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Combined Heat and Power Partnership

Stage 2: Level 1 Feasibility Analysis

CHP Project Development Process

Graphic of CHP Project Development Process Stages

Stage 1: Qualification Stage 2: Level 1 Feasibility Analysis Stage 3: Level 2 Feasibility Analysis Stage 4: Procurement Stage 5: Operation and Maintenance
Identify project goals and potential barriers. Quantify technical and economic opportunities while minimizing time and effort.

4-6 weeks

Typical Costs:
$0 - $10,000

Candidate site level of effort required:
4-8 hours, including at least two meetings with engineering provider. Provide utility data for previous 1 - 2 years; provide anecdotal knowledge of building operation, including hours of operation, HVAC, and other thermal loads; provide information about future expansion or equipment replacement plans; communicate site goals, expectations, and concerns.

Questions to answer:
Are there any regulatory or other external barriers that would prevent this project from going forward? Have your goals and concerns been identified and addressed? How compelling are the estimated economic and operational benefits? Do these benefits justify the expenditure of funds for an investment grade analysis?


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The goal for Level 1 Feasibility Analysis is to determine if CHP is a proper technical fit for your facility and if CHP might offer economic benefits. In addition to energy savings, additional benefits of CHP might meet your organization's goals and provide added value to an investment in CHP. To determine the scope of the opportunity for CHP at your facility, an experienced engineer or CHP project developer should perform a Level 1 Feasibility Analysis. The purpose of a Level 1 Feasibility Analysis is to provide enough information on project economics to allow energy end users to make an informed decision about whether or not to continue exploring an investment in CHP for that particular location, while minimizing time and money spent to obtain that information. EPA's CHP Partnership offers Level 1 analysis services to qualified projects and can provide contact information for CHP Partners who provide these services.

Identifying Barriers

The first task at this stage is to identify if there are any uncontrollable factors that could prevent the implementation of CHP at the site. Common obstacles can include existing corporate power purchase contracts that prevent installation of onsite power generation or local utility and regulatory policies that prevent or hamper distributed generation. If one of these obstacles is present, further activity on the project should be suspended pending changes to the problem. If these factors only hamper implementation, a budgetary cost of overcoming them should be included in the Level 1 Feasibility Analysis.

Conceptual Engineering

The next task of a Level 1 Feasibility Analysis is to identify a preliminary system size, based on estimated loads and schedules for thermal and electrical demand at the site. Ideally, other types of energy conservation measures will have been considered or implemented prior to consideration of onsite generation. It is important that planned changes to site operations be discussed with the CHP engineering team. To minimize costs at this early stage of project development, it is best to have utility bills and anecdotal site information readily available to estimate the electrical and thermal loads at the site. The estimated load profiles and power-to-heat ratios will be used to investigate the applicability of various types of prime mover technologies for the site. (For more information about CHP prime movers, view the CHP Catalog of Technologies.) Site visits might or might not be made to determine system placement at the site, depending on the cost and scope of the Level 1 Feasibility Analysis.

The most cost-effective CHP systems are designed to provide a portion of a site's electrical demand while providing the majority of the site's thermal needs. This type of design, known as thermal base loading, provides the greatest efficiency and cost savings by ensuring that all of the energy produced by a CHP system is used on site. Although site needs and final system optimization might call for another approach to CHP design, a base-loaded system is often the best starting point.

Preliminary Economic Analysis

An important component of a Level 1 Feasibility Analysis is the budgetary pricing and economic analysis, which will be developed for different system configurations. Many times, estimated equipment pricing is quite accurate at this initial stage, but other project development costs are often very preliminary, such as the cost of CHP system tie-in and site construction expenditures. In addition, it is important that reasonable placeholders for all other turnkey costs associated with CHP system implementation, operation, and maintenance are included in this preliminary budget.

The first level of economic analysis is usually a simple payback calculation that takes into account: (1) the amount of heat and power produced by the CHP system, and the estimated amount of each to be used on the site, (2) the avoided costs of utility-purchased heat and power, (3) the amount and cost of fuel associated with running the CHP system, and (4) the budgetary cost to install and maintain the system. In addition, a sensitivity analysis might show the benefits of available grants or incentives, the additional costs and benefits associated with using the system to provide backup power in a utility outage, and the impacts of future utility rate increases or decreases.

When heat and power can be produced on site for less than the cost of power from a utility and fuel for heat (separate heat and power), then there is a positive payback for the project. The length of payback is determined by the difference between purchased and onsite energy production. If all of the previously mentioned costs and benefits are included in the preliminary economic analysis, it should provide a fairly accurate representation of the scope of the CHP project opportunity. However, given all of the assumptions and estimates used in the Level 1 Feasibility Analysis, projected return on investment is only preliminary at this stage. If the analysis demonstrates that a CHP system could meet a site's operational goals and economic expectations, then exploring CHP project procurement approaches is suggested in order to proceed. Preliminary decisions regarding approaches to procurement can influence how to proceed to the next stage in the CHP project development process—the Level 2 Feasibility Analysis.

<< Back to Stage 1 Stage 3: Level 2 Feasibility Analysis >>

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