6 Cost Analysis. Table 6.1 Initial System Costs

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1 6.1 Considerations 6 Analysis There are two parts that need to be considered when looking into a cost analysis. The first is determining the initial cost of the system to determine whether or not a simple payback period cost analysis needs to be done. If the initial cost of the system is higher a simple payback period can be done to determine how long it will take for the system to pay for itself. There are times when the new system actually costs more to run and therefore the system will never pay for itself. A life cycle analysis is a good representation on a present value of a system will be over a designated time period. A life cycle analysis is provided to determine the amount of savings there is to switch to a combined heat and power configuration. 6.2 Initial s of Equipment There were multiple sources used to find the initial cost of the equipment. The first cost of the equipment was found either by calling the manufacturer or by using the Works 2005 Estimating guide. System Size Units Unit Including Location Factor Hess Micro-gen 375 kw $450,000 $450, Tons $234,000 $259,974 Absorption 324 Tons $189,000 $209, Tons $167,000 $185,537 Centrifugal 450 Tons $147,400 $163, Tons $103,100 $114,544 Packaged Unit 80 Tons $42,725 $47,467 Boilers 200 HP $83,000 $92,213 Thermal Storage 330,000 Gallons $330,000 $330, ,000 Gallons $198,000 $198,000 Enthalpy Wheels cfm $28,200 $28,200 Heat Exchanger 800 gpm $33,125 $36,802 Emergency Generator 275 kw $49,495 $54,989 Table 6.1 Initial System s Chillers New Jersey has many financial incentive programs set up to help alleviate some of the first costs of energy efficient or environmentally friendly mechanical systems. These - Page 47 -

2 programs are all in conjunction with New Jerseys Clean Energy Program set up by the NJ Board of Public Utilities. There goal is to transform the energy marketplace in New Jersey toward more energy-efficient and renewable-energy technologies. These programs include special rebates and promotions for using combined heat and power, desiccant systems, gas fired water heaters, water cooled chillers, along with a large number of other pieces of equipment. Using a combined heat and power plant can save a lot of money per year since the system is more efficient, but the large first cost of the system along with the extra engineering to implement the system discourages a lot of projects from going to CHP. New Jersey has set up an incentive program to help with the first cost of the system. There are guidelines that need to be met in order to receive the financial incentive set up by New Jersey. The guidelines include that the overall efficiency of the system need to be greater than 60 percent based on the total energy input and output, equipment must be new, and an expected project completion date needs to be provided. Along with the guidelines, there is a list of installation requirements that are fairly standard for CHP systems. These requirements range from following the National Electric Code specifications to posting warning labels on the appropriate control panels. The table that follows shows the financial incentives according to the type of technology that is being utilized. Eligible Technology Level 1 -Fuel cells operating on non-renewable Fuel Level 2 -Microturbines -Internal Combustion Engines -Gas Turbines Level 3 Incentive ($/Watt) (Up to 1 MW) Maximum % of Project Minimum System Size $ % None $ % (1) None -Heat Recovery of Other Mechanical Recovery from Existing Equipment Utilizing New Elecrtic Generation Equipment $ % None (1) The Maximum % of project cost will go to 40% where cooling Application is used or included with the CHP system Table 6.2 New Jersey Financial Incentives - Page 48 -

3 The MAC building will be using natural gas driven internal combustion engines. Thus they will fall under the level 2 within the eligible technology category. Since the MAC building will be using the exhaust to do both heating and cooling applications the maximum percentage of the project cost will be increased to 40 percent. According to the previous technical assignment two the initial cost of the equipment was over one million dollars. With the addition of the generators and tanks the first cost of the system will be so that the project will be able to receive the incentive of $1.00 per watt generated. The following table is the first cost analysis of the six different CHP systems along with the conventional system. The incentives included are from New Jerseys Clean Energy Program. System 2 and 3 are the only two systems that are above 60 percent efficient, therefore they are the only two systems that received the financial incentive from the CHP system. The efficiencies, Table 3.4, for the CHP system are in all likelihood greater than what was calculated because the schedule that was assumed for the building was very conservative. The first cost analysis does not go into all of the mechanical components because most of the components remain the same. Furthermore, the analysis was done only on the major pieces of equipment. For instance, the addition and removal of pumps was not determined do to the fact that they are a minor cost in comparison to a chiller or generator. The cost of the piping was not included, while the CHP system will add piping to the system there will also be piping reduced since there are fewer boilers. Mechanical Combined Heat and Power System Conventional Components System 1 System 2 System 3 System 4 System 5 System 6 Generator $54,989 $1,350,000 $900,000 $900,000 $1,350,000 $900,000 $900,000 Heating $276,639 $129,015 $129,015 $129,015 $36,802 $129,015 $129,015 Chillers $327,523 $259,974 $259,974 $300,081 $209,979 $209,979 $233,004 Thermal Storage $0 $330,000 $330,000 $330,000 $198,000 $198,000 $198,000 Air Side $0 $0 $0 $0 $56,400 $56,400 $56,400 Financial Incentives $0 $0 ($750,000) ($750,000) $0 $0 $0 Initial First $659,151 $2,068,989 $868,989 $909,096 $1,851,181 $1,493,394 $1,516,419 Table 6.3 First for Each System Redesigned Features - Page 49 -

