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More than ever, facility executives are aware of the uncomfortable dependence on utility-supplied power. The information-based economy requires power with increasing degrees of reliability. Today’s computers, process control devices and associated systems are much more sensitive to short-term disruptions in electric power than motors. Industries like telecommunications, retail and process industries now often maintain standby power to avoid catastrophic financial losses caused by power failure.
For example, semiconductor manufacturing equipment will fail with only a 20 percent drop in voltage over four cycles. That type of electric event would not even register as an outage in a utility’s record keeping, yet could stop the semiconductor manufacturing process for up to 32 hours.
Today’s facilities need “digital quality” electricity — power that is always perfect and always on — to stay in business. As Bruce Josten, executive vice president of the U.S. Chamber of Commerce, says, “We can’t exploit technological advances to grow our new economy with an energy grid and supply system that were built to serve the last century’s technologies.”
These evolving concerns are creating a demand for a decentralized power system, one in which power is produced at or near the facility, making energy supplies more reliable and secure. The federal government and private industry are working to create such a system. Distributed and on-site power systems negate transmission and distribution risks; offer more robust, resilient energy systems with fuel diversity and modularity; and can provide grid support in interconnect mode. The U.S. Department of Energy (DOE), its national laboratories and private industry are conducting research on technologies that can make buildings safer and less vulnerable to power disruptions.
A recent study by the Electric Power Research Institute (EPRI) found that the aging power grid costs $119 billion in power outages and power quality disturbances every year. The states with the greatest losses are California ($13.2 billion to $20.4 billion, without rolling blackouts), Texas ($8.3 billion to $13.2 billion), and New York ($8 billion to $12.6 billion).
A central issue to meeting energy needs is figuring out how to increase generating and transmission and distribution capacity. During the 1990s, about 9,500 miles of new high-voltage transmission lines were constructed, woefully short of the projected need. In today’s environment, obtaining approval for construction of new transmission lines and acquiring right-of-ways is becoming increasingly difficult.
DOE estimates that more than 390 gigawatts of new generating capacity will be needed by 2020 to meet growing U.S. energy demand and to offset power lost from retired power plants. But in California, for example, siting and permitting restrictions have largely stopped new power plant construction.
In addition, utilities as well as the transmission and distribution lines are vulnerable to attack. Even more likely, however, is accidental disruption — including natural disasters, equipment failures and human error. Weather-related events like ice storms, lightning and floods are the cause of 70 percent of power outages nationwide, according to the U.S. Energy Information Agency.
Although the grid is reportedly 99.9 percent reliable, blackouts or sags in the power supply can cause damage far greater than would at first seem evident. For example, it has been documented that it takes about 16 hours for an Internet data center to resume normal operations after electrical power is restored from a blackout.
To fully understand the level of risk a business faces with different power systems, facility executives must turn to probabilistic risk assessment, the science of designing and measuring highly reliable and available systems. The time to resume operations is a key datum in probabilistic risk assessment. If a facility executive knows the average time it takes for normal operations to resume after electrical power is restored, probabilistic risk assessment will show how often that system may fail to meet a particular level of power availability.
Assuming that it takes about 16 hours for an Internet data center company to resume normal operations after a blackout, its facility executive can derive the risk of failure of a business process for each level of power system availability. A power system that is 99.99 percent reliable, which represents the availability of the majority of redundant grid backup systems, has a 63 percent chance of at least one failure, and a non-negligible chance of two failures in the 20-year life of that equipment. A 99.9999 percent reliable power system, on the other hand, has less than a 1 percent chance of suffering a failure using the same assumptions.
Military planners know that the greater the concentration of assets, the more valuable the target. Weapons stockpiles are attractive targets, and, for the same reason, so is the electric grid.
Distributed generation systems offer a solution to this problem. Distributed generation systems include turbines, microturbines, reciprocating diesel and natural gas engines, fuel cells and hybrid energy technologies. According to the Gas Technology Institute (GTI), distributed generation has five major applications:
Standby Power. Facilities that cannot afford a power outage of any duration have standby, or back-up, generators on site. Some are required by law to protect public health and safety, for example, in hospitals, elevators and water pumping stations. The United States has about 80,000 megawatts of isolated standby generation, representing about 12 percent of system peak load, so its potential impact as a peak-shaving resource is significant.
