ELECTRIC VERSUS DIESEL: A more accurate analysis for the dredging industry

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1 ELECTRIC VERSUS DIESEL: A more accurate analysis for the dredging industry CUSTOM DREDGE WORKS Cash McCloy

2 OVERVIEW An accurate cost/benefit analysis of electric power versus diesel really should include more real-world variables than just fuel cost savings. Electric dredge operators experience many additional advantages and benefits that translate to huge savings for their mining operations that are actually more consequential than fuel cost savings. Some of these additional savings are often an unexpected surprise, and include such things as: Reduced maintenance costs Reduced man hour costs Reduction in profit loses due to unscheduled shutdowns DIESEL FUEL COST SAVINGS In the event you are contemplating acquiring a new dredge, or considering a conversion to electric, this article should serve to close the case and convince you of the tremendous savings and advantages to be had with electric power over diesel fuel. Even a one-dimensional analysis focused ONLY on the savings to be had in reduced fuel cost demonstrates that the more expensive electric powered motors pay for themselves rather quickly. Case-in-point: Installing an electric motor and Variable Frequency Drive (VFD), rather than a CAT diesel engine, such as a C18, would cost an additional $44,000, approximately. So with the average cost of diesel fuel being about $2.50 per gallon at the time of this writing in December 2016, how long would it take for the savings in diesel fuel costs to equal the $44,000 additional investment? Answer: Based on basic assumptions about dredge size and the operations of a typical sand & gravel mine, the payback horizon is an astounding 1 to 2 months! See the following table.

3 *The information in this table was compiled by an Electrical Engineering firm that specializes in electric dredge motors. A copy of their analysis is available upon request. Diesel Fuel Costs vrs Electric Power Costs for a Dredge or Booster ASSUMPTIONS: Diesel = $2.50/gal Electricity = 6 cents/kwh gph = Gallons Per Hour Pumping Time = 10 hours/day 30 days/month 12 months/year ELECTRIC COSTS DIESEL COSTS SAVINGS Power Output: 2600HP KW (159.6 gph) Per Hour $ $ $ Per Day $1, $3, $2, Per Month $40, $119, $79, Per Year $485, $1,439, $953, Power Output: 1950HP (116 gph) Per Hour $ $ $ Per Day $1, $2, $1, Per Month $30, $87, $56, Per Year $364, $1,044, $679, Power Output: 1300HP (81 gph) Per Hour $67.47 $ $ Per Day $ $2, $1, Per Month $20, $60, $40, Per Year $241, $729, $487, Many reading this have given consideration to converting their diesel fueled dredge over to electric power. Based on fuel cost savings alone, the payback horizon for the conversion scenario is longer due to the difficulty of capturing money that has already been invested in the diesel system and applying it towards the conversion costs. You can achieve some investment recapture by selling the used diesel engine, but it will likely take about a year to recoup your investment for an electric conversion if your payback timeline is based solely upon fuel costs savings alone. WITH A MORE COMPREHENSIVE REAL WORLD ANALYSIS OF THE TREMENDOUS SAVINGS OF AN ELECTRIC POWERED DREDGE IN ADDITION TO THE FUEL COSTS SAVINGS, THE PAYBACK HORIZON SHORTENS CONSIDERABLY AND BECOMES VERY COMPELLING, AS WE SHALL SEE.

4 THE HIDDEN COST OF DIESEL What we find curiously absent from nearly all Electric versus Diesel cost-benefitanalyses is the significant costs associated with operating and maintaining a diesel engine. Once those true costs are accurately and appropriately applied, the case in favor of converting your existing diesel dredge to electric, or for acquiring a new electric powered dredge, becomes overwhelming and undeniable. With the input from a few electric dredge operators, we will endeavor to explore the advantages and savings that are not typically contemplated. All experienced dredge operators will readily affirm that diesel engines demand ongoing repair, parts and constant attention. In addition, diesel engines will eventually be the culprit of a production shutdown at some point. When? For how long? How much will the lost revenue and repairs costs? Who knows, but what is quite likely is that a diesel engine failure will occur at some point and potentially trigger a significant negative cash flow event. For any dredging operation, where time quite literally equates to money, the costs associated with man-hours, parts, repair, and production interruptions due to diesel engine problems is quite significant, and again, are very mysteriously missing datapoints in most diesel vrs electric calculations. Why is this? Also, oddly unaccounted for in traditional cost comparisons is the large chasm of useful-life between diesel engines (10,000 to 20,000 hours) versus that of electric motors (40,000 to 50,000 hours). Admittedly, it is challenging to predict the total cost of operating a diesel engine, but an experienced operator knows that the true lifetime costs are very high. The best diesel engines in the world are maintenance intensive and are destined for breakdowns, and are likely to require a complete over-hall or rebuild at least once during the arch of its useful life. Also not typically contemplated are the costs associated with: Transporting diesel to the dredge Downtime to refuel, and perform oil changes Proper disposal of used oil Oil Spill cleanup costs and liability exposure

