Is It Time to Join the CHP Club: Increasing Energy Reliability and Savings
Increasing Energy Reliability and Savings
Is It Time to Join the CHP Club?
Prepared by
CHP systems capture two forms of energy at once, heat and electrical power. CHP can be the cornerstone of a more diversified platform of the gas-fired generation, renewable energy, electric and thermal storage, and smart controls for local loads, to make your campus more resilient, greener and cleaner, and more technology-forward.
Energy Storage
Solar Panels
Hospital's CHP Plant
University's CHP Plant
Why CHP Now?
-
Long-term availability of reasonably-priced fuel, especially natural gas
-
New approaches to evaluate, design, and build on premises
-
Now a feasible option for smaller facilities
Who Can Benefit?
-
Hospitals and medical complexes
-
Universities
-
Senior living facilities
-
Manufacturing industries
-
Large commercial buildings and corporate campuses
What are the Benefits of CHP?
- More resilient supply of electricity
- Better efficiency compared to separate power and steam equipment
- Lower, more predictable energy costs
- Reduced carbon footprint
- Modernized infrastructure
- Recent cases have found the potential for millions of dollars of savings, exceeding 20% of energy costs
ILLUSTRATIVE CUMULATIVE CHP SAVINGS IN PRESENT VALUE
Illustrative Customer's Existing Costs
Illustrative Combined Heat & Power Costs
Illustrative Combined Heat & Power vs Status Quo
CHP and Long-Term Cost Risk Reduction
-
CHPs have more predictable long-term energy costs, since they are protected from power market price fluctuations compared to purchases from your local utility or the competitive market
-
CHP operations can be reduced during days/hours when the power market is cheaper and excess power sold to the market when not all of it is needed on site
-
Even more risk mitigation with storage capability
PJM Western Hub Power and TCO Natural Gas prices
PJM Western Hub Implied Market Heat Rates (Power Price / Gas Price)
Milestones on the road to CHP
We’re setting you up with a more powerful mechanism to manage your energy supply.
1
2
3
4
5
Each CHP project should begin with a rich, diverse analysis consisting of a range of scenarios and options, which Brattle and Buchanan can develop for you.
Variations to consider
-
Scale and scope of energy uses addressed
-
Types of technology used
-
The degree of risk to bear or push off to developers and suppliers
Opportunity and value scoping, including a market projection
Carefully-structured risk sharing agreement with the CHP developer
Consideration of technological improvements that can support other goals such as modernizing or hardening overall campus infrastructures
Building in optionality for adjusting the system in the future under deep decarbonization scenarios and technological change
Case Highlights
Longwood Medical Energy
Collaborative
University and Hospital Systems in Pennsylvania
In two recent engagements, Brattle and Buchanan assisted a university and a hospital system that were in the process of negotiating an Energy Services Agreement (ESA) with a developer who proposed to construct and operate a gas-fired Combined Heat and Power (CHP) facility for the main campus. The proposed projects reduce the commodity and delivery charges for electricity purchases from the local utility, supply steam for heating and hot water needs, and include upgrades to other aspects of campus energy use, all under CHP supply and service agreements from third parties. In each case, the CHP buyer/user would make payments (composed of fixed/known and variable/uncertain fees) to the developer for 20 years, and would pay standby service fees by the utility. Brattle developed financial models for our clients to estimate the potential cost savings from the project and to evaluate financial risks/opportunities under various potential outlooks on client’s power and steam needs, delivered prices of gas and power, and standby fees and net metering regulations. In collaboration with Buchanan, corresponding transactional, financing and permitting agreements were developed.
For a large hospital complex with electricity, steam, and chilled water contract with CHP facility, we simulated CHP facility operations to estimate operating costs and profits for the CHP owner, and compared hospital’s costs under the existing contract against self-supply options. Our work on providing valuation of the facility under alternative strategy and scenarios led to negotiations for better contract terms and a plant purchase offer.
-
We evaluated (a) the profitability of the existing contract to the CHP owner and (b) the cost of providing the services on a stand-alone basis (without CHP)
-
We evaluated the cost of building a new CHP facility
-
These two data points were used to renegotiate better contract pricing and terms
-
We evaluated the economics of buying the plant from the owner
authors
about brattle
The Brattle Group answers complex economic, finance, and regulatory questions for corporations, law firms, and governments around the world. We are distinguished by the clarity of our insights and the credibility of our experts, which include leading international academics and industry specialists. Brattle has 500 talented professionals across North America, Europe, and Asia-Pacific.
Frank C. Graves
Principal
Metin Celebi
Principal
realizing the potential
Is a CHP facility right for your organization?
Learn more about CHP through our
colleagues at Buchanan Ingersoll & Rooney
Tune into the Alternative Power Plays podcast to experience interviews with leaders in the world of CHP as well as frank conversations about cogeneration technology, its benefits, how to use it, how to deploy it, and why it makes sense for facilities across the globe.
Also available on