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How to complete a CHP feasibility study

The economics of CHP need to be considered before the start of any project. Here’s what you need to know

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.

How to complete an 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.

1. 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:

  • Building Energy Management Systems (BEMS)
  • Current and previous years’ energy bills
  • Half-hourly meter readings from the supplier
  • Short-term monitoring/metering

2. Energy load profiles

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.

3. Heat-to-power ratio

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.

4. Initial suitability checks

The following information also needs to be factored in when calculating the correct size of the CHP system:

  • The site’s current electricity and gas tariffs – prices needed for cost calculations.
  • Is existing equipment, such as on-site boilers, operating efficiently?
  • Are there any energy efficiency/demand side measures being considered on site that could affect the final energy loads?
  • Is the site planning a major expansion in the near future?
  • Is the local electricity network able to support a CHP installation?
  • Fuel availability.

5. Indicative checks

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.

6. CHP sizing

There are a number of alternative options when sizing the CHP output. These include:

  • Baseload operation
  • Load following, tracking or modulation
  • Maximum electrical or heat load output

Each alternative should be carefully examined and the load profile data should be accurate to ensure the best financial return.

7. Practical and environmental considerations

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:

  • There is space on site for installation, and for maintenance access
  • Fuel supply is available and at the correct capacity
  • The local electricity grid can support generation
  • Electrical and heating connections are in close proximity

Consider the environmental aspects of the CHP system installation. Will it be subject to planning conditions and environmental regulations regarding noise or emissions?

8. Financial report

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:

  • An understanding of the existing thermal and electrical needs of the site.
  • Measurement of the current thermal and electrical generation and consumption in order to give an awareness of the current energy consumption pattern.
  • The generation of a load profile from this data.
  • Calculation of the spark spread.
  • Awareness of what funding or support there is available from various sources.