Has the time come for co-generation?

Power to the people these days doesn't mean wanting to control their lives, but simply control the lights. With today's living and working environment almost totally reliant on electrical gadgets, reliable and cheap power is crucial.

That's why building owners and managers are seeking ways to be less dependent on other people's power through a system known as co-generation. No longer the size of small buildings, co-gen engines can fit in a small room and be installed in basements through the elevator shaft, making it time for owners to take another look.

In co-generation, two energy sources are created from one fuel source. First, either a diesel and/or more commonly, a gas burner, runs a turbine generator that creates electricity for the building. This reaction also throws off thermal energy, which is recaptured through a heat exchanger and used as the second energy source for heat, hot water and even air-conditioning.

The numbers usually pencil out cheaper than buying the same energy from other sources, and during the summer, residential boilers can even be shut off that would otherwise run to merely heat up hot water.

"When I shut down my boiler, I'm not increasing the use of gas, but saving the extra gas that I would use to run the boiler," said Robert Grant, director of Diversified Property Management, who has been working with two of his properties to install the co-gen equipment.

But not every building can efficiently use the thermal energy, because it must be used as it's created, and can't be stored for later use. And there are buildings, like the Kitaro Hotel, where the generation equipment simply does not fit.

While the best candidates for co-generation are buildings that operate 24 hours a day, such as hotels and hospitals or senior care facilities that always need heat for swimming pools or laundry water, certain master-metered residential buildings and office buildings can benefit from the systems. And where there isn't a master meter, one can be installed in front of the submeters, and there is wireless equipment that can be used to individually calculate the actual usage from the submeters.

Commercial buildings can effectively use the power for heating and air-conditioning, but those that use steam have had a steady and cheap source of power. Many steam users have already added gas fired systems for "peak shaving" - thereby reducing their use of grid electricity during heavy load times - and can take advantage of cheaper interruptible power rates.

And since Con Edison has promised to provide steam through 2015 at a reasonable cost, most steam users are not looking towards changing their entire systems.

Arthur Kressner, department manager for Con Edison research and development, said of the co-gen equipment "We are constantly evaluating these kinds of things and some people perceive them as threat. I view all of these as an evolution to the energy business."

A year or so ago, independent gas suppliers were able to offer buildings a one-year contract at a fixed rate, thereby undercutting Brooklyn Union Gas (BUG), which has insisted on month-to-month pricing that makes it difficult to budget. Some independents like Interstate were marketing co-gen systems based on an even cheaper guaranteed rate.

But BUG added a tariff last year which drastically lowered the price the utility had to pay to repurchase the unused gas from the independents, and thereby drove up the overall cost. Now, the independent gas suppliers prices are higher than BUG:s, and while there will be savings created by co-gen, it is about half of it would have been, says Grant.

"I'll stay with BUG because now they are the cheapest," said Grant, who has switched back his clients and wonders if the Public Service Commission realizes that deregulation competition has effectively been halted.

Those that install co-gen equipment may also change service classes and lose a Con Edison bulk electric rate, thereby increasing prices during down times or during servicing - all of which needs to be calculated into any price comparisons.

There are several area companies that are working with residential, industrial and office building managers and owners to explore the implementation of co-gen facilities.

Peter Nelson, a principal with Alternate Energy, has worked with owners to install co-gen systems at commercial and industrial buildings, and thinks they could make sense for apartment buildings where current total utility costs between heat and electricity are $20,000 a month, or $250,000 a year or more. A good building candidate would use a lot of heat relative to its electrical use, he said, and those with central air systems could use co-gen more appropriately than those buildings with individual units.

Alternative works on a requirements contract, so customers can either rent the system on a performance basis or rent the energy. They will install, operate and maintain the system, and then charge the clients a discount over the utilities. Nelson says they try to meet 100 percent of the client's electric and most of their other thermal needs.

