Energy Cost Allocation for Industrial Facilities

Energy Cost Allocation for Industrial Facilities

Keep cost centers accountable and measure energy conservation goals with cost allocation.

By: Allan Evora

Just like any business expense, energy use ought to be managed. For manufacturing facilities, cost allocation is one of the first steps in this process.

Measuring the amount of energy your processes, machines, products, or departments (also known as cost centers) use through cost allocation helps you:

  • keep cost centers accountable on their individual energy use
  • measure the effectiveness of energy conservation strategies
  • benchmark costs against industry peers
  • identify when equipment is not working as designed


What is energy cost allocation?

As a facility, you have just one bill from each utility. As you scan that bill, how are you supposed to know where all that energy was used in your facility? How do you know if there are inefficiencies?

Cost allocation is an easy way to correlate energy cost (usually electricity, but sometimes water and gas) to specific consumers of that energy.

Since your utility’s meter does not provide enough detail to know what parts of your facility are using more energy, cost allocation requires the installation of submeters that track how much energy each process, machine, or product uses.


Cost allocation in practice

As part of their manufacturing process, a fiber manufacturing plant allocates electricity costs every year. This year, the overall facility has a new energy saving initiative to drive costs 10% lower than last year.

Each cost center has an assigned energy budget, based on the amount of energy they’re expected to use throughout the year. The warehouse, for example, is allotted a very small portion of the overall electric bill because they should only incur the minimal cost of lights, cooling, and the occasional use of product-moving equipment. The assembly line, on the other hand, is allotted a much more significant percentage of the utility bill.

At regular intervals, perhaps monthly or quarterly, the energy manager closely compares each cost center’s budget to actual use. He can see who kept to budget, and who strayed. He also has the data to reveal if the facility is on track to meet their 10% energy savings goal, and can even break down which cost centers are making the most contributions towards the goal, and which are not.

Over time, he understands the average ranges for each cost center. When cost centers deviate outside expected ranges, he investigates to identify potential problems. Sometimes they’re not running enough product, and other times, there’s actually something wrong with the process.

He notices that in December the compressed air cost center energy use was 10% higher than normal. After further investigation he finds that a leak in the system has resulted in the compressed air system working harder to maintain the required pressure. He also makes a mental note to investigate tracking compressed air volume and flow in the future.

Now that he can see trends for how energy is consumed throughout the facility, he has a baseline for next year’s goals and can benchmark their energy profile against industry norms.


How to calculate cost allocation

Cost allocation is a very simple process. Energy use (kWh) of each cost center during the entire billing period is weighed to the total kWh on the utility bill.

For example, if your utility bill states you used 1,000 kWh, and your furnace cost center used 100 kWh for the same billing period, you can make the conclusion that the furnaces accounted for 10% of the bill. Facility managers that want to have an even more accurate accounting of energy and power may also elect to break out peak demand charges from energy charges.  This would require looking at each cost center’s contribution to the peak demand during the interval that the plant set its monthly peak.


Instrumentation required for cost allocation

To collect kWh and KW demand interval data, you must install submeters and integrate them to a data acquisition system. In order to know where to install those submeters, you need to understand how electricity is delivered to each cost center in your facility.

This is done by studying your electrical single line diagram and identifying/isolating each cost center, or loads that compose your cost centers. The design of your facility will determine how many submeters you need. In general, older building panels are often a hodgepodge of circuits, and may require multiple meters to organize and gather the right information for a single cost center.

It’s generally recommended to integrate the meter data into an Electrical Power Management System (EPMS), as they have the capability to automatically allocate utility costs and generate and distribute reports.


Complicated electric bills can make cost allocation difficult

Energy use in manufacturing facilities usually isn’t cut and dried. Different penalties and costs are factored in, like peak demand, power factor penalty, and/or real-time pricing. Unfortunately, complicated electric bills make cost allocation a little more difficult.

Allocating costs on an aggregate basis may unfairly penalize certain cost centers, or provide misleading data. To get an accurate information reading requires a clear understanding of the facilities rate structure (billing line items). While this may seem like a daunting task, EPMS solutions like Schneider-Electric's Power Monitoring Expert coupled with a knowledgeable systems integrator with energy management expertise can make setting up, verifying, and validating the results much easier.


Start small

If the process of cost allocation seems a little overwhelming, or the cost of blanketing your system with submeters seems out of reach, first start by identifying and capturing data from your most significant consumers of energy, such as:

  • Large motor loads
  • Large heat loads such as furnaces, welders or ovens
  • Compressed air systems

Even if you only install meters in two cost centers, you are still able to allocate costs. If the kWh from your two meters account for 60% of your total utility bill, you know there is another 40% unaccounted for. As time goes on and you can afford more meters, you’ll gain a more accurate picture of your whole facility.


Don’t be short sighted when choosing meters

What’s the long-term energy plan for your facility? When choosing submeters for cost allocation, start with an overall big picture...or you could pay for it down the road.

I’ve seen too many customers invest in instrumentation or controls in isolation. A year later they want a meter that detects power quality issues. The problem is, the original meter they chose for cost allocation doesn’t do power quality. Now they have to replace their original meters.

To avoid reinventing the wheel, decide if in the future you want your meter to also:


Allan Evora - Founder | Affinity EnergyAllan D. Evora is a leading expert in control systems integration and president of Affinity Energy with over 20 years of industry experience working in every capacity of the power automation project life cycle. With a background at Boeing Company and General Electric, Allan made the decision to establish Affinity Energy in 2002. Allan is an alumnus of Syracuse University with a B.S. in Aerospace Engineering, graduate of the NC State Energy Management program, and qualified as a Certified Measurement & Verification Professional (CMVP).

Throughout his career, Allan has demonstrated his passion for providing solutions. In 1990, he developed FIRST (Fast InfraRed Signature Technique), a preliminary design software tool used to rapidly assess rotary craft infrared signatures. In 2008, Allan was the driving force behind the development of Affinity Energy's Utilitrend; a commercially available, cloud-based utility resource trending, tracking, and reporting software.

Allan has been instrumental on large scale integration projects for utilities, universities, airports, financial institutions, medical campus utility plants, and manufacturing corporations, and has worked with SCADA systems since the early ‘90s. A passion for data acquisition, specialty networks, and custom software drives him to incorporate openness, simplicity, and integrity into every design in which he is involved.