Why worry about energy costs in
greenhouses?
Dr. Robin Brumfield
Specialist in Farm Management
Brumfield@aesop.rutgers.edu
http://aesop.rutgers.edu/~farmmgmt
2007 National Extension Risk Management
Education Conference
Phoenix, Arizona.
April 17-18, 2007.
Why Worry About Energy
Costs?
 Agriculture
is under Intense
Competition
 Energy is 7-9% of Sales in
Greenhouses
How Does this Break Down?
Greenhouse Example
Energy
% of Sales
Heating Fuel
Gas/Diesel
5.3%
0.5%
Electricity
Trucking
Total
1.9%
0.8%
8.5%
Cost per Square Foot
Heating Fuel
Gas/Diesel
Electricity
Trucking
Total Energy
Total/Sq. Ft.
Sq. Ft Wk
$ 0.870
$ 0.070
$ 0.341
$ 0.151
$ 1.432
$ 29.51
$ 0.73
Why Worry About Energy
Costs?
Energy
Labor
Materials
% of Sales
8.5%
24.6%
32.4%
Breakdown of Sales
Operating Expenses
Overhead Expenses
Return to Operator's
Labor/Mgt & Equity
Capital
% of
Sales
71.5%
17.5%
11.0%
100.0%
Average Greenhouses in NJ
Greenhouse Size (Size Feet)
Average Weeks per Year
Acres Outdoors
111,883
38
4.2
Average Return to Operators’
Labor/Mgmt & Equity Capital
Per Sq. Ft.
Per Full-time Operator
(2500 hours)
$4.82
$72,416
Total Cost of Energy
Sales
Return to Labor/Mgt & Equity
Capital
Energy Costs
Heating Fuel
Gas/Diesel
Electricity
Trucking
Energy Total
$2,294,310
$ 216,606
$ 136,036
$
4,407
$ 33,424
$ 14,920
$ 188,787
Energy Cost
$ per million BTU
$30.00
$25.00
Electricity
$20.00
Natural Gas
$15.00
No.2 Heating Oil
$10.00
Propane
$5.00
Kerosene
$0.00
1
2
3
4
1
1999-2005
5
6
7
Fuel Increase since 2003
Electricity
7.7%
Natural Gas
33.8%
No. 2 Heating Oil
44.1%
Propane
27.9%
Kerosene
54.1%
Gasoline
102.5%
Effect of Energy Increase
with no Other Changes
Sales
Return to Labor/Mgt & Equity Capital
% Profit
Heating Fuel
Gas/Diesel
Electricity
Trucking
Energy Total
% Energy Costs
2003
$ 2,294,310
$ 216,606
9.4%
$ 136,036
$
4,407
$ 33,424
$ 14,920
$ 188,787
8.2%
Now
$2,294,310
$ 134,241
5.9%
$ 196,014
$
8,924
$ 36,001
$ 30,213
$ 271,152
11.8%
Effect of Energy Increase
& 5% Price Increase
Sales
Return to Labor/Mgt & Equity Capital
% Profit
Heating Fuel
Gas/Diesel
Electricity
Trucking
Energy Total
% Energy Costs
2003
$2,294,310
$ 216,606
Increases 5%
$ 2,409,026
$ 248,956
9.4%
$ 136,036
10.3%
$ 196,014
$
$
$
$
$
$
4,407
33,424
14,920
$ 188,787
8.2%
8,924
36,001
30,213
$ 271,152
11.3%
Effect of Energy Increase
& 4% Price Increase
Sales
Return to Labor/Mgt & Equity Capital
2003
$ 2,294,310
$ 216,606
Increases 4%
$ 2,386,082
$ 226,013
% Profit
Heating Fuel
Gas/Diesel
Electricity
9.4%
$ 136,036
$
4,407
$ 33,424
$
$
$
9.5%
196,014
8,924
36,001
$
14,920
$
30,213
$ 188,787
8.2%
$
271,152
11.4%
Trucking
Energy Total
% Energy
Investment Criteria
 Larger
benefits are preferred to smaller
ones.
 Early benefits are preferred to later
ones.
 Safety is preferred to risk.
Questions to Ask
Which alternative enables me to reach my
objectives?
 Which alternative best matches my firms
skills & resources?
 Which alternative best meets my
preferences?
 Which alternative minimizes the creation of
new problems?
 How will each alternative affect my current
activities?
 How much time will be required to
incorporate each alternative?

