Pay the Customer?!
CHP developers deliver kilowatt-hours and income, asking little or no capital outlay.
Tuesday, August 31, 2010
By David Engle
If the greatest appeal of distributed energy (DE) ownership is the prospect of freedom from utility rates, the drawbacks are of a similar kind.
First comes the expense and hassle of running what is, in effect, a personal onsite utility. Next are the vagaries of fuel costs, which can swing the value proposition against you. Thirdly, there’s the upfront capital that must be raised and repaid over, typically, a good number of years. Under current tight-credit markets, this hurdle alone will prove a deal-breaker. Lastly, there’s the 20-year gamble that no major mistakes or failures will blow up in your face.
As they say, there must be a better way—and indeed, the following small survey of projects calls to mind a perennial favorite one for onsite power. In this plan, usually called a “shared savings”, “power purchase agreement” (PPA), or something similar, the DE site benefits from an extremely accommodating developer who buys, installs, and maintains the combined heat and power (CHP) resource—then sells the power and heat back to the site, always at a discount. The vendor typically shoulders the operation and maintenance, and assumes most or all of the ongoing risks and costs. The latter are to be recouped from the customer’s savings on grid power; in effect, the vendor takes over as a new “onsite utility,” charging for monthly kilowatt-hours.
 |
Photo: Aegis Energy Services, Inc.
On hand for the inauguration of the Schwab House CHP system were: Representative Jerry Nadler, Manhattan Borough President Scott Stringer, Schwab House Executive Director Lance Kolb, Mayor Michael Bloomberg, New York City Council Member Gale Brewer, and Aegis Energy Services’ General Manager Lee Vardakas. |
The site, too, which was typically already burning gas for boilers, now cogenerates electricity with the same fuel; vendor and client now share the value of this nearly doubled fuel value.
The only loser here is the local power company.
In good times or bad, this plan is surely the easiest, and, often, the only way to get into a power project. Resulting PPA contracts spell out these arrangements. They’ve been around for years, but their appeal seems to have hit a new stride these days, due to the convergence of several factors in these times:
CHP elements and components themselves—including better-quality, tougher engines, remote monitoring controls for them, and more informed operating practices—all have steadily improved through the past decade. The knowledge base for CHP skills has grown, as has the pool of capable technicians. Thanks to the ubiquitous Web, constant remote monitoring of systems is possible—along with mobility, sharing of information, and integration of CHP with building systems. All of these tech factors make it easier to shift the oversight of an energy resource to an offsite overseer.
Subsidy Money. Despite the downturn, assorted grants and incentives remain available—and in some cases, have actually been beefed up a bit by Recovery Act and other energy-minded legislation, for example. In the ongoing debate over climate change, CHP is increasingly regarded as a favorable player, able to deliver clean and efficient power and reduce greenhouse gases.
Utility Rates. A bit surprising: Due to the business downturn and lower demand for electricity, some utility rates have actually gone up. This is because utilities’ costs are fixed, and rate hikes are necessitated to offset the decline in revenues. Meanwhile, gas prices are coming down. The combination strongly favors onsite power.
Unbeatable Financing, for Vendor Survival. Lastly, as noted, the credit crunch has necessitated doing creative capital financing by vendors, to bypasses lenders who have shied away from some markets.
Lee Vardakas, a spokesperson for Aegis Energy Services, which is a busy PPA-style vendor in Holyoke, MA, summarizes the impact of these dynamics on cogen market conditions. “We would tell you that this hasn’t been a tough market for us,” he says. “There are many bright spots. It has been tough, in that access to capital is difficult. However, in tough times, people are trying to save money.”
Proposals for cogen plants also receive a very favorable hearing these days, “for having a green angle, in terms of saving on carbon emissions,” he adds.
Meanwhile, proposals promise to save money—an extremely popular idea in good times or bad. “So, it hasn’t been as hard of a sell as you’d expect, and, with some of these shared savings agreements, some facilities haven’t had to put up any money at all,” says Vardakas. “People really appreciate the savings, and it’s hard to turn down.”
One of Aegis’ recent clients, a 646-unit cooperative apartment building known as the Schwab House (size: nearly 1 million square feet) on the Upper West Side in Manhattan, NY, commissioned a cogen plant last year. So far, management and residents are thoroughly pleased. Lance Kolb, Schwab’s executive director, says that he had not originally sought or considered doing cogeneration, but, rather, was driven by a quest for lobby air conditioning. In the process, he discovered—“perchance, by luck”—that cogen might be the way to go.
