Bringing in the experts -- Part 2
This is the second in a two-part series on the growing trend of volatile organic compound (VOC) abatement outsourcing. Part II describes a successful outsourcing program and outlines the financial costs and benefits. Part I, in our January issue, described how the risks and costs of abatement can be controlled through outsourcing, and highlighted the benefits of outsourcing that plants cannot realize in-house.
Abatement outsourcing means bringing outside contractors who are abatement experts into your plant; the contractors will then assume complete responsibility for the performance of your plant's VOC abatement system. A comprehensive outsourcing program includes a contractor who:
- Operates and maintains the complete system;
- Monitors all aspects of the system's performance to ensure compliance;
- Reports clearly and regularly to the client the status of the system and its compliance;
- Guarantees the complete system as well as compliance for up to 10 years; and;
- Decreases the cost of owning and operating an abatement system. ;
The scope of an outsourcing program will not be affected by who holds title to the abatement system. For a new installation, the plant may purchase the system and then outsource the operation and maintenance, or the contractor can supply the entire system as well as the operation and maintenance for one monthly price. For existing systems, the outsourcing contractor may buy back the system and then perform all operation and maintenance, or simply perform the operation and maintenance without holding title. Whichever financial structure is best is case-specific.
Elements of a successful outsourcing program
A thorough operation and maintenance plan includes planned preventative maintenance, emergency service as needed to meet uptime guarantees and the resources to find expert subcontractors when appropriate.
An effective abatement outsourcing program will include a local field staff, 24-hour-a-day monitoring, and a contract structured so that the interests and motivations of the client and the contractor are closely aligned to achieve compliance, maximum system uptime and cost efficiency.
Legally, the client must remain liable for compliance. Outsourcing, however, can make the expert contractor a partner with contractual responsibility for compliance. If the plant is fined for the performance of the system or the actions of the contractor, the contract will impose on the contractor a penalty equal to the fine. Of course the contractor cannot be held responsible for any criminal liability that arises from the intentional actions of the plant owner or operator that violate environmental regulations.
The result is that when the plant suffers, the contractor suffers financially through fines and penalties. The interests and motivations of the client and contractor are closely aligned. Because of a desire to maintain goodwill with the authorities, and simply to avoid having production disrupted by the U.S. Environmental Protection Agency (EPA) or state environmental regulators, the plant wants full compliance. Because of a desire to maximize profits, the contractor wants full compliance. A well-structured contract places both the plant and the contractor on the same side of the business equation.
Though any plant can realize the benefits of abatement outsourcing, plants with certain characteristics can expect to realize the most benefit. Plants with maintenance staffs that are understaffed or lack abatement expertise can greatly improve performance using the skills of an outsourcing expert. Similarly, plants with existing systems that are aging and inefficient can realize significant cost savings without spending money by outsourcing the abatement responsibility. Plants with multiple systems can find substantial savings through outsourcing because of economies of scale. And last but not least, many plants already embrace the concept of outsourcing and have learned how to maximize the benefits to both plant and contractor; these plants will realize additional savings by outsourcing their abatement.
The monthly payment for an outsourcing contract should be very well-defined, based on measurable variables such as uptime, air volume, metered utility consumption or VOC destruction efficiency. The predictable nature of the payment means the plant can accurately plan operating budgets without fear that an unexpected occurrence will result in budget overruns.
The defined payment likely will fluctuate, not because of unexpected events, but as a result of changes in operation. The contract should include equations that clearly define how a change in operations or performance will change the monthly payment. Payment changes will typically result from factors such as changes in air being treated, bonuses paid to the contractor for exceeding stated goals or penalties deducted from the vendor's payment for failing to meet minimum standards. Bonuses and penalties should be structured to reflect the plant's production needs. If the plant is production-limited and can benefit from maximum uptime, bonuses and penalties should be tied to downtime. When utility unit costs are prohibitive, utility consumption should be the contractor's responsibility whenever possible. If benefits can be realized from very low VOC emissions or minimal emissions of secondary products, changes in abatement efficiency should result in bonuses or penalties.
Changes in metered consumption such as natural gas or electricity should be the responsibility of the contractor wherever possible. Placing the utility consumption burden on the contractor removes the risk that overly optimistic utility predictions will not be realized, and excessive utility consumption will impact the plant's budget.
Due to the efficiencies that an abatement expert can realize in utility consumption, ongoing preventative maintenance and advanced diagnostics, a contractor can reduce abatement costs. System upgrades, continuous optimization and fine tuning, statistical analysis and preventative maintenance all offer opportunities of savings.
Beyond the documented savings, intangible, though very real, benefits are also realized. Spare parts inventory and carrying costs are no longer incurred. Staff training and retraining are no longer needed. The carrying costs associated with warranty funds for unexpected repairs are no longer incurred. Most significantly, the consequential damages of lost production resulting from abatement system downtime are reduced or eliminated.
