A Disconnect Between CapEX, OpEx and TCO

Jeff Perkins for Zondits, April 24, 2014

It has long been a problem in energy efficiency that when buying new equipment the focus tends to be on purchase price and not on the full cost of ownership over the useful life of the equipment. To put it in business finance terms, the focus tends to be on Capital Expenditures (CapEx) when Operating Expenditures  (OpEx) will dominate the Total Cost of Ownership (TCO). For a wide variety of devices that consume electricity, OpEx will far and away dominate TCO. A case in point  would be motors. In most industrial settings, well over 90% of the TCO for any individual motor will be in the operating costs and as such, a few extra dollars spent to purchase a more efficient motor will more than pay for itself over the life of the unit. The article below further illustrates the point.


A Failure to Communicate

evertiq, April 21, 2014

“There is a significant disconnect between those who make decisions regarding industrial capital expenditures, and those who are tasked with managing the costs of manufacturing operations,” said Alex Chausovsky, manager and principal analyst, Motor-Driven Systems and Industrial Automation, at IHS. “Individuals making capital-expenditure decisions when building new industrial facilities rarely, if ever, consider the long-term costs associated with projects. As a result, these decision makers consistently place initial purchase price concerns ahead of total cost-of-ownership (TCO) considerations. This means that energy efficiency is not a factor in the decision-making process, and operators that take over these projects after their completion are often faced with much larger energy bills than they would have if the most efficient equipment had been specified during the construction phase of the project.”

For factory operators, these energy bills can add up over the years.

Take an average electric motor used in a factory, for example. The purchase price represents only 2 percent of the motor’s lifetime costs. However, a full 96 percent of the motor’s TCO is accounted for by its lifetime electricity usage—with the remaining 2 percent going toward repair and maintenance, according to multiple industry case studies.

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