Potential Advantages

There are several other, although more nebulous, issues to consider when evaluating electric boilers, including sustainable competitive advantage, marketability, and regulatory, litigation, and valuation risks.

Sustainable competitive advantage

Electric boilers create a sustainable competitive advantage because they are the most efficient choice available.

Marketability

Electric boilers are easy to market in the current “green” business climate. Popular programs, such as the U.S. Green Building Council's (USGBC) Leadership in Energy and Environmental Design Green Building Rating System, support the growth and marketability of the electric-boiler market.⁶ Energy consortiums, green-technology alliances, and environment forums also are natural complements for electric boilers.

Regulations

As mentioned previously, electric boilers could help mitigate regulatory, litigation, and valuation risks. Regulatory risk is best exemplified by increasingly stringent pollution regulations. Most pollution regulations probably will be tightened (beyond current best-available control-technology limits) before present-day gas boilers become inoperable. In fact, it is likely that modern gas boilers will outlive any “grandfather” period, too. The end result will be wasted boiler life, capital, and opportunity.

Litigation

According to a paper published by the U.S. Environmental Protection Agency:⁷ “Ground-level ozone (smog) is formed when NOx and volatile organic compounds (VOCs) react in the presence of sunlight. Children, people with lung diseases, such as asthma, and people who work or exercise outside are susceptible to adverse effects, such as damage to lung tissue and reduction in lung function.

“Ozone can be transported by wind currents and cause health impacts far from original sources. Millions of Americans live in areas that do not meet the health standards for ozone. Other impacts from ozone include damaged vegetation and reduced crop yields.”

Because they produce zero emissions, electric boilers likely mitigate litigation risks.

Valuation

Low-efficiency buildings demand risk premiums. High-efficiency buildings command price premiums. The more efficient the building, the greater the premium.

“The benefits of building green include cost savings from reduced energy, water, and waste; lower operations and maintenance costs; and enhanced occupant productivity and health,” according to a paper published by the USGBC.⁸ “Analysis of these areas indicates that total financial benefits of green buildings are over 10 times the average initial investment required to design and construct a green building. Energy savings alone exceed the average increased cost associated with building green. Additionally, the relatively large impact of productivity and health gains reflects the fact that the direct and indirect cost of employees is far larger than the cost of construction or energy.”

It makes sense to invest a fractional amount of additional capital at the outset of a project to capture future value (and, thus, present value). The prospect of not doing so is valuation risk. Furthermore, private and public companies that do not build energy-efficient low-emissions buildings will be subject to higher costs in the future, such as costs related to regulations, litigation, energy consumption, etc. Like any other costs, these will be reflected in their valuations.

Conclusion

Electric boilers are not appropriate for every project. Perhaps counterintuitively, electric boilers are not appropriate in some partially deregulated states, in which consumers have a choice of electric-service provider, and uncompetitive markets have created fixed-retail, free-market-wholesale, and inflated prices. Conversely, some regulated and monopolistic states are home to utilities that encourage the use of electric boilers by offering efficiency, fuel-switching, and time-of-day pricing programs.

The bottom line is that engineers, architects, contractors, and sales professionals should consider electric boilers as cost-effective alternatives to gas boilers. The easiest way to do this is to calculate the operating cost per boiler horsepower per hour for each boiler type.

To calculate an electric boiler's operating cost, determine a project's cost per kilowatt-hour and cost per therm of natural gas. Multiplying cost per kilowatt-hour by an electric boiler's estimated efficiency by 9.809 kw per boiler horsepower equals cost per boiler horsepower per hour:

cost × efficiency × 9.809

To calculate a gas boiler's operating cost, multiply 100,000 Btu per therm of natural gas by a gas boiler's estimated efficiency. Divide the result by 33,478 Btu. Finally, multiply the inverse of the result by the cost per therm of natural gas:

cost ÷ ([100,000 × efficiency] ÷ 33,478)

Examining the results of each calculation gives an “apples-to-apples” comparison of the boilers' operating costs.

Typically, the cost-per-kilowatt-hour threshold for cost-effectiveness is around 7 cents. This usually is possible for industrial electricity consumers. In 2008, the U.S. Department of Energy reported that the average cost per kilowatt-hour for industrial end-users in the United States was 6.36 cents.⁹ This threshold actually may be too low, considering the low upfront cost of electric boilers and the potentially higher costs of enhanced environmental regulation, litigation and valuation risks, etc., when gas boilers are utilized.

The total cost of owning an electric boiler often is lower than the total cost of owning a gas boiler. Perhaps more importantly, electric boilers do not harm the environment or our health.

References

1. U.S. Environmental Protection Agency. Combined heat and power partnership. (n.d.). Retrieved from www.epa.gov/chp/basic/efficiency.html.

2. South Coast Air Quality Management District. (1998, January). Rule 1146.2: Emissions of oxides of nitrogen from large water heaters and small boilers and process heaters. Retrieved from www.aqmd.gov/rules/reg/reg11/r1146-2.pdf.

3. (D. Jackson, personal conversation, n.d.)

4. Chicago Climate Exchange. CCX offsets program. Retrieved from www.chicagoclimatex.com/content.jsf?id=23.

5. 5) ABB Inc. Energy efficiency in the power grid. (n.d.). Retrieved from www.abb.com/cawp/seitp202/64cee3203250d1b7c12572c8003b2b48.aspx.

6. U.S. Green Building Council. Project certification. (n.d.). www.usgbc.org/displaypage.aspx?cmspageid=64.

7. U.S. Environmental Protection Agency Office of Air Quality Planning and Standards. (1998). NOx: How nitrogen oxides affect the way we live and breathe. Research Triangle Park, NC: U.S. Environmental Protection Agency.

8. Kats, G., Alevantis, L., Berman, A., Mills, E., & Perlman, J. (2003). The costs and financial benefits of green buildings: A report to California's sustainable building task force. Washington, D.C.: U.S. Green Building Council.

9. Energy Information Administration. (2008, November). Average retail price of electricity to ultimate customers: Total by end-use sector. U.S. Department of Energy. Washington, D.C.: Energy Information Administration.

Vice president of sales and marketing for Lattner Boiler Co., Sutherland D. Junge is a fifth-generation boilermaker. He has a multidisciplinary bachelor's degree in architecture and political science from the University of California, Berkeley, and a master's degree in business administration from the Tippie School of Management at The University of Iowa.

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