Does combined heat and power (CHP) make sense at your facility? It's a critical question but not always easy to answer. Nor is the procedure for answering it always approached the same way - a factor that obviously might yield varying conclusions, depending on one's methodology. In fact, answering it typically involves three distinct levels of analysis: First, a preliminary screening will see if a location is even suitable as a likely candidate. Then, a "level two" assessment will take the question into a conceptual design and financial analysis; here, rather detailed engineering plans will be outlined and mated with a relatively refined assessment of electric and thermal loads. If performed correctly, the resulting second phase of analysis should usually be accurate to within a range of about plus or minus 20%, according to benchmarks suggested by the US Department of Energy (DOE).

We're not at the third phase yet because, if the numbers look good so far, you will also need to contemplate assorted tangential issues, such as grid connection costs and barriers (if applicable), pollution emissions standards, long-term fuel price trends, and the costs for permitting and construction. If none of these or similar challenges threatens to undo the project, you and your engineering consultants will likely proceed to phase three - a detailed engineering design arriving at firm cost estimates and procurement specs.

Especially when performing phases two and three, the intricacies must be negotiated with the help of various software tools - each of which requires additional specialized expertise.

In order to help would-be adopters understand the assessment and development process in depth, Distributed Energy will be presenting a special series exploring the phase in some detail. In this issue we will look at the correct approach to preliminary screening and overall planning and strategizing. In future installments we will survey several leading software tools for doing phases two and three, and we'll look at case studies in how they're successfully applied.

Easy, Reliable Feasibility Evaluations

Thanks to DOE's keen interest in promoting CHP nationally, the agency has developed a simple step-by-step procedure for quickly assessing any potential CHP project. Because it has been applied successfully and more extensively than any other model, we'll use it as the basis for the following discussion. It's available as a set of instructions and tools in areference document called The Combined Heat and Power (CHP) Resource Guide, which can be downloaded at no charge from DOE's Midwest Regional Application Center (RAC) Web site at www.chpcentermw.org (navigate to the "library").

Actually, DOE is currently expanding its CHP support in this area and others, by launching five such RACs nationwide. All are aimed at raising "cogen consciousness" nationwide, doing local advocacy, providing information, hand-holding, and even, potentially, offering financial support. The five RACs are being modeled on a successful pilot version that has been fostering distributed energy for the Midwest region since mid-2000 (see sidebar 2). Chicago-based RAC Director John Cuttica and staff are now routinely assisting CHP engineers, facility managers, and building owners in answering the three-phase investment questions. Cuttica and staff also developed the Resource Guide mentioned above and derived this screening methodology.

To begin with, CHP, he concedes, "is not the Osilver bullet' answer to high energy costs." However, he adds, "In those applications where CHP makes both technical and financial sense, CHP can and will lower energy costs, increase electric reliability, improve power quality, provide standby power, and lower air emissions."

Each potential CHP project must be evaluated within its own environment and circumstances. Right away, certain candidates often look very good: for example, those in locales with high electric costs and already using lots of heating fuel. Also, certain kinds of facilities have proven to be likely winners, such as hospitals, schools, colleges and universities, high-density residences (nursing homes, dormitories, mental institutions, jails, prisons), centrally heated and cooled hotels, fitness centers, food processing plants, paper and lumber mills, chemical plants, metal fabrication plants, ethanol plants, landfills, and water treatment plants.

Unfortunately, many potentially worthy projects are also routinely being overlooked. One reason, Cuttica finds, is the erroneous but persistent perception that CHP is somehow "still experimental." Of course this is not the case; many thousands of successful CHP turbines, microturbines, reciprocating engines, and steam-turbine systems have been churning out power and heat for decades. The technology is hardly novel but on the contrary has been steadily improving, particularly thermally activated systems. Says Cuttica, "You really do know what you are purchasing, and you know what reliability and maintenance numbers to expect. The risk is minimal if you stay with these tried-and-true technologies." Other, more cutting-edge CHP hardware now in development shows great promise too; whenever it is introduced, it will have been thoroughly tested and proven. In short, the technology for CHP or cogeneration is a non-issue.

Feasibility, Step-by-Step

That said, the other aspects of project assessment are often more problematic. The essential task of assessment boils down to, as Cuttica says, "asking the right questions" and then making sure that "whoever answers them does an adequate and fair analysis." Key questions concern electric and thermal load: First, how much power do you need and when do you need it? And second, how much thermal energy do you need and when, relative to your electric load? Answering these will determine what size CHP system will suit your demand. The better the match of size with load, the higher the overall efficiency of the CHP system; and the higher the efficiency, the better your chances of cost-justifying it. By following DOE's procedure as outlined below, you can make rough calculations on CHP viability, using well-established rules of thumb or benchmark averages. Four steps or interactive facets are involved here, which Cuttica outlines as follows:

Step One: Facility Walk-Through

Start by taking your own self-guided CHP tour of the site, collecting basic energy data. DOE Engineer Leslie Farrar (a coauthor of the Resource Guide, on Cuttica's staff), explains, "You want to observe both physical and energy data that will affect the installation and cost of a CHP system" in your walk-through. As you're collecting data, you'll naturally want it to be as accurate as possible, since the result may lead to a big investment. The DOE Resource Guide provides a useful and comprehensive checklist to follow, telling you what info to gather for the assessment formula, for example:

• Twelve months' worth of bills for electricity, natural gas, and other fuels if applicable
• Utility rate schedule
• Type and quality of heat you utilize
• Operating hours
• Type and size of existing process and/or space-heating equipment
• Type and size of existing cooling equipment
• Total electric consumption
• Number of feed lines and meters serving the facility
• Sites where the CHP system might be physically located
• Distance between these sites and the electric feeds and central heating and cooling plant (Distances often impact installation cost and ease or difficulty considerably.)

