Sunday, May 10, 2009

More on Cogeneration Operating Costs

The last post showed that running cogeneration saves about 20-25% in operating costs when combining heating and electricity. These numbers are based upon the current retail fuel and retail electric prices and assume the standard single rate price for electricity. What would the economics be in the case of a varying electricity price? When would it make sense to run the Ecopower if the electric price wasn't fixed but varied as the wholesale price does on a real-time basis?

On the high power price side, it is easy to calculate. At $2/gallon propane cost, if power costs exceed $.34 per KWH, then it makes sense to run the Ecopower at full capacity. Under present conditions here in the Northeast, this can occur probably for a few hours during the heart of the cooling season in July or August, but the current regulatory inefficiencies in power pricing restrict this potential capability. We could sure use a smart grid with smart pricing.

On the lower power price side, what is the limitation? The economic-based decision that justifies cogeneration in the first place is that the cogenerator runs when heat and power are required, and when it does run, then the combined heat and power costs are lower than heating locally and buying power externally. We turn the problem around from the last post and ask what would the power cost need to be to break even by using the cogeneration versus the standard historical setup of purchasing all the power from the grid?

To get the same amount of heat from a co-generator, 1.3 gallons must be burned for every 1 gallon in a standard boiler. When we burn that extra 0.3 gallons, we need to make up enough money to pay for the power costs. The answer I get (after some algebra) for $2/gal propane cost is $.079/KWH.

Let's check that. In the traditional arrangement, we burn 1 gallon of propane and buy 5.82 KWH from the grid. At $.079/KWH, the total cost is $2.46 for heat and power. In the cogeneration case, we burn 1.3 gallons of fuel and generate 7.56 KWH for a total fuel cost of $2.6 minus a credit of $.14 for the extra power beyond what we would traditionally buy, giving a total cost of $2.46. Good, we got the right number.

Now let's vary the propane cost. At $1/gallon, the break-even power cost is $.04/KWH, at $3/gallon, the break-even power cost is $.12/KWH, and etc. The numbers are even better with a cheaper fuel like natural gas. Hopefully all these numbers aren't too eye-glazing. There is a more important point here, which we now finally get to.

The break-even power costs calculated are for the total power cost. In CT, the bill is divided into generation cost, delivery cost(s), and monthly service fee ($16/month). In the single rate bill, the generation cost last month was $.12217/KWH and delivery costs (including taxes, etc) totaled $.0574/KWH. So, at $1/gal propane cost, it would be cheaper to make the power in cogeneration mode than it would be to deliver it, let alone generate it. At current propane prices of around $2/gallon, with a delivery cost of $0.0574/KWH, we would need to get to a generation cost of $0.032/KWH (currently about 25% of the current single-rate power cost) in order for cogeneration NOT to make sense. Does this ever happen? Yes.

The wholesale generation power costs can be found at the ISO-NE website ( In 2009 through April, the average generation price has been just under $0.05/KWH and about 14% of the time the cost has been under $0.032/KWH. In fact, on 25-Apr-2009 in the early morning, wholesale prices went to zero! They were literally giving it away (as seen in the following figure).

The irony is that during part of this time, we were generating power (see above figure), and given that it was early Saturday morning, we were almost certainly selling back to the grid--and we were saving money, because our average cost to purchase from the grid is $0.18/KWH and break-even generation cost is around $0.08/KWH. If during that time we had purchased the power from the grid ($0/KWH for the generation(!) plus $.0574/KWH for the delivery services), would could have heated the hot water cheaply via electric heat. On the other hand, if we had just delayed the hot water heat for a few hours, system costs would have been close to break-even with the wholesale price close to the break-even generation price. As a third alternative, if we were able to store more of the heat from 12 hours earlier during the prior day's peak price time, we could have saved some money and helped deliver power when prices were higher during the afternoon of 24-Apr.

The inefficiencies in the power grid system can be pretty glaring at times. What this note has tried to show is that with the single-rate power structure that most people use, cogeneration has a cheaper operation cost. Further, other system inefficiencies could be eliminated if real-time pricing were available and utilized by the consumer.



Anonymous miggs said...

Very nice post. I saw on your previous one that cogen has come 20 years too late, but I'm associated with Recycled Energy Development, whose founder Tom Casten has been doing this for over 30 years. But you're right in that it hasn't caught on as quickly as it should, mainly because of regulations protecting monopoly utilities. The science isn't the issue; it's the politics.

11:09 PM, May 13, 2009  
Blogger Stephan White said...

Buying electric heating should be considered as an investment. As a vital addition to your home or property.


9:03 AM, February 22, 2013  

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