Analyzing CHP installation validity

Modern CHP modules can increase a facility’s energy efficiency, reduce environmental impact, and contribute to corporate sustainability.


Figure 1: Modern CHP modules can provide economic benefits and long-term return on investment, and reduce environmental impact. Courtesy: MTU Onsite EnergyCombined heat and power (CHP) involves the production of heat and electric power from a single energy source, usually natural gas, but other forms of methane-based fuel are also used. The business can be divided into four market clusters, each of which has unique features: natural gas CHP, biogas, landfill and wastewater treatment, and natural gas non-CHP. While certain nuances are associated with each of these clusters, a common analysis exists for all CHP market clusters (see “CHP market clusters”). 

Generally, the best applications are those that use electricity and heat simultaneously, operate for more than 4,000 hr/yr, and have a suitable gaseous fuel supply (see Figure 1). However, some applications that need only electricity, such as landfills and wastewater treatment facilities, are also well suited for the technology because the fuel source is virtually free. Electricity rates between $0.07/kWh and $0.10/kWh provide for a positive influence on most projects depending on the price of gas. However, each project must be evaluated and validated (see “Project evaluation, validation”).

The final decision of whether an application is good almost always starts with a financial analysis. The analysis consists of two parts: procurement, installation, and construction costs; and operating and maintenance costs. The first part—procurement, installation, and construction costs—consists of an analysis of capital expenditures, depreciation, and taxes. The second part—operating and maintenance costs—consists of fuel consumption, and preventive, scheduled, and corrective maintenance compared to the current (or projected) cost of electricity and heat. The analysis results in a return on investment, which provides the net cash flow to the initial investment over a number of years. This analysis ultimately helps determine the financial viability of the project. Of course, influences other than financial, such as environmental impact, may factor into determining the viability of a project. 

Calculating payback

Consider a typical CHP project. In this example, a CHP unit of 358 kW (electrical) and 1.771 kBtu/hr (thermal) will meet the requirements of a facility. The facility currently has a boiler that provides heat and has an efficiency of 80%. Electricity costs $0.10/kWh and natural gas costs $6.00/MMBtu. The unit is expected to operate 8,000 hr/yr. 

Armed with usage and cost information, facility owners can take advantage of computerized payback calculators typically offered by CHP module manufacturers. These tools combine facility-specific data with CHP module recommendations to calculate the time period required for the facility to earn back its system investment in operating cost savings. 

The cost of the CHP module and average annual operating cost calculations should include fuel and maintenance costs. Annual savings in gas and electricity by avoiding purchasing electricity from the utility and burning gas in a boiler should also be included. Based on the aforementioned criteria, the example facility could achieve annual net savings of more than $180,000 by using a CHP system. 

Figure 2: This graph indicates expected cumulative cash flow as well as a 2.5-yr break-even point, after which savings continue to accumulate. Courtesy: MTU Onsite Energy

Figure 2 shows the cumulative cash flow that could be expected and indicates a break-even point after 2.5 yr. Thereafter, savings continue to accumulate. After 10 yr, cumulative positive cash flow of more than $1.3 million could be generated.

CHP market clusters

The four market CHP market clusters include natural gas CHP, biogas, landfill and wastewater treatment, and natural gas non-CHP. The following paragraphs explain each cluster. 

Natural gas CHP: This business cluster represents applications such as commercial buildings, industrial facilities, healthcare facilities, district heating, prisons, hotels, condominiums, apartments, and universities. The cluster also includes commercial complexes such as athletic clubs, shopping malls, and greenhouses. These facilities have a significant year-round demand for cooling/heating and electricity. Sizing of the installation is critical to allow for continuous operation. If further analysis is needed, the unique requirements of this cluster include:

  • Electrical and thermal loads of the facility—ideally by the hour based on historical data
  • Type of thermal load such as hot water, steam, or chilling with flow rates, pressure, and temperatures
  • The piping and instrumentation diagram of the facility’s existing thermal distribution system.

