Quiz Corner: Calculating the incremental cost of electricity

What is the approximate incremental cost of electricity for a plant that purchases electricity at 6 cents per kilowatt-hour (kwh)?

A. $300 per year per kwh
B. $400 per year per kwh
C. $500 per year per kwh
D. $600 per year per kwh

Knowing the incremental cost of electricity is important because it can be used to quickly estimate the annual energy savings associated with a process change and/or an energy conservation project, such as the installation of a variable speed drive. Conversely, you can also use it to quickly estimate energy costs associated with actions that increase energy consumption.

Increasing or decreasing the electrical load by 1 kilowatt for a year can be estimated as follows:

(6 cents per kwh) • (8,760 hours per year) = $526 per year

Answer C is closest to the calculated amount.

Additional complicating factors

This Quiz Corner sheds light on the importance of knowing the incremental utility costs. However, actual calculations for electricity in a typical plant are often more complicated because they may involve time-of-day billing, demand charges, hatchet/ratchet clauses and power factor penalties described in different rate structures.

Similarly, knowing the incremental costs of other applicable utilities in the plant — such as natural gas, coal, waste fuels, industrial gases, cooling water, chilled water, compressed air and steam — is important.