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Background Notes
Section 2 - Costs
Business Model
for investing in Power Quality Solutions
Jonathan Manson
Abstract: This Background Note illustrates how non-financially technical personnel can use their experience
to help communicate to and convince other decision-making departments to invest in upgrading an electrical
installation’s resilience and reliability. It is based on some extensive research carried out among a wide
range of commercial and non-commercial industrial sectors in Spain. The conclusions drawn are not
considered to be nation specific and are intended to indicate both the importance for such qualification to
take place and an effective way to do it.
Introduction ........................................................................................................................................................ 1
Part 1 – Research findings ................................................................................................................................ 1
Description of current situation .......................................................................................................................... 1
Mechanical & electrical consequences of PQ problems experienced by organisations ................................... 2
Practical consequences of PQ issues ............................................................................................................... 3
Preventative actions and renovation solutions taken ........................................................................................ 4
The cost of future proofing installations is more expensive as retro-fit ............................................................. 5
Part 2 - General application of these findings ................................................................................................... 7
Quantification of lost productivity....................................................................................................................... 7
Conclusion ......................................................................................................................................................... 9
Some of the 99 interviews were carried out face- Part 1 – Research findings
to-face and some by telephone. Each telephone
interview lasted at least 45 minutes; each of the
face-to-face interviews lasted up to two hours. Description of current situation
The following details the issues, which occur after
Whilst the nature of the research structure does the point of common coupling directly related to
not lend itself to extrapolate the results nationally, the end user installation. For the purposes of this
within that caveat, some indications are drawn in paper, the quality of supply before the point of
the report, which suggest what the national common coupling (PCC) is not discussed. The
– www.lpqi.org pg. 1 / 11
focus therefore is placed on those power quality lists them in terms of the frequency of experience
issues which occur within a given installation, are by the respondents:
caused by either or both of the installation’s
design or the use it is being put to. They are: − Unexpected tripping of the differentials 71% eg
nuisance tripping from overheating caused by
− Harmonic pollution – harmonics especially the earthing devices’ over sensitivity reacting to
3rd, 5th and 11th, which unbalance the system harmonics.
and can cause cables to overheat. − Flicker 58%
− Voltage variations – the inability of the system − Unexpected power spikes 51% eg surges or
to cope with sudden surges of power demand over voltages because of poor power quality
from heavy machinery. resulting in unexpected charges stored in pfc
− Earth leakage – the mini-currents flowing from capacitors and switching which induce large
electronic equipment, which are individually current or voltages in other adjacent parts of
operating within the regulations, but the system.
accumulate into dangerous levels usually in − Sporadic problems with computers 45%
the Neutral (N) conductor.
− Unexpected machine or component failures
− Increasing lack of electro-magnetic 36%
compatibility – the interference from standard
− Stalling of motors at start-up 32%
power supplies with all other functions within
the system. − Permanent risk of electric shock or discharge
22% eg caused by component failure (cable
overheating, circuit breaker enclosure
Mechanical & electrical consequences breakdown, busbar vibration exposing metal
of PQ problems experienced by parts).
organisations − Interference with data communication
equipment 17%
The following illustrates the frequency spread of
PQ issues experienced by the research sample:
− Problems with electrogenous groups of
equipment 11% eg stand by generation eg
Chart 1 PQ Issues experienced diesel engine driving alternators.
40
– www.lpqi.org pg. 2 / 11
Chart 2 – Frequency of PQ operational consequences
experienced Frequency distribution and time lost
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Cost of equipment damage − How much time was wasted
Second, the study analysed the profile of − What the costs to the organisations tended to
equipment that was damaged by the issues be.