4 The addition of enthalpy wheels actually reduced the overall efficiency of the building as can be seen in table above in Section 3.8 and Table 3.4. The enthalpy wheels reduce the heating and cooling load which in turn will reduce the amount of heat that is needed from the generator. The reduction in waste heat used lowers the efficiency to be less than 60 percent. Consequently, the system will not be able to utilize the financial incentive set forth by New Jerseys Clean Energy Program. 6.3 Energy Sources and Rates The MAC building is supplied by two different companies. The electric power is from Jersey Central Power & Light (JCP&L) and the natural gas is from New Jersey Natural Gas (NJNG). The exact electric rate could not be determined since the building is not built yet. The power utility does not post their rates, consequently the power utility rate used in this analysis is $/kwh. This rate is for a commercial building in New Jersey from the department of energy, DOE, from December This is a general rate and does not go into a detailed breakdown of the buildings exact demand charges, peak and off peak charges, or other considerations on how the building is actually operating. Therefore the rate above is what is assumed the building is buying electricity from the grid. Additionally, the generators will run in parallel with the utility and the overproduced electricity from the generators will be used on the campus. For the sake of the cost analysis done with this project, the overproduced electricity will be sold back to the campus at the rate the campus would have bought it from the grid. In reality, there will be no exchange of money but the campus will no longer need to buy that electricity from the grid. For this project, the yearly cost data will include the cost of the natural gas to run the generators minus the cost of electricity that is used by the campus. The conventional system natural gas prices were determined speaking with a representative from NJNG. It was determined that natural gas for commercial buildings using typical boilers arrangements would cost $12.30 per thousand cubic feet of natural gas in New Jersey. The natural gas costs were available from New Jersey Natural Gas. - Page 50 -

5 New Jersey promotes using CHP systems by having tax breaks on the fuel and other incentives for a CHP system. The tariff for a CHP system using natural gas is broken down as follows: Natural Gas The Distributed Generation Service Commercial can be used to find the tariff for the CHP system. The tariff is the delivery cost of the fuel to the site. The fuel needs to be bought from a broker which can be bought at $6.50 per thousand cubic feet with a CHP application. Monthly Rates Customer Charge $ per account Demand Charge $5.390 per cubic feet applied to PBG Delivery Charge November - April $1.436 per cubic foot used May - October $1.112 per cubic foot used Broker Fuel $6.500 per cubic foot used The customer charge occurs every month. On the other hand, the demand charge is associated with the amount of fuel used at one time. Therefore this applies to the peak usage each month. Since this is a CHP application the demand charge will be relatively the same each month since it is constantly using the same amount of fuel independent of time. - Page 51 -

6 Fuel Used Charges System 1, 4 System 2, 3, 5, 6 Thousand cubic feet per year 100,652 67,102 Thousand cubic feet per day Customer Charge per month $14.96 $14.96 Demand Charge per month $1, $ Delivery Charge $128, $85, of Natural Gas $654, $436, Total Per Year $800, $533, per cubic foot consumed $7.95 $7.95 Table 6.4 Fuel Charges The rates used for the both the conventional system and the CHP system are provided as follows. 6.4 Yearly Natural Gas Electric Rates per Mcf per kwh Conventional $12.30 $ CHP $7.95 $ Table 6.5 Utility Rates By incorporating the rates for natural gas and electric to the CHP plant and conventional system, a yearly cost was determined. For the MAC building, the yearly cost takes into account the ability of the generating plant to distribute the overproduced power to the surrounding buildings. In doing this, it will alleviate Monmouth University from buying the overproduced amount of power from the utility. For this reason, it is assumed that the cost of that overproduced power is the same as if the university bought it from the utility. Thus, allowing the MAC building to sell that power to the university at the same rate as they would have bought it. In reality, there is no money that is being exchanged but the campus will no longer need to be buying the power from the utility provider. The table below gives each individual cost per year along with the total system cost for the year and then the yearly savings compared to the conventional system. - Page 52 -

