Logistic Management in Renewable Energy Industry

1. e-Course ELOMPRES LdV Transfer of Innovation Logistic Management in Renewable Energy Industry This project has been funded with support from the European Commission under the Lifelong Learning Programme. This publication [communication] reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein. Introduction

2. Introduction Course is divided into three main Modules: Module 1 - Energy, Module 2 –Logistics and Transportation, Module 3 - Business. Each Module consists of learning Units. Logistic management means management of all interconnected flows of information, finance and materials from raw resources through energy production to distribution. Today logistic management skills and competencies are crucial for development of renewable energy sector and especially for cost-effective energy generation as well as power plant management. This course provides the knowledge to understand the principles of operations and management of energy plants that use almost all known alternative energy sources except nuclear energy. The students will become familiar with the logistic management of renewable energy sources harnessing, conversion, energy production and distribution and will be able to apply acquired knowledge in management practice. More information you can find in Study Book – a supplement to this course. Module 1 consists 2 learning Units, Module 2 has five Units and Module 3 consists of 2 learning Units. Module 2 and Module 3 ends with quizes to test and consolidate acquired knowledge. NOTE: If you are familiar with the knowledge presented in Module 1, you may skip Module 1 and go to the Module 2. Skip to Module 2 NEXT

3. Module 1 - Energy MODULE CONTENT • Module 1 provides general overview about energy market and describes main technologies used today for power generation from renewable sources, that are relevant for an understanding of logistic management issues. • Unit 1: Renewable energy production and consumption – an overview, covers the following issues: • - Energy market structure; • Energy generation trends; • Economics of renewable energy market; • Introduction to energy economics and econometrics. • Unit 2: Renewable energy technologies review, covers the following issues: • Wind energy; • Biomass and biofuels; • Hydropower; • Geothermal energy; • Solar energy; • Ocean energy: tidal and waves. Skip to Module 2 START

4. Module 1 1 Unit 1 Unit 1: Renewable energy production and consumption – an overview Energy sources Energy market actors Sustainable energy supply is based on eight basic technologies available in the market: biomass, geothermal energy, hydropower, photovoltaic systems, solar thermal collectors, and wind energy Modern renewable energy systems rely on local renewable sources and intelligent interchange of energy between regions • Main activity producers- generate power (heat and/or electricity) for sale to third parties. The sale need not take place through the public grid; • Autoproducers- generate power for their own use as an activity which support their main activity Types of energy producers • CHP- (combined heat and power plant) produces both heat and electricity, sometimes it is referred to co-generation although the term often refers to combustion of fossils and renewable sources, coal and biomasses for instance, despite of the kind of energy output; • Heating plants - heat plant generates heat only; • Power stations - electricity plant generates electricity only. This division does not take into account the type of energy sources (fossils or renewable) used for energy production Back Next

5. Module 1 2 Unit 1 Unit 1: Renewable energy production and consumption – an overview Energy conversion diagram Energy losses Primary energy Conversion losses Distribution losses Self consumption solar, wind, hydropower, biomass, waste Secondary energy Useful energy Energy losses Biofuels (solid, liquid), biogas, power, district heating Heat, electricity, light, etc. Conversion losses Distribution losses Self consumption Final energy Energy losses Biofuels (solid, liquid), biogas, power, district heating Conversion losses Distribution losses Self consumption Consumer losses Back Next

6. Module 1 3 Unit 1 Unit 1: Renewable energy production and consumption – an overview Demand fluctuations Electricity supply needs to be adjusted in order to match demand fluctuation Usually reserve margins for electricity generation are 15% - 20% higher than planning demands what provides appropriate balance between supply and costs This condition is crucial for effective logistic management across a whole supply chain Back Next

7. Module 1 5 Unit 1 Unit 1: Renewable energy production and consumption – an overview Classification of renewables According to International Energy Agency renewables and wastes are classified into three main groups for market research purposes Group I Group II Group III Technologies that are used for direct electricity generation (hydro, photovoltaic, tidal/wave) Sources that can be used directly or indirectly for transformation to electricity and can not be stored freely (geothermal and solar thermal) Products that can be stored and used for transformation or final consumption (wastes, biomasses, biogas and liquid biofuels) Back Next