Peak-Shaving. The cost of electricity changes hourly, based on energy demand and the availability of power. Large customers frequently pay for their electricity based on the time they use it, paying more during peak periods and less during off-peak. Customers could use distributed generation to shave costs during expensive peak periods. Distributed generation can also reduce the need for energy service providers to provide high-cost power during peak periods. For some customers, the cost of a distributed generation system may be less than that of paying peak time-of-use rates over the course of the year.
Grid Support. By reducing demand on the grid, distributed generation technologies provide a wide range of benefits. Foremost among these may be enhancing the reliability of the grid by providing much-needed back-up power. By providing extra capacity during periods of peak demand, distributed generation reduces the need for investment in expensive and difficult-to-site power plants and transmission and distribution equipment. If used for backup, distributed generation also lessens the need of central generation stations to maintain other large power reserves. By using on-site distributed power instead of centrally generated power, distributed generation also reduces the power losses that occur when electricity travels over transmission lines for long distances to the end user.
Stand-Alone Power. In remote areas, distributed generation may be far more economical than connecting to the grid. In not-so-remote areas, facility executives are considering going off-grid to meet their energy needs, especially in grid-constrained areas and for facilities with high power quality and reliability requirements.
Combined Heat and Power. Converting fuel to electricity creates a large amount of heat. In the typical power plant, two-thirds of the fuel’s energy content is converted to heat, which is usually vented to the atmosphere. If the power generation is located at or near the point of consumption, combined heat and power systems — also known as cogeneration — can dramatically increase the efficiency of energy production by making use of this waste heat to heat, cool or dehumidify building space with chillers and desiccant systems. By using waste heat, combined heat and power systems can achieve efficiency levels of 70 percent or greater, thereby significantly lowering power plant emissions of greenhouse gases and other pollutants. In comparison, central station power plants achieve an average of about 30 percent overall efficiency.
Combined heat and power has been most successful in large industrial applications that require large amounts of steam, but it is also well-suited for use in hospitals, laundries and health clubs. Since 1980, about 50,000 megawatts of combined heat and power capacity have been built in the United States. But combined heat and power accounts for only 7 percent of electricity generation in the United States.
These systems offer a diversified energy portfolio that provides more secure, robust, reliable and high-quality energy than the grid can offer. Because distributed generation technologies are widely dispersed, they provide a poor target for intentional disruption. Because some distributed generation technologies run on natural gas, propane or clean oil, they also offer the benefit of a cleaner and more diversified fuel supply.
A study conducted by the National Renewable Energy Laboratory notes that interconnection is key to integrating distributed generation with the grid safely and efficiently. However, many utilities do not support interconnection, citing safety and reliability concerns. They also have concerns about losing load and market share, “cream skimming,” and stranded assets. In addition, technical requirements for interconnecting distributed generation with electric power systems vary by state and utility. These requirements often represent a major cost for small system installers, who see the additional engineering studies and protective hardware utilities often required as unnecessary. The absence of simple, standardized applications and agreements for interconnection can delay distributed generation projects as well. Utility rates may also discourage export of power to the grid.
To begin to overcome these barriers, the Institute of Electrical and Electronics Engineers (IEEE) and the DOE are working with industry to develop a uniform national standard for interconnection. The IEEE P1547 Standard for Distributed Resources Interconnected with Electric Power Systems, expected to be approved this year, will provide interconnection guidelines for performance, operation, testing, safety and maintenance. Once approved, all utilities are expected to adopt it, thus giving their customers more power generation choices.
According to some industry leaders, utilities have many reasons to support grid-connected distributed generation. First, utilities should save money by minimizing grid line loss. End users could then pay less for transmission and distribution on their power bills — roughly half the cost of electricity for some customers.