Ultimately, “We finally came up with this shared energy saving program, where there was little to no money out, on our part,” says Kolb. “It just made absolutely 110% the best sense to everyone who had a vote on it.”
Another recent adopter, Paul Lund, of the Carleton-Willard Village continuing care retirement community in Bedford, MA, agrees: “It was like a ‘no brainer.’ There was no cost on our side.”
At Stevens Institute of Technology, in Hoboken, NJ, HVAC systems manager Mark Byrd says that a “no money, 15-year agreement” with his CHP vendor was an irresistible offer. “Being a private non-profit, getting capital is difficult. Now, we’re saving a few bucks. We put no money out. It’s a winner for us, no matter what.”
Duquesne University in Pittsburgh, PA, didn’t get 100% vendor financing, but did land itself a $9.4 million, 5-MW turbine plant at half price, sharing the cost and benefit with a firm called Independent Energy Corporation (now under Noresco, of Westborough, MA). Since its commissioning a dozen years ago, the plant has run almost flawlessly and already repaid the one-half investment for one party, and nearly all of the balance for the other. Immediately upon startup it began saving the college about a million dollars a year; given ever-rising utility rates since, the figure is probably higher now. Within the past two years, it even began earning alternative energy credits (AECs) worth tens of thousands of dollars a year.
Here, then, are four impressive “shared” energy projects built “at little or no cost.”
Duquesne’s Onsite Utility
Years ago, old-fashioned boilers were being fired in a three-story brick energy building, from which steam was piped to a campus serving a student population of about 10,000. Then, in 1997, came a decision to replace these relatively inefficient heating behemoths with ultra-efficient trigeneration—combined cooling, heating, and power (CCHP) generation. Since then, a 5-MW Solar Taurus 60 turbine has yielded plenty of steam from exhaust heat and a 25,000-pounds-per-hour heat-recovery steam generator (HRSG). The genset cranks out enough wattage to carry 85% of the campus electrical load. Winter and summer, cogenerated steam either warms the classrooms or cools them, in the latter case, powering three Trane absorption chillers yielding 2,500 tons of output.
“That’s the good part about it,” notes George Fecik, Duquesne’s executive director of facilities management. “We’re always using the engine heat. Nothing is ever wasted.”
In 2008, the school even added a unique ice storage system. Coolant is made cheaply in off-peak times, stored several hours, and then released as chilling during hot summer peaks. Thus, the resulting combined CCHP efficiencies—already well above 60%—rose to the 70% neighborhood. That’s about twice the efficiency rate of steam boilers alone.
Duquesne’s half of the original $9.6-million project cost (which bought a new chiller plant, genset, and HRSG) came to $4.8 million. In the deal with Independent Energy (now Noresco), fuel prices were locked in during the whole payback period, “so we were pretty much guaranteed” a payback, says Fecik—and a net gain as well, eventually. In 2012, the agreement ends; Duquesne, already owning the plant, will continue reaping utility savings. Throughout the contract, maintenance and operation have been shared by both parties. The school provides plant employees, and Noresco, a manager.
Fecik explains that initially, “the University didn’t feel comfortable about maintaining a gas turbine, because it never had something like that before,” and hence, the hiring of expertise. Now, though, Duquesne could be ready to take-over.
As for the vendor: The university has paid Noresco a monthly concession and management fee, by which, in 2012, full capital payback comes. Meanwhile, Noresco has reaped a monthly built-in profit throughout.
In 2009 came a nice windfall besides: The plant won accreditation from the Pennsylvania Alternative Energy Portfolio Standard (AEPS) for the AECs; these are similar to renewable energy credits (RECs), but differentiated in that trigeneration qualifies as a super-efficient “alternative” to less-efficient grid power—even though gas is, of course, not a renewable.
In 2010, Duquesne also won an EPA Energy Star CHP award, as Pennsylvania’s first facility to qualify for cogen AECs.
