Combined Heat and Power (CHP), aka Cogeneration (cogen), is when fuel (usually gas, but sometimes oil) is burned on site in order to create power and steam. These systems can be more efficient than buying/creating both separately. They can also increase the electrical resiliency of facilities. Over the past few years, incentives for these projects have become popular, especially in New England.
Over the last 20 years, we've been involved with many different cogen projects, coming to the negotiating table representing the interests of the developer, the facility operator, the financier, and the supplier. We'd be happy to help you with your specific project, but here are a few items worth considering before you jump into one of these projects:
1. OPERATIONAL CHALLENGES
The operation of these units isn't always smooth. They can go down when you least expect it. As such, building multiple smaller units instead of one large unit can be wise. Picking a unit that can quickly get replacement parts is important. Contract guarantees (for uptime) would also be worthwhile to pursue. Lastly, reducing demand-based charges is often one of the highest value money streams available to these projects. Modelling of demand reduction needs to be done very carefully, as the tariff might not allow for demand-based reductions.
2. VOLUMETRIC PURCHASES
A not-insignificant number of our clients tell us they have a cogen then ask us to tell them what exactly they just decided to install! We help them purchase the correct amount of electricity and natural gas based on anticipated operating conditions. And we help them adjust when those operational parameters drift. It's important to understand the costs of market energy and self-supplied energy, and how they change by month (or even by day).
Incentives often make or break the project. These incentives may come with operation requirements (such as number of hours). Be sure to consider what happens if this is not met, especially from a contractual perspective. (Will you be out money, or will the developer?) Some of these incentives are one-time options (such as grants) and others are ongoing and subject to market fluctuation (such as environmental benefits).
Cogen projects can provide real savings over long time frames. But these projects are complicated and are not always given the correct amount of care during the design and installation phase. Timeline and cost overruns are common for these projects. We encourage you to enter into these projects deliberately and carefully. Run well, they provide real savings. Run poorly, and they distract the organization from its larger goals and act as weight, sucking away the enthusiasm of those involved.