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Science // Energy

European experience to reduce electric power costs

12 August 2014 , 14:01Dmitry Kolesov CJSCNeftegaz.RU13263

Every business owner has thought many times of his/her enterprise cost price. The biggest item of expenses is fuel costs (electricity and heat). Thus the power supply is not always done in a reliable and faultless manner. Sometimes disruptions occur and the firm suffers losses.
We, like many other people, ask ourselves: "Don't we have alternatives to centralized power supply lines?" We do, and we hold the view that there are solutions for goal achievement with a great economic effect.

Let's analyze what is included into 1kW of electrical power for the consumer

Generation companies are mostly located far from the power consumer and this distance between the consumer and the producer leads to the necessity in energy transmission. Endless power lines, step-up and step-down transformers, all these elements have their own efficiency, no matter how the grid companies try, the power will be lost during the transmission. The average age of technological equipment for power grid in Russia is 40 years and physical wear of the grid is 70%. This fact emphasizes the need of additional side costs from grid companies for reequipment, repair works and service of this global network and of cause grid companies don't do it for free.
All expenses listed above are reflected on the final price of the power for the consumer and in most cases this price is doubled or tripled. In our country there are regions, where the value is 10 times more.

If we produced the electric power on the site

Thus all problems connected with the grid companies are solved; useless link in the chain of electric power supply is eliminated. You produce the power on CHP and use it at the same site without expenses spent for its transmission.
Such CHPs (combined heat and power) are also known as cogeneration plants. Today, CHP is the most efficient equipment for local power generation.
CHP working on natural gas, the price for 1kW of electric power production is 1.62 rub/kW (0.035 euro) including VAT for all service expenses, natural gas, engine oil, etc. (calculated for MAN-530N with gas price 5 250 rub/thous. m3(114.13 euro/thous. m3)).

Principal scheme of CHP

Keep in mind that besides produced electric power the plant generates heat as a byproduct which can be used for hot water, saturated steam, heating in winter and cooling in summer season. All these sources used, payback period can be reduced.

CHP consists of internal combustion engine (1), power generator (2), heat recuperation system (3), for exhaust gases and cooling liquid of engine cooling, automatic control system (4) which distributes electric and heat loads and provides steady operation of the complete plant.

Benefits received due to the own gas-fueled CHP:

  • Expense reduction for heat and electric power decreases power shares and cost price of the products and, as a result, increases competitiveness;
  • Cost reduction for power supply line construction and connection to the grid;
  • Abruption of time for investment return - even in the first two years after commissioning of CHP the costs are absolutely recovered;
  • Improving quality and reliability of electric and heat supply for consumers, power security;
  • Reduction of toxic emissions and growth of life quality.

For many countries (Germany, USA, Great Britain, Finland, etc.) the local generation passed from the category of new technologies into a priority direction of energy development long time ago.

In Europe this technology is the most popular one. According to the data of 2013, about 12,000 objects with CHP have been successfully operated in Germany.

In our country the respective legal framework promotes the development of local energy sector:

  • Law of the Russian Federation No. 261-ФЗ dated 23.11.2009;
  • Government edict of the Russian Federation No. 2446-р dated December 27th, 2010;
  • Government decree of the Russian Federation dated July 12th, 2011, No. 562;
  • Government decree of the Russian Federation dated December 31th, 2009, No. 1221.

Furthermore, the government is considering a number of proposals to improve state regulation of small local energy sector in order to stimulate its development:

  • Restriction for commissioning a new equipment without CHP technology application;
  • Legislation refining for priority development concept of CHP;
  • Adoption of new projects;
  • Tax application for fuel, burnt into boiler-houses (as in Denmark);
  • Ban application for object construction without CHP (as in Finland);
  • Application of monitoring and analysis practice for effectiveness in energy area;
  • Lifting of a ban for combination of grid business with small energy sectors.

