New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

HABITAT

ARCHIVE ARTICLE

Watt's Up?

In 1980, Big Six Towers, a 1,000-unit Mitchell Lama cooperative in Queens, used a lot of energy. Wishing to cut costs and save money, the co-op spent $2.5 million to build its own 4,000 kw cogeneration plant. The generators began to provide 100 percent of the electricity, 95 percent of the hot water, and 30 to 40 percent of the steam. The effects on the bills were immediate. The annual electricity bill fell from $960,000 to $400,000 and heating costs dropped by $300,000. A few of the bigger Mitchell-Lama complexes eventually followed Big Six's lead. These older and larger cogeneration plants have quietly provided relief for the last 15 to 20 years.

Here's a puzzle: although cogeneration has been around for nearly two decades, surprisingly few people know what it is and how it works.

What's up?

Those that are in the know love cogeneration, explaining that it's about cutting costs and saving money, about becoming your own energy supplier so that your dependence on an outside electric supply is lessened. "When 90 percent of the budget is [based on] fixed items, you need to find savings wherever you can. You need to find alternatives," notes Steve Greenbaum, managing director of Mark Greenberg Real Estate. Lately, his properties have been saying that maybe cogeneration is the way to do this.

But cogeneration is a niche market. There are parameters to be met and obstacles to overcome before it can become a reality for a building. The process is not as straightforward as replacing a boiler. There are many issues to consider and a long decision-making effort. Are you ready for it? Is this the next big thing?

A STARTER COURSE

What does "cogeneration" mean? Whereas generators create only one useful byproduct, electricity, cogenerators create two. Using a gas and/or diesel-fueled burner to fire a turbine generator, a cogenerator makes electricity, but it also creates thermal energy — heat. So as electricity is supplied to the building for its power needs, heat is given out, which can be captured and harnessed to heat the building; to heat water for laundries, showers or pools; or to power the steam-fired chiller for air conditioning during the summer months.

The tricky part of cogeneration, however, is how and if a property can use that heat. The ability to do this will directly affect whether this will work for a building or not. In the winter, this probably won't be a problem as demand for all things hot goes up, but it can be one in the summer.

"Getting rid of the heat is usually the deal-killer," says Tom Sahagian, project manager for Power Concepts, a consulting and engineering firm. "If you are not using the heat then you need to get rid of it and anytime you are throwing it away you are not getting your money back on the investment."

And that's what happens during the summer. The demand for heat is less and so there's no place to send the excess except out, unless a property has significant storage capacity. Balancing the heat and electricity loads thus becomes the primary concern — a unit that supplies enough electric juice while not producing too much heat.

In technical terms, the ideal cogeneration candidate should have a minimum usage during the summer of 5,000 therms/ccf (cubic feet) and, at wintertime, electrical usage of 100,000 kwh (kilowatt hours) per month. Most experts agree that currently cogeneration isn't viable for buildings under 100 units. (For more information on the technical aspects of cogeneration, see "Energy to Burn," Habitat, December 1998.)

The building should also have a central chiller — to make use of the thermal output in the summer — and be submetered. In a building that is directly metered, every apartment would be buying directly from Con Ed. If, for example, it was a 100-unit building that consumes 120,000 kwh/year, each apartment is buying 10,000 and the building is only buying 20,000 for common areas. It wouldn't make sense to install a cogeneration unit to address only the 20,000. If master-metered, then all the electricity is pooled into the building and the unit is supplying the entire 120,000.

A board has three options when it comes to putting a unit in: purchasing it from a manufacturer or leasing or buying one from an energy supplier. Costs to buy a unit range anywhere from $700 per kw to $2,000 per kw. Cogenerators run from 75 kw up to 25 megawatts. (A typical 100-unit building would probably be using a 300 to 400 kw unit. A building would need about a 5-foot by 10-foot space for a 75kw unit; it would also need 18 to 24 inches of clearance space around the unit.)

There are four factors to consider when deliberating cogeneration, says Steve Eber, vice president of project development for Keyspan Business Solutions, which builds, designs, and installs units: the reliability of the current energy supply, the potential growth of demand, the economics of switching, and the efficiency to be expected. "All of these need to be working together," he says.

Unfortunately, these are often variable. A building may meet two or three of these but find problems with the others. Load growth, for example, has diminished in some places because of lesser demand. New sites built by the New York Power Authority and the Long Island Power Authority have alleviated stress. In addition, the loss of the World Trade Center towers did the same. When the economy rebounds some places may find load growth an issue again, but not now, notes Eber.

