Combined Heat and Power

How Building Owners can Reap Financial, Environmental, and

Resiliency Benefits with Reduced Grid Dependence

2014 ConEdison Solutions, all rights reserved

www.conedisonsolutions.com 1-800-316-8011

Combined Heat and Power (CHP)

How Building Owners can Reap Financial, Environmental, and
Resiliency Benefits with Reduced Grid Dependence

Combined Heat and Power (CHP), also known as cogeneration, is an integrated system of power
production that harvests the heat generated during the production of electricity and utilizes that
heat, which would otherwise be wasted, to efficiently deliver other benefitsincluding space heating,
cooling, and domestic hot water.

Although the concept of cogeneration has existed since

Thomas Edison built the first commercial power plant,
vertical integration of the power grid ultimately resulted in
CHP not being widely adopted outside of industrial facilities.

diverse range of sites, including airports, university campuses,

and hospitals. Typically, these systems range from 500 kW to
2 MW and serve a dedicated portion of a facilitys base load.
The reliability and resiliency that a CHP system can provide
makes the technology appealing to facilities that want to
ensure operability in the event of a major outages like the
2003 Northeast blackout or Super Storm Sandy.

Currently, however, the energy landscape is undergoing a

period of innovation driven by volatile electricity prices, an
increased frequency of severe weather events exposing grid
vulnerabilities, plentiful low cost natural gas from hydraulic
fracturing (fracking), and an emerging focus on reducing
the environmental impact of our energy sources. This
change presents an opportunity to revisit the benefits of CHP
projects for an array of building types, including hospitals,
universities, commercial/multi-family residential buildings
and other large institutions.

In the current energy landscape of lower natural gas prices

and rising electricity prices, CHP increasingly offers building
owners, operators and developers an attractive capital
investment that can help insulate their facilities against
rising energy costs, reduce carbon emissions, and provide the
benefit of energy security and resiliency in the event of grid
disruptions.

CHP systems have been gaining renewed popularity over the

past two decades, as the technology provides flexibility for a

* (Hampson, et. al., Combined Heat and Power: Enabling Resilient Energy
Infrastructure for Critical Facilities)

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Combined Heat and Power (CHP)

How Building Owners can Reap Financial, Environmental, and
Resiliency Benefits with Reduced Grid Dependence

A HYPOTHETICAL CASE STUDY

Potential Benefits of Installing Combined Heat & Power and N+1 Generator Redundancy, with Incentives from the Con
Edison/NYSERDA Demand Management Program and Revenue from the NYISO and Con Edison Demand Response
Programs

System Highlights
Location
Installation Date
CHP System
Standby Generator
CHP System Efficiency
Heat Recovery Application
Type of Fuel

Midtown Manhattan, New York City

2014
500 kW
500 kW
82.40%
Space heating and domestic hot water
Natural Gas

Combined Heat and Power systems coupled with backup

generation are increasingly gaining popularity as a cost
effective, efficient power generation solution for mid-size
to large buildings and campus-type facilities with constant
electric and thermal base loads.
In this case study, well explore how a Class-A commercial
building in New York City can employ CHP and backup
generation to gain efficiency, reduce utility costs, increase
resiliency, and cut its carbon footprintall while taking
advantage of the incentives and multiple revenue streams
available from Con Edison, NYISO, and NYSERDA.

The CHP system under consideration consists of five 100

kW engines, providing 500 kW of premium quality electrical
power with up to 3,485,000 Btu/hr of hot water. The
system can handle a portion of the hypothetical sites baseline
electricity, heating, and domestic hot water loads. The project
also includes an additional 500 kW of backup capacity with
a natural gas-fired generator. The backup unit is designed
to remain idle, but can be brought online for participation
in demand response, or during emergency events. This
configuration is called N+1 where N is the base load
capacity, and +1 indicates that the idle engine capacity is
equivalent to the base load engines capacity.

Located in Midtown Manhattan, the owners of a hypothetical

1.2 million sq. ft., Class A commercial building are
considering the potential benefits to be gained from installing
CHP with backup generation in the N+1 configuration, and
replacing the buildings aging and inefficient boiler. With
the boiler at the end of its natural lifespan, and with recent
regulations phasing out the burning of #6 fuel oil, it makes
perfect sense to upgrade to natural gasa cleaner, more
efficient, and more affordable fuel.