Project cost

Have you seriously thought of constructing own CHP? The first step is the evaluation of the payback period. Let's discuss it on the example: CHP consisting of 2 (two) plants MAN-530N, with total output 1 060 kW (2 CHP, 530 kW each). This turn-key object costs about 551 000 euro:

For primary evaluation of the payback period let's count the annual saving from using the equipment.
With the purchase cost being 4 rub/kWh, local power station with output 1080 kW/h (2 CHP MAN-530N) for 1 (one) year of operation (8600 hours) under 92% load is to save:
( 4 - 1,62 ) х 1 060 х 8 600 х 0,92 = 19 960 393 rub. (or 433 921 euro if the exchange rate is 46 rubles per 1 euro), what by 78% pays back the cost of primary investments and by the end of the second year the owner of CHP will have saved 14 574 732 rub. on the electricity (or 316 842 euro if the exchange rate is 46 rubles per 1 euro).

Payback period is 16 months from the date of commissioning.

Moreover, this power station generates 1.14 Hcal/h (1322 kW/h) of heat as a byproduct which can be well used and as a result you save more.
How to start?
The outlook for possessing own CHP is very optimistic. But there is a range of objective difficulties which are faced to everyone during realization of such projects. This article contains tips and the most common mistakes when working under CHP projects. Just few words will help you to save millions of rubles.

1. Financing

Not everyone is able to withdraw necessary funds from the main business. Let's observe financial instruments and the possibility of their application which are to be considered on the preliminary stage.

Leasing

It is a special type of rent which is encouraged with fiscal benefits. As a result, the customer can use the equipment after have paid for it about ¼ of the cost. The advantages of leasing are:

  • No total amount for equipment purchasing required;
  • Cheaper that the loan (about 9-10% of annual appreciation);
  • Easy to obtain (deposit is the leasable equipment);
  • Fiscal benefits compensate interest of leasing company.

Major disadvantage of the leasing is the need of advanced payment. A primary rate is 10% - 25%.

Investment

At present there is a range of organizations which would like to invest funds into reliable and lucrative projects. CHP is the most convenient variant.

Investor by its own expense will construct the power station. The plant is created especially for power saving of your enterprise on the basis of agreements during the defined term (ex., 5 years). The investor will sell heat and power energy on tariffs lower than the market ones, and after he will leave the project. Owners of the factory are going to use the benefits of their own electric station during next 20 years.

The advantage of this method is very attractive: you don't need to use your own funds, but this can't pass without trace. Attracting the side investor, you loose automatically financing and operative control over CHP.

Loan without advanced payment

Such loan means that the bank doesn't need an advanced payment. It is an option for those, who can't take money from their profile business. The construction of CHP allows to save on tariffs and costs of technological connection to the grid. Thus the enterprise essentially reduces the product cost price.

The major advantage of this choice: you needn't money for the start of the project.

The disadvantage is also very significant: not everybody can receive such loan; it requires a qualitative balance. Furthermore, the loan may cause general appreciation of the project.

2. Quality and scope of supplied equipment

The internal combustion engine is the heart of CHP. The complete project depends considerably on its quality. There are several trusted manufacturers of gas reciprocating engines in the world and a lot of assemblers.

First of all, you should pay attention on the manufacturer of gas reciprocating engine, its reputation, equipment reliability, references and recommendations from clients as well as technical features such as gas consumption, service cost and even the dimensions of CHP, because the spare parts for big aggregate cost more and they are more difficult to work with, as a result, the service is to be more expensive what will be reflected on the cost price of the production of 1kW and, as consequence, on the payback period.

Of cause, besides proved brands on the market there are manufacturers which don't constitute the list of 5 first leaders. The risk of engine damage from a "joker in the pack" is initially high; therefore the decision about purchasing such equipment should be done after the detailed observation of technical features, real experience of engine operation and the information of the factory-manufacturer.

However, the company-assembler of CHP is not so important. The quality of internal combustion engine defines the quality of CHP which is identical for different assemblers (Great Britain, Czech Republic, Russia, etc.). There is a difference in price which depends on logistics possibilities of all participants, appetites of assemblers and labour cost.

When choosing the equipment, it is necessary to pay attention on price, delivery terms and availability of service centers in Russia.

