PROJECT EVALUATION
Joseph A. Orlando, Ph.D, PE
Platinum Energy, Inc.
Springfield, Virginia
703 764-3004
Platinum Energy, Inc.
Slide No. 1
Agenda
Basics
Case Studies
Lessons Learned
Platinum Energy, Inc.
Slide No. 2
On-Site Power Operating Modes
On-site generation effect on facility energy
requirements is dependent on operating mode:
–
–
–
–
Baseloaded
Electric or thermal tracking
Peak Shaving
Emergency and/or load interruption requirements
Heat recovery - incremental decision for each mode.
Absorption cooling - incremental decision based on
electric or mechanical cooling as an alternative.
Platinum Energy, Inc.
Slide No. 3
Time of Day Rate
Time of day rates produce high value for CHP produced
electricity, however, limited on-peak hours reduce cost
savings.
Cost vs. Load Factor
0.6000
Cost ($/kWh)
0.5000
0.4000
0.3000
0.2000
0.1000
0.0000
0
40
80
0
12
0
16
0
20
0
24
0
28
0
32
0
36
0
40
0
44
0
48
0
52
0
56
0
60
0
64
0
68
Load Factor (Hours Use)
100% On-Peak
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100% Off-Peak
40% On-Peak
Slide No. 4
Economic Measures
Simple payback is the total project cost divided by the
project’s annual savings.
– Doesn’t consider time value of money.
– Meaningless for projects where no equity is required as is
typical for institutional applications.
Net Present Value (NPV) or Present Worth (PW) is the
present value of a series of future expenses and revenues.
– Decision maker must establish the time value of money or
discount rate as a function of interest rates and risk.
Internal Rate of Return (IRR) is more typically used when
equity in on-site generation is required.
Platinum Energy, Inc.
Slide No. 5
Back-up Power
Electric power that is purchased when on-site
generation is unavailable:
– Scheduled (maintenance) and unscheduled outages
– Firm or interruptible
2005 Energy Policy Act removes mandatory backup
service if that service is available in the
competitive market place.
Platinum Energy, Inc.
Slide No. 6
Third Party Financing/Performance
Contracting
Performance contracting is not to be confused with
third party financing;
– Performance contracting establishes design and
operational requirements as basis for design/build
contract.
» Can be end user or third party financed.
» Assignment of risks is key to viable performance contract.
– Third party financing or third party ownership is
frequently combined with performance contracting.
» Very limited benefit for most institutional end users. Tax
exempt entity e.g. university or hospital realizes 33% of net
savings.
Platinum Energy, Inc.
Slide No. 7
Some Illustrative Case Studies
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Slide No. 8
Boston Area CHP Project
Office building, with computer center, located in NSTAR,
Trigen and Boston Gas service areas:
– Peak load of 5,500 kW, 24.1 million kWh and annual electric cost
of $2,697,000 averaging $.112/kWh.
– Requirement for 26,900 Mlb of steam at cost of $448,000.
– Baseloaded 1,045 kW CHP system using reciprocating engine
generator set with SCR @ $2,67 million
»
»
»
»
Operating cost decrease of $83,000.
Simple payback of 26.7 years
Pretax IRR of 4.2%, after tax return is negative
Pretax NPV of -$658,000, after tax NPV is -$327,000
– Significant fraction of cost reduction results from avoidance of
Trigen steam and not CHP.
Platinum Energy, Inc.
Slide No. 9
Philadelphia Area CHP Project
Hospital located in Philadelphia Electric and PGW service
areas:
– Peak load of 1,500 kW, 8.5 million kWh and annual electric cost
of $656,000 for average cost of $.077/kWh
– Requirement for 39.6 MMBtu of No. 6 fuel oil at cost of
$280,000.
– Baseloaded 900 kW CHP system using reciprocating engine
generator set based on site loads @ $1.56 million
» Operating cost increase of $603,000.
» Both natural gas fueled and diesel fueled systems produce “losses”.
– Peak shaving 375 kW system without heat recovery and no
standby backup service @ $385,000.
» Operating cost saving of $20,000.
Platinum Energy, Inc.
