January-February 2011

From: Harnessing Heat

Funding CHP and CCHP

Grants and incentives can be factors driving the trend toward cogeneration and trigeneration.

In this case, the end user benefits from not having to invest capital, says Barry Sanders, president and CEO of American DG Energy. “Getting financed is quite difficult these days. Customers don’t have to hire an engineer, a contractor, a service company, and they don’t have to buy the fuel to run the CHP.

“Instead of our customer making a technology decision or even energy decision, we’re giving them a cash flow decision,” he adds. “We think that’s important for distributed energy, and especially CHP.”

Without rebates and incentives, the return on investment in cogeneration projects is typically longer than a chief financial officer might want to entertain on a project, admits Gregory Hester, P.E., and LEED AP director for project development engineering for Carrier. “We continually get measured against other projects the client is entertaining,” he says. “With a hospital, for instance, you’re always going up against the next MRI or other technology the doctors need to bring in revenue to the hospital. The rate of return needs to be equivalent or greater than what they will see on an equivalent investment.

“Without those rebates and incentives, it’s a challenge to get there unless you are in a market that has very high electric rates and somewhat high fuel rates in how they operate their plants,” he adds.

Almost all utilities now have incentive money available for CHP, whereas 10 years ago, “the idea of an electric utility giving an incentive for CHP would be unheard of. Today, it’s a very logical part of everyone’s efficiency program,” says Sanders.

“The key is to keep putting in good projects for continued growth and to treat the entire product as a mainstream product and not a niche, technical, or engineering marvel,” he continues. “It’s not as simple as a boiler—it is more complicated for a building operation. However, when it’s handled by competent developers, it’s a great technology.”

Sanders believes the idea of federal grants creates confusion for customers.

“I think they are good and they help, but when you get into a situation where you’re buying on a payback, there’s still capital required, there’s still financing required,” he says.

“Most of these incentives these days have a fair amount of requirements,” continues Sanders. “It’s been done because some funding agencies have been burdened by projects that were maybe oversized or didn’t do what they were supposed to do, so they really tightened up their requirements. The problem is the cost to do that doesn’t justify the incentives, and they need to be refined a little in how they do that. I think they help, but unfortunately a lot of money has gone into more developers’ hands than the actual customer’s hand.”

While grants and incentives are speeding the trend toward cogeneration and trigeneration, “this is one technology area in the overall energy field that is not dependent on grants and incentives. It justifies itself,” states Cameron Carey, president of Sustainable Energy Solutions. “The payback period is naturally longer. But it justifies itself based on rising electricity costs over the past several years.”

In contrast, photovoltaics depend on government incentives, “and that’s why the experience with solar panels is up and down,” he notes. “Grants come out; people get excited and they do it. When the grants slide out, there are not so many sales anymore.”

Improved technologies with greater efficiencies also is attracting more attention to cogeneration and trigeneration.

“We put in a very clean-burning turbine that has a higher overall electrical efficiency than most other turbines,” says Hester. “It doesn’t produce as much waste heat. The majority of the problems we have in our projects when looking at turbines is they put off a ton of heat and that limits your market potential.

“The Mercury 50 technology was really well-suited to the university,” adds Hester. “If that product wasn’t on the market, they very well could have gone toward the reciprocating engine, or we would have had to do something else with all of the heat we were going to produce.”

Lee Vardakas, general manager for Aegis Energy Services, attributes several factors driving the increasing popularity of CHP and CCHP use. “We seem to do better in a down economy, because people are more concerned about energy costs in a down economy than they are when times are good,” he says. “The other thing is media coverage. Everybody wants to be green; everybody wants to put a green label on their building.”

Capital does not seem to be a limiting factor, Vardakas notes. “People still complain they don’t have any money, but the minute I bring up the option of us owning and operating the system if they don’t want to buy it, they will either go that route or rethink their thought that they don’t have any money, and they are willing to make that investment.”

Hester also is seeing more states offering incentives.

“As those programs develop, we’ll see a lot more of these projects happen,” he says. “We need to stay involved with the legislation to try to get rebates and incentives to do this and to get the clients’ overall operating and efficiency budgets to where they need to be.”