Completion of an end-to-end CHP economic feasibility study requires gathering a number of important chunks of information. This is how you do it.
As with any type of major plant and equipment, the economics of a Combined Heat and Power (CHP) project needs to be carefully and thoroughly evaluated to obtain the required Capex and Opex sign off or commitment.
As the person responsible for selecting the CHP system for a specific site, the building consultant will certainly want to achieve the best possible end result for the customer. An underperforming CHP system will not maximise its potential for energy savings and reductions in carbon emissions, and this will significantly impact on the project’s return on investment (ROI).
The evaluation for installing a CHP system in a site’s building or process is usually carried out in a detailed economic feasibility study.
The elements of an economic feasibility study
The earlier the feasibility study can be completed, the better. There are a number of key factors to such a study, and depending on whether the required information is available, and this specifically refers to a site’s energy consumption data, it could take some time to finalise the details of the study.
1. Energy consumption data
The outcome of a feasibility study is heavily reliant on establishing how the site currently consumes its electrical and thermal energy. This is because the CHP system will need to be exactly sized to meet the existing loads to make the maximum energy savings.
An undersized CHP system will operate at full load but will not achieve the potential energy savings and carbon emissions reductions; oversized systems operate uneconomically and inefficiently at part-load, which impact on the system’s efficiency.
The site’s energy data can be gathered from the following:
BEMS (if the site has one).
Current and previous years’ energy bills.
Half-hourly meter readings from the supplier.
2. Energy load profiles
Energy data is used to calculate the site’s load profiles, showing how and when the site uses its energy – the times of the day, week, month and year for the highest and lowest demands. Plotting the number of hours at which specific loads are experienced also produces load duration curves. These are useful for examining if the recommended minimum 4,500 hours per year heat load is available to ensure the CHP can run at the maximum number of hours.
3. Heat-to-power ratio
The load profiles are also used to calculate the site’s heat-to-power ratios – a measure of the site’s heat and electricity power consumption. A heat-to-power ratio of around 1.5:1 is a good indication that there is a suitable level of on site energy demand for CHP.
4. Initial suitability checks
The following information is also important and will need to be factored in when calculating the best size of CHP system:
The site’s current electricity and gas tariffs – prices needed for cost calculations.
Is existing equipment, such as on-site boilers, operating efficiently?
Are there any energy efficiency/demand side measures being considered on site that could affect the final energy loads?
Is the site planning a major expansion in the near future?
Is the local electricity network able to support a CHP installation?
5. Indicative checks
The main financial indicator for CHP viability and return on investment is spark spread, which is the difference between the incumbent electricity tariff and the cost of the fuel (usually the natural gas tariff) used to generate on site CHP electricity. A spark spread of between 4 and 8 is a good starting point for CHP viability on a particular site.
6. CHP sizing
The selection of CHP system is not straightforward and there are a number of alternative options when sizing the CHP output:
Load following, tracking or modulation.
Maximum electrical or heat load output.
There are cost consequences for each of these options, which need to be carefully examined. This is the reason why the accuracy of load profile data is critical to successful CHP sizing.
7. Practical and environmental considerations
The project’s estimated capital cost expenditure and operating costs will need to include such factors as the cost of the installation works and the annual maintenance costs. Check:
There is space on site for installation, and for maintenance access.
Fuel supply is available and at the correct capacity.
The local electricity grid can support generation.
Electrical and heating connections are in close proximity.
Also consider the environmental aspects of the CHP system installation. Will it be subject to planning conditions and environmental regulations regarding noise or emissions?
8. Financial report
The final hurdle is convincing the customer and the scheme’s investor of the economic and environmental benefits of the proposed CHP system. The financial calculations should complete the feasibility study and should confirm whether CHP is financially viable, indicating the estimated costs and the expected ROI in terms of the anticipated payback period, or NPV or IRR discounted cash flow analysis.
With full attention to detail and using robust energy load profile data to calculate the correct size of the CHP system for the site, financial sign-off should be much more straightforward.
The production of an effective CHP economic feasibility study requires the following:
An understanding of the existing thermal and electrical needs of the site.
Measurement of the current thermal and electrical generation and consumption in order to give an awareness of the current energy consumption pattern.
The generation of a load profile from this data.
Calculation of the spark spread.
Awareness of what funding or support there is available from various sources.
Calculating an economic feasibility study for a cogeneration project is essential. Download How building consultants can complete an end-to-end Combined Heat and Power (CHP) economic feasibility study.
Topics: CHP / Cogeneration