Working with the energy experts at ConEdison Solutions,

the building owners have access to the knowledge required
to navigate the processfrom energy auditing and financial
analysis, to installation and maintenance contracting
including assistance with enrollment in Demand Response
programs offered through NYISO and Con Edison (i.e.,
the utility), and qualifying for the available Demand
Management Program incentives through NYSERDA and the
utility.

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Combined Heat and Power (CHP)

How Building Owners can Reap Financial, Environmental, and
Resiliency Benefits with Reduced Grid Dependence

COSTS FOR A HYPOTHETICAL CASE STUDY

Upfront costs for CHP
Backup generator
Construction with gas connection
Total equipment costs
NYSERDA incentive
DMP DR-enablement incentive
Con Edison conversion rebate
Con Edison equipment rebate
Total rebates and incentives
Cost after rebates and incentives

$2,000,000
$312,500
$750,000
$3,062,500
$800,000 [For preapproved CHP system]
$234,375
$10,000
$15,000
$1,059,375
$2,003,125

At a total equipment cost of $2.313 million$2 million

for the CHP, and $312,500 for the backup generatorthe
system is eligible for several incentives. Because the CHP
system belongs to the pre-approved list of eligible systems
under NYSERDAs CHP Acceleration Program (PON 2568),
it qualifies for an $800,000 incentive. The building can also
utilize up to $25,000 in utility incentives from Con Edison
comprised of a conversion rebate of up to $10,000, and an
equipment rebate of up to $15,000 for upgrading from #6
fuel oil to natural gas.

$1,000 to $2,500 per foot of gas main ($200 to $800 per foot
in the Bronx, Queens, and Westchester).
To ensure that the gas utility can meet current and future
natural gas demand, the utility employs the pure base
revenue test to determine how much of the expansion costs
the customer should be responsible for. This method helps
capture the incremental cost of an expanded gas distribution
network and ensure service reliability. The pure base revenue
test assesses the expected annual revenue the utility will
generate from serving the new customer; if the expected
annual pure base revenue is less than 40% of the cost of the
expansion, the customer bears the cost above its entitlement,
less two-and-a-half years of expected revenue. For firm gas
customers, the entitlement requires the gas company to cover
the first 100 of gas main construction costs.

Under the recently revamped Demand Management Program,

the backup generation component of the installation is also
eligible for incentivesprovided that the building enrolls in
the NYISO Special Case Resources (SCR) Demand Response
(DR) program, and the equipment contributes to meeting the
pledged demand reduction. The current incentive from the
Demand Management Program offers $800/kW of demand
reductioncapped at 75% of the equipment cost. At a
price of $312,000 for 500 kW of load reduction, the backup
generation unit qualifies for a 75% cost reduction incentive in
the amount of $234,375.

Expenses related to street repaving and reconstruction may

also be a component in a CHP projects costs. Building
owners and project developers should coordinate with the
utility and the New York City Department of Transportation
to establish how conditions at their site will impact the overall
budget of their CHP conversion.

CHP conversions are likely to have additional construction

costs in order to connect a site to the natural gas delivery
system and provide heat recovery. A number of site-specific
considerations can factor into construction costs, including
the need for the utility to extend and/or replace existing
pipeline to ensure capacity and adequate pressure. In
Manhattan, these construction costs typically range from

Given the Midtown Manhattan location of this hypothetical

building, these additional construction expenses amount to
$750,000, for the cost of connecting the site to the gas main
and upgrading the pipeline to accommodate the high-pressure
draw of the CHP system, as well as expenses for repaving the
street after construction.
-4-

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Combined Heat and Power (CHP)

How Building Owners can Reap Financial, Environmental, and
Resiliency Benefits with Reduced Grid Dependence

Savings and Revenues

potentially $25,000 per summer for enrollment. DLRP, on

the other hand, pays a rate of $6/kW/month (5 months)
yielding $15,000 of potential revenue for each summer
enrolled. Both programs also offer energy performance
payments of $1/kWh of actual load curtailed per called
event. Assuming three events per summer, each program can
generate up to an additional $5,000 in energy performance
revenue per summer season.

The projects estimated simple payback is approximately 4.12

years, based on a number of potential revenue streams the
project can generate. CHP project cost-savings are derived
from energy supply savings. The CHP system will offset
a portion of the buildings electricity demand as well as
replacing the usage of #6 fuel oil, helping to create estimated
savings in the range of $327,000 per year. Given currently
low natural gas prices, it is likely that a project of this nature
could potentially generate greater annual savings should these
pricing trends continue, and the building can maintainor
decreaseits overall demand.

