The current economic climate means that the capital costs of CHP can prove prohibitive when it comes to getting a decision at board level. However, as Paul Hamblyn, managing director at EuroSite Power explains, smart thinking by CHP providers can harness the benefits of CHP in a way that will keep the board of directors happy
Most energy managers are fully aware of the benefits that can be gleaned from the use of CHP. However, in tough economic times company boards will shy away from capital outlay and argue that they need to save today, not tomorrow.
This argument against capital expense is totally valid for many in the harsh reality of the current environment, but smart financial thinking by CHP providers can help companies harness the benefits of CHP in a way that makes sense not only to the energy managers but to the board of directors too.
For operators of buildings that require a constant supply of hot water such as a hotel or a hospital, it is more important than ever for their costs to be tightly managed. That is why the installation of an on-site utility works for many buildings, particularly those with a relatively modest but stable base load.
A CHP system or gas engine chiller installed inside the building is used to meet its base power, heating or cooling requirements, with the variable additional demand being met by the building’s regular energy providers or existing plant. By having the base load supplied at a lower and more visible price, costs become easier to manage and operators can effectively hedge the risk of future energy price rises.
CHP is not a new concept in the UK, but it could be argued that it has a fairly mixed reputation. This is mainly down to the fact that there has been too much focus on the ‘P’ and not enough focus on the ‘H’. Heating has effectively been treated as an inconvenient by-product, when in fact it is very valuable. The CHP systems on the market today can certainly deliver good electrical efficiencies, but by failing to make use of the heat they produce, they fail to run for enough hours each day or they operate inefficiently, both of which cost more, defeating the objective of the CHP system.
Time to refocus
To get the full benefits, it is essential that the CHP system specified delivers a stable and predictable supply of both electricity and heat. By refocusing on heat, a properly applied system can provide greater certainty about the savings generated.
In the modern, 21st Century world in which we live there is a huge strain on our electricity generation infrastructure, and it is here that further benefits of a CHP system can be realised. A good example is that CHP can be used as a standby provider during a power outage with a wave form that is compatible with all types of everyday appliances including advanced IT systems. An appropriate system should be able to act entirely independently of the building’s main utility, with low fault current contribution and no reactive power draw. The system should also be micro-grid compatible and be able to be used alongside other equipment with DC outputs such as solar panels or wind turbines.
While matters such as these are bread and butter to energy managers, they can be much more of a stumbling block at board level where the focus is so often on upfront cost and returns projected in simple terms. Furthermore, even where the cost can be spread over the life of the contract, for instance through lease financing, when risk is factored in, the rate of return on investment can be difficult for boards to become excited about.
Added to that, if the equipment is purchased or leased, it is down to the energy manager to not only specify the correct equipment but to ensure that, technologically and mechanically, it is able to provide the savings promised. When you add in other risks, such as variable gas prices, maintenance, shutdowns and inefficiency, there is a danger the CHP system can become a burden to the customer, who does not have the technical expertise to ensure the correct return on investment.
The answer to overcoming these potential negatives is for the CHP providers to ‘put their money where their mouth is.’ Instead of charging customers for installation of the equipment, CHP providers can achieve greater market penetration and overall adoption of the technology by providing solutions to customers that provide the savings promised from day one in a way that is as easy to understand as possible.
Under such a scheme, the CHP provider installs and maintains the CHP system without charge to the customer. Taking responsibility for all testing, maintenance and repair, the CHP provider then buys the gas used by the system. It then sells the electricity and heating to the customer at a price that provides the customer the immediate savings on their energy bills promised by the CHP system. That means the CHP provider takes the price risk away from the customer with a typical saving of ten percent which is fixed for the contract life – usually 15 years.
The logic of this methodology has proved extremely popular in the US for on-site utility providers like American DG Energy, which was the first to launch the idea, and has already been adopted by some big names in the UK including major hotel and leisure centre chains. Methods such as this could well be the way to promote CHP adoption in the UK and Europe.
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