Cover Story: The High Costs of Hydro - Is diesel generation an alternative for your farm?
Tuesday, February 16, 2010
Some farmers are finding that the costs of connecting to three-phase power and hefty demand charges are forcing them off the grid. But ag engineers question the economics
By Don Stoneman
Fifteen years ago, Del Cressman, who farms 5,000 acres near Listowel, didn't have to dig that far into his pockets to buy a diesel generator to run his on-farm grain elevator. The $20,000 price tag was less than half the cost of bringing three-phase power from Highway 23, 2.5 kilometres away, to his farm gate.
He doesn't regret the decision.
"I've got myself convinced I'm winning," Cressman says wryly, even though he can't put a figure to his current costs of producing electricity compared to being connected to the grid.
For years, some large farm operators have been installing generators rather than spending a lot of money to bring three-phase power to their farms and hooking up to their on-farm buildings.
But now it seems as though some farmers may be turning to generators to deal with the uncertainties of hydro rate structures rather than just accepting expensive connection costs.
At Earlton, north of New Liskeard, cash cropper Norm Koch opted for a 200-kiloWatt diesel generator on his grain storage operation. He mentions Cressman's example as an inspiration, even though he didn't face the same costs as Cressman to get three-phase to his farm. Koch, the largest farmer in the Timiskaming District, is located next to Highway 11 and the power corridor.
"Here it's probably a wash," he says. "Maybe the generator was a little less (expensive than a three-phase hook-up) but not much."
Koch has heard "horror stories of other farmers being hit with $25,000 hydro bills" because they started up their fans to dry a customer's grain in the winter and attracted demand charges from their utility provider.
Demand charges cover the cost of delivering a large amount of power to a customer in a relatively short period of time.
"When you have to fire up, you have to fire up," Koch says. "We are drying all year round."
Koch Farms Ltd. has nearly a million bushels of storage. Norm Koch says the elevator's biggest motor is 30 horsepower, but two of them are needed to run the dragline that pulls grain from one bin to another.
Koch worked out the details of his generator plan himself, without benefit of a consultant, based on the experiences of other farmers and also those of his grain merchandising partner, Parrish & Heimbecker. "P & H" runs its receiving elevator, east of Kitchener, on a generator when it unloads Western wheat destined for milling.
The Koch Farms generator produces 200 kW, or 240 electric h.p. That means it can run 24 10-h.p. motors. "Some people feel that they are making (power) cheaper than it costs them," says Koch.
"I feel it costs us quite a bit less than if we were hooked up to hydro. I think you will see a lot of these in the future, but who knows?"
Welcome byproduct
Cressman and other grain elevator operators, like Mike Ondrejicka of Exeter and Steve and Sue Hall of Hallview Farms near Alliston, have installed generators to sidestep high capital costs associated with three-phase power connections. Eliminating high demand charges seems to be a welcome byproduct.
Koch may be a leader in a new trend to deal with hydro rates that are perceived to be exorbitant and unstable. How far this trend will go remains uncertain. Koch thinks there will be lots more diesel systems around farm elevators because of the uncertainty associated with hydro prices. Many farms, particularly those with intensive livestock operations, now have generators as backups in case of failures on the grid.
So does that standby generator have a future on your farm in "shaving" your demand for power?
Ag engineers question the economics and warn that farmers will likely be further ahead by using power on the grid, spreading out demand to avoid peak charges and fine tuning motors and machines in order to conserve.
"The economics (of Koch's situation) sound questionable to me if he's right across the fence" from a three-phase power supply, says Ron MacDonald, a Guelph agricultural engineer and consultant.
MacDonald uses a software program to determine if an elevator operator is better off installing a generator or bringing in three-phase power. There are a lot of factors that need to be taken into consideration because charges vary from one utility to another, he says.
He concedes a generator might save money if the grain dryer is being used to dry corn for a short period in the fall and sits idle the rest of the year. "Once you start doing summer grains and conditioning them a bit," he says, the benefits of a connection to the grid increase. "I can't imagine diesel is cheaper," "MacDonald says, adding the caveat that he is sure Koch did his homework.
Ontario Federation of Agriculture researcher Ted Cowan warns that Koch has to "get his arithmetic right." If his operation was running steadily, he would be better off buying power from Hydro One. "A person who is going partially off-grid or completely off-grid to avoid demand charges has got to be pretty artful about what they are doing. Diesel isn't cheap."
Cowan explains that utilities bill most farm customers on a volume basis. A typical hydro bill is made up of a monthly service fee, another fee for the power they use, and yet another fee for the delivery of that power.
Larger farm operators – Cowan estimates about five per cent – have a demand meter on their farms. The demand charges are for the delivery of a lot of power in a short period of time and kick in when demand exceeds a kWh threshold.
