It is no surprise that after labor costs, energy is the next highest operational cost for water and wastewater utilities. Water is an extremely heavy resource, requiring enormous amounts of energy to move and treat it. As energy costs continue to rise and more states adopt regulatory incentives and disincentives that drive large-scale sustainability and efficiency efforts, it is expected that utilities will become more aggressive in their approach to managing energy.
Planning an Approach
According to Black & Veatch's 2019 Strategic Directions: Water Report, energy remains a key concern for the water utilities sector. Two-thirds (67 percent) of respondents say energy management is an "extremely or very important" priority for their organization, while one-quarter prioritized it as "moderately important."
The first step to managing energy is to put an energy master plan in place. This plan should focus on how the utility can most effectively use energy and address topics such as consumption and demand, energy production and conversion, and energy distribution. The plan should serve as a road map and offer an efficient, practical and cost-effective path forward.
Nearly half of survey respondents already have an energy master plan in place, while one-quarter are working to develop one. The remaining quarter (26 percent) do not have an energy master plan and do not plan to develop one.
Managing Energy to Manage Costs
Water utilities are actively working to manage rising energy costs and are prioritizing approaches that improve operations. According to survey data, six out of 10 respondents have invested in efficiency improvements over the past three years – changing out power-hungry equipment for more efficient models, exploring new, more sustainable processes, and updating treatment methodology. Forty percent say they are currently considering efficiency upgrades.
Asset management systems and data analytics offer utilities additional options when it comes to maximizing efficiency in power systems. For example, integrating predictive maintenance and other diagnostics into an organization's asset management system would give operators the ability to monitor and maintain operations in real time. This topic is addressed in the article, "Predictive Maintenance Offers Promise in Asset Management," on page 14 of this report.
Nearly half of respondents (45 percent) said they are partnering with electric utilities on demand response programs. Electric utilities historically have relied on demand response and pricing models – charging peak and off-peak rates – to modify user behavior and disincentivize users from consuming power at certain times. Water and wastewater utilities can take advantage of these programs by using energy when rates are lower, for example, running pumps at night instead of during peak hours.
If a utility offers power at X cents per kilowatt-hour (kWh) during peak demand periods, and at a fraction of X during off-peak hours, then the water utility effectively can reduce energy bills by modifying operations to take advantage of the lower rate. In fact, 37 percent already have worked to modify their operations to take advantage of off-peak charges. Renewable energy and energy storage could also help in this regard.
To keep an eye on energy costs, four of every 10 survey respondents have conducted an energy audit within the past three years. Energy audits are helpful in that they provide a granular look at power use and portfolio capabilities. When it comes to on-site power generation, more than one-third of respondents said they have invested in on-site power generation over the past three years, while slightly more than one-quarter are considering adding it, which is a relatively small number, reflecting that water-related utilities may choose to focus on their core expertise and competencies of distributing of treating water and defer to their electricity peers to do what they do best – supply power.
Finally, one-fifth of respondents are adding energy recovery technologies such as microgrids and combined heat and power (CHP) systems, while 16 percent are passing rate increases on to their consumers.
The Economics of Energy
Regional price considerations will play a large role in shaping energy policy going forward in that investment decisions will hinge heavily on how much a water and wastewater utility pays for power. industrial electric rates fluctuate wildly. According to the U.S. Energy Information Administration (EIA), Washington pays the lowest rate in the country – 4.67 cents per kWh – while Hawaii pays the highest, at 26.73 cents per kWh.
Utilities in states where the regulatory environment is driving energy efficiency (coupled with high costs of energy) are more apt to invest in new approaches to energy management. For example, if a water utility in Hawaii could cut its energy bill in half, that would more than make up the original cost of the efficiency investment.
But in areas without environmental regulatory statutes – and with relatively low costs of energy – there is less of a focus on these efforts simply because the economics won't work in their favor. If a water utility in Oklahoma is paying 4.85 cents per kWh, cutting that bill in half won't cover the original investment. The investment to develop the infrastructure will be relatively similar, regardless of region, but the returns can be significantly different.
When looking at pay-back time, more than one-quarter of respondents (27 percent) of those surveyed said they expect to see a return on investment in less than five years, while 26 percent are prepared for a six- to 10-year window. Nearly half responded that they do not have a stated pay-back time.
Three-quarters of respondents (76 percent) are considering renewables to help defer energy costs. According to the survey, roughly six of 10 respondents are considering solar solutions, as the technology continues to improve and costs continue to drop (Figure 21). One-third are eyeing gas generation from biosolids, which involves generating biogas from organic waste, and 22 percent are looking at hydro generation. The numbers drop off from there. Thirteen percent said battery storage, probably because of its cost- prohibitive nature, and only 11 percent said wind, probably because the technology will not scale to the amount that water and wastewater utilities need.
Embracing a Future of Energy Management
As the intersection of energy and water becomes more deeply entwined, expect to see a shift across the industry as water utilities begin to focus more closely on how they approach energy management. Utilities in states with regulatory environments that are driving energy efficiency — and those facing high energy costs — will lead the charge when it comes to investing in resilience and sustainability. Utilities in states that are prone to natural disasters also will likely make investments in resilience irrespective of incentives or price of electricity. These efforts eventually will roll out across the rest of the country, encouraging change across the water utilities industry and municipal operations.