described above in that one of the major cost to
business elements is expensive equipment, which The data is as follows:
is either ruined or has its effective life drastically
%
and quite unnecessarily shortened. Data loss
%
Experienced
Duration
%
Experienced
Costs to the
organisation
Experienced
Company
Company
24 1-4 hours 36 €1.500-€3.000 26
financial files
−
Computer
Batteries programmes
18 4-8 hours 19 €3.000-€6.000 26
1-1½ days 7 €6.000-
−
9
Motors 1½ - 3
€12.000
€12.000-
4 9
− Transformers
days
3-7 days 4
€30.000
€30.000-
9
€60.000
− Climate control/ air conditioning 1-2 weeks
2-4 weeks
4
4
>€60.000 13
−
Respondent base: 33
Protection > 1 month 11
“Protections” were not identified as being The responses relating to personal injury were
damaged. As a commentary on this finding, had limited and any conclusions based on a small a
they been working effectively, the damage to the sample as this need to be treated cautiously.
other equipment might have been mitigated or What is clear is that:
avoided. − There should be real awareness of the danger
as well as the financial waste incurred by
Damaged expensive equipment significantly reduces inadequate electrical installations.
productivity and profitability
− As there should be of the consequential
As this equipment is not inexpensive, when any increases in operating costs (eg insurance
one item is damaged or has its active life premiums, damages).
shortened, that automatically generates a high,
unexpected additional cost to the operation
(further) reducing the productivity of the Preventative actions and renovation
organisation involved. solutions taken
Cost of data loss and computer programming This section addresses the activities and costs
inefficiencies involved in eliminating PQ problems from a
system and the cost of implementing these
Finally, the following table details the responses
solutions as either preventative or remedial
relating to data loss in terms of:
actions.
− The proportion of the sample that admitted to
such losses
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These are founded in correct diagnosis and − 45% respondents answering the “reinforced
measurement, which enable designers, installers earthing” question had reinforced their earthing
and end users to specify the optimal way of either systems.
designing (new build) or renovating (existing
− Fewer than 30% of the total sample used
buildings) their installations to cope with current
active filters.
and future use demands. The areas studied by
this project were: − Over 80% claimed to have segregated circuits
to key demand equipment.
- Measurement − 48% of the total sample said they had
• thd – total harmonic distortion measured the harmonic profiles correctly.
• tRMS – true root mean square
- Cable sizing It should be remembered that, as the respondents
• Up-sizing phase conductors had all attended an LPQI PQ Harmonics’ Seminar
• Equal sizing N to Phase over the past 18 months, the picture, whilst
• Reinforcing the earthing system encouraging, can not be reliably extrapolated to
- Use of filters be nationally representative.
• Passive
• Active The cost of future proofing
• Circuit separation installations is more expensive as
- Correct analysis of harmonics.
retro-fit
Use of The final section of the study attempted to
Measurement
Filters
ascertain the variation in costs of having an
Measurement
Sizing N = to
Segregation
Harmonic
Passive
Correct
thd TRMS
Cables
Circuit
Active
Phase
Avg. Cable
increase
– www.lpqi.org pg. 5 / 11
presented respecting the organisation’s − Permanent risk of electric shock, continuous
anonymity. The following summarise them in computer crashing, interference with
terms of: communications systems and irritating flicker
− Valuable research data loss, re-inputting & re-
i. Power quality issues affecting their operations.
programming and reduced effective equipment
ii. The consequences these have had on the
lifespan
organisations’ activities.
iii. The nature and extent of the problem − 30 staff 1 day every 2 weeks; 2 days per
(numbers of staff involved, the frequency and person per month
extent of the problem occurring, wastage − €290.000 gross pa (Costs exclude any
incurred in terms of staff down time, equipment damage to/ replacement of equipment
damage/destruction).
iv. The remedial action that has been taken and − Total renovation and new build – the additional
its cost. costs of installing a reliably resilient, future
v. The time it took for that investment to be proofed system €850.000 or <10% of the total
amortised either by increased productivity and/ building cost (<20% of the power installation
or elimination of waste. cost)
− Elimination of the annual wastage & increased
The following cases relate to: productivity meant this incremental cost was
− Government buildings amortised in <3 years.
− A Science Museum
Case 3 - Mid sized hotel in N Spain – replacement of
− a medium sized hotel manual systems with a centrally computerised one.