Charges can be 'punitive'
The building code calls for a contractor to install a demand meter when equipment is installed that will draw more than 50 kW of power in an hour.
A utility can also install a demand meter when analysis of a customers' bill shows the threshold of kwh per hour has been surpassed. Power distributors say servicing demand customers requires more expensive infrastructure, heavier duty transformers and wires, notes Cowan. Maybe so, but the demand charges allowed by the regulating Ontario Energy Board can become "punitive," he asserts.
If a demand customer, such as a factory, uses a lot of power it becomes cheap, Cowan says. A large, steady user gets power for a delivered price of about eight cents a kW. If not a lot of power is used, or it is used intermittently, power can cost as much as 20 cents a kW hour, because of the cost of delivery.
For customers on demand meters, "we have seen one bill as high as $2 a kW hour," Cowan says. "We frequently see people with bills in the 14 to 20 cent (per kW) range." But, Cowan says, for most customers it may still be cheaper to tap the grid for power, in the long haul, than to burn diesel in a generator.
Depending on the price of diesel and "how long his generators last," generating electricity with diesel could cost 20 cents to 50 cents a kW hour.
"It is possible (for a farmer) to run this system . . . and keep his bills down.
But I would caution that it is possible to get it wrong and pay even more."
What about medium-sized farming operations that just make it over into that "demand meter" side of the power equation? Where does time-of-use billing fit in? Time-of-use, scheduled to be rolled out in rural Ontario this summer, adds another wrinkle to an increasingly complex power landscape in Ontario.
Smart meters were due to be installed in all businesses and residences by late December and time-of-use billing is scheduled to be introduced to Ontario this year. Peak pricing begins at 8 a.m. and runs to 5 p.m. in the summer.
Waterloo Region broiler raiser Mark Reusser wonders if he can reduce power costs by running his diesel generator to operate fans during the peak of the summer heat. He raises 90,000 broiler chickens at a time in barns near New Dundee, southwest of Kitchener. Reusser feels that he can't "time shift" his power consumption. Peak demand for power in his barns comes at the same time as most consumers are cranking up their air conditioners on very hot summer afternoons.
Reusser's three barns are backed up by two emergency generators installed before he bought the operation in 1996 from a large integrator. He wonders about the economics and practicalities of using these generators for more than emergency use. Would switching to the generators in his barns help reduce his costs?
Also, how long can they be expected to last if they are used often? Reusser is nervous about a breakdown. The generators must start up in a power outage. Without operating fans, birds start to die in about 15 minutes.
Ag engineer MacDonald asserts that running a generator isn't cheaper than buying power if an operation is already hooked up to three-phase power.
MacDonald has consulted with greenhouse operators who use generators to provide power. It's a complex system that involves producing power at some times for sale to the grid and running CO² into the greenhouse to promote growth of plants. "They sell electricity to the grid during the day and at night they turn on the lights."
"Hydro electricity is still pretty cheap," points out Fergus-based Ontario agriculture ministry engineer Robert Chambers. Ten, 15 and 25 h.p. motors are big power drawers, he says.
Usually swine operators are only caught by heavy electrical bills if their pig barns are associated with a feed mill, he says. "The first thing I would look at is management (to) see if you can stage your operation."
Chambers says there's still a lot you can do with management and energy use. Just cleaning equipment and keeping the dust off it helps. "Little things like that will go a long way. You can easily lose five to 10 per cent on heating equipment and ventilation if it gets dirty."
MacDonald adds that an interlock preventing manure-handling equipment from running at the same time as livestock are fed can eliminate the need for a larger service, demand charges or high time-of-use fees for that matter.
Farmers with grain storages should be careful that they aren't running other equipment when they check for spoilage, says MacDonald. Typically, he says, a farmer runs the aerating fans for 15 minutes, climbs to the top of the bin and checks for malodours. If there's no spoilage, he turns the fans off again, but the power demand may have exceeded 50 kW if there was other equipment operating as well. His solution: "Wait till hardly anything else is running and then check it."
Avoiding a $300,000 bill
There are ways to use a generator to reduce other costs. Mike Ondrejicka, owner of Ondrejicka Elevators, southwest of Exeter in Huron County, recently added a new grain dryer to his 2.5-million-bushel grain storage and a generator to power it. He needed an 800-amp service to run his elevator, but the cost of connecting to a 27,000 volt line on Hwy. 4, 2.2 km away was about $300,000.
When he's not drying grain, there's lots of power on the existing line to run the plant for the rest of the year. But the generator is wired to handle all the elevator needs if there is a blackout. Ondrejicka expects the generator will operate 500-800 hours a year.
