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There are a number of economic and financial issues that are important for evaluating the commercial viability of CHP systems for buildings. This section discusses these issues and provides general guidelines when considering the installation of CHP systems and also presents information on some of the tools available for evaluating preliminary economics of CHP systems for specific applications. The information is organized in the following major sections:
The first step in evaluating the feasibility of a CHP system for a facility is to collect data about the most recent energy use data for that facility. If the CHP system is to be evaluated for a brand new facility then the information on the estimated energy use for that facility is required. In order to facilitate data collection, a site data collection sheet, along with helpful hints, is available (Excel 66 KB). As a minimum the following site data collection is recommended:
- Twelve (12) months of electric and fuel bills (for an existing facility) or estimates (for a new facility)
- Operating hours of the facility
- Existing and/or planned heating and cooling system capacities and characteristics
- Number of electric feeders and meters in the facility
A Combined Heat and Power (CHP) Resource Guide has been developed for the U.S. Department of Energy. The primary objective of the Resource Guide is to provide a ready reference for the basic principles of CHP systems and the "Rules-of-Thumb" that apply when considering the application of CHP systems. The Guide includes a section on Feasibility Evaluation Procedure. (PDF 1.3 MB) Download Acrobat Reader.
Following is a summary of that procedure. Generally, three levels of analyses are performed before making a decision whether to implement a CHP project for a specific facility. The three levels of analyses incorporate different scope, depth of analysis and accuracy of total costs to complete and financial benefits from project implementation. The purpose and accuracies of three levels of analyses performed are conducted in the sequence shown and are briefly discussed below:
Level I Analysis (Screening Analysis)
The primary purpose of the Level I analysis is to establish whether a facility is potentially a "good candidate" for using a CHP system. This level of analysis uses "rules-of-thumb" or typical performance characteristics of various components of a CHP system, and average annual costs and energy load profiles. Level I analysis provide rough estimates of energy cost savings, installed cost and payback period. A simple spreadsheet-type analysis is adequate for this level of effort. A copy of a spreadsheet1 developed for the U.S. DOE for conducting this analysis is available here (Excel 401 KB). The cost accuracy of this level of analysis is, at the best, ± 30 percent.
If the results of Level I analysis are encouraging, these should be discussed with the decision makers for the facility. During these discussions, it is important to point out the "limited accuracy" of this analysis. If the potential savings and payback period, and capital cost needs are acceptable to the decision makers, then Level II analysis are recommended to be conducted.
Level II Analysis (Conceptual Design and Financial Analysis)
The purpose of the Level II analysis is to ascertain that a CHP system is technically and financially viable. This level of analysis is performed using a detailed engineering and financial model that uses, at least monthly, but preferably hourly energy load profiles. The results of this level of analysis are estimates of annual cost savings based on the profiles generated by the model. A few tools are available for performing some of the Level II analysis. A discussion on these tools is available in the section on Tools. The scope of this level of effort also includes developing one-line drawings for the conceptual design (including equipment sizes). The cost accuracy of Level II estimates is about ± 20 percent.
Discuss the results of Level II analysis with the end user/facility decision-makers. If the results of the analysis are still attractive and do not reveal any "show-stoppers," even after another site walk through for a more detailed site evaluation and the end user continues to be interested and has the financial capability to move forward, a contract should be considered to have an experienced A&E firm conduct the next level (Level III) analysis.
Level III (Detailed Engineering Design and Analysis)
The purpose of this level of effort is to perform a detailed engineering analysis and develop firm cost estimates for the project. In this level of effort, detailed procurement specifications are developed for all system components, cost bids are obtained for those components, and all costs relating to environmental and other permits are also developed.
Based on the estimates of firm costs, revised estimates are developed for a payback period and return on investment. Most projects that reach this stage are actually implemented.
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