0360-5442185 $3.00 + .

CKl
0 1985 Pergamon Press Ltd.

A CASE STUDY ON COGENERATI0N-f

M. E. MCKAY$ and A. RABL~

$ Department of Engineering and 5 Center for Energy and Environmental Studies,
Princeton University, Princeton, NJ 08544, U.S.A.

(Received 23 March 1984)

Abstract-Princeton University is considering the installation of a new central energy supply

system. The existing system burns natural gas or residual oil to produce low temperature steam at
232C and I .62 MPa. This steam powers compression chillers, supplies process heat, and drives a
small backpressure turbine, the exhaust of which is used for hot water and space heat on campus.
The steam demand varies from approximately 7 to 70 MW,, and the electric demand from 3 to 8
MW,. Energy prices have escalated sharply during the past decade, and recent changes in utility
regulations have created favorable conditions for cogeneration. Therefore, a study was undertaken
to evaluate reasonable alternatives for reducing energy costs. We study the most promising
candidate systems: a gas turbine cogeneration system and a coal-fired fluidized bed boiler with a
new, high temperature steam cogeneration system. A diesel cogeneration system is also investigated,
but it turns out to be less attractive in this particular application because much of the cogenerated
heat has too low a temperature. The savings are critically dependent on the economic scenario, in
particular the escalation rates for energy prices. A wide price range for the various energy forms
has been considered and the results for life-cycle savings and for rate of return are presented in
compact graphical format. Under the most likely economic scenarios both the coal/steam system
and the gas turbine offer rates of return in the range of lo-20% above inflation.

I NOMENCLATURE
capital recovery factor
annual cost of cogeneration system
annual cost of existing system
capital cost of cogeneration system
efficiency of existing boiler
fuel-to-electric efficiency of cogeneration system
fuel-to-thermal efficieny of cogeneration system
annual electric load, MWh,
annual thermal load, GJ,
life for economic analysis, yr
price of boiler fuel, $/GJ
mice of fuel for coaeneration system, $/GJ
electricity price, Q/kWh _
instantaneous cogeneration fuel flow, GW
annual fuel use for cogeneration, GJ
annual cogenerated electricity, MWh,
annual cogenerated heat, MW,
discount rate (real)
escalation rate (real) for coal
escalation rate (real) for electricity
internal rate of return (real)
escalation rate (real) for oil
life-cycle savings, million S

2. THE EXISTING SYSTEM

Like many universities, Princeton has a central heating and cooling system. It serves
approximately 600,000 m2 of floor space, including housing units, academic and admin-
istrative buildings, and laboratories. While the existing system is relatively efficient and
in good condition, there are several reasons to consider changes at this time. Among
these are campus growth which is putting greater demands on the existing equipment;
the need to reduce operating costs; and a desire to provide more secure sources of fue1.t
Before considering major changes in the utility plants, an aggressive energy conservation
program was conducted which has reduced consumption by as much as 40%. Following

t This paper is an abbreviated version of a longer report. The report includes more detail on input data,
utility rate structure. environmental impact, fuel storage and other considerations; it is available by writing to
the authors.

707
708 M. E. MCKAY and A. RABL

that, some basic questions were asked about the optimal system configuration, in
particular whether the system should be converted from steam to hot water, and whether
a central plant was more economical than smaller distributed plants. Having resolved
these issues in favor of continued operation of both the central steam and the central
chilled water system, attention was focused on possible changes in the central plant.
To reduce operating costs the obvious approaches are: (i) convert to cheaper, more
abundant fuel, and (ii) improve the efficiency of fuel use. Converting to coal is an
example of the first, cogeneration (i.e. utilizing the waste heat from power generation) an
example of the second. Both approaches are explored in this study. Cogeneration- looks
especially interesting since it is favored by recent changes in the regulations governing
public utilities. 6,7 The rules formulated by the Federal Energy Regulatory Commission
(FERC) to implement the PURPA regulations had been challenged in court, but a recent
8 to 0 decision by the Supreme Court has reaffirmed the FERC rules.8 Furthermore, in
New Jersey the Board of Public Utilities has formulated rules that strongly encourage
cogeneration. These developments have created a favorable environment for cogeneration.
The existing system is shown schematically in Fig. 1. Steam at 232C and 1.62 MPa
is produced in boilers that are fired by natural gas or residual oil; their efficiency has
been measured as 83%. Steam at this pressure is needed by the chilled water plant and
by the steam turbines of the present cogeneration system. In addition, steam at a reduced
pressure of 0.45 MPa is taken from the 1.62 MPa line via pressure-reducing valves; this
steam supplies space heat and hot water to some parts of campus as well as process heat
to some laboratories. The chilled water plant uses steam to drive compression chillers
and most of the pumps of the chilled water distribution network. The total chiller
capacity is 26.4 MW,,,. The existing cogeneration plant uses backpressure steam turbines
with inlet steam conditions of 232C and 1.62 MPa; the exhaust steam, at 113C and
0.17 MPa, provides space heat and hot water to most of the campus. Even though the
generating capacity of these turbines is 5.75 MW, and quite large compared to the needs
of campus, the actual steam demand in this line is not enough to produce a significant
amount of electricity: averaged over the year their power output is only on the order of
0.5 MW,, approximately 7% of the annual average campus load. The monthly average
production varies from 0.03 MW, in July to 1.6 MW, in January, and the cogenerated
electricity is always consumed on campus.
The loads vary greatly with time of day and time of year. The yearly average loads
are indicated in Fig. 1, together with the highest and lowest values. For example, the
electric load ranges from about 3 MW, to a peak of 8.6 MW, with an average of 5.7
MW,. The total steam load, in terms of the enthalpy corresponding to the mass flow
data, varies from 3.4 to 67.2 MW, with an annual average of 19.4 MW,.
The selection of the input data for the analysis requires some care and judgement.
The loads change from year to year, not only because of variations in the weather but
also because of campus expansion on the one hand and implementation of conservation
measures on the other. There are hourly steam flow data for the boiler and for the main
steam line, but they are unreliable; they are recorded manually, with gaps and errors, to
say nothing about considerable inaccuracies (at least 10%) in the instrumentation.
In view of these uncertainties the effort of transcribing hourly data for all 365 days of
the year into a computer did not appear warranted. Instead we selected two design days
for each month: the day with the highest and the day with the lowest daily total steam
consumption. With hourly data for 24 design days, both daily and seasonal load patterns
are well represented. Furthermore, the number of data is small enough to be analyzed by
microcomputer. To make these data as realistic and as typical as possible we applied
several corrections to account for year-to-year variations of the weather, for instrumentation
errors, and for anticipated trends of energy conservation and campus growth.
It is instructive to plot the steam load as a cumulative distribution. This is done in
Fig. 2 where the x-axis shows the number of hours, n, per year and the y-axis the load
Q. The curve is the cumulative load distribution Q(n), defined such that the load is
greater than Q(n) during n hours of the year. For example, the load is above 16.8 MW,
during 4335 h of the year. The area under the curve equals the total annual load,
611,000 GJ,.
 A case study on cogeneration 709