Generally, co-generation can provide 85 to 89 percent of the power needs, but the companies usually base their calculations on the co-gen supplying 70 percent of their needs, said Barbara Schettino, vice president of Interstate Energy Resources, an independent gas supplier that also installs and finances co-generation packages.

Strategic Resource Solutions (SRS), a wholly owned subsidiary of Carolina Power & Light and a manufacturer of package co-generation systems, will also fund, install and maintain the equipment, and takes as its fee a large percentage of the savings each year over the life of what is typically a seven-year contract, depending on the economics and the equipment needed.

Bob Miller, director of co-generation for SRS, said the payback time is only two years, so when owners see the huge savings, they often negotiate a buy-out. "We allow them to buy it out at a continuing discount," said Miller.

Buildings must have the correct economic and use patterns to benefit from co-gen systems, so an independent analysis is recommended beyond the supplier's studies. Read them carefully, because some of those recently examined didn't add up all the costs to arrive at a full year of hours, and skipped the addition of the higher Con Ed rates during down service times, which could take up more than a full month over the course of a year because of maintenance issues.

Additionally, the price of gas fluctuates and a so-called "guaranteed lower rate" may be tied to factors that could ratchet up quickly.

On a similar note, the deregulation of electricity, competition from new owners of old electric plants, and eventually the creation of more electric plants, should bring the overall cost of electricity down.

Edward Riguardi, chairman of Colliers ABR, greed there have been buildings in the past that successfully brought in co-generation equipment. Now he is in a wait and see mode because he expects Con Ed and other suppliers to begin lowering their electrical prices. Besides, he noted, in a commercial building, "If you can't bill it back to the tenants, some of the numbers don't add up."

Richard Lorson, the chairman of the Manhattan-based meter and energy consulting firm, Lorec Inc., which is now focusing on all aspects of the deregulated energy field, agreed. "You can look at co-gen today versus the average kilowatt per hour, and the market could change," he said.

But he insists the study of and the use of package units conglomerated to make either a stand-alone or supplemental operation "is absolutely necessary" to see if the numbers work for their buildings.

"A good electric utility generates at 40 percent, but if you have a plant with waste heat recovery and use it to make hot water, then your economies are greatly improved, and costs improve by using the economies that most utilities throw away," he explained.

A 100-unit apartment building might not use enough power to make it worthwhile, but a 200-unit building could. The energy companies consider buildings with a minimum gas usage in the summer of 5,000 therms/ccf (cubic feet of gas) and winter electric draws of 100,000 KWh (Kilowatt Hours) per month.

Still, after an analysis, some buildings won't be able to use the systems. "Some will find the economics aren't there; others will find the space isn't there; and some will find they can't exhaust anything," said Lorson. "The idea is not to be swayed by the salesman talk. Be sure and get good engineering advice."

His company is currently converting a client's building from steam to gas, and at the same time, looking at using the gas for peak shaving.

"We are examining some package units that can be used, whereas in the past you had to look at oil, which involves room for the tanks and a flue," Lorson said. He recalled a time when the Pan Am building was under construction and they were prevented from installing the equipment because there was no way to exhaust the then oil burner.

Josh Protus, president of Working Realty and the director of Walter & Samuels Residential, said "Co-generation could be useful for certain buildings, particularly large office and residential buildings where economies of scale make sense."

Engineer Robert F. Germain, Jr. now has a strategic alliance with SRS. Typically, SRS will design, permit, operate and maintain the co-gen system. "You agree to be the host and they will sell you the output from the co-gen," Germain explained. In this scenario, electricity is sold to the host for at least 15 percent below the Con Ed rate.

SRS recently signed an agreement to use an environmentally friendly and efficient engine designed by the Ford Motor company.

To calculate the use of the thermal energy, a BTU meter is installed across a heat exchanger. Since 200 degree water is created and run through the heat exchanger, they install a temperature sensor and BTU meter in both lines. This calculates how many BTUs are being transferred. That number is divided by the efficiency of the boiler system - usually around 80 percent - and this provides the gross BTU input. What comes across is the net BTU output.