− an airport power management centre − High harmonic pollution, overheating
− a Hospital conductors and system crashing
− two medium-sized industrial factories − Hotel administration, security & client service
− and a chemicals factory. non-functioning, loss of invoicing, booking
records and customer loss
In each case the following are summarised: − 2 staff ½ day per 2 weeks or 24 employee
days pa
− the PQ issue − Cost of down time, foregone income (phone,
− the Consequences to the organisation bars, room service etc) - €16.200pa
− the Cost caused by PQ issue − Circuit separation and upsize N conductors
− Remedial action taken − €8.500
− The Cost of resolving the issue(s) − 6 months
− Time for cost to be amortised.
Case 4 - Airport power management centre –
installation of variable speed drive power control
Case 1 - Governmental building – increasing use of
system
PCs.
− Earth leakage and high harmonic content in N − Intensive harmonics throughout the centrally
conductor sited power control centre seriously
overheating conductors
− RCD tripping causing extensive, unproductive
down time and data loss and consequential − Terminal systems and runway lighting failure,
data re-inputting battery, filter and distance control cards
irreparably damaged
− 5 staff 5 times per day and therefore the cost
of down time & lack of productivity - €60.000pa − 10 staff 5 times per month = 150 days per
month
− Reinforce Earthing system and double size N
conductors − Cost of down time & lack of productivity
€90.000pa
− €35.000
− Oversizing N + 50% greater than the Phase
− 7 months of problem free operations and active filters tuned to & installed at the
variable speed drives
Case2 - Science museum & research centre –
intensive use of PCs, medium power demand − €100.000
equipment. − 13½ months.
− High harmonic pollution, power surges &
voltage variations
Case 5 - Large district general hospital –
– www.lpqi.org pg. 6 / 11
ad hoc renovations/ extensions unbalancing the interruptions and premature equipment burn
power system out
− 300 staff & 10% idle for 8 days pa – 240 man
− Network very high harmonic pollution, voltage days lost - cost of down time €50.000 pa
variation from the heavy demand equipment
(air-conditioning, variable speed drives for the
− Lack of productivity €60.000pa or 1-2% of the
annual turnover
lifts, theatre generators etc) and overheating
cables − Upsize Phase and N conductors, circuit
segregation, installed equipment (active and
− Motors stalling at start up, computer crashing,
passive filters)
protective devices prematurely burning out and
increased insurance premiums − €90.000 for retro-fitting resilience
− 7 man days per month − 9½ months of problem free operations
− Increased costs of personnel and running the Case 8 - Chemicals factory using highly toxic raw
hospital (equipment replacement, hi8gher materials
insurance premiums etc.)
− High harmonic content in N conductor, voltage
− €45.000pa variations, earth leakage
− Correct measurement (tRMS – thd), upsize all − Increased equipment costs – premature
conductors (Phase + 50% - N = Phase v ½ damage, increasingly hazardous working
size as before), potentially polluting/ disturbing conditions, increased insurance premiums and
equipment segregated circuits, reinforcing reduction of productivity, profitability and
earthing system and installation of passive quality assurance
filters and UPS
− 10 staff (of total 75) affected by the installation
− €260.000 as retro-fit or 25-30% of that as failure - voltage variations occurred weekly –
new build production interruption monthly - 30 man days
− 5 years as retrofit and < 2 years as new lost pa
build. − Operational wastage and lost production -
€80.000pa
Case 6 - Medium sized plastics manufacturer – − Correct measurement, upsizing all conductors,
installation of sophisticated electronic equipment circuit segregation and installation of active
and passive filters & UPS
− Surges and peaks in voltage, high and
increased harmonic pollution − €400.000 as a retro-fit - €240.000 as new
build
− Loss of reliance on computerised, automated
production, unexpected stoppages to − 5 years as retro-fit - 3 years as new build.
production and raw materials wastage Case study assumptions:
− Recovery time, work-place environmental − Net annual working days are 220 (excl. public/
health issues and higher insurance premiums private holidays and allowing for sickness).