Return wate; + (0% make up water 49-C

Bolltrs (gas; rasid. oil J

Steam 232*C, 1.62 MPa
Capaclty 114 MWt
Actual output: max 672 MWt
ave 19.4 MWt
min 3.4 MWt

Pressure
reducing i /~~~6,I
i valve

Chillers Medium pressure

steam lines
( Compression 0.45 MPa
driven by steam) space heat,
capacity procass heat,
26.4 MW,,, hot water

Steam load Steam load

max 15 MWt max 17 MW,
ave 1.6 MWt ave 10.1 MW
min 0 min 5 ti

Fig. I.
I
1

Schematic
u Steom for
space heat
+ hot water
it3*c, 0.17

of existing system.
MPa
Electric
nmx
ave
min
load
8.6 hlwe
5.7 Mwe
30 MWe

The cumulative frequency distribution can provide some useful insight into the cost-
effectiveness of a cogeneration system. Since cogeneration is capital intensive, the
equipment should be utilized a large fraction of the time. Ideally the load should be
constant, corresponding to a flat horizontal line in the cumulative distribution graph.
Figure 2 shows that the steam load is always above 5 MW,; in other words there is a
constant baseload component of about 5 MW,. Hence, a cogeneration system that
produces 5 MW, of steam can operate continuously (if the electricity can also be used or
sold). Thus, it can supply 5 MW, X 365 X 24 X 3600 s = 158,000 GJ, of heat during
the year, which is 26% of the total load. The fact that there is a large baseload for steam
makes Princeton University a promising candidate for a new cogeneration system.

2000 4ooo 6000 Km0

CUMULATIVE LOAD DISTRIBUTION

Fig. 2. Cumulative dist~bution of hourly boiler output

710 M. E. MCKAY and A. bBL

3. ENERGY PRICES

Energy prices are a crucial input to the analysis of cogeneration systems. As

electricity, the relevant rate schedule for Princeton University is shown in Table 1
with energy and demand charges. There are three separate time periods with differ
energy prices: peak (8 a.m.-10 p.m., Monday-Friday), shoulder (8 a.m.-10 p.
Saturday), and off-peak (the rest of the time). The demand charge is a monthly chal
based on the highest instantaneous consumption rate during each month.
How the rate schedule is affected if a cogeneration system is installed depends on
local utility. According to the PURPA6 regulations the utility is required to buy ;
excess electricity that a qualifying cogenerator wants to sell, and the price is set equal
the avoided cost of the utility. The avoided cost is the cost per incremental kWh, t
the utility would otherwise have to pay to generate that kWh,. The avoided cost depel
on the power plant mix and on the instantaneous load of the particular utility. 1
avoided cost must include at least the cost of fuel and of transmission losses. Utili
will, upon request, make monthly listings of these costs available (= short run margi
cost). In New Jersey, the Board of Public Utilities has ruled that the utility comp:
must pay a price for electricity sales by qualifying cogenerators which is equal to
times the short run marginal generating cost of the utility. Since these costs vary fr
month to month, they are difficult to predict over the life of the plant. The values for
first 8 months of 1983, listed in Table l(b), have been assumed for the present analy
This shows the average values for the first 8 months of 1983, as well as the month-
month variation (in parantheses). The variation is substantial; for instance, the off-p1
avoided cost ranges from 2.82 to 4.17 C/kWh, with an average of 3.68 C/kWh.
While the determination of the short run marginal generating cost is relati!
straightforward, the matter of capacity payments is more difficult. First there is
question of capacity credits which reflect the fact that a reliable cogeneration faci
would allow a utility to postpone the purchase of additional generating capacity. Tl
there is the cost of the standby capacity that the utility must maintain in order to be a
to provide power during downtime of the cogeneration equipment. These capacity-rela
costs have been controversial because utilities have been reluctant to acknowledge ;
value of facilities over which they have no control. Some utilities have been trying
discourage cogeneration by imposing high standby charges.
According to the New Jersey Board of Public Utilities] the capacity credit for la
cogenerators (over 1 MW,) is to be negotiated, with 2.56 $/kW, as floor, based on
average rate of electricity sales during the peak period. For this analysis we have assun
a capacity credit of 2.56 $/kW,.
An important feature of the electricity rates in Table 1 is the relation between
rates for buying and for selling. Most of the time cogenerated electricity has a hig
value if it displaces purchases than if it is sold to the utility. This is certainly the case
the average shoulder and off-peak rates in Table 1, and when one takes into account
fact that the demand charge is much higher than the capacity credit, then it is also t
during peak periods. Therefore, cogenerated electricity will generally be used first to m