5 THE ADVANTAGES OF ELECTRIC Conversely, the operating maintenance costs of an electric motor are nearly nonexistent. Electric motors are virtually maintenance free, extremely easy to operate (total operational complexity is a simple On & Off switch), and infinitely more reliable for much longer periods of time. Our statements about the operational/maintenance complexities and costs associated with diesel engines versus electric motors are not mere opinions or hyperbole. They are demonstrable facts observed over the course of Custom Dredge Works 15+ years of building and repairing diesel and electric powered dredges and booster pumps from coast to coast. Important benefits to owning and operating Electric powered Dredges and Booster Pumps that you should consider: Save up to 70% per year in production costs Improve production output by nearly 10% Consistent Production Reliability and Cash-Flow Predictability Improved Customer Confidence related to Consistent Production Much greater dredge Resale Value Ease of Use, Ease of Use, Ease of Use Happier, less stressed Operations and Maintenance personnel Reduction or Elimination of engine Maintenance costs Elimination of Fuel Transport costs Elimination of Fuel Spill liability and cleanup costs Elimination of shutdown costs for Refueling and Oil Changes Useful life is 3 to 4 times greater than diesel engines Considerable reduction in noise pollution Considerable reduction of air pollution Compliance with current or future Federal, State and Local emissions and noise statutes Improved image and relationship with neighbors, environmental authorities, and activists Elimination of Liability for non-compliance of emission and noise pollution statutes May contribute to making County and State mining Approvals easier to obtain Acquire LEED points, and boost your reputation for Government contracts. Electric dredge owners have validated the costs savings and advantages in their own words below: Some folks I know in the industry were surprised initially that we were going electric, but it made so much sense to us because there are so many advantages. My favorite thing is the environmental benefits. It is so nice not having to hassle with fueling the dredge, and not have to be concerned about fuel spills. If you spill fuel, it is expensive and a hassle to clean up. You spill fuel, you got a problem, and I don't want any part in that." Also, Diesel engines require so much work. It's always something with a diesel engine, and the downtime for repair or rebuilding it, or waiting for parts is a real drain on time and money. Honestly, you really should keep an entire extra diesel engine on hand as a back-up or to supply emergency replacement parts in order to stay operational, and most people don't want to keep a whole engine and all those parts on hand. There's just a lot of downtime involved in replacing parts and rebuilding engines, and with the electric we don't have those issues because the maintenance is so lite or non-existent." - Dwayne Harsell, Reg. Manager, The RiverStone Group

6 "I ve never used a diesel dredge, only electric. One of the great advantages of electric is much less fluctuation in the cost of power versus the wild fluctuations in diesel. Electric is clean and quite, and you don t have to worry about fuel spills, and you don t have to worry maintenancing a diesel engine. With everything in the world going green it seems, there is much less pollution with electric." - Stan Barker, Superintendent of LaGrange Plant, The RiverStone Group "I did the math several years ago and at that time there was a 50% savings over diesel. With a diesel dredge you got engine problems, and maintenance, and eventually they need to be rebuilt every 15 to 20 thousand hours or so, which might cost around $75 thousand. Also, you have the hassle and costs associated with getting fuel to it, changing the oil, and disposing of the used oil. The fuel savings alone is compelling, especially when diesel gets to be real expensive, but there are so many other costs associated with operating a diesel engine that I don't have to deal with on an electric dredge. As far as I am concerned, electric powered dredges are the only way to go!" - Donnie Campbell, Plant Manager, Rogers Group Inc. BY DEFAULT, DREDGING IS A VIOLENT ACTIVITY, AND THUS MAINTENANCE INTENSIVE. SINCE ELECTRIC MOTORS ARE TYPICALLY MAINTENANCE FREE AND HAVE A LONGER LIFE THAN DIESEL, THEY REPRESENT MUCH MORE COST SAVINGS THEN THEY ARE TRADITIONALLY ASCRIBED.

7 A MORE COMPREHENSIVE COST BENEFIT ANALYSIS Hopefully this article and the cost comparison breakdown below will be of service to those who may not have a great deal of direct experience with diesel engine maintenance issues, and for those who are weighing the pros and cons of diesel versus an electric powered dredge, or booster pump. Diesel Electric Cost of diesel fuel consumed per month: Cost of electricity consumed per month: + Cost of diesel engine: + Cost of electric motor and VFD: + Cost of maintenance per month: + Cost of maintenance per month: N/A + Cost of man-hours per month: + Cost of man-hours per month: N/A + Cost of Transporting Diesel to Dredge: + Cost of utility hook-up: + Cost of routine Oil Changes & Disposal: + Cost of Oil Changes: N/A + Cost of Downtime for Refueling: + Cost of Downtime for Refueling: N/A + Costs & Liability from Fuel Spills: + Costs & Liability from Fuel Spills: N/A + Cost of unscheduled shutdowns: + Cost of unscheduled shutdowns: N/A + Cost of rebuilding a diesel engine once: - Less 300% more useful life than diesel: Total Cost of Diesel = $ Total Cost of Electric = $ The input cost variables are yours to tweak, and you may wish to experiment with timelines, such as monthly, annually, etc. Realistic cost estimates will help you to accurately predict the length of time for Cross-Over to occur, and when true savings will begin. Cross-Over, or the Pay-Back Horizon, is the point where Total Cost of owning and operating Electric equals the Total Cost of Diesel. Once Cross-Over is reached, the savings really begin to accumulate and compound going forward. Cross-Over for a new electric dredge, or booster pump system, should be realized in 1 to 3 months. The Cross-Over threshold for converting a diesel powered dredge, or booster, to electric should occur in 6 to 9 months.

8 THANK YOU. For more information, or for a cost proposal tailored for your enterprise and objectives, please contact Cash McCloy cash@customdredgeworks.com Custom Dredge Works is one of the largest and best electric dredge manufacturers in the US, specializing in leading-edge custom designs and extreme-quality construction.