The economics of a Combined Heat and Power (CHP) project needs to be carefully and thoroughly evaluated to obtain the required Capex and Opex commitment. As a building consultant, you want to achieve the best possible end result for your customers. This means maximising their potential for energy savings and reductions in carbon emissions. A high-performing CHP system will create a significantly positive impact on the project’s return on investment (ROI).
The evaluation for installing a CHP system in a site’s building or process is usually carried out in a detailed economic feasibility study.
An economic feasibility should be as informed as possible before completion. The earlier the study can be completed, the better. Give yourself adequate time to gather the required information, particularly when it comes to the site’s energy consumption data.
Establish how the site currently consumes its electrical and thermal energy. This will help you to accurately size the CHP system to meet existing loads, so you can maximise energy savings for your customers.
An undersized CHP system will operate at full load but it will not achieve the potential energy savings and carbon emissions reductions. Oversized systems fail to run economically and are inefficient at part-load
The site’s energy data can be gathered from the following:
Use this energy data to understand how the site uses energy at different times across the day, week, month, and year. Keep note of the highest and lowest demands that the CHP will need to meet. This will help you to calculate the site’s load profiles.
Plot the number of hours at which specific loads are experienced to produce load duration curves. These are useful for examining if the recommended minimum 4,500 hours per year heat load is available, ensuring the CHP can run at the maximum number of hours.
Use the load profiles to calculate the site’s heat-to-power ratios – a measure of the site’s heat and electricity power consumption. A heat-to-power ratio of around 1.5:1 is a good indication that there is a suitable level of on site energy demand for CHP.
The following information also needs to be factored in when calculating the correct size of the CHP system:
The main financial indicator for CHP viability and return on investment is spark spread. This is the difference between the incumbent electricity tariff and the cost of the fuel (usually the natural gas tariff) used to generate on site CHP electricity. A spark spread of between 4 and 8 is a good starting point for CHP viability on a particular site.
There are a number of alternative options when sizing the CHP output. These include:
Each alternative should be carefully examined and the load profile data should be accurate to ensure the best financial return.
The project’s estimated capital cost expenditure and operating costs will need to include such factors as the cost of the installation works and the annual maintenance costs. Check:
Consider the environmental aspects of the CHP system installation. Will it be subject to planning conditions and environmental regulations regarding noise or emissions?
The financial calculations should complete the feasibility study and confirm whether or not CHP is financially viable. From this point, you should communicate the economic and environmental benefits of the proposed CHP system to your customers and the scheme’s investors. Provide some estimated costs and the expected ROI in terms of anticipated payback period. With accurate data and effective communication, financial sign-off should be much more straightforward.
The production of an effective CHP economic feasibility study requires the following:
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