Table 1. Energy prices assumed for this study.

 A case study on cogeneration 711

the campus load, and only the excess, if any, will be sold to the utility. This operating
mode has been assumed for the present analysis. It is a conservative assumption which
minimizes the effect of uncertainties in the sellback rates because for the systems
considered here most of the cogenerated electricity is consumed on campus. The
profitability of the cogeneration system may turn out to be higher if the utility permits
selective selling of either the excess or the entire pr~uction, depending on the instantaneous
avoided cost (in other words, if the utility is willing to buy at a loss).
As far as fuel is concerned, the existing boilers burn natural gas or low sulfur (<OS%)
residual oil. The ability to switch between oil and gas has been a boon during the last oil
crisis, when gas was less expensive than oil. (Actually some oil had to be used even then,
because the most favorable gas rate is for interruptable service which means that during
peak winter periods the utility can shut off its gas supply upon short notice, typically a
day in advance.) During the last few years the price of natural gas has escalated rapidly
as a consequence of deregulation, a process which is to be completed by 1985. Thereafter
the price of natural gas will be determined by direct competition with other fuels. Since
most large gas users, in particular large industrial and utility boilers, can switch freely
between gas and residual oil, the free market price of natural gas is expected to be close
to that of residual oil.* For the local gas utility (PSE & G) the process of deregulation
seems to be essentially complete, and these two fuels have approximately the same price
apart from short-term fluctuations; this has been assumed for our analysis.
Choosing the proper boiler fuel price is complicated by the price fluctuations of the
recent past. However, it appears that during the last year the prices of both residual oil
and of natural gas have stabilized somewhat, at about the same level. Hence we have
chosen as base case for our analysis the average price paid by Princeton University for
oil and gas during FY 1983; it is 4.74 $/GJ.
Since gas utilities are regulated, this simple relation between gas and oil prices may
be modified. The New Jersey Board of Public Utilities has recently proposed3 a special
rate to encourage gas-based cogeneration systems. According to this rate interruptible gas
for cogenerators can be expected to cost as much as 10% less than inte~uptible gas for
general customers. This special rate is to be effective for 10 years if capital intensive
investments in cogeneration have been made. Furthermore, cogenerators are to have high
priority during supply shortages.
In addition to natural gas and residual oil we have to worry about distillate oil since
both the diesel and the gas turbine will require #2 distillate whenever PSE&G interrupts
their natural gas service. Furthermore a diesel engine running on natural gas requires the
addition of some distillate oil: this so-called pilot oil is about 10% of the total fuel input.
In the future, distillate oil is expected to cost 15-30% more than residual.14 Actually, for
our analysis it is not the distillate price itself that we need but the effective average price
of cogeneration fuel. If gas can be used only for a fraction .fBs of the total cogeneration
fuel consumption, then the effective price of cogeneration fuel is

The boiler fuel price pboil will be essentially the price of residual oil. To obtain a lower
bound on pcogenlet us assume that gas for cogeneration costs only 90% as much as gas
for the boiler and is available all the time: then p ~*~~*/~i, = 0.90. For an upper bound
take p&s, = l.3presid together with the value &, = 0.5 that PSE&G had told us in 1982
they were expecting, and let us assume that gas for cogeneration costs as much as boiler
fuel; then p cor&hoil = 1.15. This ratio would go up to 1.30 if gas were not available at
all or if it were priced at the level of distillate oil. For a diesel engine fWashas to be
decreased by 0.1 to account for the pilot oil. In our analysis of the gas turbine we have
considered the values pc-pen/bii = 0.90, 1.OOand I. 10.
Converting to a fluidized bed boiler would provide the greatest fuel flexibility. One
could burn not only coal, but culm (a waste product of the mining process), refuse
derived fuel, waste paper, high sulfur residual oil, etc. in a clean and environmentally
acceptable manner. Culm and waste paper are particularly attractive because of their low
712 M. E. MCKAY and A. RABL

