The law of diminishing returns

If you want too much, your desires will backfire because the ultimate price will be too high. On my desk, I have a picture of a pike that caught its final prey, a pikeperch. Both species are fish of prey, but a pike tends to go for the larger catch. In the case of my picture, the pikeperch is way too large for the pike to swallow; the pike died because he could not manage his haul.

One sometimes sees the same story with cogeneration installations. An owner or designer wants to capture too much of the fuel energy, resulting in a contraption that is impossible to run. Too many heat exchangers and too many interfering control loops make the system easily exceed its limits. Control instability and frequent trips will occur, while parts of the system can overheat, resulting in permanent damage to the equipment. Moreover, reaching 91% fuel efficiency instead of, say, 89% can require large additional capital investments that will never be economic. A simpler installation is often preferable over a complicated one.

Decision-makers often neglect or ignore the law of diminishing returns. An example is the issue of natural gas security of supply. In 2007, the European Commission’s Directorate-General for Energy and Transport invited standards organisation CEN to draw up standards for high-calorific gas (H-gas). The aim was to create the widest possible standards, albeit within reasonable costs. Wide standards were supposed to allow the accommodation of natural gas from a wide range of sources, thus facilitating easy imports and trans-border trade between Member States. The new standard would be based on the work of trade body EASEE-gas, which represents the whole gas chain and consists primarily of members of the production, transport and retail sectors. EASEE-gas proposed a very wide gas quality range with a Wobbe Index between 46.44 MJ/m3 and 54 MJ/m3. This range would especially serve gas traders and transporters since practically all H-gases on the market would fit into the standard.

An initial study by GL Noble Denton showed that the cost of gas adaptation and renewal to accommodate such a wide Wobbe Index range would exceed €178 billion. The avoided costs of treating imported gases to fit a narrower standard would be factors lower, and gas-fuelled equipment would suffer from lower performance and higher emissions. The gas sector, however, refused to accept these findings.

Fortunately, the EC offered the opportunity to comment on the draft standard, and in July 2014 some 150 experts from gas companies and equipment manufacturers assembled in Brussels to discuss the draft.

Again fortunately, the prime mover sector for cogeneration and on-site power production had properly prepared itself. We could show that the current Wobbe Index range for H-gas never exceeded 4 MJ/m3 in any EU Member State. That is roughly the same range as that applied in the US, and is almost a factor of two lower than the range proposed by EASEE-gas. We could also explain that for too wide a Wobbe Index range, the marginal negative effects for gas users would largely exceed the marginal benefits for gas companies.

The meeting’s major conclusions were that a narrower Wobbe Index range than that proposed by EASEE-gas/CEN is necessary and that rapid variations in Wobbe Index have to be avoided. Hopefully, the final standard will be acceptable by our sector. And hopefully the rest of the world will learn from this and not accept too wide a natural gas quality range. One must always take into account the law of diminishing returns.

alt à‚  Dr Jacob Klimstra
Managing Editor

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