Distributed generation also requires no new construction of transmission and distribution lines. Utilities could retain existing customers and attract new ones by offering cost-effective peak-shaving opportunities. By providing versatile capacity during periods of peak demand, distributed generation reduces the need for investment in expensive and difficult-to-site power plants and transmission and distribution equipment. If used for backup, distributed generation could avoid the need for larger central generation stations to maintain power reserves.
John Jimison, executive director and general counsel to the U.S. Combined Heat and Power Association, says that utilities should especially appreciate distributed generation’s combined heat and power application, which can help utilities meet air quality objectives in their service territories. Combined heat and power has many other benefits as well: it offers affordable incremental power costs, helps optimize natural gas resources, holds gas costs down by creating greater demand and could allow utilities to enter the thermal energy business. Further, combined heat and power systems can often be load-following, meaning that thermal requirements for heating and cooling follow the same load curve as system power requirements.
A few utilities are actively promoting the use of distributed generation and combined heat and power. San Diego Gas & Electric uses payments or rate breaks to recruit customers with standby generation that can help reduce demand on the grid during peak periods. In March 2001, the California Public Utilities Commission ordered its utilities to offer financial incentives to customers that install certain types and sizes (up to 1 megawatt) of distributed generation systems to meet all or a portion of their energy needs. The program stipulates that facilities must be certified to operate in parallel with the electric-system grid rather than simply provide backup generation.
Pacific Gas and Electric (PG&E) Company, one utility in the program, predicts that it will award up to $48 million in customer incentives by 2004, removing approximately 45 megawatts of demand from the grid.
Although the likelihood of a terrorist attack on utilities and the grid has not been established, it may be the very threat of attack that creates an impetus to look to distributed energy for greater energy security, with a correlated benefit of greater power reliability and quality. Facility executives also face a growing need to protect occupants against intentional extraordinary incidents and unintentional disruption, which can be addressed by certain combined heat and power and HVAC technologies. Utilities can benefit from decentralized power, and may, indeed, face a tremendous business opportunity.
A distributed energy portfolio can confer greater reliability and security against unpredictable events, much like a diversified stock investment portfolio can confer stability in a volatile market.
What is the Grid? How does it work?
Although usually discussed in the singular, “the grid” in the continental United States is really a combination of three semi-autonomous grids — the Eastern, Western, and Texas Interconnected Systems — which also include smaller groupings or power pools.
Power travels from the power plant to the outlet in your wall through the grid, which consists of power generators, high voltage transmission lines, power substations and local distribution. From the plant’s generator, the power is moved to a transmission substation. This substation uses large transformers to step up the voltage for long-distance transmission on high-voltage power lines. To make that high-voltage power useable in homes and offices, the voltage is then reduced in the distribution grid, located in a power substation close to the point of use.
Decision to OutsourcE Central Power Plant Operation Needs Close Analysis
Distributed energy — and its many iterations, including on-site power and cogeneration, also known as combined heat and power — can be a complex and expensive proposition, often costing several million dollars, depending on facility needs and size.
To avoid such capital expenditures — or to recoup capital dollars already spent on a central power plant — some facility executives outsource the ownership and operation of on-site power plants to energy service companies (ESCOs). When such a decision is made, the facility is paid for selling its power generation equipment and pays a monthly bill based on the amount of power it consumes from the equipment.
A key to the economic success of that transaction for facility executives is the energy rate the ESCO charges.
Gunther Ohler, a facility executive at Midstate Medical Center in Connecticut, recently investigated the possibility of selling the hospital’s central plant. Although an ESCO was interested in purchasing the plant, he says, the energy rate it was going to charge would’ve negated the financial advantages of selling the plant for $2.5 million.
“The money I got up front wasn’t worth it,” Ohler says. “By the time I paid my commodity, I was saving 2 cents per kilowatt hour. It wasn’t worth it.”
Ed Liston, president of Alliant/Cogenex, an ESCO, says the amount of assets that a company wants to have on its balance sheet is a key factor in deciding whether to sell a central plant. Asset-based companies generally like to own, service and maintain their own power plants while others are generally better off outsourcing.
Bob Dixon, general manager of Energy Services & Solutions for Siemens Building Technologies, says facilities in which power is critical to business operations and stability, such as health care facilities and batch manufacturing plants, really need to examine the impact outsourcing would have.