THE PROBLEMS

"Unless the building has been designed from scratch for cogeneration, [installing] it is difficult," says Tony Szabo, chief engineer at Rand Engineering. "Especially in New York City, this is not going to be applicable for a lot of buildings. Retrofitting is not easy." Rand has done numerous studies for properties, but has yet to take a project all the way through to the build stage. Even though the product has been around for a long time, he reports there is still not enough knowledge out there yet.

Szabo's argument is familiar. Many managers and engineers know about cogeneration but not much has been done in the residential sector. Some estimate that nine out of ten times proposals that get created are not followed through on. There can be a number of reasons for this:

(1) Initial promises don't equal end results. Larry Vitelli, managing director of Insignia Residential Group, has seen a couple proposals come across his desk. "We had one company that guaranteed all this stuff but they never went further. They didn't return calls."

Call it a sales gimmick, but often a proposal's promises change as the scope does. Boards, however, need to be as near as possible or they'll feel the repercussions from shareholders. So a payback period of two to three years — often what is promised — can be extended because of additional needs that crop up during construction. The harder it is to fit the technology to the building, the more expensive it gets and the longer it will be before a board to realize a return on the investment.

(2) It's free. Programs run by the New York State Energy Redevelopment Agency (NYSERDA) have made getting feasibility studies done much less expensively. Up until recently, cogeneration studies were free. This created a glut in proposals but little on the return. Once NYSERDA changed its policy to involve a co-payment, the number of studies went down but the implementation rate went up. Additionally, if a building should get the study done and then implement it, NYSERDA agrees to pay the entire cost of the study.

(Other companies in the field, such as Hess and Keyspan, have been offering packages as well that include studies. They will provide the equipment provided the property signs an agreement to purchase from them at discounted rates.)

(3) You can save it somewhere else.Smaller, less involved tasks, like changing to better light bulbs or windows make for quicker realized savings. It takes a forward-thinking board to look beyond the next few years and plan for five to ten years or more down the road. Given the complexity that can be involved, the decision-making process is not easy and, as these things go, the longer it is drawn out, the lesser the enthusiasm will be.

(4) Paranoia strikes deep. Almost every technology has had its naysayers and had a bad reputation at some point. Cogeneration is certainly no exception. Word gets out about a problem with a unit somewhere and suddenly the whole concept seems faulty. Toss in with this the fact that it is the government and some big utility companies that are pushing for more cogeneration, and people can become skeptical.

"It is definitely possible, but there are so many caveats that boards should not take the decision lightly," observes Sahagian. "Cogeneration involves fairly sophisticated equipment, not like the boiler, where you put it in and mostly forget about it. You have to have a serious commitment to maintenance with a cogenerator."

And maintenance is another issue. Few supers are going to be able to be your man-on-the-scene when it comes to a cogenerator. The best policy is trying to get in a multi-year contract with the manufacturer, at a fixed rate. Get the works, too. As one engineer calls it, "the cradle to the grave" program. This will include a necessary overhaul every year to two years, a large undertaking that will necessitate finding power elsewhere for that time.

Then there is Con Edison. The goal of NYSERDA's interest in cogeneration has been to eliminate the peak demand on Con Ed, especially in this area, says Herb Hirschfeld, an energy consultant who works closely with NYSERDA. (For more information on cogeneration, check out www.cogenerationonline.com.) Cogeneration can help with this but it may cost you. Given that the more electricity you make, the less Con Ed is supplying, it is not a surprise that it will cost you more to get less during those times you need it (like when the overhaul is being done).

There is one salvation from this extra cost. If the property qualifies as a "qualifying facility" with the Federal Energy Regulatory Commission — meaning that the unit meets a certain minimum efficiency — then the rates must stay as they were as before a building went for cogeneration. The catch: some experts say that not a lot of units will qualify.

The other slice of reality is the potential savings. On a practical basis, Keyspan's Eber says that boards won't be looking at 40 to 50 percent savings, as some may expect, but more in the neighborhood of 10 to15 percent. Are the big savings there? Yes, but just the way the parameters whinnied down those that can use cogeneration, the number of properties that will see gigantic savings also got smaller.

Greg Gallo, an application/construction engineer for Hess Microgen (www.hessmicrogen.com), a subsidiary of Amereda Hess, says cogeneration is probably unworkable in much of lower Manhattan because of space concerns. Yet there are possibilities elsewhere. "You may spend more on installation but because [using] Con Ed is such a high cost in New York City, it can still make sense," he notes.