Con Edisons utility programs also offer an additional 3-Year

Retention Bonus Payment for building owners that maintain
an average performance factor of 80% or higher for three
consecutive years. In CSRP, this bonus is $10/kW/month
across the entire three-year period (15 months, or five months
each year for three years), multiplied by the performance
factor; for DLRP it is $5/kW/month (15 months) multiplied
by the performance factor. By pledging only the 500kW
capacity it holds in reserve through the backup generator, the
building in this case study is able to yield bonus payments of
up to $75,000 from CSRP, and $37,500 from DLRP, upon
completing the third year, as long as the required average
summer performance factor of 80% is maintained.

Revenue streams are derived from the 500 kW of capacity

the backup generation provides, (the N+1 unit) allowing the
facility to confidently enroll 500 kW in both NYISOs and
Con Edisons Demand Response programs.
Under NYISOs SCR program, which runs the entire year,
participating buildings earn monthly capacity payments based
on the amount of kW they pledge to curtail. Payments are
based on a fluctuating monthly capacity clearing price. With
current NYISO capacity clearing prices averaging $18/kW/
month for summer, and $6/kW/month in the winter, our
sample building has the potential to generate $72,000 per
year by enrolling 500 kW in NYISOs SCR DR programs.

These added revenue streams allow building owners to

accelerate their return on investment and they also help
increase a buildings net operating income (NOI), which
allows owners to deploy funds towards other upgrades,
including energy-efficient retrofitswhich can further reduce
costs, improve a buildings sustainability and increase tenant
satisfaction.

In addition to the monthly capacity payments, NYISO SCR

also offers participants a performance payment based upon
the actual kWh reduction achieved during ISO-initiated
DR events. Assuming an average of three summer events
and one winter event, the building in this case study can
generate $4,000 per year at the current rate of $0.50/kWh per
curtailment event.

Incentivizing users to reduce demand makes good business

sense for utilities; by reducing peak demand, Con Edison
and NYISO alleviate grid stress, allowing the deferral of
expenditures for grid maintenance, as well as reducing the
need for system-wide expansion to serve growing peak
demand. Demand response programs are an effective
mechanism for keeping these system costs down, which
means building owners and operators can expect demand
response programming to remain an energy management
option for years to come.

Buildings are allowed to be enrolled in multiple DR programs

simultaneously, which enables the building to also benefit
from two key offerings from Con Edisonthe Commercial
System Relief Program (CSRP), and the Distribution Load
Response Program (DLRP). Each of these programs is
structured to run during the five-month period of summer
when the New York City grid faces the highest demand.
Like SCR, these programs offer capacity payments for each
month the program runs, based on the kW amount pledged.
In CSRP, the capacity payment rate is $10/kW/month
(5 months), allowing our sample building owner to earn
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Combined Heat and Power (CHP)

How Building Owners can Reap Financial, Environmental, and
Resiliency Benefits with Reduced Grid Dependence

Costs and Savings of CHP and Generator Project

Project Components

Costs/Savings
Capital Costs

500 kW CHP
500 kW Generator
Construction and Gas Connection

$2,000,000
$312,500
$750,000

Incentives
NYSERDA: CHP Acceleration Program
Con Edison: Customized Gas Incentive Program
Demand Management Program: DR-Enablement Incentive

$800,000
$25,000
$234,375

Revenue Streams
Annual Energy Savings
NYISO SCR Demand Response Capacity Payment
NYISO SCR Demand Response Performance Program**

$327,206
$72,000
$4,000

Con Edison CSRP Demand Response Capacity Payment

Con Edison CSRP Demand Response Performance Program**
Con Edison CSRP 3 year Retention Bonus
Con Edison DLRP Demand Response Capacity Payment
Con Edison DLRP Demand Response Performance Program**
Con Edison DLRP 3 year Retention Bonus

$25,000
$2,500
$75,000
$15,000
$2,500
$37,500

Total Capital Costs After Incentives

Total Gross Revenue/Year
Approximate Simple Payback w/o Incentives & DR***
Approximate Simple Payback w/incentives (years)***

$2,003,125
$448,206 ($560,706 in year 3)
9.36 years
4.12 years

*Assumes three events in the summer and one in the winter

**Assumes three summer DR events
***Actual payback period will vary based on conditions

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Combined Heat and Power (CHP)

How Building Owners can Reap Financial, Environmental, and
Resiliency Benefits with Reduced Grid Dependence

Resiliency Benefits

Conclusion

Internalizing production of a portion of their facilitys

power requirements allows a facility operator to insulate
the site from external disruptions to the grid, such as those
experienced across the region during Superstorm Sandy.
While regional electrical transmission infrastructure is
vulnerable to extreme weather, the natural gas pipeline
infrastructure runs underground and is less vulnerable to
disruption during extreme weather events. Additionally,
relying on natural gas further helps avoid the supply chain
disruptions that customers reliant on fuel oil faced during the
storm.