7 Combined Heat and Power Design Conventional System 1 System 2 System 3 System 4 System 5 System 6 Boiler Fuel $81,351 $2,089 $22,864 $4,454 $0 $5,987 $2,665 Electricity $271,322 $800,187 $533,458 $533,458 $800,187 $533,458 $533,458 Electricity Sold Back $0 ($596,375) ($322,406) ($316,310) ($598,201) ($324,232) ($323,127) System per Year Yearly Savings $352,672 $205,901 $233,916 $221,602 $201,986 $215,212 $212,996 $0 $146,772 $118,757 $131,071 $150,687 $137,460 $139,677 Table 6.6 Savings Compared to Conventional Design 6.5 Simple Payback A simple payback period was determined to be used over a life cycle cost analysis. If the system does not payback for itself in a relatively short amount of time, then it is not in the best interest of the owner to use the system. The following table represents the simple payback period for each of the designed systems. First Increase Operating Increase Simple Payback 6.6 Life Cycle Combined Heat and Power System 1 System 2 System 3 System 4 System 5 System 6 $1,409,838 $209,838 $249,945 $1,192,030 $834,243 $857,269 ($146,772) ($118,757) ($131,071) ($150,687) ($137,460) ($139,677) Table 6.7 Simple Payback Period A life cycle cost analysis was prepared to determine the present value of the system looking at a 15 year life cycle. A simple payback period is a nice representation of how long it will take to pay for the extra cost of the system, but a life cycle cost is a long term representation of the cost of the system. - Page 53 -

8 The life cycle cost analysis program that was used for this report is provided by the Department of Energy, DOE. The analysis uses the projected cost change of electric and natural gas over the next 15 years. These projections are not exact but are the best means available to determine the cost of energy in the future. The analysis works by creating a base case, for this analysis the conventional design will be the base case, and then compares the other combined heat and power designs to this base case to determine the simple payback period, discounted payback period, life cycle cost, total utility life cycle cost, maintenance, savings, and life cycle savings. The life cycle analysis will account for more than just the first cost of the system and the yearly savings of the system. A major yearly cost was added to the life cycle analysis to account for the maintenance of the system. The maintenance for the systems was determined from the size of the system. According to energy user news the cost to maintain a high speed reciprocating engine is $/kwh. For this analysis, it was determine that the two generator system along with the chiller and boilers system would cost $20,000 per year and the three generator set would cost $25,000 per year. This was concluded to be an accurate assessment of the yearly maintenance costs. The following graph represents the life cycle cost of the MAC building by comparing it to the base conventional system. The graph shows each of the six systems with the $0 x- axis being the base case. The y-axis represents the life cycle savings of the system. As can be seen, there is more savings for the longer the system is in operation. - Page 54 -

9 $1,500,000 Cumulative Life-Cycle Savings Cummulative LCS $1,000,000 $500,000 $ ($500,000) ($1,000,000) System 1 System 2 ** System 3 * System 4 System 5 System 6 ($1,500,000) ($2,000,000) Years * Life-Cycle Choice ** Simple Payback Choice Figure 6.1 Life Cycle Savings Furthermore, the following table represents the present worth of the life cycle cost for each of the systems over a 15 year lifetime. This is followed by life cycle savings which compares each of the redesigned systems to the base conventional case. This shows that system 3 will save close to $1 million over a 15 year life cycle analysis. This is a significant amount of money saved which can justify the additional first cost of the system. Combined Heat and Power Design Conventional System 1 System 2 System 3 System 4 System 5 System 6 Life Cycle for 15 years $4,009,662 $4,058,543 $3,106,007 $3,036,918 $3,805,387 $3,562,598 $3,566,067 Life Cycle Savings Compared to Conventional System $0 ($48,881) $903,655 $972,744 $204,275 $447,064 $443, Analysis Conclusion Table 6.8 Life Cycle Savings Both the second and third systems have short simple payback periods which is largely do to the fact that New Jersey offers financial incentive for CHP systems that have an efficiency of greater than 60 percent. In conclusion, strictly on a cost analysis - Page 55 -

10 perspective, the second system is the best option on a simple payback analysis; but the life cycle analysis concludes that the third system is the best option for a 15 year life cycle cost point of view. Either way all of the systems but the first one offers life cycle savings when analyzing the system over a 15 year life cycle. - Page 56 -