Combined Heat & Power (CHP) Evaluation Guidelines

Introduction:
Cost effective CHP evaluations depend upon quickly identifying sites suitable for CHP while eliminating unsuitable sites from consideration. There are various levels of CHP analyses that are often differentiated by the depth and accuracy of the input data and the sophistication of the analysis technique. This document outlines three levels of analysis that can be utilized to evaluate the use of CHP at your hospital. Each level analysis provides a different level of accuracy in the results. The City of Chicago Department of Environment and the State of Illinois Department of Commerce and Economic Opportunity (DCEO), are jointly sponsoring a program to provide the participating hospitals with an incentive to evaluate CHP within their own facility. The program offers to fund 50% of the cost of a CHP evaluation, with a maximum pay-out of $5,000 for a single hospital. The University of Illinois at Chicago Energy Resources Center (UIC/ERC) will administer the program in association with the Midwest CHP Application Center. The program allows the individual hospitals to select the engineering or consulting company that will conduct the CHP site analysis. However, UIC/ERC must approve the selected provider in order to ensure that the analysis is conducted in a reasonable and technically sound manner. Since the analysis / evaluation will be jointly funded by both the hospital and UIC/ERC, the final report will be reviewed and approved by sponsors before program funds are dispersed. To assist the participating hospitals identify potential providers, the UIC/ERC can provide a list of firms that can perform these types of analyses. The following pages provide the guidelines for the evaluation / analysis options that will be supported by this program. For those hospitals interested in pursuing this evaluation program, please fill out the blue colored form included in the Packet of Materials and / or contact: John Cuttica at the UIC/ERC: or Leslie Farrar at the UIC/ERC: 312-413-3835 or Lfarrar@uic.edu 312-996-4382 or cuttica@uic.edu

The Levels / Types of CHP Analyses (covered by this program)

The program will support individual hospitals that commit to undertaking an evaluation of investing and installing a CHP system at their facility. Recognizing that the different levels of analysis have associated with them different levels of cost and accuracy, and that the participating hospitals may also have differing requirements, the program will support the following three levels of CHP analyses: 1) 2) 3) CHP Screening Analysis CHP Feasibility Analysis CHP Detailed Concept Analysis

Figure 1 provides a diagram outlining the three levels of analysis or three options available under this incentive program. The diagram also shows that once the customer / owner makes the decision to go forward with installing a CHP system (normally based on one or more of the defined analyses), they enter into the expensive Detailed Design, Bid and Build phase of a construction project. The funds available under this program may not be utilized to offset the cost of the Design, Bid, and Build stage of a CHP project.

Site Visit
Collect Data

Level 1

Level 2 CHP Feasibility Analysis

Level 3

$$

CHP Screening Analysis

Simplest, Least Expensive, and Least Accurate Not Meant for Investment Decisions

CHP Detailed Concept Design

Reliable, Quantifiable Results Serious Financial Look w/o Cost of Detailed Design

Concept Level Cost Estimate Refine ProForma Analysis Investment Grade Proposal

Owners Approval

$$$ Detailed Design, Bid and Build

Construction Dwgs., Install, Test

Figure 1: CHP Site Analysis Levels / Options

Analysis Level Description & Requirements

Site Visit Walk-Thru and Data Collection:
As shown in Figure 1, whichever CHP level analysis or option one chooses, it is essential that good accurate data regarding the site be collected, well documented, and made available for the analysis. During the site visit, information on energy usage, utility costs, operating schedules, electric service, and existing heating & cooling equipment size, configuration, and location should be obtained. Appendix 1 Walk-Thru Forms provides a sample form that can be utilized to secure the data required to conduct a detail CHP site analysis. It should be noted that some CHP analysis can be performed with as little data as the last 12 months of the sites utility bills, but the more site information that can be obtained, the better or more accurate the analysis results will be. For new facilities not yet constructed, the site visit walk-thru would be replaced with discussions with the owner, architect, and/or engineer regarding the planned project. In general, any project that has progressed into the detail design drawing stage is too far along to be re-specified without incurring significant added costs. Therefore, the consideration of including a CHP system into a new or reconstruction project should take place as early in the process as possible. Other observations that should be made during a site visit walk-thru might include: ? Can important infrastructure issues be handled without imposing an unrealistic expense on the CHP project? These issues might include the lack of a centralized heating & cooling distribution system for the entire facility; insufficient space to locate the CHP equipment close to the central heating & cooling plant; a facility that contains a large number of electric meters; or a facility that is currently served by multiple electric utility feeders. ? Does the facility have problems or opportunities that would help justify a CHP system beyond financial payback due to reduced energy bills? These might include the need for back-up power capability where none is currently available; a problem with momentary or instantaneous electric outages; or utility voltage droop that CHP can help alleviate. ? Does the site have any specific financial opportunities that would add to the justification of a CHP system? These might include a 12 month heating load that is large in comparison to the heating output of the potential generating package; or a planned retirement / upgrade of the existing heating & cooling equipment at the site. The site visit walk-thru process should consume no more than two person days, one for the site visit walk-thru, and one to document, asses, and summarize the data collected.