As of mid-2010, Duquesne had already accumulated 32,000 AEC units, having produced 32,000 MWh of qualifying high-efficiency power; AECs can now be sold other power generators to “offset” greenhouse gas emissions. If the market rises as hoped, the vouchers’ value should hit $50,000–$60,000 per year. The AEC application process involved doing “lots of documentation of steam and power production records,” he says. A large REC/AEC market-maker called Nexant did the legwork, for a small share of eventual proceeds.
All in all, the onsite utility enterprise has been “very positive” for Duquesne, says Fecik. “I know people are sometimes afraid of something they’re not familiar with, figuring it’s going to be a maintenance headache and that type of thing. But it’s really not a problem.”
The Schwab House’s “Cool Deal”
As noted above, manager Kolb almost stumbled upon CHP in the course of his five-year search for the best lobby air-conditioning option. He first immersed himself in the relevant tech literature, then sought bids from several CHP developers for a plant plus the lobby air-conditioning system, to be owned by Schwab House. However, after weighing system cost, amortization, maintenance, and operation, his decision and recommendation was to allow Aegis to come in and “do it all,” with Aegis paying for, owning, and running the plant. It was an easy call, he says.
Commissioned in September 2009, a total of 300 kW was installed, comprising four modular Aegen Thermopower TP75LE (low-emission) cogeneration units rated at 75-kW electric output per unit. Each also provides 523,000 BTU per hour of heat energy, now being used for domestic hot water and lobby heating and cooling.
Why four separate 75-kW gensets instead of a single 300-kW plant?
Four units allow more flexibility for where engines can be placed and interconnected to the building’s electrical and thermal systems. The multiple sets can also be selectively turned on or off to match the building’s thermal and electrical demands. So, for example, in the morning, when hot water is needed, or in wintertime, all may run, but in summertime or on a mild night, some of the engines cycle down. Having multiple units also enhances power reliability: Instead of relying on a single plant which occasionally goes out of service, having four smaller ones means that at least 75% of cogen service is nearly always available.
As for power and efficiency: the combined CHP reduces the building’s total energy appetite by about 13%, he says. In summertime, the thermal recovery provides up to 40 tons of cooling from a pair of Yazaki hot water fired absorption chillers. The four units together produce about 45% of the coop’s annual electrical load, and site-operating expenses have been pared down by about 28%, because so much cost is handed over to Aegis.
One huge key to overall affordability, too, is that the Aegis units come pre-packaged. The gas-fueled engine, generator, control systems, switchgear, and the heat recovery equipment are all assembled at the factory, making them much less costly to design, build, deliver, and install.
Operationally, he says, “the system has worked as advertised,” after initial kinks were ironed-out. Built-in controls allow remote monitoring and control via a modem to Aegis. All fueling, operation, and round-the-clock, two-way monitoring and control via modem are done by the vendor.
The estimated tab for the project, including the lobby heating and cooling additions, came to $1.6 million. To pay for about a third of that, Schwab’s technical advisors, DSM Engineering Associates, of Hauppauge, NY, won a grant of $402,000 from the New York State Energy Research and Development Authority (NYSERDA). Schwab House is believed to be the first NYSERDA-funded project in which a shared savings agreement was involved.
Even with that help, though, the projected payback came to about six years. Schwab’s board considered picking up the whole tab, and thus, owning the plant, but ultimately opted, instead, for Aegis’ deal of virtually zero outlay (with less dramatic savings). Accordingly, the parties signed a shared savings agreement. Schwab House now buys any onsite CHP energy yielded for a fixed 14% less than the Con Ed utility rate, and buys cogen heat at the same discount, off what they used to pay for fueling boilers. The $1.2-million balance will be recouped by Aegis over the 11-year agreement, after which, the coop owns the plant. Meanwhile, an early buyout is available, if Schwab should decide they want ownership and full savings.
So, again, the refrain from Kolb concerning the shared approach is: “You don’t have to spend any money, and you save $80,000 to $90,000 per year. That’s not a hard decision to make.”
Along with the project came some notoriety: The plant commissioning ceremony last year drew notable politicians, including Mayor Michael Bloomberg, Manhattan Borough President Scott M. Stringer, State Assembly Member Linda B. Rosenthal, and Representative Jerrold Nadler. In the end, Kolb got his summer lobby cooling—essentially, for free—and in the bargain, got himself named to the Green Team in 2008 by the New York Association of Real Estate Managers.
