / expected to be banned/that are not easily bio-degradable should be assigned a higher cost of disposal. Life Estimation-Probable life It is possible to estimate the probable life of given equipment within a certain confidence interval under a given set of operating conditions using analytical techniques. This requires a thorough understanding of the failure modes and ageing mechanisms, knowledge of operating stress and system conditions, proficiency in stochastic and life estimation techniques etc. Also this is a rigorous technique fraught with dangers of wrong estimation and excludes sudden failures and abnormal conditions. In most cases his rigorous technique can be substitutes by a more simplistic and empirical technique without much loss of accuracy. The empirical technique is based on the correction factor applied to average life. The average life is based on historical data covering all products (of similar nature & function) from large number of suppliers spanning a sufficiently large time scale to preclude distortion due to random events. The correction factor is based on a set of quality estimates with a suitable weighting factor. The weighting factor depends upon the product under consideration

7 7. Benefits of power conditioning The benefits of power conditioning can be classified into four distinct types of benefits. The purpose of this classification is to capture all benefits and study their sensitivity to external factors. The success of the quantification would also depend upon converting more factors from the non-quantifiable to quantifiable benefits and identifying more parameters in the direct quantifiable / technical benefits. The classification also helps computation of payback (cost-benefit analysis) under two different heads, quantifiable and non-quantifiable for both the cost as well as the benefits. The four types of benefits are as illustrated in figure 1. Non- Quantifiable Improved voltage stability margins Reduction in equipment failure rates Reduction in equipment mal-function Compliance to standards & Regulations Quantifiable Reduction in equipment losses Release of blocked capacity Depreciation benefits Incentives Penalties Statutory levies Tariff benefits Technical Non-Technical Technical benefits are those that accrue due to improvements in operating efficiency and are directly related to fundamental laws of physics and are invariant with policies and guidelines to a large extent. Examples of this include reduction in line & equipment currents and consequent reduction in ohmic losses due to reactive power compensation (power factor improvement) and harmonic filtering. Non-technical benefits are those that accrue due to fiscal income due to regulatory norms and compliance to norms and are largely dependent upon existing policies and norms. Though some of the non-technical benefits have their roots in technical aspects of power conditioning (such as penalty for low power factor or incentive for high power factor), these to a large extent depend upon

8 government/utility policies are ad dependent on time & space. Examples of this include penalty / incentive for power factor, tax benefits (accelerated depreciation for some power conditioning / energy saving devices), compliance to standards & guidelines etc. Quantifiable benefits are those that can be easily and directly quantified in terms of monetary value and can be verified and validated easily. These include reduction in equipment losses and consequent reduction in energy bills, release of blocked capacity and avoided capital investment etc. Non-Quantifiable benefits are those that are difficult to be converted in fiscal benefits directly and are difficult to verify and are in most cases dependent on other external factors. Examples of this would include improvement in voltage stability margins, reduction in operating temperature of power equipment and consequent increase in life / reliability, reduction in equipment malfunction rate (due to harmonics in system) etc. The general benefits of power quality improvement include: Reduction in line & equipment currents and losses and hence lower energy bills Release of blocked capacity and consequent avoided cost of capital investment Improvement in power factor and avoided penalty for low power factor or incentive for high power factor. Reduction in maximum demand and reduction in demand charges. Tax benefits such as accelerated depreciation benefits for installation of power conditioning / energy saving devices. Improvement in voltage profile and consequent efficient operation of power equipment. Reduction in harmonic distortion and consequent reduction in copper loss, core loss and stray loss. Prevention of mal function of equipment and avoided loss of production. Elimination of unplanned outages and reduction in loss of production and revenue. Reduction / elimination of failure of equipment due to reduced electrical and thermal stress. Enhanced life / reliability of equipment due to lower operating temperature due to lower losses 8. Benefits of reactive power compensation & quantification of benefits The salient benefits of reactive power compensation and their quantification is as illustrated:

9 5.1. Reduction in current and losses. The reduction in line current due to power factor improvement / reactive power compensation can be directly computed from the first principles and the basic relationship with various power parameters as illustrated. S = V I P = V I cosϕ Q = V I sinϕ cosϕ = power factor = P/S = P/ (P 2 +Q 2 ) =cos(atan{q/p}) It is evident from the basic relationships that for the same real power flow, the line currents decrease with the increase in power factor. But considering the fact that there will be some losses associated with the flow of current proportional to the real power, for computing the benefits of power factor improvement, one needs to compute the marginal reduction in current due to power factor improvement. To compute the marginal reduction in line currents and associated losses the difference in losses is computed with the two different currents Reduction in current and blocked capacity Due to increase in line currents the capacity of the equipment (measured in terms of its current carrying capacity or the apparent power handling capacity) gets blocked. The blocked capacity can be computed as shown below: S1 = V I cosϕ1 S2 = V I cosϕ2 S = S2-S1, is the blocked capacity. Costing of released capacity can be computed either by the marginal cost of the increased capacity or the cost required to release the capacity Reduction in demand and demand charges The reduction in demand charges can be directly computed from the reduction in demand and the tariff rate for demand.

10 5.4. Tariff related Power factor improvement benefits The tariff elated benefits related to power factor improvement could either be the incentive for improved power factor or avoided penalty for poor power factor. These are again calculated directly from the utility tariff structure Reduction in losses and operating temperature and improved life of equipment Though difficult to compute and quantify, it is possible to estimate the loss of life due to thermal ageing due to operation at higher temperatures arising out of higher equipment currents and associated higher losses Tax benefits The benefits due to certain financial incentives (such as accelerated depreciation benefits) can be computed directly from the incentive structure Improved voltage stability margins Reactive power compensation / power factor improvement improves the regulation and voltage stability margins. Though difficult to quantify the direct and indirect benefits of improved voltage stability margins can be computed. 9. Benefits of harmonic filtering and quantification of benefits The salient benefits of harmonic fltering and their quantification is as illustrated: The method is similar to that used for quantification of benefit of reactive power compensation / power factor improvement Reduction in current and losses. The reduction in currents due to harmonic filtering in most cases s due to both the reduction in fundamental current (due to reactive power compensation, which is an essential part of most harmonic filtering solutions) as well as harmonic currents Reduction in current and blocked capacity 6.3. Reduction in demand and demand charges

11 6.4. Reduction in copper, core & stray losses Due to reduction in harmonic distortion there is a significant reduction in copper losses, core losses and stray losses. The reduction in copper losses is due to both the reduction in rms currents as well as due to reduction in resistance itself due to skin & proximity effects. The reduction in copper losses can again be quantified from the knowledge of reduction in currents and resistance. The reduction in core losses can again be computed from the knowledge of the eddy and hysteresis losses and their dependence on frequency. The stray loss reduction is also significant in most cases and can be computed from the knowledge of the harmonic spectrum and the characteristics of the losses Reduction in mal-function, nuiscence tripping and forced outages and consequent loss of production Tariff related Power factor improvement benefits 6.7. Reduction in losses and operating temperature and improved life of equipment 6.8. Tax benefits 6.9. Improved voltage stability margins 10. Summary The paper highlights the various benefits of power conditioning and some directions to quantify the benefits. To accurately estimate the viability or need for power conditioning it is required that the benefits and costs associated are fully captured, quantified and evaluated. Also illustrated are he various cost elements associated with the installation and se of power conditioning devices. With the proper quantification of the benefits of power quality improvement and costing of power conditioning devices (to capture all the costs associated and compute the life cycle cost) it is possible to use scientific tools such as benefit-cost analysis, pay back period or annualized life cycle costing and chose an appropriate power conditioning device.

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