8. Module 1 9 Unit 1 Unit 1: Renewable energy production and consumption – an overview Economics of renewable energy market Geothermal energy Market Costs Geothermal energy is applied in four areas: heat pumps, energy storage, direct use and district heating. From a technological point of view in EU the vertical heat pump systems represent about 80% of all installations Market trend Costs of geothermal heating & cooling (in €/MWh) Today only marginal part of underground heat reservoir potential is used for electricity generation, district heating or for heating and cooling of individual buildings Back Next

9. Module 1 1 Unit 2 Unit 2: Renewable energy technologies The structure of energy system Photovoltaic Hydroenergy Different technologies and diversification of regional production and demands should balance the fluctuations in energy supply between given regions Combination of various technologies and logistic management can assure stability of energy supply despite of seasonal changes in energy production Hydrogen production Power plants Storage Wind Geothermal Industry Solar power Residential Biofuels Short term storage Commercial Collector Cogeneration Furnaces Transport Solar houshold Medium/long term storage Electricity Fuel Heat Applied from: Droege P. (2009) ‘100 per cent renewable : energy autonomy in action’, Earthscan, London UK Back to Module content Next

10. Module 1 2 Unit 2 Unit 2: Renewable energy technologies Renewable technologies characteristics Renewable energy technologies are divided into two main groups:CSCM(Complete Supply Chain Management group) andPSCM(Partial Supply Chain Management group) Back Next

11. Module 1 6 Unit 2 Unit 2: Renewable energy technologies Geothermal energy Geothermal resources Geothermal plants • Type of geothermal power plants • Dry steam geothermal power plant • Single-flashing geothermal plant • Dual-flashing geothermal plant • Binary geothermal plant • Investment costs vary depend on local • geological conditions. Total cost of geothermal • power plant with electric capacity of 1 000 kW is • about 1,9 million € Dry steam: the water has a temperature ranged from 200 to 280 degrees Celsius, great amount of steam is produced that is carried through geothermal wells Hot water: hot liquid water is produced inside the reservoir wherever temperature is lower than in case of dry steam reservoirs. Geopressuredreservoirs: temperatures are much lower than temperatures in dry steam and hot water reservoirs and ranged from 120 to 160 degrees Celsius. Only hot water is directed to a power plant Thermal energy carriers (steam or vaporization of water) are used for electric power generation by turbines, thermal energy may be used directly in the central (or other) heating systems Back Next

12. Module 1 7 Unit 2 Unit 2: Renewable energy technologies Solar energy Conversion potential • parameters used to determine the • potential to convert solar energy to • useful forms of power: • maximum daily average power on a horizontal surface (W/m2); • maximum daily energy received by a horizontal surface (J/m2); • annual average incident power on a horizontal surface (W/m2); • annual energy received by a horizontal surface (W/m2) Technology 1. Solar-thermal systems include heat storage andindirect production of electricity. 2. Photovoltaic systems for direct electricity generation Solar-thermal systems used heat accumulated from solar radiation for production of electricity using conventional thermal cycle and for production of heat water for domestic use and industrial processes well insulated collector may heat water to temperature 40-45 degrees Celsius but good effective collectors may heat water or other fluids to even 70-85 degrees Celsius Back Next

13. Module 2 – Logistics & Supply Chain MODULE CONTENT • Module 2 starts from basic issues on supply chain management and planning and then more detailed knowledge about supply chain architecture, procurement, production and distribution chains management and finally logistics and transportation. • Unit 1: Fundamentals of supply chain management, covers the following issues: • - Introduction, definitions; • Supply chain architecture; • Fundamentals of the supply chain management; • Supply chain metrics; • Material flow management; • Supply chain integration; • Supply chain planning. • Unit 2: Procurement chain management, covers • the following issues: • Inventory turnover; • Supplier sourcing strategy; • Cooperation with suppliers; • Stock management; • Spare parts and MRO. Back to introduction Next

