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Power topic #7005 | Technical information from Cummins Power Generation

Economic risk assessment drives today’s standby power system decisions

By Jim Iverson, Senior Applications Engineer

Specifying standby power systems used to be mainly a technical process that evaluated electrical loads and federal, state and local electrical codes for maintaining essential life- safety systems. These codes insured that, in the event of a utility outage, there was enough power to provide minimal lighting, operate elevators in high-rise buildings, and keep alarm systems activated while employees or custom- ers safely exited the building. The solution then was a generator set that met these minimum requirements. But more and more, sizing and specifying standby power systems is becom- ing a business decision, driven by economic risk assessment and a continually growing dependence on a virtually perpetual source of electric power.

Today, that fundamental design question has expanded to include: how much will a utility outage cost per hour in terms of lost production, lost products, lost revenue, lost data or customer dissatisfaction? And, how much should a company be willing to invest in a standby or on-site power system to reduce these risks to nearly zero?

can exceed $1 million per hour for the average large business. In certain industries such as semiconductor manufacturing, energy production and telecommunica- tions, losses may reach $2-$3 million per hour or higher. Given these high-stake risks, facilities managers worldwide are being forced to evaluate new options for providing a continuous supply of power. Major outages during 2003 in the Northeast U.S., London, Scandinavia and Italy served to focus more attention on the devastating business impact that extended power outages can have. What’s more, while extended utility outages are rare—at least in North America—our 24/7 dependence on electric power virtually necessitates that every business have some level of standby power.

Based on a company’s exposure to financial risk in the event of a utility outage, the need for standby power can be divided into four categories. As the risk of financial loss due to an outage escalates, so does the justification for standby power systems that meet more than just minimum safety or electrical code needs (FIGURE 1):


Category one

No standby power system required

Outages can be costly

Category two

Minimal backup power required for life-safety, security and computer systems

Category three

Need substantial standby power system to maintain operations during short outages

Category four

Need near-total standby power to maintain operations for extended periods of time

In this new business-model assessment, nearly all facility electrical loads are deemed essential because all are necessary for the normal continuation of the business. According to research by contingency planning organizations, the cost of an electrical outage


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