cost. In this paper we consider only coal, to keep the analysis conservative. Sulfur removal
is accomplished by adding limestone, and the sulfur content of the fuel could be as high
as 4% without exceeding the stringent emission standards of this region.
The cost of coal depends on sulfur content, ash content, heating value and other
factors in addition to transportation mode and distance. The total effective cost can vary
quite a bit from one supplier to another. To narrow down the costs, we obtained ten bids
from suppliers within 200 miles of Princeton. Since a fluidized bed requires limestone
feed and ash removal, we also obtained several bids for limestone deliveries and for ash
removal. For each bid we calculated the effective coal price in $/GJ including transportation,
limestone, and ash removal for the particular type of coal. The resulting effective coal
prices ranged from 2.09 to 2.56 $/GJ, with an average of 2.37 $/GJ. The ranges for the
cost components were 1.04-1.66 $/GJ for coal at the mine, 0.71-0.95 $/GJ for
transportation, 0.08-0.23 $/GJ for limestone, and 0.09-0.22 $/GJ for ash removal.
These fuel prices are summarized in Table l(c). Of course, to calculate the life-cycle
cost or rate of return of a new energy system, one also needs to know how the energy
prices will change during the life-time of the equipment. The history of energy price
forecasts during the past decade has cautioned us against putting much faith in any
particular prediction. Instead we have evaluated the economics over a wide range of
escalation rates Y for each of the energy prices: roil = -2, 0, 2 and 4% for residual oil and
natural gas, lcoal = 0, 2 and 4% for coal, and r,],, = 0, 2, 4 and 6% for electricity, for a
total of 4 X 3 X 4 = 48 scenarios. These rates are real, i.e. above general inflation. For
electricity the escalation has been applied uniformly to all rates, rather than trying to
guess how the utility might distribute their rate changes. These escalation rates cover a
vast range of possibilities. For example, a growth rate of +2% (-2%) implies a change by
a factor of 1.49 (0.67) over the course of 20 years. A rate of 6% implies a change by a
factor of 3.21 over 20 years. These price changes are in constant dollars since all growth
rates are above inflation. By considering such a large number of scenarios and presenting
the results in graphical form, one obtains a clear picture of the role of different energy
prices. One can interpolate easily to other scenarios and the reader who has a particular
favorite prediction for energy prices can determine at a glance the corresponding life-
cycle cost or rate of return.
Clearly not all of these scenarios are equally probable. Some are patently unrealistic.
Others are unlikely, even though not impossible. For example, coal is expected to always
be cheaper than oil or gas, because it is a dirty fuel and requires very expensive equipment
for utilization. If coal escalates 4% faster than oil, it will surpass the price of oil within
20 years. While this is unrealistic, something of an equivalent effect could conceivably
happen. Suppose a large number of oil boilers are converted to coal in the near future;
this would put strong upward pressure on coal prices, and the time-averaged coal price
could come closer to oil than permitted by the simple argument with constant growth
rates. Electricity prices have become somewhat decoupled from oil since many utilities
have converted to coal and/or nuclear energy. This conversion is capital intensive and
must be paid for with utility revenue. Since this conversion process is still continuing,
electric rates are likely to increase for some time.

4. CANDIDATE SYSTEMS

An initial survey of alternatives to the existing system was conducted by two consulting
firms and covered many possibilities:5 diesel cogeneration, gas turbine cogeneration,
fluidized bed with steam turbine cogeneration, fluidized bed without cogeneration,
reconversion of the existing boilers to coal, and coal gasification. Some other technologies,
such as fuel cells, or gas turbines fired by coal or wood, look promising for the future but
are not yet sufficiently mature for this application. Reconversion of the boilers to coal
was not practical despite the fact that these same boilers had been burning coal as late as
1969; the retrofit would be too expensive and the control of emissions too difficult.
Gasification of coal is too expensive on this scale. The remaining options looked
sufficiently promising to merit careful study, and they are presented in this paper.
Diesel cogeneration is a mature technology used in many applications all over the
 A case study on cogeneration 713