“If power is really mission critical to your operation, do you really want to turn it over to somebody else?” he says.
It’s likely that the market for central plant outsourcing will mature so that the best candidates are retail operations willing to pay the ESCO for the energy commodity produced by microturbines.
Whether an on-site power plant makes sense for a particular facility partly depends upon location and the status of deregulation. Facilities with on-site generation capability can reap tremendous savings by running them during peak periods if they are in areas where utility rates during those periods are more expensive than the cost of owning and running a generator.
“I think one of the things that drives the value of your on-site generation is going to be the particular rules you operate under in your particular region,” says Louis Buck, chief financial officer of ConEdison Solutions, an ESCO.
Ohler says one of the factors he looked at, as Midstate Medical Center prepared to build a new facility with a central plant, was the ability to automate the plant’s operation.
“We are fortunate because right now we are in a brand new facility and don’t have anyone dedicated to the power plant,” Ohler says.
Environmental Protection Agency Dives into Combined Heat and Power
The Environmental Protection Agency, buoyed by the positive response from facility executives participating in its Energy Star program, is immersing itself in the world of combined heat and power.
The federal agency announced the Combined Heat and Power Partnership program last year. Conceived as a way to reduce air emissions associated with energy use, the program offers resources and technical expertise to help facility executives get cogeneration projects sited, installed and operating.
The voluntary program has more than doubled the 18 charter partners it had at its launch in October, and has now attracted more than 40 partners.
Much like existing EPA partnership programs, the Combined Heat and Power Partnership strives to help facility executives by providing access to technical resources. Equipment manufacturers, end users and project developers already have joined the partnership. Other key combined heat and power system component manufacturers are expected to join.
Tom Kerr, chief of EPA’s energy supply and industry branch, said the program grew out of President Bush’s National Energy Policy. While certain aspects of the president’s initiative required legislative approval, the Combined Heat and Power Partnership was the result of an order given to EPA to implement programs to improve the environment. It did not require Congressional action.
Kerr says the EPA is focused on combined heat and power for at least three reasons. First, the Department of Energy has spent considerable effort developing efficient, low-cost combined heat and power technologies that need help finding their way into the building markets. Second, on-site power systems like combined heat and power are drawing interest from facility executives interested in improving power reliability and quality while trimming energy costs. Third, the systems hold great promise to benefit the environment. Conventional power plants are typically about 30 percent efficient, while combined heat and power plants are 70 percent efficient. Greater use of combined heat and power systems means less fuel burned, which leads to lower emissions of air pollutants.
One of the program’s initial goals was to promulgate a catalog of on-site generation technologies that could be used in combined heat and power systems. Available on the program’s Web site, the catalog describes various characteristics of generators, such as reciprocal engines and microturbines, and discusses applications of each.
Most projects completed in the program are expected to range from 1 to 50 megawatts, although any size project will be considered. “If a facility is interested in combined heat and power, we’re always willing to talk to them,” Kerr says. “If they have 750 kilowatts, we’re not going to say, ‘Sorry, we can’t help you.’ “
Kerr says the EPA is striving not only to help facility executives with various aspects of project implementation but also to help them get recognition for their projects’ environmental benefits. The EPA will help write press releases and develop ideas for other marketing tools to mark an organization’s accomplishments. For some organizations, environmental stewardship can bolster its standing among customers.
Facility executives interested in joining the program or getting more information on the program should go to the program’s Web site.
Doug Hinrichs and Susan Conbere work for D&R International, Ltd., an energy and environmental consulting firm based in Silver Spring, Md. D&R’s Distributed Energy Resources-CHP Team supports the U.S. Department of Energy’s Office of Distributed Energy and Electric Reliability. The authors greatly appreciate the contributions of Tom Casten (Private Power), Phil Fairchild (ORNL), Brendan Kirby (ORNL), Stan Hadley (ORNL), Ron Fiskum (DOE), John Jimison (U.S. Combined Heat and Power Association), Steven Slayzak (NREL), and James Woods (HP-Woods Research Institute).
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