First published in Frozen & Refrigerated Buyer Magazine October 2014
About five years ago at the FMI Energy Conference, I gave a plenary presentation on the EPA’s R-22 phaseout. I posed a question to the audience: Why were supermarkets paying people to come and haul away their used R-22? I commented, admittedly somewhat facetiously, that paying someone to come and take away your used R-22 after a refrigerant retrofit was like finding a suitcase full of money buried in your basement and paying a junk collector to come and haul it away for you.
I was confronted by several reclaimers after the presentation who told me that my analogy was extremely flawed. The money in the suitcase would have to be so dirty that it couldn’t be used unless it was cleaned and made like new. They assured me that I’d gladly pay someone to haul away money that was covered in mud and grease. The conversation then deteriorated into jokes about money laundering, and, as is often the case at the FMI Energy Conference, the conversation resulted in more questions than answers.
Over the past five years, supermarket industry practices with respect to used R-22 have certainly changed. Most recognize now that the value of a pound of used R-22 is about equal to the price you’d pay to purchase a pound of new R-22. The common practice is to recycle the used R-22 in-house by running it through a filter drier and storing it for use in the company’s other R-22 systems. Supermarkets save money by not having to purchase as much new R-22, but they also protect themselves by hedging against future price increases and/or R-22 shortages as the R-22 phaseout progresses to its end stage in 2020.
I know of companies that have not had to purchase R-22 for the past three years because they have their own stockpiles. They watched the R-22 prices rise and fall over the past few years with big smiles on their faces. They aren’t worried about possible price increases when the EPA cuts production of R-22 again next year. Year after year, these companies need less and less R-22, while building up more and more of a reserve. Imagine not having to worry at all, ever again, about the R-22 phaseout.
Companies do face some challenges in managing these R-22 reserves. How do you transport the R-22 between stores? Where do you store it until it’s needed? Who keeps track of all that R-22? How do you make sure that your refrigerant doesn’t fall off the back of a truck at some point, especially as the price of R-22 goes up? Finally, how much time do you want your refrigeration team to spend on your R-22 stockpile, instead of keeping your display cases cold? All of these issues are manageable, as demonstrated by the numerous companies that have successfully executed their plan for used R-22 over the past few years.
DO THE MATH
If a company does 10 R-22 retrofits in a year, pulling out about 3,000 pounds from each of those 10 systems, the company has a stockpile of about 30,000 pounds of R-22. If R-22 costs $10 per pound, you’ve got an asset of about $300,000. Remember that this $300,000 would otherwise be a cost to the company as it purchases new R-22 for its systems. If you take the standard assumption of a 1% profit margin for a supermarket, a company has to sell about $30 million worth of goods to earn $300,000.
I have yet to run into a company that can’t find or hire someone to manage an asset of this size. I’d do it. And believe me, if I found a suitcase full of that much money in my basement, I’d find a way to clean the mud and grease off it, too.