14. Module 2 – Logistics & Supply Chain MODULE CONTENT – cont. • Unit 3: Production chain management, covers the following issues: • - Introduction to production process; • Production chain management; • Production planning; • Operating planning; • Maintenance management; • Unit 4: Distribution chain management, covers the following issues: • Introduction to distribution chain management; • Matching demand and supply; • Smart grids; • Distribution systems; • Unit 5: Logistics and transportation, covers the following issues: • - Introduction to logistics; • New role of logistics, convergence with marketing; • Logistics processes; • Strategy planning and outsourcing; • Production logisitcs management and transportation. Back to Introduction Next

15. Module 2 Unit 1 2 Unit 1: Fundamentals of supply chain management Supply chain definition i modern definition of supply chain management covers all aspects of supply chain integration (procurement, production, distribution) and supplier-buyer relationships i supply chain is a group of inter-connected participating companies or departments within one organization, that add value to a stream of transformed inputs from their source of origin to the end products or services that are demanded by the designated end consumers supply chain management isa natural development of the studies on logistics management Back Next

16. Module 2 Unit 1 3 Unit 1: Fundamentals of supply chain management Supply chain definition synergy and entropy are two main aspects of supply chains i synergy means that ‘the whole is greater that the sum of the parts that constitute it’. Companies or elements of supply chain working together can achieve more than the sum of achievements obtained by each of the company/element separately i entropy means that system with poor feedback but sufficient inputs has the tendency to continuous debilitation (‘bullwhip effect’ is a good example of debilitation) Back Next

17. Module 2 Unit 1 5 Unit 1: Fundamentals of supply chain management Supply chain architecture supply chain is only formed by more than one independent companies or departments (internal supply chain) that they are interconnected to add value to the stream of material flow running through the supply chain Supply chain network zones Upstream zone Midstream zone Downstream zone connects raw materials and MRO items with supply chain.Includes transformation and preparing raw materials to more suitable form (drying, cutting, heating) includes all manufacturing processes that transform raw materials or components into final products (energy or biofuels) includes fulfillment of orders and connects supply chain with all customers. This zone is simpler in power plants and it is more complex in case of biofuels producers Back Next

18. Module 2 Unit 1 8 Unit 1: Fundamentals of supply chain management Supply chain complexity the supply chain complexity has significant influence on supply chain functionality and managing flows of all processes and their outcomes (operational level) as well as co-operation between all chain nodes at all structural level Internal organizational complexity product, processes, structures, management, human interactions Complexity of the internal supplier-customer relationships material and information flows between departments Complexity related to dynamic fluctuations variable market condition, demand fluctuation, location within supply chain 1 2 3 in energy sector the complexity of supply chain structure ranged from very simple (as in solar or wind energy plants) through middle degree (as in biofuels producers) to very complex (as in large co-generation plants using various kind of renewable sources or renewables and fossil fuels) i Back Next

19. Module 2 13 Unit 1 Unit 1: Fundamentals of supply chain management Supply chain management Supply chain metrics supply chain metrics are used for monitoring and control its all operations: material, information, finance, demands flows within supply chain to get best performance level, production capacity and its adjustment to fluctuations in time tradeoff must exists between stock of raw materials and volume of energy generation or between inventory of final products and customer service (in case of biofuels producers) Data for performance measure Tactical data Strategic data Operational data What must be done? How to do it? What actually must be done? Back Next

20. Module 2 1 2 3 14 Unit 1 Unit 1: Fundamentals of supply chain management Supply chain management Supply chain performance measures Total supply chain management costs Supply chain production flexibility Supply chain cash flow cycle time the costs includes process orders, purchase materials, energy cost, comply with environmental regulations, inventory management, information systems, supply chain finance management. Companies usually spend from 5% to 6% of average sales revenues this is average time for achieving 20% increase in production when demand unexpectedly raised. It may be treated as production flexibility. The maintain stock of raw materials to quickly respond to demand increases is common practice. The production flexibility is measured in units of time this is an average number of days between the execution of payment for raw materials and received money for products sold CFCT= (IDS + DSO) – APPm Where CFCT – cash flow cycle time, IDS – inventory days of supply, DSO – days of sales outstanding, APPm – average payment period for material Back Next