Level 1: CHP Screening Analysis

This type CHP analysis is the simplest, least costly, and least accurate CHP site analysis. Investment decisions are not normally made as a result of this type analysis. However, to provide a quick understanding of whether your site has the potential to be a viable CHP installation site, this level may be adequate.

In this level 1 screening analysis, the energy consumption and utility rate information gathered during the walk-thru are used to perform a rule-of-thumb evaluation, including the type and approximate size of the CHP system, a rough first cost of the CHP system, and the estimated range of annual energy savings from the CHP system. The equipment costs in this level analysis are estimates that are often only as good as the experience the analyst has in doing these evaluations. Figure 2 provides an approximate installed cost for both Distributed Generation Systems (generation equipment with no heat recovery), and CHP systems (including heat recovery and absorption chiiler sized for the generation equipment). With the analysis providing both a rough energy savings from the CHP system and a first cost estimation of the CHP system, one can now calculate an estimated simple payback for the CHP system. It is recommended that a pre-developed screening analysis tool, such as a computer program or a spreadsheet using an established methodology, be used. A list of such programs with the different capabilities and features of some of the available screening tools can be found at www.CHP.net. There is also a downloadable spreadsheet analysis screening tool that can be found in the Library Section of the Midwest CHP Application Website (www.CHPCenterMW.org). This level screening analysis should be inexpensive, however it is meant to only provide a rough examination of the range of expected simple payback periods and the first cut look at the financial viability of CHP at the site. Should this level of analysis be conducted under this project, a simple report must be presented to both the hospital and to UIC/ERC to explain the methodology utilized and to provide the screening analysis results.

Level 2: CHP Feasibility Analysis

Once a first cut, inexpensive (sometimes done for free) screening analysis is completed, engineering firms will often times propose the equivalent of the level 3 CHP Detailed Concept Analysis. As you will see in the next section, the CHP Detailed Concept Analysis results in an investment grade proposal. That is, the accuracy of the concept design, costing, and financial calculations are such that the engineering firm can then provide a full proposal on the CHP project cost and schedule (detailed Construction Drawings, P&IDs, Installation, Test, and Commissioning). The cost of a level 3 analysis can be in the 10s of thousands of dollars depending on the size of the hospital and the complexity of the design. The level 2 CHP Feasibility Analysis is meant to be a cost effective intermediate step that will provide the owner with a serious financial look at the viability of CHP at their site without the cost of the detailed concept design parameters. The results of a well done CHP feasibility analysis will provide reliable and quantifiable information that often times is up to 70 to 80% as accurate as a Detailed Concept analysis, but procured for a fraction of the cost. To accomplish a level 2 analysis, the information gathered in the initial site visit walk-thru is utilized in three analysis substeps: Energy Analysis Conceptual Development Financial Pro Forma Analysis The Energy Sub-Analysis should: Be based on engine or turbine net useful heat output. Not all of the gross rejected heat from the engine or turbine is available. Some unrecoverable
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heat will be left in the flue gases, and some heat flows are often to moderate in temperature to be useful. Engine manufacturer information can sort out these flows and provide direction on the quantity of truly useful or net heat from the engines or turbines. State the percent of the net heat output of the generator that will be utilized. Assuming net heat utilization anywhere near 100% is unrealistic for most applications, since some heat will most likely be generated when there is no thermal load for it to serve (ie. in the spring and fall). As a rule of thumb, most CHP systems can not recover more than 60 to 70% of the engines net useful output for most commercial applications. Hospitals and some industrial recovery may be higher, but will most times not exceed 85%. Propose operating schedules for the system. Operating CHP systems when off peak rates apply (night, weekends, & designated holidays), is often not cost beneficial operation should often times be focused on on peak utility rate hours. Consider the size of the selected CHP system versus the size of the peak load of the facility. The shortest CHP paybacks should be found by running repeated financial analyses across practical system size ranges. In general, for commercial class buildings applications, the best payback situation normally occurs when the CHP system is in the 40 to 60% of the facilitys peak electric load. A 100% or island system should only be considered if the owner has a desire for such a system arrangement. Include using the rejected heat from the CHP system for water heating, space heating, and absorption cooling unless the application has a specific difficulty in employing any of these technologies. The financial analysis should be run with and without any of these options. Desiccant dehumidification for specific parts of the hospital (operating rooms and surgical suites as an example) should also be considered. Normalize the characterization of the load (electric and thermal) to the local average weather year. This is particularly important for commercial building applications where the load is dominated by space heating and cooling, and if the previous year utility consumption and bills are utilized to develop the loads. Basing a 5 to 7 year cash flow analysis on atypical weather year introduces an error correcting utility results back to average year conditions provides the best comparative analysis. Provide a list and breakout of all assumed first costs. Provide current electric and natural gas rates and realistic projections of future rates for a 5 to 7 year planning horizon. Provide Stand-by charges from the local electric utility. A stand-by charge based on the total capacity of the CHP system or the capacity of the largest single generator within the CHP system should be included unless some other approach is being taken to handle engine outages.