The bottom line, according to Mark Taddeo, general manager of Amerada Hess, is "savings versus risk. Don't view it as a piece of equipment you can buy out of a catalogue. Look at it as a package of service, equipment and support. The aim for the property is not to go into the power generation business. It's to save money." To that end, programs offered by companies such as Hess that involve renting equipment rather than purchasing it make for a win-win situation.

A preliminary cost analysis does not cost the board anything. But the free ride does not last forever. As a board moves through the process, getting site surveys done, more in-depth engineering, and, eventually, a proposal, the amount of work being done to examine your property will increase. Finally, when the letter of intent is produced, the time to pay arrives. Hess's policy is that, if there are factors involved in the project that make it impossible, then the company doesn't ask to be reimbursed for engineering fees.

If, however, all looks good but the board decides it doesn't want to go through with the project, then Hess may ask for reimbursement. Taddeo estimates that, on the high side, this figure shouldn't exceed $5,000, but it depends on the job. The other outcome is that the project is approved and moves forward. Engineering fees are not charged then.

THE BENEFITS

Problems aside, there are good reasons for cogenerators and those that believe in the system preach them loudly. Steve Stone, president of DSM Engineering Associates, is working on eight projects with NYSERDA and four without. "If done right, there are no cons," he says. "Installation may be more expensive in New York City and more difficult, but the increased costs shouldn't make it prohibitive. The payback becomes longer. The main reason buildings do this is that it is a moneymaking machine. You don't have to pay the grid."

Indeed, the biggest savings come from cutting energy and peak demand costs. Further, the biggest point of savings is in hot water, which will be done through the cogenerator's heat exchanger. Stone estimates that the average payback period is two to four years.

To the cut peak costs, some properties, such as Parkchester in the Bronx, have looked into installing smaller cogeneration units, known as micro-turbines. Those units would be used to support the existing system. Examining the costs involved to build a space for the unit and a seven-year payback period, Parkchester decided against it, but as the generators become smaller, they may investigate the possibility again in the coming years.

Particularly in properties that are looking at new coolers or at submetering, adding cogeneration to the picture is a distinct possibility and should be examined, says Hirschfeld, who notes: "When enough places do this, others will follow." Within the past few years, interest has increased — as energy costs did — and more sales activity and more funding have occurred. The time may not be far off, especially as technology improves. Using an energy consultant can help boards navigate their way through the changing terrain.

ENRON TROUBLES

The bankruptcy debacle involving the Enron Corporation has cast a pall over deregulation in the minds of some. The result: a few companies, like third-party supplier AES New Energy, have experienced reverberations. Toss into this the nightmare that was California deregulation and local owners may be wondering when the shoe will fall here. Brian Curry, business development manager for New Energy, predicts, "It won't happen here."

"Everyone thinks that deregulation is going to go belly up but that is not the case. We're fine, we're safe and we're not going anywhere. We're not a trading company. Our steel is in the ground."

"There's a lot of steam — momentum — behind deregulation and right now it would be difficult to go back," agrees Power Concepts' Sahagian. In addition, he notes that it has not been the disaster here in New York that it was in California. There has been no large public outcry against it and Enron's fall is not necessarily an indicator of a system problem with deregulation. "Anytime you have a change in an industry, you'll get your innovators and your shysters, but deregulation is probably here to stay." Whether this is for the benefit of the smaller homeowners remains -to be seen. Comparing deregulation to baby development, Curry believes it has left the infancy stage and is moving on now to being a toddler. It is, he says, a process.

Cogeneration is here, it is available, and it isn't going away. "If prices stay high, there will always be a place for cogeneration," concludes Mike McNamara, a partner with EME Group. "The challenges of fitting it into the typical multi-family residence aren't going to change, but maybe with new technology there will be a resurgence in interest."

One possible future of cogeneration lies, as was mentioned, in micro-turbines. DSM is working with a $200,000 state grant to install one as a research project at a 250-unit co-op on West 66th Street in Manhattan. "This is a property that is very interested in energy conservation and in innovations," notes Stone. For a few years, the board had expressed interest in cogeneration and decided, with the grant, to install a micro-turbine and a back-up generator, as well.

Another potential source of energy are fuel cells, powered with natural gas. Though the application and expenses may be prohibitive for residential units at this point, many engineers are hopeful that this, too, may eventually be a reality for residential properties.

Demand isn't going to decrease in leaps and bounds, so the time to think proactively is now. Some properties procrastinated on submetering and never realized the amount of savings they were missing. Experts say you shouldn't let that happen with cogeneration. If the generator fits, try it.

 

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