Things to Consider



Include employees
Evaluate trade-offs
Chose solutions consistent with firm’s
mission and objectives
Decision Methods





Intuition
Payback Method
Partial Budgeting
Net Present Value
Internal Rate of Return
Intuition



Management is part science and part
art
Intuition should not be discounted
Best if used in conjunction with
quantitative methods
Partial Budgeting
Reduced Costs
 Added Revenues
-_______________
 Added Costs
 Reduced Revenues

Payback Method




Most common after intuition
Determine how soon the investment will
“pay for itself”
Simple
Limitation
– Does not take into account the size of the return
– Ignores benefits and costs after the payback
period
– Ignores the time value of money
Net Present Value





Expresses all costs and returns in
today’s dollars
Sums the present value of costs and
returns minus the initial investment
Considers the time value of money
Considers the size of the alternatives
Only as accurate as the chosen
discount rate
Internal Rate of Return



Rate at which the net present value of
benefits equals the cost
Chose the investment with the highest
return
Does not take into account the size of
the return in $
Conservation Checklist –
Reduce Costs
Photo: Dr. A.J. Both
Reduce Fuel Costs





Select the cheapest
fuel supplier
Switch to a different
fuel
Use a dual fuel
system
Buy in off season
Consider buying on
the spot market –
20% savings
Photo: Dr. A.J. Both
Reduce Air Leaks





Caulk and weather-strip doors,
windows, etc.
Lubricate louvers
Seal all cracks in walls
Repair broken glazing
Use highest R-value for insulation
Look at Technology –
Horizontal Airflow Fans



Photo: Dr. A.J. Both
Uniform
temperature
& humidity
Reduces cold
pockets
Improve plant
quality and
uniformity
Double layer


Inner layer
saves 15% in
fuel
Poly over older
glass reduces
heat loss 2550%
Photo: Lawrence S. Martin
Energy (and shade) Curtain
20-50% heat savings
Photo: Dr. A.J. Both
Perimeter Insulation
• At least 1 foot deep
(preferably 2 feet)
• At least 1 inch thick
(preferably 2 inches)
• Avoid gaps
• Try to work neatly
around post footings
Photo: Dr. A.J. Both
Space Utilization




Peninsular or
movable benches
use 80-90% of
space
Install multi-level
racks for low light
level crops
Put hanging
baskets over
benches
Roll out benches
Photo: Lawrence S. Martin
Efficient Heating System





Under bench heat allows temp to be
set 5-10 degrees lower
Check accuracy of thermostats
Perform timely maintenance
Periodically check operation of mixing
valves
Periodically check system performance
Alternative Heating Fuel Sources
Solar (hot water heating)
 Other solid biomass (corn)
 Bio-diesel
 Waste oil (fast food industry)
 Waste gas (landfill)
 Geothermal (hot water/steam)

Waste Gas (Co-generation)
Wood (waste wood, fire wood)
Waste Hot Water
(power plants,
industry)
Photo:
Dr. A.J. Both
Photos: Dr. A.J. Both
Efficient Cooling System





Build open-roof
greenhouse
Install roll up sides
Shade
Install evaporative
cooling
Keep doors closed
when fans are on
Photo: Lawrence S. Martin
Conserve Electricity



Inspect wiring
Replace inefficient motors
Replace incandescent bulbs with
low wattage fluorescent to save
2/3rds on electricity
Lower night temps