world. Diesel generators are very efficient, converting between 35 and 40% of the input
fuel energy to electricity and operating with excellent partload efficiency. About 20% of
the fuel energy can be extracted as waste heat from the exhaust which is at 500C.6 The
cooling water also contains a significant amount of waste heat, on the order of 15% of
the fuel input; however, this heat is only available at 90- 120C. Some additional heat, a
few % of the fuel energy, can be recovered from the lube oil, but its tem~rature is rather
low, around 65C.
Some diesel engines have dual fuel capability and can run on natural gas as well as
on #2 distillate oil. A few diesels can even run on residual oil but then they require more
maintenance. The ability to switch fuels is very important to the university, and hence
only dual fuel diesels have been considered in this study.
Another major selection criterion is the quality of the waste heat. The temperature of
the exhaust is certainly high enough to produce the steam needed by the central campus
system, but the heat recovered from the cooling water is much more difficult to utilize
on this campus. As the central heating system is based on steam, one would have to
install not only a new hot water distribution network but new heating coils-a prohibitively
expensive undertaking. A more realistic alternative is to utilize the cooling water for the
low pressure steam lines downstream of the turbine room. There are engines with
ebullient cooling, where the cooling water can be extracted as steam at temperatures up
to about 120C; this could be utilized, but only during the heating season. There is little
use for the rest of the heat, i.e. the cooling water in summer and the lube oil all year,
and this heat would have to be discarded. Since efficient heat utilization is crucial for the
economic attractiveness of cogeneration, we had to insist on an engine with ebullient
cooling. Even though there are many different diesel engines on the market, we could
not find a single model in the desired size (5-10 MW,) which has both ebullient cooling
and dual fuel capability. Thus it turns out that the diesel system does not look very
suitable for Princeton University. But this conclusion is very much dependent on the
quality of the heat needed by the system; in fact, if the heat in the cooling water could
be utilized, the diesel system would be about as attractive as the gas turbine system.
The most suitable diesel cogeneration systems for our application are the Colt-Pielstick
and the Transamerica Delaval with 8.8 MW, electric rating. They are comparable in cost
and performance, with an electric efficiency of 35% relative to higher heating value. The
thermal efficiency is about 20% if only the heat from the exhaust can be utilized. The
installed cost is estimated as 1000 $/kW,. Since the economics of the diesel system lagged
far behind the gas turbine and the fluidized bed, we did not obtain any detailed cost
quotes.
Gas turbine cogeneration systems have a somewhat lower electrical efficiency than
diesels, around 20-30%, but all their waste heat comes from the exhaust which is around
500C. Hence the waste heat is easy to utilize on campus, and high thermal efficiencies
can be attained, around 35-45%. By contrast to diesel engines, the partload perfo~ance
of gas turbines is poor.6 Most gas turbines can readily switch between natural gas and
distillate #2 oil. Very few can survive on residual oil and, if so, then only with high
maintenance and cleaning costs. In the required size (5-10 MW,) no turbine suitable for
residual oil seems to be available. Gas turbine systems have fairly strong economies of
scale, not only because of capital cost but because their electric efficiency improves with
size. In fact, we could find only one single model whose electric efficiency is high enough
to yield rates of return comparable to the fluidized bed system. This is the Mars unit
manufactured by Solar Turbines International, rated at 8.4 MW, net. Because cost and
performance improve strongly with size, we would choose a single large unit rather than
several small ones despite the fact that system availability would be enhanced by having
several units.
At full load its electric efficiency is e, = 27%, and its thermal efficiency e, = 39%,
both based on higher heating value. The electric efficiency drops to 24% at 3/4 load and
to 20.5% at l/2 load, while the sum of electric and thermal efficiencies remains fairly
constant. The system cost is estimated to be $11 million; a breakdown of costs is given
in Table 2(a).
714 M. E. MCKAY and A. RABL

Table 2. Breakdown of system costs.

b) coa1/sreu s,.ta
rluidizsd bed boiler [2 x 16.8 NW., 370 C, 5.3 ~~a1 4.3 ns
coal. 11re and aa handllnn F.l&t 1.0
doubis-sxtraction-condsnJlng ;t... turbine 4.0
[extraction at 1.62 and 0.45 MP~; peak our~ut 6.7 m,l

Subtotal 18.6
10s contingency 1.9
____________________~__~_~________________~~~~~~~~~~~~~~~~____~__
total 20.5 M$.

Fluidized bed boilers have received much attention in recent years because they are
the cleanest method of burning coal. After a vigorous R&D program during the past
decade the technology now appears to be mature, and many systems are being installed
in the U.S. and abroad. In a fluidized bed the coal, or other fuel, and the limestone (both
ground to a size of about 0.3-0.6 cm) are injected into the boiler and suspended in air,
i.e. fluidized, by large fans that blow air in through the bottom of the boiler. Heat transfer
to the boiler wall is greatly enhanced by radiation from the hot particles. The combustion
temperature is low and the efficiency high. The limestone reacts with the sulfur to form
CaS04 which is collected with the ash. The temperature is low enough to keep the ash
from melting or sintering, and the resulting ash is a powder that can be handled easily.
The hot combustion gases and any entrained particles are carried over to a cyclone which
separates the heavier particles and reinjects them to the boiler for more complete burn-
up. Finally the exhaust is pumped through a so-called bag-house, a set of fabric filters
that removes practically all particulate matter.
The fluidized bed could be used in several ways: either as a simple boiler to supply
steam only, or with a new high pressure steam turbine cogeneration system. It is relatively
inexpensive to increase the temperature and pressure of a boiler of this size up to 370C
and 5.3 MPa. With such steam conditions one can cogenerate a sizeable amount of
electricity when cascading down to the 1.62 MPa of the central campus steam line.
Furthermore there are several possible ways of interfacing a steam turbine because of the
different pressure levels of the steam users on campus. One option is a simple backpressure
turbine operating between 5.3 and 1.62 MPa. A slightly more expensive and more
efficient alternative is a single extraction backpressure turbine between 5.3 and 0.45 MPa,
with extraction at 1.62 MPa. Next, one could go to a double extraction backpressure
turbine between 5.3 and 0.17 MPa, with extraction at 1.62 and at 0.45 MPa. The latter,
however, is not practical in this application because of the location of the steam lines:
the 0.17 MPa line is too far from the place where the new steam turbine would have to
be installed, and adding an extension to the 0.17 MPa line would be too expensive.
Finally, there is the option of an extraction condensing turbine. This offers the
flexibility of producing a higher steam flow than required by the campus, and condensing
the balance for additional electricity. The condensing part of the system would act like a
power plant. Because of the low price of coal the incremental cost of electricity production
for this system is less than the cost of buying from PSE&G. The potential savings are
 A case study on cogeneration 715

large, and the incremental costs of the condensing system small. The best arrangement
for the Princeton campus is a double extraction condensing turbine with extraction at
1.62 and at 0.45 MPa. In this, as well as in the extraction turbines mentioned above,
all steam flows are controlled automatically in response to the load demands of the
individual lines.
For this study we consider a fluidized bed system with boilers of total capacity 33.6
MW, and efficiency (coal to steam) 82%. Economies of scale are sufficiently weak in this
size range that we decided to use two separate units of 16.8 MW, each to improve the
system availability. The double extraction condensing steam turbine has a peak output
of 6.7 MW,. Actual electricity production and efficiency vary with the steam flows in the
individual lines. It can produce between 60 and 80% of the annual electricity needed by
campus. The system cost is $20.5 million; a breakdown of cost components can be found
in Table 2(b). It should be noted that a good part of this cost is due to the requirement
that the plant be consistent with the architectural style of the Princeton campus. Thus
the costs of the building and of the materials handling and storage facilities are much
higher than in an industrial location.