− Of the 150 staff, 10 lost ½ day per week for − Working hours per day are averaged at 7.
computer issues and voltage variations
experienced daily (Source: Gorham & Partners Business Model study – 2001)
− 1.760 man hours lost pa and increased
operating costs - €77.000pa
− Designing in resilience into the system, correct Part 2 - General application of
measurement, upsizing all conductors, N = to these findings
Phase, Circuit segregation to the printing
presses and installation of active & passive filters Quantification of lost productivity
and UPS
− €80.000 as a retro-fit - €40.000 as new build Were these findings to be extrapolated to assess
a national equivalent of the wastage incurred by
− 1 ¼ years as retro-fit - 7 months of problem industry, they would conservatively yield a figure
free operations as new build.
in the order of €54 million annually. As previously
Case 7 - Metal security fencing manufacturer reliant stated, the basis of this data is not that robust to
on automated continuous production and be able to do this reliably; however independent
communications EU regional assessments have been carried out
− High harmonic pollution and distortion and (see references) and their findings are not
voltage variations inconsistent with such an order of magnitude of
the losses incurred.
− Computer failure, flicker, interference with data Consequently the final section of this paper, using
communications, unexpected process the information and processes applied to the
– www.lpqi.org pg. 7 / 11
analysis of this specific piece of research, prematurely replaced piece of equipment. The
presents a general method, which can be used to types addressed – but not exclusively – are:
qualify the total cost to an organisation of poor PQ − Transformers
and unreliable electrical installations.
− UPS
It is understood that some organisations can − Motors
tolerate power outages and equipment failure, in − Switchgear
that the remedy after the event will not yield the − Filters/capacitors
operational benefits to justify such investment.
Though from a pure safety at work viewpoint, the Using the following elements. The weightings are
specific examples of this will be scarce. generic and can be tailored to suit specific
As has been demonstrated, the reduction in equipment profiles.
productivity and profitability stem from two
principal sources: Topic Formula Example raw data
− Cost inefficient use of equipment symbol
− Time wasted. Equipment En 50 batteries
To quantify either the time or the cost and time of Unit cost Cn $100
lower productivity, the following criteria have been Expected life
selected. In each case, individual organisations span - years Ln 5
would be basing their own assessments on their Level of tolerance αn
own operating data and any figures quoted here Robust αr
are for illustrative purposes only: Average αa .5
Sensitive αs
− Cost of the unit of equipment Actuarial costs pa* €n ($100/5)*50
− Actuarial expectations of the equipment = $1000 pa
effective life span (eg 5 years) Real annual cost R€ n ($100/(5/.5))*50
− Level of vulnerability of the unit concerned (ie = $2000 pa
robust, average or sensitive)
− Total staff numbers * ie the unit equipment cost divided by the
actuarial life span say, 5 years
− Staff numbers affected by equipment failure
− Average hourly rate (total staff and specific to As far as “Level of tolerance” is concerned, the
the core group affected) comprising: guide for placing a value on the three levels is
Annual salary. based on the fact that the greater the electronic
Cost to the company of any benefits (eg component the greater the sensitivity. So the
health insurance, company car, other three levels could be:
specific allowances).
Social/ employment costs/taxes. Robust αr = 1.0
Company overhead attracted by employees Average αa = 0.5
(variable and fixed operating costs). Sensitive αs = 0.25
Annual hours vary by country but are based Once again, each case should be agreed and
on either a 7 or 8 hour day and 220 working based on its own facts and merits.
days per year (extracting holidays, public
and private, and allowances for sickness). The unit cost/wastage can be calculated using the
− Down time due to the mechanical failure. following formula, first in percentage terms:
− Down time due to the time taken to repair the
system. €n n
− Where applicable the time taken to re-input lost (Cn / (Ln* αn)) = % loss of efficiency.
data/programmes.
Annual equipment wastage AE n = R€n - €n.