21. Module 2 17 Unit 1 Unit 1: Fundamentals of supply chain management Supply chain planning Planning process planning process includes configuration, integration, strategic outsourcing & capacity planning Supply side Supply chain configuration determines how partners are connected within supply chain, from supply side, through production chain to distribution/delivery side and depends on technology used and market structure In most power plants supply chain structure takes the form called ‘stable network’ In any other supply chain configuration the structure is referred to as ‘dynamic network’ where energy producer does not have stable suppliers and distributors The Nature Supplier Supplier Power plant Final consumer Electricity distributor Heat distributor i Distribution side Supply chain structure in the form of ‘stable network’ Back Next

22. Module 2 - QUIZ Unit 1: Fundamentals of supply chain management Question: Two main aspects of the supply chain are: Select only one answer logistics - management synergy - entropy A B Options transportation – business processes C Question #1

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25. Module 2 1 2 3 4 Unit 2 1 Unit 2: Procurement chain management Definitions Procurement management the main task of procurement managementis keeping stocks of raw materials, MRO (Maintenance, Repair, Operation) items and finished products at a cost-effective safe level by process called inventory management inventory- materials in stock and often it is called the idle resource of an enterprise: items stocked for sale (in case of biofuels), materials in the process and raw materials that are not utilized yet which will be used, spare parts and MRO items Raw materials Finished goods MRO supplies Work-in-process unprocessed materials (also solar radiation or wind in case of pure energy plants) used for energy generation or manufacturing of biofuels final products ready to deliver to customers or directly to consumer (heat, electricity, solid or fluid biofuels) necessary for production processes but they are not a part of final products (lubricants, solvents, spare parts and so on) partially processed materials used in production processes such as pellets, briquettes, partially refined oils, prepared wastes, and so on. They are often used for energy generation or biofuels production i Inventory categories Back to Module content Next

26. Module 2 Unit 2 2 Unit 2: Procurement chain management Puchasing department Procurement management Purchasing department Purchasing must become supply management Centralized Decentralized Purchasing department is responsible for all the purchasing decisions such as order quantity, negotiations, contracting, supplier selection and evaluation and overall pricing policy All activities are delegated to each individual department that takes all responsibilities for purchasing process and often procurement management Hybrid type of purchasing organization, centralized-decentralized structure may be useful (centralized purchasing of raw materials and decentralized purchasing of MRO materials) Centralized structure is much better for power plants because of one or very few final products offered (heat, electricity, biofuels) and raw materials used (biomasses, biofuels, fossils) Back Next

27. Module 2 Unit 2 3 Unit 2: Procurement chain management Procurement chain Procurement management procurement chain starts from supplier/vendor of raw materials and ends at the point of starting production process or storage facilities and management of procurement processes is important for energy plants that buy raw materials (biomass or fossil fuels) for power generation or biofuels production (both solid and fluid) when the Nature is the only one supplier of “raw materials” for power generation as in case of wind farms or solar power plants, the procurement process is limited to purchasing of spare parts and services related to MRO activity (Maintenance Repair Operation) that allows continuous plant operation and capacity maintenance at desired levels the procurement function is divided into five activity categories: purchasing, consumption management, vendor/supplier selection, contract negotiation and contract management i i Back Next

28. Module 2 Unit 2 7 Unit 2: Procurement chain management Sourcing strategy matrix Procurement management sourcing matrix helps to set different strategies to manage risk High Bottleneck Critical Sourcing risk Routine Leverage Low High Spend Applied from: Kraljic, P. (1983). ‘Purchasing must become supply management’. Harvard Business Review, 61(5) Back Next

29. Module 2 10 Unit 2 Unit 2: Procurement chain management Inventory management Procurement management cycle stock: One of the important measures is an average stock size based on the order quantity. The average stockholding is expressed by the simple equation: A = Q/2 A – average stockholding Q – order quantity safety stock: protect against uncertainty, unexpected events from the side of supplier or unexpected demand fluctuations. Safety stock may be calculated using a simple formula: SS = DD x SD SS– Safety Stock (in tons) DD – Daily Demand (in tons) SD – Supplier Delay (in days) i i Back Next

