The Positive Economics of Cogeneration

Combined Heat and Power (CHP) – cogeneration – makes intuitive sense. The progress it is making in the marketplace isn’t solely due to building owners’ and managers’ gut feelings, however. It is based on a hard dollars and cents assessment by building owners and managers.

By all accounts, the approach is gaining mainstream acceptance, as discussed a couple of weeks ago in a post at Energy Manager Today. A good example of the gradually higher profile of cogeneration is enjoying is a project near the historic and classy Rittenhouse Square in Philadelphia. Last week, Tecogen said that three of its CM-75 CHP modules will be used to retrofit a mixed-use but primarily residential building near in that neighborhood with CHP.

The building is 26 floors and consists of residential units, commercial space and a fitness center. The cost of the CHP system will be about half of what legacy approaches typically cost for that space profile, Tecogen estimates. The company says that its Ultera emissions control system will keep harmful carbon, mono-nitrogen oxides NO and NO? emissions to near-zero levels, according to the company.

There are significant variables, so whether cogeneration makes financial sense is must be determined on a case-by-case basis. “The costs vary,” Tecogen President and Chief Operating Officer Robert Panora told Energy Manager Today. He said that the price of electricity, which he said will continue to accelerate, generally leads customers to listen to the benefits and cost points of CHP.

This opens to the door. While cogeneration is understood to be a less expensive approach, building owners are anxious to hear how it will impact their specific use case, Panora wrote. “Depending on the heating design (steam vs. hydronic), the fuel source (gas vs. oil), and the age/efficiency of the legacy heating equipment, the savings on the heating side can vary substantially.”

The comparison can be stark in the case of buildings with aging equipment. “In the case of the most recent Philadelphia order, we are displacing older, less efficient natural gas boilers with the heat from the CHP system,” Panora wrote. “Additionally, in Philadelphia, cogeneration technology has the added benefit of being separately metered at a discounted rate over natural gas prices for traditional applications. The true value of a CHP installation is in the long term savings the equipment provides by more efficiently producing heating and cooling and reducing a customer’s electric bill – legacy equipment that plugs into the grid cannot compete on that front.”

Panora said that Tecogen’s average payback is two to five years. The economics are an attraction to building owners and operators, especially when they are educated on the innovation upon which CHP is based. “Once you get customers to realize that the waste heat generated when the system produces electricity can be recycled back into their system to produce heating and domestic hot water, a lightbulb goes on and you can tell they have realized they are getting two for the price of one.”

This light bulb sometimes is made brighter by the largess of the local utilities. In Philadelphia, Panora wrote, the building will get a $0.05 rebate per kWh under Philadelphia Gas Works’ Energy Sense program. The prerequisite for participation, he said, is use of equipment that has thermal efficiency of more than 85 percent.

Funding help, in the form of rebates and incentives, also is available at the federal and state levels. For instance, the state of Maryland hopes to encourage CHP. The state’s Maryland Energy Administration CHP grant program offers as much as $425 per kW to $575 per kW based on the size of the system. The cap is $500,000 on grants for projects, which must are limited to industrial and critical infrastructure care facilities, including healthcare, wastewater treatment and essential state and local government facilities, according to the MEA.

Another recent cogeneration retrofit of note is at The Ronald McDonald House on the upper east side of Manhattan. A detailed story at Contractor says that the developers faced the choice of deploying a cogeneration system that utilized the existing boiler and chiller or transitioning to a completely new system. The choice was made to do a full changeout, which extended the payback three years to ten or 11 years, the story said.