− (Raw) materials wasted.
− Revenue irretrievably lost. The following illustrates the process and how it
− -The costs to an organisation of revenue/ works:
income postponed.
− The financial cost of loss of market share. $1,000 $1,000
($5,000 / (5*.5)) = $2,000
− The cost of restoring brand equity. = 50% loss of efficiency.
Equipment cost-efficiency: Second, in gross financial terms:
The objective in this instance is to quantify the
percentage loss of financial efficiency of a
– www.lpqi.org pg. 8 / 11
Annual wastage AE n = R€n - €n, where R€n = Total employee time wasted – time, cost, % of
Real annual cost (total cost divided by actual total available time, % of total employee cost.
productive years) less €n = Actuarial annual cost.
Total gross annual wastage comprises therefore:
ie:
€n : $100 over 5 years = $20 pa − Annual equipment wastage
R€n : $100 over 2.5 years = $40 pa
− Total downtime wastage
Wastage AE n or (R€n - €n) = $20 pa
− Lost revenue
Quantification of the down time: is calculated − Cost of lost revenue
assessing: − (If applicable) investment required to regain
− First the amount of time lost before any repair market share/ financial penalties incurred
has been started.
− Second the time of the repair to restore the - Y€n = AE n + DT3 + I€n + P€n + MS€n
mechanical fault.
− Third the time for re-inputting any data lost. Conclusion
− Fourth revenue irretrievably lost.
The PQ issues which increasingly affect non-
− Fifth the cost to an organisation of revenue residential power systems coincide with
postponed.
the increased use of electronic equipment, high
− Sixth, quantified cost of regaining market power demand equipment and harmonics
share. generating equipment.
The following criteria are used: In many cases, the power installations were not
designed for this profile of use and consequently
Total number of staff – En are unreliable.
Nos. of staff affected/ inoperative due to the
interruption – Sn The consequences for these organisations are
Nos. of staff affected/ inoperative due to the repair that they experience significant loss of productivity
time (inc. data/programme re-inputting) – SRn and, where relevant, profitability.
Average € ph of the staff affected – S€n
Time inoperative – Hn To date there is little or no recognition of these
Revenue irretrievably lost (if relevant) – I€n avoidable losses and therefore no quantification of
Cost of revenue postponed (if relevant) – P€n them.
Cost of regaining market share/ financial penalties
(if relevant*) – MSn Resolving the PQ problems is more expensive to
Total case cost-inefficiency - € pa - Y€n carry out on existing installations as opposed to
*
anticipating them in the design of new
Where aggressive promotion is required installations. In the majority of cases identified by
this national research project, it was even so
In cases where the actual cost is not an issue but worth upgrading the power installations with the
the proportion of time wasted is, then the data cost of renovation being amortised in a
required is limited to staff numbers and time lost. commercially acceptable time scale.
In the majority of cases there are budget
restraints, hence the importance of being able to From the analysis of this study, a series of
cost account the wastage. formulae have been created to enable managers
The formulae to do this are as follows: to qualify the wastage, both in time and financial
terms, to their organisations and to assist in
Down time (DT)1 - Inoperative due to break down assessing the value of upgrading the power
of machinery or systems system to eradicate unnecessary drains on
resource and productivity.
- DT1 = (SIn*S€n)*Hn
– www.lpqi.org pg. 9 / 11
Further reading about this topic: [3] Thomas S. Kelly, Jih-Sheng Lai “Costs and
benefits of harmonic current reduction for
[1] R. Billington (Canada), H. Abildgaard switch-mode power supplies in a commercial
(Denmark), A.M. Alabbas (Saudi Arabia), office building.” IEEE Transactions on Power
R.N. Allan (United Kingdom), S. Arnborg Delivery, Vol. 32, No. 5 September/October
(Sweden), C. Bogoi (Romania), Z. Božić 1996.
(Australia), L.F.M. Gonçalves (Portugal), E [4] EPRI – www.epri.com Power and delivery
Dialynas (Greece), E.A.T. Holen (Norway), D. markets – searchable areas.