30. Module 2 11 Unit 2 Unit 2: Procurement chain management Inventory management Procurement management economic order quantity (EOQ): method for calculating order quantities that enable to hold stock volume of raw material as well as finished goods at most cost-effective level and it is used most commonly by many companies. This method can be useful for power plants using biomass or fossil fuels for energy generation and in case of biofuels producers for inventory of finished products EOQ = C– cost per order R– annual demand in units (quantity of raw materials necessary for generation of one unit of energy) P – purchase cost of one unit F – annual holding cost (fraction of unit cost) [PF = holding cost per unit per year] the economic order quantity is useful when demand rate is known, constant and continuous, supplier lead time is known and constant, there are no stock out, replenishment is instantaneous, cost structure is fixed, there is sufficient space, capacity and capital to procure the desired quantity i Back Next

31. Module 2 - QUIZ Unit 2: Procurement chain management Question: Procurement chain starts from Select only one answer supplier of raw materials and ends at the point of starting production supplier of raw materials and ends at customer side A B Options supplier of raw materials and ends at the storehouse C Question #1

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34. Module 2 Unit 3 1 Unit 3: Production chain management Energy producers renewable energy manufacture sector may be divided into three main groups of producers depends on raw materials and technology used (regardless of the type of energy generated, heat and/or electricity) Pure energy producers Energy producers Biofuels producers energy producers – energy is generated by the combustion process using biofuels (solid or liquid), fossil fuels or mixed combustion of fossils and biofuels (usually solid biomasses) biofuels producers – production of secondary energy carriers in the form of solid (palettes, for example) or liquid (biodiesel, bioethanol, for example) fuels, utilizing various solid biomasses or wastes pure energy producers – energy is generated from renewable clean sources such as solar, wind or hydro-energy i Back to Module content Next

35. Module 2 Unit 3 2 Unit 3: Production chain management Production process production process- all activities that transform raw materials into finished goods. The character of production system has a significant effect on the whole supply chain organizational and functional structures and management Inputs Transformation process Outputs Product design Process planning Production control Maintenance Men Materials Machines Information Capital Products Services Continuous Inventory Quality Costs i Environment Feedback information Applied from: Kumar S.A., Suresh N. (2008) ‘Production and Operations Management’, NewAge International New Delhi, India Back Next

36. Module 2 Unit 3 3 Unit 3: Production chain management Continuous production system Production process production lines - sequence of production operations from raw materials to finished product (heat, electricity or biofuels) and often use conveyors and other transfer devices for facilitation of the flow of materials Advantages Conditions • standarized final product or by-products • standarized production process sequence • higher rate of production with reduced cycle time • material handling is automatic or semi-automatic • unit cost is lower because of high volume of production • dedicated plant design and equipment with zero or near zero flexibility • material handling is often fully automated • predetermined sequence of process operations • planning and scheduling is often treated as a routine action Limitations - often very high investment in plant facilities - product differentiation is extremely limited i Back Next

37. Module 2 11 Unit 3 Unit 3: Production chain management Maintenance management Management ‘maintenance’ means ‘the activities of keeping something in good condition’, actions that should be taken to prevent devices/equipment from failing and keeping them at the best operating condition Reactive maintenance Predictive maintenance Preventive maintenance activities that detect the onset of a degradation mechanism what allow to take preventive action that eliminates harmful stressors. Predictive maintenance is based on actual condition of the machine.Reduction in maintenance costs (by 25% - 30%), elimination of breakdowns (by 70% - 75%), reduction in downtime (by 35% - 45%), production increase (by 20% - 25%) actions performed on time or run-based schedule that detect, preclude or mitigate degradation of machine or its parts for maintaining its proper operating and useful life time. Cost effective, increasing machine life cycle, energy savings, reduced process failure incidents ‘do not do anything until it breaks’. Worst type of maintenance strategy. This approach leads to shorter life time of equipment and is associated with the risk of temporarily disrupt or even stop a production process i Back Next

38. Module 2 12 Unit 3 Unit 3: Production chain management Maintenance management Management it is important to rank the plant units by failure consequence using four levels of their impact on production and safety i Back Next

39. Module 2 - QUIZ Unit 3: Production chain management Question: From the production chain management point of view, renewable energy manufacture sector is divided into: Select only one answer pure energy producers, energy producers and biofuels producers energy producers, biomass producers, solar energy plants A B Options biomass and fossils combustion plants, renewable energy producers C Question #1

