Page 395 - Sustainable On-Site CHP Systems Design, Construction, and Operations

368 Ca s e S t u d y 5

As seen in other chapters, fairly narrow conditions must be met for CHP to be suc-
cessful; a prospect that is common for any complex, hybrid, integrated system. The
price at which natural gas–fired cogeneration is competitive with electricity depends
primarily on the local tariff, the size of the facility, the thermal load of the building, and
other financial incentives available from federal and state agencies.
Cogeneration systems with a backup power feature have been common for quite
some time now; many given impetus in Section 210 of the original 1978 federal Public
Utilities Regulatory Policies Act. The backup system remains enabled in either island-
mode, when the CHP plant supplies all energy to a facility; or when the plant runs in
parallel with the macrogrid utility, supplying only partial energy to a facility. The recov-
ery of waste heat for COPS offers an advantage to emergency management facility gen-
eration close to loads but at the same time adds significantly to avoid cost analysis
because of the need to simultaneously meet requirements for electricity, heat, and cool-
ing for the homeland security mission.
Risk Management
Providing security is one of the core functions of government that protects the brand
value and reputation of a community. City managers know that the ISO-rating of a fire
department affects economic viability because many businesses are sensitive to a host
community’s ability to respond to disaster. Local governments must weigh the capital
costs of risk avoidance against the contingent benefits of insurance against such risks
(i.e., the consequences to a community if it is not so insured). These latter avoided costs
are used as estimates of the benefits of disaster insurance.
But CHP has risks of its own, not the least of which are the following:

• Market risk. A primary and secondary fuel must be available and affordable.
Switching between them must be seamless. The fuel cost of aggregating thermal
loads has to be less than the cost of electricity to individual buildings plus the
cost of individual building boilers and chillers.
• Construction risk. When public money is involved, incremental change is the path of
least resistance. Partial retrofit projects in existing square-footage are more difficult
than new construction but may be the only practical way to show diligence and
progress toward conformity to applicable building codes like the NEC.
• Regulatory and financing risks. The cost of money at the point of conception and
regulatory measures that change marginal tariffs on energy and emissions.
PURPA was followed by EPAACT 1992 and EPACT 2005. Energy policy shapes
the market; the energy market shapes policy.

Contemporary risk management diversifies risk with a mix of financial and engi-
neering approaches. A prudent jurisdiction invests in insurance to the point that the
marginal cost of the next most efficient emergency measure equals the expected value
of the marginal benefits insurance would buy. Risks that cannot be controlled must be
allocated among stakeholders in a logical way; often the jurisdiction is in the best posi-
tion to bear the risk.
At first glance, CHP seems to set up the possibility of increased risk because of the
interdependence of natural gas, water, and electricity. While power will only be avail-
able from cogeneration only when thermal load is present, CHP can at least offset the
capital costs of critical operations power systems needed by the municipality anyway.