With New York State contemplating the closure of Indian

Point, a shift that may alter electricity generation and
ratepayer costs throughout the state, investments in CHP
and backup generation can unlock financial, environmental,
and resiliency benefits in an affordable manner. The current
incentive structure and available DR programs, combined
with an array of low interest financing options,** and a
growing trend towards rewarding efficiency in the energy
marketplace, make CHP and backup generation promising
investment prospects for building owners and operators.
ConEdison Solutions, trusted throughout the industry since
1997, can help guide customers through the process and
determine if CHP meets their sites specific needs. To find
out more, visit us at www.conedsolutions.com.

With extreme weather events occurring more frequently

occurrences over the past several years, it makes sense to have
onsite capacity to produce power through CHP and backup
generation for many types of buildings. In the commercial
building sector, CHP and backup generation enable building
owners and operators to help make sure that the lights and
heat stay on and elevators run, even under prolonged grid
disturbances.
Carbon Benefits
Switching to a CHP system may also allow building owners
to realize significant CO2 emissions reductions. Efficiency
gains from capturing and utilizing the waste heat generated
during natural gas combustion allow the system to operate
at an efficiency of approximately 80%. Compared to the
previous system in our hypothetical buildinga #6 fuel oil
fired boiler for heating and hot waterthe CHP upgrade can
help offset 1,341 tons of CO2 annually, which has the same
environmental benefit of taking 256 passenger cars off the
road for a year. The carbon reduction is primarily achieved
by substituting clean burning natural gas for #6 fuel oil, a
more carbon intensive fuel source.* In addition, switching
to natural gas helps to improves local air quality in New York
City, and ensures that the building is in compliance with
Local Law 43, which penalizes building owners who burn #6
fuel oil after 2015.
* CO2 emissions reductions calculated using NYC carbon coefficients, provided
by the New York City Mayors Office of Long-term Planning and Sustainability:
http://www.nyc.gov/html/planyc/downloads/pdf/publications/NYC_GHG_
Inventory_2013.pdf
** Financing options are the subject of an upcoming White Paper in this series

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Combined Heat and Power (CHP)

How Building Owners can Reap Financial, Environmental, and
Resiliency Benefits with Reduced Grid Dependence

Resources

Works Cited & Consulted

For more information on the CHP and

the programs discussed, please visit the
following sites:

City of New York, Inventory of New York City

Greenhouse Gas Emissions, December
2013, by Jonathan Dickinson, Jamil Khan,
and Mikael Amar. Mayors Office of LongTerm Planning and Sustainability, New
York, 2013.

Con Edison Gas Conversions:

http://www.coned.com/gasconversions/
Con Edison DG:
http://www.coned.com/dg/
Con Edison Rates:
http://www.coned.com/rates/
Con Edison Demand Response:
http://www.coned.com/energyefficiency/
demand_response.asp
NYSERDAs CHP Acceleration Program:
http://www.nyserda.ny.gov/
Funding-Opportunities/
Current-Funding-Opportunities/
PON-2568-CHP-Acceleration-Program.aspx
New York Independent System Operator:
http://www.nyiso.com

Financing. NYC Clean Heat. NYC Clean

Heat, n.d. 2014. Web. Accessed 30 June
2014.
Hampson, Anne; Bourgeois, Tom;
Dillingham, Gavin; Panzarella, Isaac.
Combined Heat and Power: Enabling
Resilient Energy Infrastructure for Critical
Facilities. ICF International. March 2013:
41. Pdf.
Incentives. NYC Clean Heat. NYC Clean
Heat, n.d. 2014. Accessed Web. 30 June
2014.
Installing Natural Gas-fueled Combined
Heat and Power (CHP) Systems. NYC
DOB. NYC Dept. of Buildings. 2010 Web.
Accessed 17 July 2014.
Local Law 43 FAQs. Associated
Renewable: n.d.: Electronic.

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