Are distributed energy technologies a viable alternative for institutional settings? : lessons from MIT Cogeneration Plant

Abstract

During the last decades, distributed energy (DE) resources received considerable attention and support because of the confluence of technology development - particularly gas turbines - and deregulation - which would allow access to the distribution systems. DE was seen as addressing numerous issues, including transmission constraints, reliability, power quality, energy efficiency, and environmental quality through combined heat and power (CHP) applications. Numerous barriers, such as stranded asset requirements and lack of uniform interconnection standards, were recognized but viewed as manageable. Nevertheless, the penetration of DE/CHP has been considerably less than anticipated by many. More recent developments in the DE technology, regulatory environment, and fuel prices call for a re-examination of the cost-benefit balance for DE owners and of the societal implications that underpin public policy. This study addresses the MIT Cogeneration Plant in that context, motivated by the fact MIT was an early mover in adopting CHP technology in institutional settings. After a decade addressing numerous obstacles, the plant was put into operation about a decade ago with the expectations of reducing energy costs, improving the quality of power, and reducing net atmospheric emissions.

(cont.) This study reviews the major drivers for deciding on-campus power generation, and analyzes the project retrospectively in the context of today's market and regulatory conditions. Alternative scenarios are also evaluated in terms of technology improvements, standby rates, and fuel prices with the further goal of understanding their impact on the viability of DE/CHP projects. Our baseline results lead us to conclude that MIT Cogeneration Plant is a better alternative than generating the steam and purchasing the electricity needs separately. The present value of the economic savings are about $43m for the period 2006 to 2020, while the environmental benefits in terms of C02 emissions represent in average about 65,000 metric tons/yr. These numbers represent about 10% cost savings and 22% CO2 reduction under the set of assumptions and projections in the base case. Then, we performed four sensitivity analyses to understand the impact of technology efficiency, electricity rate structure, market fuel cost uncertainties and a carbon tax on the viability of DE/CHP projects: - Better turbine electrical efficiency represents more economic and CO2 emission benefits for the cogeneration alternative, with economic savings increasing up to about $73m and C02 benefits up to 93 metric tons/yr.

(cont.) - If the utility's new rate structure were applicable to the MIT cogeneration facility, it would have additional economic benefits of about $4.6m. - The project can be particularly sensitive to market conditions, especially natural gas prices. If fuel price conditions are not favorable, the cogeneration alternative becomes uneconomic with incremental costs of almost $56m. - Finally, the economic recognition of the CO2 reductions can change the economics of a cogeneration project. A DE/CHP project may displace emissions from less efficient technology and fossil fuel sources - depending on the utility's energy portfolio. For example, a $100/tonne carbon-tax brings additional economic savings of about $16m for the Cambridge utility fuel mix (about two thirds fossil). However, this particular cogeneration project would have additional costs of $2m if the Cambridge utility used entirely "carbon-free" sources. In summary, this study illustrates that CHP systems provide real economic and environmental benefits, through better efficiency, reutilization of exhaust gases, and displacement of polluting technologies. However, changes in current operational, market and regulatory conditions may greatly affect the benefits and viability of DE projects, requiring institutions to perform an in-depth analysis to weigh the pros and cons of specific projects.