3. Approvals

To run CHP on natural gas or on alternative one, ex. on associated petroleum gas, is more economically efficient. In most cases the natural gas is used and the first step for approval receiving is the technical opportunity of natural gas supply. Unfortunately, the process of approval is long, bureaucratized and without "special" knowledge and experience the present step may last for years. But due to necessary business relations, the year turns into a quarter.

Besides gas supply, working on the local CHP requires approvals from the following authorities:

  • Department for fuel and energy management;
  • EMERCOM of Russia;
  • State Fire Service Management EMERCOM of Russia;
  • Rostekhnadzor;
  • Civil Protection and Fire Security Committee;
  • Architecture and Urban Planning Department;
  • Department of Natural Resources Management and Environmental Protection;
  • Rospotrebnadzor.

First step before approvals is project elaboration.

The list of paper work looks very impressive: making up a whole set of documents, declarations and calculations for untrained person is a real challenge at first.

The optimal solution is the assistance of a project organization specializing in such matters. As a rule, every supplier of CHP has the experience and during next 2-3 months the work will be finished. And you will have the opportunity to deal with other issues of the own CHP construction.

4. Spare parts and service

Service availability, presence of spare parts and tools and their price are the most popular questions from CHP owners after equipment commissioning, when the problems connected with technical maintenance arise.
CHP purchase should bring you confidence that your gas reciprocating engine will work more than 20 years and that you will be able to find spare parts and service for it.
Below, there are examples of situations which the CHP owners can face if enough attention for service matters hasn't been paid on the equipment choice stage.

  • Absence of spare parts in Russia: it is necessary to order from the manufacturer. As a result, there is no electricity on the site;
  • Compressed time for fault elimination requires quick supply which increases sufficiently spare parts price and risks for wrong detail shipping;
  • The manufacturer hasn't got service station in Russia and under special situations it is necessary to call foreign specialists, but it means considerable expenses and long stand-by period.

We know situations when the object was in the stand-by mode during 3 months due to the supplier (Austrian company) who has not warehouses of spare parts in Russia and employees of the service department couldn't effectively perform the repair of the equipment.

All these difficulties increase cost price of 1kW, thereby increasing payback period of CHP and decreasing your profit.

We advise you to choose a manufacturer with more than 10 (ten) service stations in Russia, available spare parts on the warehouse and staff for operative fault elimination.
The manufacturer's representative possessing a stock with spare parts and consumables necessary for any repair, you are insured against long-term stand-by and large losses. The equipment is to run in a faultless manner.

Conclusion

The biggest item of expenses for the enterprise is fuel expenses (electricity and heat) which occur due to big costs and losses connected with energy transmission from manufacturer to consumer.
A small local CHP (combined heat and power) is the best alternative for centralized power supply line. This equipment effectively executes its tasks for local energy generation which has been already proved on several thousand objects all over the world.
For many countries (Germany, USA, Great Britain, Finland, etc.) the local generation passed from the category of new technologies into a priority direction of energy development long time ago.
In Europe this technology is the most popular one. According to the data of 2013, about 12,000 objects with CHP have been successfully operated in Germany.


Choosing CHP you will receive unchallengeable advantages:

  • Reduction of energy share in product cost price;
  • Reduction of costs for connections to the grid;
  • Increase of energy security;
  • Period of investment return is about 2 (two) years for MAN-530N.

For Russia, CHP is a new technology but even today there are specialized companies which know what to do to receive as soon as possible the approval for you equipment commissioning.
The prospect of having your own CHP seems very optimistic. For example, for the object consisting of 2 CHP MAN-530N with total electric output 1060 kW and total heat output 1322 kW, we receive the following data:

  • Manufacturing cost for 1 kW of electric power is 1.62 rub/kW + free heat;
  • Price of 1 kW of the installed electric capacity is 520 EUR/kW;
  • Payback period is 1.2 year (15 months).

Thus CHP MAN-530N is a reliable investment project which is characterized by rapid payback period and guaranteed result directed to the money saving of your business.

Written by
Dmitry Kolesov
CJSC "MT-Group"

Solutions on the basis of MAN industrial gas and diesel engines (Germany), electric power supply for different applications.

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