Evaluation of Efficiency and Savings: Some Remarks on the Influence of Energetic and Financial Parameters

1.jpg

Figure 1. Determination of energy savings according to the IPMVP® protocol (courtesy of the Efficiency Valuation Organisation)

3.1 Savings assessment with the IPMVP® methodology

The results of the intervention are summarised as reported in Table 1 [17]. The formula adopted to calculate savings is the following (Eq. (1)):

$S=E_{\text {ref }}-E_{\text {rep }} \pm adjustments$                 (1)

where,

S = energy savings;

E_ref = energy consumed during the reference period

E_rep = energy consumed during the reporting period;

adjustments = appropriate adjustments for changes in conditions.

Table 1. Energy and CO₂ emissions results summary

Table 2. Electricity consumption before intervention (year 2019)

Adjustments are made according to the “backcasting” technique, that is, adapting the energy consumption of the reporting period to the conditions of the reference period. In the case here considered, the adjustment factor is the quantity of production in terms of mass (kg). Therefore, Eq. (1) becomes Eq. (2):

$E_{ {adj, } 2021}=\frac{E_{ {rep, } 2021}}{Q_{ {product, } 2021}} \cdot Q_{{product, } 2019}$                 (2)

where,

E_adj,2021 = energy consumed during the reporting period (2021) adjusted;

E_rep,2021 = energy consumed during the reporting period (2021);

Q_product,2021 = quantity of product during the reporting period (2021);

Q_product,2019 = quantity of product during the reference period (2019).

The primary energy conversion factors adopted are:

• 0.187 E-3 toe/kWh_e;
• 8,250 E-7 toe/Sm³;
• 11,630 kW_p/toe.

Moreover, as far as electricity is concerned, the reduction in consumption was not only in relative terms (-57%) but also in absolute terms (1,476 MWh_e vs 1,630 MWh_e). The intervention led to a reduction in (non-renewable) primary energy consumption (per unit produced) of 54%. Without the “backcasting” adjustment, the reduction would have been only 3.4%.

3.2 Analysis based on electric energy consumption

Table 2 presents the electricity consumption before the intervention on a monthly basis per time slot. In Italy, electric energy has different costs based on the F1, F2, and F3 time slots according to the following description:

• F1: Monday to Friday, 8:00 am to 7:00 pm, excluding national holidays;
• F2: Monday to Friday, 7:00 am to 8:00 am and 7:00 pm to 11:00 pm, excluding national holidays; Saturday, 7:00 am to 11:00 pm, excluding national holidays;
• F3: Monday to Saturday, 00:00 am to 7:00 am and 11:00 pm to 00:00 am; Sundays and holidays, all hours of the day.

As reported in the table, there is no influence of seasonality on electricity consumption; it can be deduced that energy consumption for summer air conditioning is negligible compared to other consumption (in particular production). The greatest part of pre-intervention electricity consumption is in time slot F1, with 70% of the total. There are also some exceedances of the available power limit.

Table 3. Electricity cost before intervention (year 2019)

As can be deduced from Table 3, the average cost of electricity consumed before the intervention is 19 c€/kWh_e. Table 4 presents the data relating to consumption after the intervention: on the one hand, the characteristics of the curves do not change (little influence of seasonality), on the other hand, it is possible to appreciate how consumption in time slot F1 has reduced to approximately 67% of the total.

Table 4. Electricity consumption after the intervention (year 2021)

Table 5. Electricity costs after intervention (year 2021)

Table 5 shows how, in the two years, the average cost of electricity increased to 22.5 c€/kWh_e, that is 17.8% more than the 2019 value, with an average increase of approximately 9% per year.

7.jpg

Figure 7. Comparison of electricity consumption and costs, before and after the intervention

Finally, Figure 7 presents a summary of electricity consumption and costs in a comparison between 2019 and 2021.

3.3 Impact of variation of electric energy cost

As in the previous section, electricity is taken into consideration in the following considerations. A similar but perhaps less interesting discussion could be made for natural gas, but hourly load curves were not available. The particularly lively period from the point of view of variations in the cost of energy (Figure 8) pushes the reflection toward two further questions:

• how much the tendency towards an increase in energy cost can increase the calculated savings;
• how much the inflation rate (Figure 9) modifies the perception of the profitability of the investment.

8a.jpg

(a)

8b.jpg

(b)

Figure 8. (a) Italy electricity spot prices (EUR/MWh_e) and (b) Natural Gas EU Dutch TTF (EUR/MWh_p) (updated to 5 March 2025)

On the other hand, inflation represents the loss of purchasing capacity of money, and in subsequent years it relates the values of cash flows “in current money” (that exchanged in the year to which it refers) with those “in constant money” (that exchanged in a specific year, for example, year “0” in which an energy saving investment is made). Therefore, the monetary interest rate (i_m) allows the creation of appropriate equivalence relationships between cash flows that occur in different years, while inflation ($\beta$) measures the difference in the purchasing capacity of money over time [18]. Eq. (3) allows to transform the monetary interest rate i_m into the real interest rate i_r:

$i_r=\frac{i_m-\beta}{1+\beta}$                  (3)

9.jpg

Figure 9. Inflation rate in Italy during the last 10 years

As can be seen, inflation reduces the monetary interest rate (thereby inducing the propensity to borrow money). In short, if the interest rate erodes future (and distant in time) cash flows, inflation limits this erosion.

10.jpg

Figure 10. The relationship between monetary interest rate and real interest rate as a function of inflation rate

Figure 10 presents the combined effect of monetary interest and inflation in determining the real interest rate. It can be seen that when inflation exceeds the value of the monetary interest rate, the real interest actually becomes negative.

Following the technique known as O-ML-P (Optimistic – Most Likely – Pessimistic), three scenarios foresee three different levels of average inflation of the price of energy products for the evaluation of savings in electricity expenditure:

•  O-Optimistic: 9% per year;
•  ML-Most Likely: 6.7% per year (equal to the average electricity inflation from 2005 to 2015);
•  P-Pessimistic: 4% per year.

As a matter of fact, the higher the inflation rate, the higher the cost of energy, and thus the economic savings.

It is then interesting to evaluate what happens in multiple scenarios when the discounting of the cash flow is performed as a function of the real interest rate (a combination of a monetary interest rate and inflation). Two borderline cases for i_m (4 and 20%) and three cases for general inflation $\beta$ (3-8-15%) were considered. Table 6 presents the calculation of the NPV (sum of all discounted home flows) of the ML scenario, for all possible interest/inflation pairs. As can be easily understood, the range of expected results diverges considerably when the values of ($\beta$;i_m) are varied:

- the case with modest inflation and high interest (3%;20%) significantly reduces the value of future cash flows;

- the case with moderate inflation and low interest (8%;4%) (negative real rate) presents a very high NPV;

- the case of the couple (3;4%) and that of the couple (15%;20%), although the numbers are in the same ratio, give only similar, but not identical, results.

Table 6. Possible scenarios for the NPV of savings (NPV are in EUR)