The now infamous blackout of August 2003 illustrated in spectacular fashion how dependent the economy is on the smooth, reliable operation of traditional grid-supplied power. The economic cost of the outage, which shut down power across parts of eight states in the Midwest and Northeast, and parts of Canada, was estimated at $4.5 billion to $10 billion.
For manufacturers, the costs were dear. Automotive plants and auto suppliers were shut down in Michigan, Ohio and Ontario. Steel plants were knocked offline for days, and disruptions to production were announced throughout the affected areas.
A post-outage survey conducted by the Ohio Manufacturers' Association (OMA) found that some 12,300 Ohio manufacturing companies were impacted by the blackout. The average direct cost of the blackout was nearly $88,000 per impacted plant, the survey showed.
Nearly three years later, many manufacturers would be in the same sorry state were another electrical outage of such magnitude to occur. Data from a recent survey show that a minority of U.S. manufacturers has back-up power generators or distributed power, both of which offer energy options in the event of a traditional grid failure.
Given how dependent manufacturing plants are on information systems, electronic signals and communication devices -- not to mention the juice needed to run the machines -- it should be surprising how few manufacturers have back-up power capability.
It isn't a surprise to the experts, however -- even given the events of August 2003. Quite simply, the cost of purchasing such systems to power an entire plant are much too high, they say. Yet manufacturers' dependence on the uninterrupted flow of electricity also drives their continued call for reliable and low-cost grid-supplied power.
Data Tell The Tale
Results from the IndustryWeek/Manufacturing Performance Institute 2005 Census of Manufacturers, an annual survey of U.S. manufacturing plants, show that approximately 20% of survey respondents have back-up power generators or distributed power as power-supply options at their facilities. Most respondents relied on traditional grid-supplied power.
Twenty percent may be a low percentage, to be sure, but possibly not surprising when coupled with results of the OMA's post-outage survey. That survey data showed that just 15% of respondents impacted by the blackout planned to boost their spending on power back-up systems as a consequence of the outage, despite the fact that fully two-thirds of them suffered significant disruptions to their operations and more than half said operations completely shut down.
Indeed, the decision not to boost back-up power protection seems particularly low given that barely half of respondents deemed the overall reliability of their electric utility service as "very reliable."
The fact is, says Jim O'Neill, chairman of OMA's energy committee, the cost of providing full back-up capabilities is too high for most manufacturers.
"Tying up capital costs for equipment that is not directly producing product makes us less competitive," he says.
Offering a lesson in simplified economics, O'Neill says that as a "rule of thumb," the cost per kilowatt for installed generation is $750,000 per megawatt.
"If a business spent that much money on a project they would want to utilize it," he says.
Also keep in mind that a grid outage the size and scope of that which occurred in August 2003 doesn't occur very often, says Devin Castleton, an energy analyst for Frost & Sullivan. Even when the grid goes down, it's not usually down for very long, he says.
The bottom line is "the grid is generally very reliable," he says.
Echoing O'Neill's sentiments, Castleton says it never will be economical for large-scale manufacturing plants to install 100% back-up power.
And while manufacturers that produce on a just-in-time basis may be more motivated than others to have back-up systems in place, Castleton suggests that in reality it means they are more likely to "have a game plan to get a third-party to power them up."
While few manufacturers have complete back-up capability, many likely have some level of emergency generation to power emergency lighting and for IT systems. Indeed, Baldor Electric Co., which manufactures power-generation equipment, says that while a grid outage would bring many of its plants largely to a standstill, the company does have back-up generation for critical processes.
For example, Randy Breaux, vice president of marketing, says back-up generation is available to furnaces tied to aluminum die-casting. Otherwise, he says, the aluminum would harden and create problems that likely would exceed the length of an outage.
Additionally, Breaux says, computer systems at the company's Fort Smith, Ark., headquarters have back-up power generation, and the sales department can still enter orders if the power goes out.
OMA's O'Neill, a senior energy engineer at a Whirlpool plant in Marion, Ohio, says his facility lost more than an entire day of production due to the August 2003 blackout. But, similar to Baldor, his plant does have emergency back-up power for emergency lighting and for critical processes.
"Pretty typical of most plants," he notes.
For plants with no back-up power capabilities, "they're taking a risk they won't have a problem," Breaux says.
Ultimately, manufacturers count on utilities to do their job: deliver power unfailingly.
"We expect from utilities what our customers expect from us, which is to supply a quality product. Our customers demand we focus on products that are reliable and make going about their day more convenient and easier," OMA's O'Neill says. "We expect from our utilities that they provide reliable power service so we can concentrate on our customer needs without having to set aside resources that do not focus on our customers' needs."