Has the time come for co-generation?

Real Estate Weekly, July 28, 1999 by Lois Weiss

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.