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42. Module 2 Unit 4 1 Unit 4: Distribution chain management Distribution and demand Distribution management distribution managementis an integrated part of supply chain and in energy sector two different approaches are used depend on the type of business: (1) energy producers and (2) manufacturers of energetic products such as a secondary energy carriers such as solid and liquid biofuels Total energy demand External demand volume of energy that is sold to customer or final consumer via the electric grids or pipelines, in case of hot water or steam Internal demand biofuels producers distribution networks are more complex and may include warehouses, distributors, retailers so distribution chain management is more complex the volume of energy used by power plant for maintain its operation i 5% to 7% of electric energy produced in steam power plants (fossils, biomass, biogas) is used on-site to maintain plants in operation state (enable electricity generation). Hydro power, solar and wind as well as combustion turbine power plants use relatively less electricity to maintain their operation Back to Module content Next

43. Module 2 Unit 4 7 Unit 4: Distribution chain management Matching supply & demand Distribution management forecast demand is important for supply chain integration. Accurate forecast demand allows to produce and deliver the right quantities in a cost-effective manner, what means achieving of optimal levels of cost and customer service quality. Lower inventory, reduced stockouts, better production plan, reduced costs and improved customer service are the benefits of better forecast Large stock Flexible pricing • Biofuels producers. Holding large stock available at any time regardless of fluctuations in demand level. This strategy allows to maximize sales but it is expensive – the cost of holding inventory is high.There is a risk of inventory obsolescence. • Power plants- fixed price and constant volume of energy generation resembles that approach in some extent Price is higher during peak demand periods (for reduction of high demand) and then price is lowered (certain discount rate is used) beyond that period when demand decreases. This approach can still lead to lower sales volume (stockouts). Some companies move their production capacity outside the period of daily peak demand for energy when they have such possibility i Back Next

44. Module 2 Unit 4 9 Unit 4: Distribution chain management Distributed energy generation Distribution management Definition distributed energy- convergence of energy consumption with energy production, combined heat and electricity, energy storage, power quality and demand response and demand side management distributed energy technologies include solar photovoltaic modules, combustion turbines, microturbines, fuel cells and batteries, wind turbines, reciprocating and stirling engines and others. Dynamic energy management system is a demand side energy resource that integrates energy efficiency and load management. The key challenges include balancing customer demand for electricity with cost, environment protection and stakeholder requirements new energy services became more demand responsive which enable load and distributed energy resources to provide capacity into the bulk power system in response to grid contingencies and market pricing signals i Back Next

45. Module 2 10 Unit 4 Unit 4: Distribution chain management Distributed energy generation Distribution management Central power plant Commercial buildings Industry Grid National / Regional Household Household Household Household Household Household Renewable source plant Renewable source plant Back Next

46. Module 2 - QUIZ Unit 4: Distribution chain management Question: Accurate demand forecast is important for: Select only one answer deliver the right quantities in a cost effective manner holding a large stock available A B Options set a much higher prices for energy C Question #1

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49. Module 2 Unit 5 1 Unit 5: Logistics and transportation Definitions Logistics logistics -‘part of supply chain management that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements’ Council of Supply Chain Management Professionals supply chain management covers all logistics functions: procurement, distribution, maintenance, inventory management, marketing, finance and customer service management today logistics is seen as relationships between three main elements: Logistics = Supply + Materials Management + Distribution logistics is concerned with physical and information flows and storage from raw materials, production process to distribution of finished product i i Back to Module content Next

50. Module 2 Unit 5 3 Unit 5: Logistics and transportation Logistics & marketing Logistics Marketing and logistics convergence Consumer franchise Brand values Innovation Benefit focused logistics has an ability to influence on the benefit to costs ratio, both in terms of positive or negative impacts Marketing advantage Customer value Cost of ownership Value adding relationships Service quality Supply chain effectiveness Low cost supplier Reduced asset base Network management i Applied from: New S., Westbrook R. (2004) ‘Understanding Supply Chain’, OUP Oxford, UK Back Next