Ricardo and Northwood collaborate together on heat decarbonisation
Heat decarbonisation in the paper industry
Northwood Tissue Ltd operate a tissue manufacturing site in Disley. Tissue production requires steam, which was being generated by an end-of-life boiler; and power, which was being imported from the national grid. The poorly performing steam boiler needed replacing and Northwood had been approached by two CHP suppliers with quotes. However, the climate change policy landscape applying to the Northwood site was complex and a complete understanding of these policies, in both the Status Quo and CHP deployment scenarios was necessary to appropriately evaluate the technical and financial case for CHP. Ricardo has leading expertise in energy engineering and policy and hence was perfectly placed to guide Northwood through this multifaceted problem.
The first step in understanding a system is to perform a mass and energy balance. Using actual meter data, we mapped the existing steam and power demands of the site over the year. We fed this energy demand data, as well as the technical specifications of the CHP, into our computational model to understand how the CHP could be best utilised to meet site demand for steam and power. Ultimately, our modelling work provided Northwood with the assurance and confidence that the CHP system being considered was indeed a good match for their energy needs.
The technical validity of the proposed CHP system was only one-half of the challenge. The financial performance was evaluated as a capital purchase using a Discounted Cash Flow (DCF) analysis, incorporating all relevant cash flows, from this a Payback and Internal Rate of Return (IRR) was calculated. As an energy-intensive manufacturing site, it is affected by several climate change policies which must be considered when evaluating the financial performance of any project affecting the site’s energy consumption and emissions. These included: Climate Change Levy (CCL), Climate Change Agreements (CCAs), UK ETS, and CHP Quality Assurance (CHPQA). A deep working knowledge of these entwined policies is crucial to precisely determine the financial impacts of changes to the energy system. It's precisely this detail that is often mistakenly overlooked in analysis, and it's why Northwood approached Ricardo specifically. Ricardo is a leading policy adviser to many governments, including the British Government, we therefore have an unparalleled understanding of the UK policy landscape.
Robust input data is essential to accurate modelling work. However, the energy market is in a volatile state at present, hence the high uncertainty in future gas and electricity prices. To combat this, we performed an uncertainty evaluation on input variables with the potential for high variability. By performing this evaluation, we were able to present a financial best/worst-case scenario. With this knowledge, the client was better able to understand and quantify the risks they faced.
The decision to invest capital into a new energy system was one that Northwood was not taking lightly, and rightly so. The cost of CHP units is considerable, and the consequence of a newly installed system being unable to provide the site with the quantities of heat and power required would be even more disastrous. Based on the techno-economic evaluation performed by Ricardo, Northwood was able to make an informed investment decision based on the benefits and risks of the proposed project. This would not have been possible without the technical, economical and policy understanding available from Ricardo.