Environmental Science & Engineering - www.esemag.com - June 2003
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Life-Cycle Costing

- a new book for pump purchasers

By Steve Minett,PhD. and
Chris Taylorby
Interest is growing in the concept of life-cycle costing (LCC). However, implementing it as a realworld approach to purchasing industrial products usually requires a lot of ‘system’s knowledge’ and the capacity to convince even non-technical members of the purchasing organization. A new book applying the concept to pumps has been produced with the international co-operation of leading bodies in the pump industry.

LCC is based on the idea that the capital equipment which has the cheapest purchase price, is not always the cheapest to run and maintain. In other words, attempting to save money by buying, at the outset, on price alone can later prove to be an expensive mistake. (A closely related concept is the ‘total cost of ownership’.)

The three key elements of LCC are usually as follows: first, the purchase price of the equipment; second, the cost of the energy it consumes over its service life; and third, the service and maintenance expended on it over its service life.

It should be emphasised that the costs arising from lost production (if failure of the product in question causes system downtime) can potentially dwarf all these other LCC cost elements. Where this is the case, it’s essential to design the system in such a way as to minimise these risks.

Any residual value (e.g. trade-in, or second-hand value) should be included, as well as a comprehensive review of how the proposed new equipment fits into the existing system, and what cost savings can be made there too.

The Institutional Route Gunnar Hovstadius, Technology Director at ITT Fluid Technology and a specialist in this area explains that: “Current interest in energy efficiency dates back to the period 1994-95, when the American Department of Energy’s Motor Challenge Program established contacts within the pump industry in order to explore possible improvements in pumping systems.” The Department’s involvement followed the passing of the Energy Policy Act, in 1992, which aimed to seek and define ways to reduce the nation’s use of energy. Amongst other actions, it set minimum requirements for energy efficiency in electric motors, and allowed a five-year period for industry to comply with its requirements.

A logical next step was to investigate how energy could be saved by reducing the demand from equipment driven by those electric motors. Paul Scheihing of the Department of Energy's Office of Industrial Technology suggests that this is where the greater savings can be made. According to Scheihing, “some 25 per cent of potential energy savings can be achieved by improving efficiencies in the motors alone, whereas the remaining 75 per cent can be realised by optimising the system as a whole.” Following up this point, in 1999 the Best Practices Programme was established to look at equipment driven by electric motors, e.g. pumps.

Two years earlier, in 1997, Europump - the association of European pump manufacturers - had started an energy-saving campaign called Enersave, and in 1998 the Hydraulic Institute in America became involved. Subsequently all these organisations started to work together.

Gunnar Hovstadius has been working in the area of LCC with the U.S. Department of Energy since the mid 1990s. He suggests that the key factors (purchase price, energy cost, service and maintenance and lost production costs) will differ between applications, and that, certainly in the case of pumps, it's the system that determines which is the most important in each case.

“Bringing in American industry in the form of the Hydraulic Institute shifted the emphasis towards maintenance costs, whereas the high cost of energy in Europe - due to relatively high tax levels - makes Europeans much more aware of the energy component,” he claims.

The ‘Bidding’ Model Hovstadius points out that, traditionally, the purchasing of industrial equipment such as pumps follows a ‘bidding process’ model, where manufacturers compete to provide the basic product at the lowest initial cost. “In some ways it can be argued that this has been institutionalised, for example where governments require public organisations to go to competitive tender and buy the lowest cost product. With the growing interest in LCC, there's discussion in the USA that Federal mandates to buy the lowest cost product should be complemented by a requirement to buy equipment which is in the highest 25 per cent regarding energy efficiency. Other aspects of LCC could also be used. The idea here is not that the bidding process should disappear, but that the criteria on which it is based should be shifted toward the LCC concept.”

The Organisational Dimension Another element in the traditional, business-to-business bidding process is what can be called the ‘organisational dimension’; very often the people responsible for buying and/or paying for the equipment are not involved in, or even responsible for, operating the equipment and paying for its operational costs. Those buying the equipment may have a fixed budget. They will probably, therefore, be less concerned with the long-term operating cost of the equipment, than completing the purchase without going over budget. Equipment is often bought by contractors who aren't going to be running the system once it's been designed and built. Consequently, there's little incentive for them to pay higher prices for more efficient equipment. In order to overcome this organisational irrationality, the future operators of the system are going to have to demand and specify optimally efficient equipment.

In an effort to escape from this sort of dysfunctionality - at least as far as the pump industry is concerned - an authoritative book has been produced. This will function as a manual for designing pump systems according to the principle of life-cycle costing. The book, some 200 pages long, has been produced with the co-operation of Europump, the Hydraulic Institute in America, and the U.S. Department of Energy. The energy directorate of EU has also taken an informed interest in its production, and, in addition, the vast majority of pump manufacturers participated.

Hovstadius, who has been intimately involved in the book's production, states that “our point is that the concept of life-cycle costing is a much more sophisticated - and ultimately realistic - way of buying industrial products like pumps. This approach is making a breakthrough, with, for example, many articles appearing in the trade press.”

Practical Examples Hovstadius offers some concrete examples of how life-cycle costing can work in practice. “If you look at maintenance in a pulp and paper plant, purchasing pumps which are corrosion resistant obviously increases the purchase price, but is much more economical in the long run. Large savings in operating costs are possible by paying more attention to energy and maintenance costs. A recent study at a US paper mill indicated that implementation of a number of energy saving projects could triple the plant's operating income. Maintenance and energy savings usually go hand in hand.

“In the case of wastewater pumping, cost savings of up to 40 per cent are possible,” he claims. “The general problem with such systems is that they are grossly oversized in terms of average flow rates. People put in large pumps in order to deal with peak demands. One aspect of this is friction losses. If you double the flow rate the friction losses will increase four-fold.”

The simple answer is to install smaller pumps, in addition to large pumps, in the pumping system. These will deal with the average, low flow rate - with consequent lower friction losses - and the large pumps will be on stand-by for exceptional flows. “Of course you have to pay for the smaller pumps, but looking at the life-cycle costing of the system, you are going to save money in terms of energy and maintenance by doing this,” says Hovstadius.

“The emphasis on the system is very important,” Hovstadius stresses. “There is a suggestion in the EU that pumps should be labelled according to their efficiency. But this might take the focus away from the system; the level of efficiency comes not from the pump, but from the system in which it is working.”

Variable Speed Pumps Another technology which is making life-cycle costing easier to implement is variable speed control for pumps. Traditionally a pump is usually working at full speed and is then throttled back to deliver the desired flow rate. Hovstadius says, “this is the equivalent of somebody driving down a motorway with their foot constantly flat on the accelerator, while controlling the speed of the car with the brakes. It's a very wasteful way to use energy. In such systems, variable speed control offers great potential for energy saving compared to flow control by throttling.”

“Many of these principles and ideas around the LCC concept are fairly well understood by engineers, and the people who directly operate the equipment,” says Hovstadius. “The real challenge is to bring these concepts to other people within the organisation, for example, financial officers and general managers who need to be given a sense of how life-cycle costing can work in the real world. Then we can overcome the organisational divisions between those who have the purchasing budgets and those responsible for the operating costs.”

Life-Cycle Costing is available online at www.pumps.org.

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