When it comes to energy, sometimes it’s best to go it alone

By Mike Lobash  

Rising energy prices as well as heightened environmental and power reliability concerns have an increased number of facility executives using on-site power equipment to satisfy their facilities’ energy appetite.

It’s getting easier to see why.

On-site power systems give facility executives nearly unlimited capability to manage their energy supplies as they see fit. Systems can be used to produce electricity to meet a facility’s baseload demand, to shave peak demand and to meet electrical needs when a utility feed fails.

Having those capabilities opens a world of possibilities to facility executives who are trying to reduce how much they pay for energy. Many facilities have systems configured to come online when the amount of utility-supplied energy a building uses is getting close to breaking a previously set demand level, typically during equipment start-up times.

As any facility executive who has been in that position knows, setting a new demand level incurs utility charges that can stay on a bill for months. But while controlling demand charges is important, the systems also give facility executives flexibility to define energy management strategies and control supply costs. Even in cases where setting a new demand level is not a concern, producing power on site at peak-use times can be financially advantageous.

Facilities that are on a real-time energy rate, for instance, can pay up to four times as much for energy during peak-demand times as they pay during off-peak hours. Rare is the instance where the cost of producing power on site would surpass the cost of buying power from the grid during those times.

What’s more, buildings with power systems in place can more easily take advantage of favorable interruptible and curtailable electricity rates. If the utility ever makes the call for those facilities to cut demand, an on-site generator can make up the difference.

In deregulated markets, generators can be used to flatten a building’s load profile. From an electricity supplier’s perspective, that’s an important aspect of its ability to offer an attractive rate.

In regulated markets, an on-site system might result in better rates not only through peak-shaving applications, but also because it helps the utility avoid building new generation plants, the cost of which is passed on to ratepayers. For every megawatt of power produced through on-site power systems, the utility has to build one less megawatt into its generation capabilities.

“It makes a lot of sense from the utility perspective,” says the maker of an on-site power system. “It’s a lot less expensive to encourage a customer to construct an on-site power system that can feed into the utility grid, or separate from it when needed, than to have to build an entire generating station or add onto an existing power plant.”

Blackouts such as the one that hit the Northeast and Midwest in August, as well as continued talk about the nation’s aging electrical infrastructure, only help to convince facility executives that on-site power systems make sense. Depending on the amount of output, an on-site system can be used to replace utility power for an entire facility or to power critical systems during outages.

What facility executives need to remember, however, is that if they want to parallel their on-site power systems with the utility, they’ll have to negotiate and meet a utility’s interconnection standards. The utility wants absolute assurances that the output from a facility’s systems will not harm the existing electrical grid and associated equipment.

Sometimes, that’s not an easy task, especially if the utility has enough generation capacity to serve its territory in every circumstance. Utility representatives will often use the interconnection standards as a way to block on-site power projects and preserve its rate base.

“If a utility is charging a high peak-demand rate, it may not want to give up that revenue because a customer wants to produce its own power at a cost savings,” says the maker of an on-site power system. “ A business might think generating their own electricity is a good idea, but then they find out the costs of the interconnection are going to kill the economics on the project, not to mention the cost of fuel itself that comes into play on longer run-time scenarios.”

One of the ways to increase the economic viability of projects is by configuring systems to use the waste heat put out by reciprocating engine generators and microturbines used in on-site power projects. This method, called cogeneration, allows a facility to produce electricity and then heat domestic hot water or create steam to operate absorption chillers. Cogeneration implies continuous operation to meet thermal load needs, meaning the on-site system will become a primary power source.

Having a use for the heat can boost system efficiencies and lower costs enough to create a three-year payback, although a four- or five-year payback is more typical. And that’s an important point in winning internal project approval.

“Increasing reliability through an on-site power system is often what gets people interested in a project,” says the representative of an energy services company that oversees design and installation of systems. “But when it goes to the CFO’s office, it comes down to finances.”

One of the fastest-growing sectors of the on-site power industry is the use of so-called alternative energy sources. Although fuel cells, wind turbines and photovoltaic panels are not likely to replace diesel, natural gas or dual-fuel reciprocating engines any time soon, a growing number of organizations are investigating the possibilities.

Those technologies are proving to be powerful when it comes to lowering energy costs and supplying electricity. Some of the newer photovoltaic systems can be configured with outputs of several hundred kilowatts.

Of course, the capital expense of the newer technologies is still greater than that of traditional systems. In a growing number of states, however, state- and utility-sponsored incentive programs combined with changes in how facilities are billed for electrical use are making the systems increasingly viable.

California and New Jersey are leading the effort to help offset the capital costs of solar systems. Those two states have aggressive programs in place to help facilities recover the costs associated with designing and implementing a solar photovoltaic system.

Capital costs aside, the energy cost offsets associated with operating on-site solar power systems are more similar to traditional on-site power systems than they are different. In states with net metering laws in place, for instance, excess power produced from an on-site system can be fed back into the utility power grid, assuming the two are interconnected. That, in effect, will spin a facility’s energy meter backwards, giving it credit for producing more power than it’s able to use.

For some facilities, though, the appeal of solar power systems is not in the operational advantages of such systems. The image the technologies allow their organizations to convey — environmental stewards — makes them worth the price. So does the limited annual expense to fuel and operate the systems.

“The initial capital expenditure can be large,” says the maker of a solar photovoltaic system, “but ongoing operations and maintenance costs are low. There are no moving parts. We estimate that 1 percent of the capital costs will go to operation and maintenance over the life of the system.”

The first article of this two-part look at energy procurement strategies, “Energy Cost Control: Beyond the ‘Demand’ Side of the Equation,” appeared in the March 2004 issue of Building Operating Management.


Jon Bancks, Greg Genin Alliant Energy Integrated Services • Jeff Hart, Joe Salci Cadence • Puneet Verma Chevron Energy Solutions • Joshua Meyer Encorp • Donald Vanderbrook Generac • Gregg Dixon Hess Microgen • John Ragland Johnson Controls • Gary Graham Jones Lang LaSalle • Jeff Custer Kohler • Chach Curtis Northern Power Systems • Chris Wissemann Real Energy • Marc Roper RWE Schott Solar • Gary Barsley Shell Solar Industries • Jim Donnelly Siemens Building Technologies • Greg Silvestri, Mark Sperry Plug Power

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  posted on 4/1/2004   Article Use Policy

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