The effect of electricity prices on production planning: case study of a cement factory

Cement production process is energy intensive process which is using heat and electric energy. While Fossil fuels are used for rotary kiln for raw material, electric energy is used for grinding. Energy costs in cement production constitutes almost 60% of the total cost. Hence cement factories should attach great importance to energy efficiency in the competitive market. Therefore, they have to perform energy management very well and plan their consumption accordingly. However, there are some difficulties in making energy efficient planning with respect to the energy prices. First of all, electricity prices in the free market are not stable and vary hourly. All major electricity consumers in the free market are obliged to inform the central agency on an hourly basis about how much electricity they will consume the next day and are expected to comply with this commitment. Otherwise penalty costs are incurred. These penalties depend on the hourly electricity prices (Day Ahead Prices) announced one day before and the hourly prices (System Marginal Prices) depending on the consumption within the day. According to the demand, cost savings can be achieved by shifting electricity consumption to certain hours of the day. For example, low-priced hours can be produced and stocked in silos, and some of the production can be stopped at high-priced hours. In this study, we provided a model which minimizes the total cost (energy costs, penalties), plans the maintenance activities at high-priced hours and shifts production to low-priced hours. We have shown that companies can make their production plans taking into account their estimated electricity costs, and that they can get an advantage in energy costs.