Slide No. 10
Bethesda, Maryland CHP Project
Condominium located in Pepco and Washington Gas service
areas:
– Peak load of 2,050 kW, 9.7 million kWh and annual electric cost
of $830,000 averaging $.086/kWh.
– Requirement for 39,800 MCF of gas at cost of $358,000.
– Load following 1,800 kW reciprocating engine CHP system with
one 900 kW backup engine generator set @ $2.96 million
» Operating cost decrease of $150,000. Use of engine heat in
swimming pool valued at almost $100,000.
» Simple payback of 19.7 years
» Pretax IRR of 2.6%, after tax return is negative
» Pretax NPV of -$976,000, after tax NPV is -$1,180,000
Platinum Energy, Inc.
Slide No. 11
Detroit Area CHP Project
University located in Detroit Edison and MichCon service areas with
operating 4,500 kW cogeneration system.
– Peak load of 8,500 kW, 59.0 million kWh. Supplemental purchases of
21.7 million kWh and annual electric cost of $1,379,000 averaging
$.064/kWh.
– Requirement for 278,000 MCF of boiler gas at cost of $1,354,000 @
4.96/MMBtu.
– Baseloaded 4,050 kW CHP system using combustion turbine generator
set @ $4.93 million
»
»
»
»
Operating cost decrease of $263,000.
Simple payback of 18.7 years
Pretax IRR of 3.1%, after tax return is negative
Pretax NPV of -$1,424,000, after tax NPV is -$452,000
Decision made to shutdown existing cogeneration system January 1,
2005 due to high fuel costs.
University in western Michigan shut down 10,000 kW in summer
2005 due to high fuel costs.
Platinum Energy, Inc.
Slide No. 12
Lessons Learned
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Slide No. 13
Lower Value of On-Site Generated Power
On-site generation is typically valued at less than the average
cost of electricity.
Cost vs. Load Factor
0.2000
0.1800
Cost ($/kWh)
0.1600
0.1400
0.1200
0.1000
0.0800
0.0600
0.0400
LF2
0.0200
LF1
68
0
64
0
60
0
56
0
52
0
48
0
44
0
40
0
36
0
32
0
28
0
24
0
20
0
16
0
12
0
80
40
0
0.0000
Load Factor (Hours/Month)
Platinum Energy, Inc.
Slide No. 14
Utility Backup
All projects included utility supplied backup power
for both schedule and unscheduled outages.
Projects had ability to operate in stand alone mode if
grid deenergized, however, primary source of
backup was the utility grid with existing T&D.
Cost of standby ranges from 1.4% to 3.7% of annual
operating cost of CHP system.
– On-site backup with redundant engine generator set
would increase capital cost by 50% or more.
– Redundant capacity is not cost effective as compared to
utility supplied backup power.
Platinum Energy, Inc.
Slide No. 15
Diseconomies of Scale
Increasing baseloaded capacity does not result in one for one
increase in amount of on-site generation that can displace
retail purchases.
– There is such a thing as “too much generation” even for projects
that are viable.
Percent of Site Elec.
Requirements (%)
CAPACITY VS. LOAD
December
110.0
100.0
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
0
System sized at 50% of
peak load provides
70% of energy
Platinum Energy, Inc.
20
40
60
Capacity (% of Peak kW)
80
100
Doubling capacity
increases supply to site
load by 43%
Slide No. 16
Fuel Costs
Case studies were performed
prior to Katrina run-up in oil
and natural gas prices.
– While long term trend for
natural gas prices is
negative, they are not
projected to drop to levels
that support CHP.
– No. 2 fuel oil prices are
projected to increase over
time, eroding savings from
CHP.
Platinum Energy, Inc.
Slide No. 17
Conclusions
With diesel fuel and natural gas prices in current
ranges ($9.00 to $13.00/MMBtu) baseloaded
cogeneration based on displacement of retail
purchases is not viable.
Peak shaving systems may be viable depending on
rate structure. Most peak shaving systems cannot
justify investment in heat recovery and are less
efficient than purchased power.
Institutional clients require backup. Availability of
backup at reasonable costs is uncertain under
2005 Energy Policy Act.
Platinum Energy, Inc.
Slide No. 18
Questions
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Slide No. 19