Ondrejicka makes the generator more efficient by fuelling the 1,710-cubic-inch V12 Cummins engine with natural gas, and also adding co-generation. Waste heat from the natural gas generator is funnelled through the grain dryer, replacing about 10 per cent of the dryer heat. There is no need for a heat exchanger since the exhaust from the natural gas is clean, so it can be used directly to dry grain. Not so if diesel is used as a fuel, he says. About 65 per cent of a generator's energy is wasted as heat.
Removing 10 points of moisture, the dryer will handle 80,000 bushels of grain/day. Taking out five points, the dryer will handle 7,000 bushels per hour.
Ondrejicka locked in his natural gas prices once, but does not plan to repeat that mistake. Markets for natural gas are not transparent like grain markets, he says.
A year ago, Steve and Sue Hall of Hallview Farms replaced a burned-out corn dryer with a new one with enough capacity to allow their burgeoning grain drying and storing business to grow. The old dryer ran on a conventional electrical service but ran short of power and switched off at times, Steve Hall says.
The charge to bring three-phase service to the elevator south of Hwy. 89 was in the neighbourhood of $180,000. Instead, the Halls invested in a 300-kW generator and haven't looked back. From early February until early December, it had run more than 1,200 hours. Steve says the diesel required to produce electricity to run the generator costs eight cents per kilowatt. The generator is oversized for the operation, but the Halls plan to expand the 700,000 bushels of grain storage to one million soon, and also will install a switch so that they can run everything on the site on the generator to make best use of it. "For the first time in my life I have more capacity than I need," says Steve.
As long as power prices and policies remain in flux, farmers are likely to look at ways of providing their own power, particularly if they are on the edge of requiring a demand meter.
The Ontario Federation of Agriculture (OFA) has made representations to the Ontario Energy Board stressing the unfairness of their demand energy billing policies, says researcher Ted Cowan. It wants the 100-kW-hour threshold for implementing demand meter pricing to be reinstated, he says.
The OFA thinks a cap of 14 cents per kW hour is reasonable. It is still a 30 per cent premium over the regular cost of delivering power to businesses. Neither proposal is viewed positively by Hydro One, the major rural supplier to farmers, or the Ontario Energy Board, Cowan says.
Hydro's 'cocky attitude'
Del Cressman's elevator now has capacity for 650,000 bushels. Cressman runs the 3,980-kW generator between 1,000 and 1,500 hours a year. Cressman describes his costs as "pretty well fixed."
The diesel engine consumes about eight gallons of fuel an hour, he says. The current engine is thirstier than the original installed with the generator.
"If I want to run 300 h.p. of motors, I need at least 300 kW of generator," Cressman says.
He says there have been "a few times when it was nice to be independent" of the grid because he could run the elevator when power was out in the area. Cressman admits it was more than just the cost that pushed him away from Ontario Hydro – it was "their cocky attitude." He adds that it would take a "very special long-term deal" with Hydro to make him go back and work with them again.
But Cresssman admits that, when he is doing "light jobs," the generator is less efficient to operate. When he is aerating grain, he runs fans on a number of bins at once to make switching on the generator worthwhile.
"I like the independence. It is reliable," Cressman says.
"I am lucky there are enough chicken farms around here that I have natural gas" to run the dryer. But he decided to stick with diesel on the generator rather than converting it to natural gas as well. He understands that the engine won't last as long.
"If I were younger, I would go to methane," Cressman says.
And, he adds, if his setup was larger, "I would go with a more efficient generator." BF
Making smart meters work for you
Steve Clark, a Kemptville-based agricultural engineer with the Ontario Ministry of Agriculture, Food and Rural Affairs, warns farmers they shouldn't sign up for power contracts just to avoid regulated time-of-use charges. He points out that there are 70 hours of high-priced peak and mid-peak hours in any given week and 98 hours of off-peak hours when cheaper power is available, including all hours on the weekend.
A user signing onto a contract at nine cents a kW, for example, pays that nine cent rate all the time for all the power used, even though there are many hours a week when the regulated 4.2 cent rate applies. On top of that, the contract rate doesn't take into account delivery charges for power. Rather than signing a contract, Clark suggests that dairy farmers, for example, should try to get as much of the milking done as possible before 7 a.m.
When smart billing begins, a customer will be able to log on to his or her hydro bill on a website and see when they used power the previous day and how they were billed for it. It's an opportunity to see the results of changes to hydro use patterns immediately, Clark says.
The OFA's Ted Cowan warns that the website monitoring won't be free. But Daniele Gauvin, spokesperson for Hydro One, says customers won't be charged to use the website monitoring service. The OFA says that Hydro One has more than 91,000 farm customers in Ontario. Some other utilities have farm customers as well. BF