Reducing abatement costs
The first step in determining whether an outsourcing contract will in fact reduce the cost of abatement is to determine the current operations and maintenance costs. Though this appears simple, most plants don't know the complete costs, or haven't fully quantified what the true costs are. Consider the following example based on an actual installation.
Suppose a plant has a regenerative thermal oxidizer (RTO) treating 50,000 standard cubic feet per meter (scfm) of solvent laden air. The inlet air contains about 100 pounds per hour of solvents. When combusted, the solvents release about 15,000 btu of energy per pound. The inlet temperature to the RTO is 100ºF, and the combustion temperature is 1,525ºF. When the oxidizer was initially commissioned, the outlet temperature was 190ºF, which meant the thermal efficiency was about 94 percent. The outlet temperature has since climbed to about 215ºF, not an uncommon occurrence. The pressure drop across the RTO is a 20-inch water column.
The plant operates 6,000 hours per year, pays $3.50 per thousand cubic feet of natural gas, and pays between $0.045 and $0.067 per kilowatt-hour for electricity. The capital cost of the system is currently being amortized over a 10-year period.
A plant engineer and a maintenance supervisor have been assigned responsibility for the abatement system and its performance. Both devote a portion of their time each week to monitoring the RTO. When an emergency elsewhere in the plant threatens to cut production of the plant's core product, the engineer or the maintenance supervisor always attends to the production emergency; planned work on the RTO is canceled until after the production emergency is resolved.
The plant purchases and maintains a stock of spare parts. Parts are removed from inventory and used as needed. Because the part is then restocked, the inventory of parts is constant. An outside firm periodically tests the system's destruction efficiency. The firm also periodically balances air flow to the system from various sources within the plant. The system occasionally requires a bake-out to remove deposits collected within the unit; the original supplier performs or at least monitors the bake-out operation. Over the course of a 10-year window, a motor or actuator occasionally fails. When that happens, plant production is stopped while the necessary repairs are made. Because of the emergency status, premium rates are often paid for immediate, round-the-clock repairs.
Figure 2 shows how all the elements of owning and operating an abatement system add up. These data are based on actual RTO installations and may not apply to every installation. However, these or similar costs are commonly incurred in various forms for most systems. When outsourcing is evaluated and compared to the complete cost of abatement, it is important to consider and quantify all costs associated with the system, including often-overlooked costs such as carrying costs of spare parts, added overhead, subcontracted skills and the cost of lost production or lost opportunity.
The monthly payment of an abatement outsourcing contract will be lower than the total current cost of owning and operating an abatement system.
Several plants are currently outsourcing responsibility for their abatement requirements through a program known as The TOTAL Solution.
Plant one is located in Ohio and has an existing RTO that has been in operation for about four years. Plant records were used to determine the historical cost of operating and maintaining the system. Meters were installed to verify utility consumption; extensive due diligence was conducted to evaluate the condition of the system. The preliminary investigation revealed several areas where operations could be improved and costs could be reduced.
Complete responsibility for the abatement system was outsourced to Dürr Environmental. As part of The TOTAL Solution outsourcing contract, the RTO was upgraded at no cost to the plant. The costs were incorporated into the contract, and the base monthly payment for the contract is about 95 percent of historical costs. The contractor receives a bonus for every month in which 100 percent uptime is achieved; conversely, if uptime falls below 98.5 percent, a penalty is imposed. All utilities consumed are the responsibility of the contractor, meaning the contractor is motivated over the life of the contract to maximize efficiency. A 10-year warranty has been provided on the four-year-old RTO.
The plant no longer has an inventory of spare parts. It is no longer necessary to train new employees on abatement system operation. A network server dedicated to compliance monitoring has been installed at a central location for the purpose of data collection and statistical process control. The plant receives quarterly reports with data that assures compliance is being maintained.
The reasons for a plant to consider abatement system outsourcing are numerous. The financial benefits include:
- Fixed, predictable energy and facility management costs over the life of the contract;
- Immediate, guaranteed savings;
- Reductions in carrying costs of spare parts;
- Risk transfer to contractor;
- Access to capital; and
- Following the expiration of contract, savings used to finance any capital improvements flow to end-user.
Operational benefits include:
- Freeing plant staff to focus on the core business;
- Enhanced services and productivity;
- Reduced downtime;
- Improved customer satisfaction;
- Optimization of facility assets;
- Access to latest technology; and
- Enhanced system reliability.
Most important of all, in a business climate in which everyone is seeking to maximize profits, too often at the expense of business associates, a successfully negotiated outsourcing contract puts the client and contractor on the same side of the business equation. The interests of both parties are aligned. No matter at which end of the spectrum a plant finds itself, abatement outsourcing can offer clear benefits that cannot economically be developed and maintained in-house.
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This article appeared in the February 2000 issue of Environmental Protection magazine, Vol. 11, No. 2, p. 37.
This article originally appeared in the 02/01/2000 issue of Environmental Protection.