5. ANALYSIS
The goal of the analysis is to evaluate the life-cycle costs Cexist and Ccogenof the
existing system and of the cogeneration system, respectively, and to determine the rate of
return r of the cogeneration system relative to the existing system. We have assumed a
system life of N = 20 years and a discount rate of r = 5% above inflation. Constant
dollars and real rates have been used because for an equity investment by a tax-free
institution a constant dollar analysis is exactly equivalent to one in inflating currency,
but simpler, requiring one variable less. The internal rate of return ri of the cogeneration
system is obtained by calculating the life-cycle costs as a function of an unspecified
discount rate Yand then solving for that value of r at which the savings

vanish, i.e.
S(r)=0 at r = ri = internal rate of return. (3)

To make the explanation of the basic
moment neglect expenses for maintenance,
treat the electricity bills as if there were only
charge, and assume constant energy prices.
is given by
formulas more transparent, let us for the
assume constant efficiency at all load levels,
a single electricity price without any demand
Then the annual cost of the existing system

(4)

where Aoil = price of boiler fuel ($/GJ), pe = price of electricity ($/MWh,), L, = annual
thermal load of campus (CJ), L, = annual electric load of campus (MWh,), and &oil
= boiler efficiency.
The life-cycle cost is related to the annual cost by the capital recovery factor
(= annual payment/total present value)

(A/P, r, N) = r/[ 1 - (1 + r)-1. (5)

If the annual cost a is constant, then the corresponding life-cycle cost C is obtained by
dividing the annual cost by the capital recovery factor

C = aI(AfP, r, N). (6)

If the annual cost is not constant, it must first be replaced by the levelized annual cost
[cf. equation ( 12)j.
716 M. E. MCKAY and A. RABL

For the cogeneration system the total annual cost acogenis related to the annual loads
and fuel flows by

with Qt = useful heat provided by cogeneration system (GJ), Qe = electricity provided by

cogeneration system (MWh,), Qcogen= fuel consumed by cogeneration system (GJ), Q_.~
= price of cogeneration fuel ($/GJ), and Ccap = capital cost of cogeneration system ($).
Again the life-cycle cost is obtained by dividing by the capital recovery factor. Combining
equations (4)-(7) one obtains the life-cycle savings of the cogeneration system

The first three terms represent the dollar values of the thermal output, of the electric
output and of the fuel input of the cogeneration system, and the last term is the capital
investment. In terms of the electric and thermal efficiencies e, and e, of the cogeneration
system the outputs are given by

(Se = eeQcogen, (9)

Qt = etQcogen. (10)

These equations highlight the salient features of cogeneration economics. First of all,
since cogeneration equipment is expensive, it must produce large energy savings. This
means that the efficiencies should be high, and that the system should operate a large
fraction of the time. How high the efficiencies need to be depends on the energy prices.
For the diesel and gas turbine systems the input fuel is expensive, and high efficiencies
are essential. In particular, the electric efficiency must be high because of the higher value
of this energy form. In other words, for oil- or gas-fired cogeneration systems the ratio
Qe/Qt of electric and thermal energy should be large. That is indeed the case for gas
turbine and diesel systems. For a coal-fired system, by contrast, the input fuel is cheap,
and high electric efficiency is less important. Thus it turns out that the fluidized bed with
coal and steam turbine can compete with the gas turbine even though its ratio of electric
and thermal energies is much smaller.
In the above discussion we have assumed constant loads and constant efficiencies.
While constant efficiency is a good approximation for the boiler, the electric and thermal
efficiencies of the cogeneration system may vary with the load. Heat cogenerated in excess
of campus demand must be discarded, since export of heat to other users is impractical
in this case. Excess electricity can be sold to the utility, but usually at a lower price than
the purchase price. Therefore, when the thermal or the electric load drop below the
output capacity of the cogeneration system, one must decide whether and at what level
to operate the system. The actual operating level should be set such as to maximize the
net incremental benefit; it is given by

netincrementalbenefit = Peclcogenee+ Pmq~og&t/eb~i~- Pcogenqcogen

. (11)

is the instantaneous
Here qcopen cogeneration fuel flow in GW, pe is the relevant
instantaneous electricity price in $/GJ, the es are the instantaneous efficiencies, and the
net incremental benefit is in units of $/s. The first two terms represent the dollar values
of electricity and heat, and the third term represents the cost of the fuel. Clearly, the
system should be operated if and only if the net incremental benefit is positive. As a
general rule for a system with low electric efficiency this means matching the thermal
load. For a system with high electric efficiency the optimal level is likely to correspond
to operating at full output and discarding excess heat.
Escalating prices or costs are very easy to incorporate in the above equations. One
simply multiplies the first year price by a levelizing factor. For quantities that change at
a constant rate this levelizing factor is simply a ratio of capital recovery factors. If a price
 A case study on cogeneration 717

p increases or decreases at a rate r, per year and if the discount rate is t; then the levelized
price 6 is given by

