Selection of energy conservation projects through Financial Pinch Analysis

Energy conservation measures are an important means of reducing operating costs and greenhouse emissions. However, one of the barriers to the implementation of such projects is the limited availability of financial resources. Pinch Analysis, which was initially developed to conserve thermal energy and improve energy efficiency in industrial processes, is extended in this paper to address the problem of energy conservation project selection. A new method is developed to include financial cash flows for appropriate selection among independent projects. This study applies Financial Pinch Analysis to select multiple independent projects from a large pool of candidate projects, subject to different funding constraints. To account for the time value of money, Net Present Value is used to determine the financial feasibility of the projects against various funding options. The applicability of the proposed method considers a pool of projects with equal and unequal lives, as well as the financial risk associated with individual projects. In this study, risk is estimated by calculating the certainty equivalent cash flows of the projects. A graphical approach to obtain optimal insightful solutions is presented and demonstrated through three illustrative examples of energy conservation projects in the pulp and paper and cement industries.