Renewable Energy - a Financial and Environmental Winner

By Doug Reynolds,
Executive Director, NOTO

When I started writing about renewable energy two years ago, I reflected on the possibility of $1 a litre diesel fuel in the not-too-distant future. At that time, a few folks were talking about global climate change, but it was hardly the mainstream topic it is today. We have also seen shifts in the US dollar and a soft US economy place serious stress on the profitability of many tourism businesses. What do these changes mean in terms of making a decision to adopt renewable energy, especially for a main base lodge?

Let’s look at a hypothetical lodge and make a few rough calculations. I’m going to assume our lodge uses a 20 kilowatt diesel generator and that the generator runs 24 hours a day. The fuel consumption is going to vary with the load, so let’s assume it will run at 75% load for 6 hours a day, 50% load for 2 hours and 25% load for the remaining 16 hours. Using data for a typical 20 kilowatt diesel generator, I get a consumption figure of about 73 litres per day.

Fuel has gone up in price much faster than any of us expected, with many predicting that $1.50 a litre or higher is likely in the very near future. Diesel is priced at $1.25 per litre at the local gas station as I write this.

For remote lodges, and that’s where most of the diesel generators are, we need to consider transportation as well. I looked at numbers from one typical lodge that flies fuel in, and came up with about $1 per litre for transportation, using last year’s air costs. Of course, aviation fuel costs this year will likely drive this figure up.


So let’s look at some numbers based on $2.50 per litre to cover fuel and transportation. Our hypothetical generator is costing $182.50 per day to operate just in fuel. Maintenance and eventual replacement is on top of that figure. Over a 24 week operating season, it will cost $30,660 in fuel and fuel transportation to run the generator.

Now, let’s look at the costs of converting to renewable energy. If I use a very rough high-side estimate of a complete renewable energy system based on a cost of $10,000 per kilowatt, it would cost $200,000 to replace our diesel with renewable energy. However, careful planning around energy efficiency will reduce the system size considerably, perhaps to the 10 to 15 kilowatt range. We can reduce the cost further if we design the system to supplement, rather than totally replace the generator. This is often the most sensible first step, as we have written about in the past. Lets’ continue our calculations with a system that costs $100,000 and reduces fuel consumption by 50%.

This 50% fuel saving is a pretty easy target. A diesel-battery hybrid system with no renewable energy source will typically cut fuel consumption by 30 to 35 percent. A bit of solar will easily get us up to 50%. Also, as we have discussed before, additional solar is very easy to add later, a bit at a time. Besides, the price of solar panels has been steadily dropping.

Even at today’s fuel price, our payback period is a little over three years. If fuel prices rise, the economics look even better.

So we decide to spend $100,000 in order to save $15,330 in fuel cost each year. However, we don’t actually have to spend $100,000. Thanks to the Northern Ontario Heritage Fund support program, we will only pay $50,000 for the system.

The problem, of course, is that many operators don’t have $50,000 to spend, especially during these tough economic times. What if you could borrow the money? If we finance $50,000 at an 8% interest rate over ten years, we arrive at a monthly payment of $606.64 or about $7,280 per year. In terms of cash outlay each year, you are ahead by about $8,000.

 

Annual Cost Comparison
Generator: Generator with renewable energy
Fuel - $30,660 Fuel - $15,330
  Loan Payments $7,280
Total - $30,660 Total - $22,610

 

These are not the only advantages. Because you are reducing the time your generator is running, you should see additional savings in maintenance cost and life of the generator. Renewable energy systems have a well established track record of high reliability and very low maintenance.

You also gain in reduced noise and other annoyance from the generator. And this brings us to the second big change that we mentioned at the beginning - concern over climate change. There is strong and growing evidence that consumers are becoming more concerned about the environmental impact of their vacations. A move to renewable energy that saves you money on operating costs may also be an additional marketing advantage for your business.

So, where are the challenges? The most obvious one is making loan money available to the industry. We all know that access to loans for upgrades is one of our industry’s biggest challenges. Although the 50% grant support from NOHFC is an excellent program, it will not be used by the industry if they can’t find the funds to make their matching contribution.

I believe we need additional support from government. I am not talking about “free money” here, but rather loan guarantees or other programs to make sure the industry can borrow the money they need at a reasonable interest rate. Those of you who have been in this industry for a while will remember government programs of this kind and many of you have told me about how your businesses undertook significant expansions and upgrades through these programs that led to dramatic growth.

Although the industry is facing tough economic times, we have a huge opportunity to benefit both the environment and the bottom line. Folks I have talked to have shown very strong interest in making the move to renewable energy, if they can find a way to finance it. NOTO will continue to urge government to work with us to find a way to take advantage of this opportunity.


This article was taken from pages 13 & 14 of NOTO's "The Outfitter" publication, Spring 2008 Issue

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