Carleton-Willard’s Instant Utility
Residential facilities, due to their high, steady demand for heating and hot water, probably sit atop the list of great candidates for CHP, as they can take fullest advantage of cogeneration efficiencies.
Lund, director of facilities management for Carleton-Willard, a retirement home in New England, first read about cogeneration and potential money savings from it, in June 2009. From this introduction, he pursued some further research, and ultimately visited a cogen site at a similar residential facility thirty miles away. One trip was all it took.
“They recommended it and were quite pleased,” he recalls. “It looked very professional.… It was a very pleasant experience, and they were very happy with the installation and savings they’re receiving.”
As for the financial challenge of a plant for Carleton-Willard: Under the usual protracted budgeting cycle, nothing could happen for many months. But the area’s CHP vendor, American DG Energy (ADGE) of Waltham, MA, offered Lund “several financing options—even one that would not cost anything up front,” he says. “So I was intrigued.”
The agreement was signed as a long-term lease, under which ADGE covers the cost of equipment, installation, and maintenance for 15 years. In return, Carleton-Willard pays ADGE for the electricity generated, but at a 10% discount, compared to the utility rate.
Rates are stable for five years, at around 12 cents per kilowatt-hour, and natural gas prices likewise, for three years. Thereafter, even if rates increase, the 10% differential with utility rates remains in force.
With almost amazing speed, the plant was installed and running, just a few months after the first introductory discussions.
In the year since, things have been “running smoothly,” says Lund. Only one unexpected challenge arose, when the interior mechanical room in which the plant was put, started getting very hot, but this was easily remedied with ventilation.
The considerable waste heat shunts to two exchangers, one for domestic hot water, and the other for a hot water heating system, idled during warm weather. For efficiency, the plant only runs when there’s a need for hot water. Already, Lund is anticipating getting a second plant, to heat an indoor pool.
Stevens Institute of Technology
A similar deal by ADGE delivered a compact 60-kW CHP plant to the Schaeffer Center at this college on the banks of the Hudson. Commissioned in February 2009, it’s already such a hit, both for its output and as a classroom topic, that the college has ordered four more. As of mid-2010, they’re in various states of progress inside a 14-story student center; engine heat will support a steam boiler, space heating, and kitchen hot water service.
ADGE’s Tecogen CM-75 comes prefab (like the Aegis plant) in a “very interesting design,” notes Byrd.
“It showed up in one piece, with all the pumping, metering, and everything within the enclosure,” he says. “We set it in place in a boiler room of the central steam plant. We had it installed, up, and going, strangely enough, in just one week.” That’s normally unheard of.
Yielding 60 kW and 500,000 BTU per hour, its exhaust heat is piped down to the plate frame heat exchanger. Water warms to about 190°F, ties into an existing loop, and circulates to a campus pool and a 200-ton Tecochill STx chiller. The pool stays warm year-round, and the hall enjoys continuous dehumidification. Condensate returns at 165°F, gets another heat burst from the engine, and then goes back out.
Byrd says, “Summer and winter, we’re continuously dumping heat in” for peak efficiency.
The only notable problem in this first CHP was, perhaps, an undersized heat exchanger and pump, he notes, and corrections are in progress.
Even with that drawback, though, “We love this system,” he declares.
It is all ease and convenience. Fueling, operation, 24/7 monitoring, and servicing are handled by the vendor. For continuous control, it’s tied-in to the existing building automation system; if a problem signal triggers, the vendor, ADGE, can get in and do diagnostics and adjustments via a modem. If appropriate, a local service tech is quickly dispatched.
The plant’s estimated cumulative power and heat value comes to $8.3 million. With the completion of phase two, all five plants will yield a combined 375 kW, providing 18.4% of the school’s power need. Virtually every erg of heat will be harnessed.
Over the duration of a 15-year contract, the school will get a guaranteed 10% positive net monthly cash flow versus utility billings.
As a teaching prop for Stevens’ future engineers, CHP is also proving extremely popular. It’s a highlight on alumni tours. Performance datalogs are captured, scrutinized, and will be posted on the school Web site. Byrd gives them a “thumbs up” and says, “Microsystems are ideal for what we’re trying to do; they’re relatively easy to maintain. From a distributed generation concept, without question, this is where the industry is going.”
Author's Bio: Writer David Engle specializes in construction-related topics. |
Advertisement]