"We sell you the BTUs converted to therms or equivalent gallons of oil, and sell it to you at 15 percent of what you would pay for gas or oil," Germain said.

The co-gen system is set up as a "parallel" interconnection on the building's side of the meter, so it remains a Con Ed transmission customer and is never off-line. "We're not looking to take 100 percent of the load, but 40 to 60 percent of the load," he said.

As an example, if the property was buying 100,000 kw of electricity, it would now buy 50,000 from Con Ed and 50,000 from SRS. It would pay the normal rate to Con Ed and a discounted rate to SRS.

The generated savings - "thought up by bean counters" - is based on running the co-gen equipment for 7,800 hours a year (there are 8,760 hours per year) and supplying 70 percent of the demand.

Germain says that is actually a conservative estimate because "if the machine breaks down, we will still achieve the savings."

Additionally, they will only agree that for eight months of the year, there will not be a cost spike. During the other four (usually summer months), if there is a spike, the owner may have to pay a demand charge.

"The primary service we offer is money-saving at no outlay or cost to the client," said Miller. They sometimes act as gas resellers and pass on savings, and will also provide one-stop bill paying for water, gas and electricity, and will audit the bills, too.

SRS has designed a system that is currently being installed at the New Yorker Hotel. "They will save about $96,000 a year with no capital investment," said Germain.

SRS makes its money by pocketing about $220,000 more in savings over the life of the approximately eight-year contract.

More critically, the hotel lost power for two days in one of the outages. Soon, they won't have to worry.

Here, two 200 kw units and two 85 kw units have been gently brought down the elevator shaft to the lowest level former boiler room, 65 feet below Eighth Avenue.

"We made them small, which is one of our secrets," said Miller, who is based in Carson City, NV, but was on-site at the job last week.

The approximately 2,000-room hotel has an average occupancy rate of 93 percent and draws about 3 million BTUs an hour. There is no swimming pool and the co-gen system will keep up the hot water. "We save them 17 percent of their annual utility bill each year, and give them some back-up power," Miller said.

At the Castle in Tarrytown, SRS is installing an 85 kw unit to Create domestic hot water, that will also be used for hot water heat and its new spa swimming pool.

Once a design is completed, they are submitted to Con Ed for approval before an installation can begin.

The two-tower 30-story Brooklyn cooperative Bay Ridge Air Rights, which is operated under the regulations enforced by the New York Housing Authority, hired Germain a few years ago to do the engineering studies, and he began investigating companies from whom to request bids. The more he looked, the fewer he liked, and finally realized he would only recommend one. Now, he's affiliated with SRS.

"I felt SRS offered the best product with the lowest heat input per kw output in the industry," he explained. "The cost of producing the kilowatts are cheaper - to the tune of 10 to 15 percent."

At Bay Ridge Towers, managed by Diversified, the unit owners pay their own electric bill as part of their maintenance charges, and there are no individual meters. The various energy companies calculated the current $600,000 energy bill at an average cost of electricity at .13kWh (kilowatts per hour). This is expected to be reduced by nearly 50 percent. SRS is now installing equipment and will get a large portion of the savings unless the building buys its own equipment.

Another Diversified-run property, the six story multi-building Dara Gardens in Queens, is also planning to install two 85 kw co-gen engines through SRS.

The growing area power needs led the Public Service Commission to recently recommend that three more 75 megawatt power plants be sited on Long Island. New York State is working on implementing a system to approve at least six plants waiting for approval.

Meanwhile, other companies, such as the BUG/LIPA/Keyspan group, are trying to design their own co-gen systems because they too see the energy writing on the wall - there isn't enough power to go around.

"When Con Ed runs into a problem, it isn't alone," said Lorson. "When the temperature is 96-plus and the humidity is out of sight, you have to worry about the power supply. Besides," he added, "The big power plants don't belong to Con Ed anymore."