P = PM/P, r, NMAIP, r,, N) with vk = (r - Ye)/(1 + r&J. (12)

For instance, at a discount rate of r = 5%, the levelizing factor is 1.200 for r, = 2% and
1.454 for r, = 4%.
To include realistic utility rate schedules one must replace the terms L,p, and Qepe
in the above equations by a sum of six terms, three for buying and three for selling (one
each for the three time periods: peak, intermediate and off-peak), and the demand charge
must be added. For constant loads, typical of industrial applications, this modification is
straightfo~ard and can be done by hand.
If loads and efficiencies vary, then the calculation of performance and cost becomes
too tedious for hand calculation. On the other hand, the systems under consideration are
so simple that it was easier to write our own computer program than trying to learn how
to use one developed elsewhere.4 Our program was written for the Hewlett Packard 85A
microcomputer (with 32 K of memory and cassette drive) and used as input hourly data
for the 24 design days described above. The results were scaled to 365 days. The program
takes into account variable heat utilization, efficiency fall-off at part load, and PSE&G
rate schedule. The operating level is determined for each hour by maximizing equation
(11). The annual cost of operation and maintenance is estimated as a constant fraction
of the equipment cost, and we have followed general industry experience by assuming
3% for this figure. The effects of downtime, for maintenance or repair, are also included:
for the runs reported here we have assumed 95% availability.

6. RESULTS
Investing in a new energy system involves some risk and uncertainty. Energy prices
are unpredictable, not only in absolute magnitude but in relation to each other.
Performance, life-time, and maintenance costs are somewhat uncertain, too. Even the
capital cost is not firm when one is at the planning and analysis stage. Cogeneration
systems are sufficiently new or rare in this country, that their costs are not firmly
established. Then there may be additional site-dependent costs. The problems of deter-
mining capital costs have been particularly severe with the fluidized bed coal/steam
system: the final cost quote was almost twice as high as the original estimate provided by
a consulting firm specializing in coal systems, part of the difference coming from special
constraints on the Princeton campus.
In view of all these uncertainties, it is best not to try to guess a single most likely
scenario, but rather to evaluate the economics for all circumstances that might occur. In
particular, one should pay attention to those circumstances under which the investment
might turn out unattractive.
Accordingly, we have performed a large number of sensitivity studies, including the
effects of varying capital costs, discount rate, equipment life-time, performance, availability,
maintenance expenses, and, of course, energy prices. Here we report the effect of energy
prices, in a format that we hope to be especially instructive. Since the individual energy
forms may follow different trends, we have considered a set of escalation rates, as
described in Section 3. The results are presented in Figs. 3 and 4, with the following
format. The x-axis is divided into four bins, corresponding to electric escalation rates of
0, 2, 4 and 6%. The left portion of each bin contains the results for the fluidized bed
(=FB) and the right contains the gas turbine (=GT). Within each bin the escalation rate
for boiler fuel roil (natural gas and residual oil) increases in the x-direction from -2 to
4%. The y-axis shows the life-cycle savings (Fig. 3) and the internal rate of return (Fig.
4). Obviously the profitability of the coal system decreases with the coal price escalation
rate, and similarly the profitability of the gas turbine decreases with gas turbine fuel price.
We have taken advantage of this trend to display the effect of these variables in the
y-direction. Each of the curves corresponds to a particular value of these variables. Going
down from one curve to the next, the coal escalation rate rcoalincreases for the fluidized
 M. E. MCKAY and A. RABL

50

40
Pcegan /plmil

30

20

10

roil t%) rci, (%I -10

I-I
-20
-- UU u-
FB GT
\ \
= 4% = 6%
0lec = 2% r.i.C elec

Fig. 3. Life-cycle savings for fluidized bed (=FB) and for gas turbine (=GT) as a function of energy
escalation rates. For each value of r,,, there are two sets of curves: FB (left) and CT (right). r,,,
increases along horizontal from -2 to +4%, left to right. r,,, and pcosen/&,, increase from top to
bottom as labeled. Note that capital investment is $ I I.0 million for CT and $20.5 million
for FB.

bed, and the ratio pc&biier of turbine and boiler fuel prices increases for the gas
turbine. The curves have been drawn merely as a guide to the eye, not to imply any
connection between different scenarios.
Two striking characteristics are apparent in these figures. First, the profitability,
whether measured by life-cycle savings or internal rate of return, is extremely sensitive to
the energy prices. Second, the attractiveness of the fluidized bed increases with roil, while
that of the gas turbine decreases. The steep variation with energy prices is a consequence
of the fact that the savings are the difference between large and uncertain terms: the cost
of the input fuel and the value of the saved energy. The higher the cost of the input fuel,
the lower the profitability of the system. Thus the coal system looks good when coal is
cheap, and the gas turbine when oil is cheap. Both systems produce large amounts of
electricity and their attractiveness increases with electric escalation rates. Under most of
the reasonable scenarios both systems offer very attractive rates of return, in the range of
1O-20% above inflation.
When the outcome of an investment is uncertain, one is particularly concerned with
the worst possible outcome. Certainly the very worst possibility is a shift in energy prices
of such magnitude as to make operation of the new system unprofitable from the day it
is ready. In that case one would continue using the old plant, and the life-cycle savings
would simply be equal to minus the capital cost of the new system. Thus the curves for
life-cycle savings in Fig. 3 stop at -$l 1 million for the gas turbine and at -$20.5 million
 A case study on cogeneration 719