Reduce fuel 3% per
degree
Effect of reducing nighttime
temperatures on bedding plants
Crop base temperature
Normal air temperature of 68° F
36° F (cool-season
crops)
41° F
45° F ( warm-season
crops)
Normal air temperature of 63° F
36° F (cool-season
crops)
41° F
45° F (warm-season
crops)
Cool air temp
Crop delay
64° F
61° F
64° F
61° F
64° F
61° F
11%
13%
13%
15%
15%
18%
59° F
55° F
59° F
55° F
13%
15%
17%
20%
59° F
20%
Effect of reducing
nighttime temperatures
on bedding plants
Delays crops 11% to
20%
Partial Budgeting :
Effect of 4 degree reduction
in temperature
Reduced Costs - reduce fuel 12%
(3% per degree)
 Added Revenues
-_______________
 Added Costs
 Reduced Revenues - delay crop 11%
(for 4 degrees)

Partial Budgeting :
Effect of 4 degree reduction
in temperature
Reduced Costs
 Added Revenues
-_______________
 Added Costs
 Reduced Revenues
 Net Loss

$20,700
- $252,374
$231,675
Effect of 4 degree
reduction in temperature
Sales
Return to Labor/Mgt & Equity Capital
2003
$ 2,294,310
$ 216,606
% Profit
Heating Fuel
Gas/Diesel
Electricity
9.4%
$ 136,036
$
4,407
$ 33,424
Trucking
Energy Total
% Energy
$ 14,920
$ 188,787
8.2%
Decreases 4
degrees
$ 2,041,936
$ (94,612)
-4.6%
$
$
$
172,493
8,924
36,001
$
$
30,213
247,631
12.1%
Trucks




Regular tune-ups save 10% on fuel
Avoid lengthy idling and save 15-20%
on fuel
Run at the proper gear
Consider hiring trucks or having
customers pick-up
Watering Systems



Heat water to 120 degrees
Locate hot water tanks near most
frequent use
Eliminate leaks
Management





Lower night temps to reduce fuel 3%
per degree
Delay starting greenhouse
Keep growing areas full
Compartmentalize
Grow cool season crops
Remember to Ask
Which has a positive return?
 Which alternative enables me to reach my
overall objectives?
 Which alternative best matches my firms skills
& resources?
 Which alternative best meets my preferences?
 Which alternative minimizes the creation of
new problems?
 How will each alternative affect my current
activities?
 How much time will be required to incorporate
each alternative?

Profit = Price - Cost

To Increase Profits:
– Cut Costs
– Increase Prices
Percent of managers aware of factors
affecting pricing decisions
Consumer willingness to pay
21%
Consumer response to price
changes
Value of product to consumer
Price of competing products
34%
71%
75%
Fixed costs
81%
Variable costs
84%
Source: Note on Behavioral Pricing, Harvard Business School, 9-599-114.
Value Pricing and the
Economic Perspective
Marketing efforts
Prices of substitutes
Objective value (OV)
Perceived value (PV)
{
{
Consumer’s incentive
to purchase (PV-P)
Firm’s incentive to
sell (P-COGS)
Source: Note on Behavioral Pricing, Harvard
Business School, 9-599-114.
Product price (P)
Cost of goods sold (COGS)
$0
Combining the Economic and
Behavioral Drivers of
Willingness to Pay
Consumer’s
Willingness to
Pay
=
Economic
Utility of the
Transaction
+
Perceived value –
Actual Price
Source: Note on Behavioral Pricing, Harvard Business School, 9-599-114.
Fairness of
the
Transaction
Additional References

Energy Conservation for Commercial Greenhouses,

Greenhouse Engineering, NRAES 33
NRAES 3
Natural Resource, Agriculture, and Engineering Service (NRAES)
Ithaca, NY (607) 255-7654
http://www.nraes.org

Energy Conservation for Greenhouse Growers
http://msucares.com/pubs/infosheets/is1618.html

Greenhouse Energy Conservation Checklist
http://www.hort.uconn.edu/ipm/greenhs/bartok/htms/Greenho
use%20Energy%20Conservation%20Checklist.htm

Dealing with the High Cost of Energy for Greenhouse
Operations
http://www.ext.vt.edu/pubs/greenhouse/430-101/430-101.html
Questions?
Dr. Robin G. Brumfield
Professor and Extension Specialist
Rutgers University
Brumfield@aesop.rutgers.edu
732-932-9171 ext. 253
http//:aesop.rutgers.edu/~farmmgmt