Logan (USA), T. Manning (United Kingdom), [5] Other Leonardo Power Quality Initiative
Evanise Neves de Mesquita (Brazil), O. Application Guides, which complement this
Schmitt (Germany), A.R. Shirani (Iran), B. one:
Simpson (New Zealand), Shu Yinbiao Section 2 “Costs”
(China) "Methods to consider interruption 2.1 Cost of poor power quality - published
costs in power system analysis” – CIGRE – 2.3 Cost of sags and dips - due end 2003
Task Force 38.06.01, August 2001. 2.4 Power Quality – risk assessment - due
[2] G. Carpinelli, P. Caramia, E. Di Vito, A. Losi, end 2003
P. Verde “Probabilistic evaluation of the 2.5 Cost of solutions - due end 2003
economical damage due to harmonic losses Section 3 “Harmonics”
in industrial energy systems.” IEEE 3.1 Causes and effects - published
Transactions on Power Delivery, Vol. 11, No. Section 5 “Voltage disturbances”
2 April 1996. 5.5.1 Voltage sag case study in the textile
manufacturing sector - published.
Date 30-Oct-03
* Jonathan Manson is a Director of the management consultancy Gorham & Partners Limited, a UK based firm. He and the consultancy
have been working with the European Copper Institute for a decade both at EU and national levels. He is also a member of the LPQI
Editorial Board and Management Committee.
Acknowledgements
The project has been carried out with the support of the European Community and International Copper Association.
– www.lpqi.org pg. 10 / 11
LPQI Reference & Founding Partners
Akademia Gorniczo-Hutnicza (AGH) Istituto Italiano del Rame (IIR) Deutsches Kupferinstitut (DKI)
Web: www.agh.edu.pl Web: www.iir.it Web: www.kupferinstitut.de
European Copper Institute (ECI) Università di Bergamo Katholieke Universiteit Leuven (KU Leuven)
Web: www.eurocopper.org Web: www.unibg.it Web: www.kuleuven.ac.be
Polish Copper Promotion Centre (PCPC) Copper Benelux Wroclaw University of Technology
Web: www.miedz.org.pl Web: www.copperbenelux.org Web: www.pwr.wroc.pl
Centre d'Innovació Tecnològica en International Union of Electrotechnology (UIE) Engineering Consulting & Design (ECD)
Convertidors Estàtics i Accionaments (CITCEA) Web: www.uie.org Web: www.ecd.it
Web: www-citcea.upc.es University of Bath La Escuela Técnica Superior de
Hochschule für Technik und Wirtschaft (HTW) Web: www.bath.ac.uk Ingenieros Industriales (ETSII)
Web: www.htw-saarland.de Copper Development Association (CDA UK) Web: www.etsii.upv.es
Provinciale Industriele Hogeschool (PIH) Web: www.cda.org.uk ISR - Universidade de Coimbra
Web: www.pih.be University of Manchester Institute of Science and Web: www.uc.pt
Comitato Elettrotecnico Italiano (CEI) Technology (UMIST)
Web: www.ceiuni.it Web: www.umist.ac.uk
The European Copper Institute is a joint venture between ICA (International Copper Association) and IWCC (International Wrought Copper Council) contributing
members. Through its membership, ECI acts on behalf of the world’s largest copper producers and Europe’s leading fabricators in promoting copper in Europe.
Formed in January 1996, ECI is supported by a network of ten Copper Development Associations (‘CDAs’) in Benelux, France, Germany, Greece, Hungary, Italy,
Poland, Scandinavia, Spain and the UK. It furthers the efforts initially undertaken by the Copper Products Development Association, formed in 1959, and INCRA
(International Copper Research Association) formed in 1961.
Disclaimer
European Copper Institute disclaim liability for any direct, indirect, consequential or incidental damages that may result from the use of the information, or from the
inability to use the information or data contained within this publication.
– www.lpqi.org pg. 11 / 11