- 40

coal Pcaqen /pboil

1 \
\r_

\r
30

J:_
\ 20

I I I-
I 1 I
I I
8\ f
--10
I 1 I -

I I I I_
/
I I I l-
I I I 0
I , I _
I
4 0 4-
z-l-t w-
-2 2 -2 2 -
r o,l (%I rO,I (%I I-10

UU UU UU UU

\ - \ \
relet = 0% relet = 2% relet = 4%
relet
= 6%

Fig. 4. Internal rate of return for fluid&d bed (=FB) and for gas turbine (=GT) as a function of
energy escalation rates. For each value of r,,, there are two sets of curves: FB (left) and GT (right).
r,,, increases along horizontal from -2 to +4%, left to right. r& and pcogen/&il increase from top
to bottom as labeled. Note that all rates are real, i.e. above inflation.

for the fluidized bed. We also note that the rate of return is not defined for a very bad
investment; hence the curves for rate of return in Fig. 4 are not continued below -5%.
The opposite trends of coal system and gas turbine suggest a way to reduce the risk:
build both. If future price trends render one of them unprofitable, the simultaneous gain
for the other will compensate for it. Unfortunately this campus is not large enough to
justify both systems: both technologies exhibit strong economies of scale, and a hybrid
system would not be large enough to be profitable, as we have verified by detailed
calculation. But for some larger applications this strategy might be optimal.
To conclude we would like to comment on the overall system efficiency of present
and future cogeneration systems. The two characteristics that can make cogeneration
cost-effective are low fuel cost and high electrical efficiency. The latter is desirable because
electricity is a more valuable energy form than heat; hence for the same fuel cost a
cogeneration system with a high ratio of electric over thermal energy is preferable. Of the
two systems considered in this study, the gas turbine has a high electrical efficiency but
uses expensive fuel. The coal/steam system burns cheap fuel but at low electrical efficiency;
for the system considered here the quantity of produced electricity is large only because
this steam turbine has a condensing mode, and much of the time it operates in this mode
(as power plant without cogeneration). Ideally one would like to choose a cogeneration
system with cheap fuel and high electrical efficiency, for instance a coal-fired gas turbine.
Much research is being done in this area (e.g. with pressurized fluidized beds), but
unfortunately such technologies are not yet commercially available.
Acknowledgemenfs-We are grateful to several colleagues who have contributed valuable suggestions and
stimulating discussions, above all M. Ambrosino, R. L. Gable, P. Presepe, R. Sheahan, R. H. Socolow, R. H.
Williams, and several equipment vendors and cost consultants.
720 M. E. MCKAY and A. f&4BL

REFERENCES
1. M. E. McKay and A. Rabl, Energy Supply Options for Princeton University: A Case Study in Cogeneration,
Report PU/CEES 161 (1984) Center for Energy and Environmental Studies, Princeton University, Princeton,
NJ.
2. R. H. Williams, Ann. Rev. Energy 3, 313 (1978).
3. R. L. Gable and W. C. Gable, Cogenerution: A Campus Option. Association of Physical Plant Administrators
of Universities and Colleges, I 1 DuPont Circle, Washington, DC.
4. Electric Power Research Institute, Palo Alto, CA: Evaluation of Dual Energy Use, Report EPRI EM-2695
( 1982); Proceedings: EPRI Cogeneration Seminar, Report EPRI EA/EM-2893 (I 983).
5. K. Treleven, J. W. Baughn and A. A. McKillop, Energy 8, 547 (1983).
6. PURPA, Public Utilities Regulatory Policy Act, U.S. Congress (1978).
7. A. L. Alm and K. L. Mowry, PURPA: Purpose and Prospects, Energy and Environmental Policy Center,
Report E-83-03, Kennedy School of Government, Harvard University, Cambridge, MA.
8. Supreme Court, American Paper Institute, Inc. vs. American Electric Power Service Corp., No. 82-34;
FERC vs. American Electric Power Service Corp. No. 82-226, U.S. Supreme Court Decisions (1983).
9. Board of Public Utilities, New Jersey, Ruling on electric rates for cogenerators, Docket No. 8010-687 (1983).
IO. Public Service Electric and Gas, 80 Park Plaza, Newark, NJ, Rate schedules HTS and PEP (1982); also
personal communication.
11. Board of Public Utilities, New Jersey, Ruling on electric rates for cogenerators, Docket No. 80 IO-687 (14
October 198 I ).
12. Historical and Projected Natural Gas Prices, Report by the Policy Evaluation & Analysis Group of the
American Gas Association, I5 15 Wilson Blvd., Arlington, VA (1982).
13. Board of Public Utilities, New Jersey, Agreement on gas rates for cogenerators, Docket No. 82 IO-869 (1983).
14. 1982 Annual Energy Outlook, With Projections to 1990, Energy Information Administration, Washington,
DC (1983).
15. A. P. Fraas, Engineering Evaluation of Energy Systems. McGraw-Hill. New York (1982).
16. C. L. Segasser, Heat Recovery Equipment for Engines, Argonne National Laboratories Report ANL/CES/
TE 77-4, Argonne, IL (1977).