The Conceptual Development Sub-Analysis should: Provide One Line or Block diagrams of the power electrical and mechanical layouts.
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Contain the major components in the planned CHP concept including type and size. Contain any other major CHP system or installation issues recognized by the initial site visit walk-thru.

The Financial Pro-Forma Sub-Analysis should show on a year by year basis: Initial investment and additional out year investments, if any. Engine generator maintenance allocations. Charges should be based on projected equipment operating hours. Energy cost savings Capital repayment and carrying charges Depreciation Tax effects (can be zeroed out for non-taxable owners) Internal Rate of Return (IRR) on the investment (without leverage) ! Including all annual energy cost savings, maintenance costs, and tax savings ! Including the initial cost of the CHP system, (input as a single lump sum outflow in year zero). ! Should not include principle or interest payments on financing Do not use fuel or electric price escalators or leveraged rates of return in the financial analysis

Review: If this level of analysis and evaluation is conducted under this program, a detailed report (including a full pro-forma sheet) should be generated and a review of the report with UIC/ERC and the hospital will be held to determine the hospitals interest in an investment of the type and magnitude projected by the CHP Feasibility Analysis. An example pro-forma sheet is included as Appendix #2 for your review.

Level 3: CHP Detailed Concept Analysis

The purpose of conducting a level 3 Detailed Concept Analysis is to seek a signed project commitment by the site / facility owner. The report generated by this level analysis is detailed and accurate enough to present to the Capital Investment Committee of most organizations to secure the investment dollars needed to start the design construction drawings, build, test, and commission. This analysis is normally conducted by an engineering firm that will provide an investment grade proposal as a result of their efforts. The cost of this level effort is dependent on the size and complexity of the project, but in general costs within the 10s of thousands of dollars. The steps for this level 3 analysis are the same as the level two analysis: Energy Analysis Conceptual Development
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Financial Pro-Forma Analysis The largest difference between the level two and level three analysis is normally in the detail of the concept design and first cost estimates. In the level 3 analysis, the accuracy level of the estimates is much greater. The detailed concept design usually includes: Floor Plans with layout of equipment, etc. Installation issues and related costs. How the CHP equipment is to enter and be installed in the existing building, including how much demolition and reconstruction will be required. Construction issues. Electric interconnection issues and costs (begin the interconnect review process with the local electric utility) Thermal interconnections of the waste heat into the central heating & cooling plant (issues and costs). Some P&IDs are recommended. Design Tradeoffs Proposed CHP system equipment by manufacturer make & model for costing and installation purposes. Concept level costing estimates

The guidelines outlined in the level 2 analysis for the Energy and Pro-Forma subanalyses are the same for the level 3 analysis. The greater detail and thus cost for the level 3 comes from the more detailed cocept design. Review: If this level of analysis and evaluation is conducted under this program, a detailed report should be generated and a review of the report with UIC/ERC and the hospital will be held to determine the hospitals interest in proceeding with the investment in the CHP project. Again a full Pro-Forma financial sheet is expected as part of this level analysis.

Detailed Engineering Design, Plans, Bid & Build

The information generated in the level 3 analysis usually results in an investment grade proposal that is utilized by the owner and financial institutions to make their decision on proceeding with the full implementation of the project. That implementation consisting of full engineering drawings, build, test, commissioning, etc. The $5,000 maximum incentive expenditure by UIC/ERC from this program cannot be utilized for this phase (detailed engineering design, plans, bid & build).

Figure 2: Approximate First Cost for Distributed Generation (No Heat Recovery) and for CHP Systems (Heat Recovery & Absorption Chiller Sized for the Generator) Costs do not include the cost of a new building to house the CHP system, if needed. Floor space should run $75/125 per kW depending on the construction style of a new building. The cost of the electric chiller being replaced by the absorber has been subtracted from the first costs. All other costs are for a straightforward CHP installation.