Biogas: This business cluster represents applications that use anaerobic digesters to produce biogas from dairy, livestock, and food waste. The focus is to provide energy from waste products. The emphasis is to reduce the amount of methane that escapes to the atmosphere because methane is a far worse greenhouse gas than CO2. Electricity is the main energy produced in this application—either for self-consumption or to feed to the grid. Biogas quality is critical to long unit life as sulfur (H2S) content in the fuel must be minimized. Unique requirements of this cluster include:

  • Consistency of waste stream and therefore consistency of gas quality
  • Thermal demand for heating of digester and facility
  • Gas analysis showing methane and H2S content. 

Landfill and wastewater treatment: This business cluster represents a specialty segment that focuses on converting waste to energy to produce electricity for self-consumption or to feed to the grid. Gas quality is critical because the content of the raw material used to produce the gas may change continually. Gas composition must be monitored continuously for methane and siloxane content to provide quality gas for the module. Specific requirements of this cluster include:

  • Open or closed landfill
  • Age of landfill
  • Projection of future gas production from landfill
  • Gas analysis showing methane and siloxane content.

Natural gas non-CHP: This business cluster focuses on electrical production only. Typical applications include peaking plants, independent power producers, industrial facilities, and any other requirement for electric power generation. These applications provide independence from the grid. Electrical efficiency and total lifecycle cost are critical. The mode of operation can be either grid parallel and/or island. For island operation, the characteristics of the connected electrical loads must be analyzed. These characteristics include:

  • Description of connected loads in island operation
  • Connected load starting sequence.

Project evaluation, validation

The first step in any project is to gather the information to determine the validity of the opportunity. An early, yet thorough, understanding will pay dividends as the project proceeds. The following basic questions must be answered to do both an engineering and financial analysis:

  1. What is the type of installation: power generation, CHP, or tri-generation?
  2. What is the local cost of gas and electricity?
  3. What voltage is required?
  4. Is the installation a grid parallel or island operation?
  5. Do heat and electrical demand curves exist?
  6. Is this an existing building or new construction?
  7. If an existing building, what is the installation opening?
  8. What are the room dimensions?
  9. Will the installation be exposed to weather elements?
  10. What are the sound/noise requirements?
  11. What type of gas will be available? Is an analysis available?
  12. What are the local exhaust/emission requirements/restrictions?
  13. What are the site conditions?
  14. What ancillary equipment will be required?
  15. What is an estimate of the balance of plant?
  16. Is there any institutional or government funding?
  17. What are the external influencing factors such as local or national codes?
  18. What is the influence of the local utility?
  19. Has a consulting engineer and/or contractor been chosen? 

Appropriate answers to these questions and an analysis of the heat and electrical data will help determine the validity of the project as well as the initial sizing of the unit. This information can then be used to further evaluate the project.

Final analysis

Current reciprocating engine CHP modules have made it possible for many facilities to reap the environmental and economic benefits of the technology. The financial analysis will reveal whether there is sufficient payback potential—not to mention environmental rationale—to justify installing a CHP system.

Christian Mueller is a sales engineer at Tognum America Inc./MTU Onsite Energy. He began his career with the company in Australia in 2007 and later moved to the company headquarters in Augsburg, Germany. Mueller provides engineering support to the sales organization for customer-specific CHP installations. Since 2012, he has supported the MTU Onsite Energy CHP product portfolio in North America as a sales engineer based in Houston. Mueller has a diploma in industrial engineering with an emphasis in energy systems. 

George Polson is a consultant for Tognum America Inc./MTU Onsite Energy where he co-leads the team to release continuous gas CHP products into North America. He retired from MTU Detroit Diesel as director of Sales Integration in 2009 after 40 years of service with the company. Polson began his career at Detroit Diesel conducting emission certification testing in the early days of the U.S. Environmental Protection Agency program. He was also involved in product development, facility planning, application engineering, and program management. He spent more than 15 years supporting the off-highway business involved in engineering, customer support, and sales. Polson is a graduate mechanical engineer.

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