The checklist (an Excel spreadsheet) is actually much longer. In sum, says Farrar, "There is a whole host of information that will make a detailed financial analysis more credible, and the walk-through is the best time to obtain it or at least request it." Again, it can be downloaded from the Midwest RAC's Web site.

If you don't feel technically adept enough to do the walk-through yourself, you'll need to call an engineering firm with CHP-specific skills. Good consultants can often provide a quick and reasonably good decision "and, in some cases, free of charge," Cuttica notes. You can use this occasion to gauge the engineers' competence by asking, for example, how they plan to develop detailed load curves; whether they use hourly, daily, or weekly increments; and what is their basis for gas and electric rate estimations. Also, compare their methodology with that recommended in the Resource Guide checklist.

Step Two: Applying Technical and Financial Rules of Thumb

After you have (or your consultant has) collected the requisite data, you're ready to apply several rules of thumb provided in DOE's guide. These will give you a rough indication of whether investing in a full-blown evaluation will be worthwhile. For a CHP project to be viable, three basic factors must usually be involved:

• First, your building must need heat energy while also needing electricity.
• Second, there's a sufficient cost spread between your current price of electricity and the cost of buying additional fuel (usually natural gas) to fuel the CHP.
• Third, there's not a huge cost difference between buying a CHP system and comparable non-CHP replacement heating and cooling system components (that you'd eventually have to buy anyway).

DOE's benchmarking standards will first suggest an approximate size for the CHP components and then help you estimate the amount of usable heat that will result. The latter may then be translated into both heat recycling opportunities and the potential for running an absorption chiller. Also factored in will be the varied electric rates for respective hours of operation and gas prices. Both are extremely dicey: Natural gas costs has been gyrating since 2001, and energy deregulation will probably yield a similar destabilizing effect on electric rates. Forecasting either one for a 15- or 20-year future "is nearly impossible," Cuttica concedes, but nevertheless, whatever cost assumptions you make on this will probably wind up being "the single most influential factor on the financial outcome of the analysis." To compensate for these major vagaries, you and/or your consultant should compare high-, low-, and mid-range pricing scenarios. Assorted assessment software and utility cost databases are available to help you attain greater refinement and accuracy (to be discussed in a future installment).

If this basic rule-of-thumb process does indeed reveal a potentially good CHP project, then an in-depth analysis - i.e., a phase two assessment - will likely follow. In it you'll need to refine the electric and thermal loads more precisely and then explore the impact of various possible technology configurations. Heat output volumes and types (i.e., steam, hot water, warm air, process heat, absorption chiller heat) will be mapped relative to the projected power generation. A building's heating, cooling, and power needs may be satisfied with any number of alternative choices and combinations; the task is to design a system, says Cuttica, "providing the maximum return on investment, the best positive cash flow, and/or the shortest simple payback on the initial investment." Good modeling software will refine the numbers and assist you in making many decisions.

Step Three: Resolving Interconnection Issues

Somewhere along your way you must also decide whether and how to connect to the power grid. It's a regulatory and technical issue, as well as a thorny competitive business challenge. Nearly every self-generating power proposal tends to cut into a utility's revenue; naturally, utilities are loath to lose their monopoly. Cuttica notes candidly that power companies often erect barriers like prohibitively high standby power rates. These "can be, and oftentimes are, a show-stopper," he says. Another tactic is simply to dissuade the customer from investing in self-sufficiency. Still another is to require expensive connection circuitry. Government regulators leave it up to utilities to decide what is technically acceptable, and they give no recourse for proposed alternatives. This is grossly unfair to potential CHP projects because quite often, "several design options with different levels of cost" are available to make the grid connection, Cuttica notes. The CHP industry is left "at the total mercy of the local utility to determine what the design and therefore the cost of the interconnect will be." Some regulatory bodies have been lowering these barriers, such as by setting uniform grid interconnection standards, but more progress is needed. In any case, a would-be CHP adopter must deal with the electric utility connection question and should factor in the added costs. "Contact the utility early in the project," Cuttica advises. "Try to work with them to understand what their requirements are as soon as possible." If this kind of sensitive liaison is going to be needed, that's an important factor to weigh in when selecting your consulting engineer.

As each hurdle is surmounted and each question is answered, the ultimate cogen decision usually comes down to dollars and cents. The decision-maker (i.e., chief financial officer or building owner) must be persuaded to make the call based on a compelling business case. An investment in CHP will be compared with alternative capital expenditures, both for the relative risks incurred and for the potential upside. A budget analyst will look for a simple payback or internal rate of return. One big question mark often raised here - and another potential door-slammer - is the long-range unpredictability of natural gas fuel costs versus electric power. This uncertainty makes the decision tougher, Cuttica notes, "but it shouldn't deter anyone from exploring CHP" if other indicators look good: Regardless of how prices gyrate at any moment, they're both heading up, long-range. Hence, he says, the best hedge against instability is to invest in getting higher efficiency in order to decrease total energy consumption.

Being able to make this argument persuasively is yet another skill to look for in a consulting engineer. A good communicator in this specialized field should fully understand the value of CHP and be able to maneuver through obstacles and objections to ensure that a worthy project wins approval.

Moreover, an engineering firm that believes in its design and its correct estimating should also be willing to stand behind its numbers with an energy-savings performance guarantee.

Cuttica sums up: "CHP and other energy-efficient options should not be put off till later. Act now and you'll reap the benefits now and in the future."

La Mesa, CA–based writer DAVID ENGLE specializes in construction-related topics.

DE - July/August 2004