CHP offers high energy efficiency, and can generate revenue (or avoided cost)...but that benefit is offset by capital and O&M cost. How do all these variables interact? What are the decisive factors on the bottom line?
The economic yield (NPV) of any CHP project is driven by these Economic Factors, in this order:
1. Operating hours per year
2. Electrical efficiency
3. Maintenance cost
4. Capital cost
The chart below shows how each of those Economic Factors affects the Economic Benefit (e.g. NPV or ROI):
A. CAPITAL COST: Lower capital cost is desirable, right? In reality it has far less effect than you might think. As you can see, as capital cost increases, NPV decreases SLIGHTLY:
A 50% increase in Capital Cost yields only a 3% decrease in Overall Economic Benefit.
B. MAINTENANCE COST: Surprisingly, the cost of maintenance doesn't IN AND OF ITSELF have much effect on economic performance (of course, if you're down for maintenance you're not running either--see item D below). So it's better to pay for overtime labor or FedEx a part if it means getting UP AND RUNNING faster.
C. ELECTRICAL EFFICIENCY: Here's where the rubber meets the road:
Improving efficiency from 35% to 41.5% improves economic performance by 14.8%.
Every point counts.
D. OPERATING HOURS: The most important factor of all is to keep the system running.
The difference between 7000 and 8300 operating hours per year translates to a 16.7% increase in economic benefit.
The best CHP providers offer minimum guaranteed annual operating hours, and minimum electrical efficiency -- but many don't. These principles will help assure maximum economic returns on your next CHP project!
If you want or need the power of onsite distributed energy generation,TransEnergy can provide the necessary CHP project economic analysis and applications engineering as a no-charge component of the manufacturers products we distribute.
Please contact us any time for more information. Thank you very much!
George Voss is a Partner with TransEnergy LLC and Founder/President of Sustainability Business Management. George, a sustainability, distributed energy, & environmental expert, an innovative leader and entrepreneur, offering his expertise to help manufacturers, reps and distributors better understand customer benefits associated with their products/services and realize growth objectives.