Backup for Emergency and Revenue Generation Required Asset can be a Business Opportunity
September, 2007

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By Jack Simpson

It's no secret that Ontario needs more power. The provincial government is looking for new generation capacity and will invest $40 billion over the next 10 years, partially to phase out coal-fired generators, but also to address the growing demand for electricity.

At the same time, environmental concerns are driving conservation and the promotion of clean and green energy sources. Property managers are taking the lead in a variety ways - the Building Owners and Managers Association (BOMA) Go Green awards are a prime example.

There is also an opportunity for property managers to be part of the solution in a way that can actually make money.

Emergency power is something that just about every facility requires, either for safety requirements or business continuity needs. For most, that means an onsite back-up generator, usually diesel powered, that must be regularly run for testing purposes and reliability assurance. Unfortunately testing often results in a waste of energy as no real loads are involved and that's a lost opportunity.

PROFITABLE PEAK SHAVING

In contrast, if the electricity generated by required testing could displace actual loads, there would be a real saving on energy costs. If the testing was scheduled during peak-load periods, when electricity costs are the highest, savings would be even higher. Peak shaving - i.e. reducing demand during peak periods - can have a significant impact on a facility's electricity commodity contract or on the spot market electricity price that customers pay.

For peak shaving to be profitable, the emergency generator would operate only when the prevailing electricity cost exceeds the fuel and maintenance cost to run the generator. Unfortunately, with diesel-fueled generators these opportunities aren't as plentiful as they are with a lower cost fuel such as natural gas. Today's 39% efficient natural gas- fired generators can generate electricity for a cost of about 9 cents per kilowatt-hour (kWh), whereas a similarly efficient diesel-fired generator will produce electricity for about 20 cents per kWh.

A natural gas-fueled generator offers greater opportunity for profitable peak shaving, but, until recently, natural gas was not an option for emergency generators. CSA 282, the standard for Emergency Electrical Power Supply for Buildings, was revised in 2005 to allow utility-supplied natural gas engine generators to operate as emergency generators under certain criteria.

Currently, nearly 95% of all emergency generators are diesel fueled, which is less environmentally friendly than a natural gas generator. Making the switch to a natural gas-fueled generator offers additional benefits beyond cost savings. Harnessing savings through peak shaving can underwrite anywhere from 25% to 50% of the cost of a natural gas fired emergency generator system.

Enhanced reliability is one plus; 2005 statistics for the combined reliability of the electricity grid and the natural gas grid is 99.99999998% (0.006 seconds per year off-line). Environmental benefits are another, with natural gas displacing harmful carbon dioxide (CO2) emissions from grid-supplied electricity when used for peak shaving. A typical 1,000-kW generator running 500 hours a year will eliminate 100 tonnes of greenhouse gas emissions in a year.

Environmental liability risk will be reduced as on-site liquid fuel storage is eliminated. Furthermore, unlike a diesel generator, a natural gas engine generator can be emissions-approved for continuous operation, which allows for peak shaving.

DOLLARS FOR CAPACITY

Through its Demand Response III initiative, the Ontario Power Authority (OPA) is now seeking additional electricity capacity through distributed energy - either from 5-megwawtt direct customers or a 25-megawatt aggregate. The OPA is paying for firm capacity commitment over a five-year term, which translates into $160,000 per megawatt per year capacity, and offering another $200 per megawatt-hour for actual dispatch hours.

Facilities must be available for 1,600 hours per year, however it is estimated that the actual dispatch required will be about 200 hours per year. Many individual facilities will not be able to meet the 5-MW threshold,  but can still participate in Demand Response III through an aggregator that combines distributed generation from several sources to meet the minimum 25-MW requirement.

Many facilities may find the price of entry into the emerging generator market prohibitive because of the high upfront costs. Leasing a natural gas engine generator can overcome this barrier.

There are a number of additional benefits from generator leasing such as:

* eliminates a large capital outlay for equipment;
* supports emergency power and peak shaving through a single asset;
* high reliability since equipment is used regularly under real loads;
* low-emissions, environmentally friendly solution without liquid fuel storage liabilities; and
* single-point accountability for emergency power.

With higher energy costs on the horizon, the drive to reduce harmful emissions is gaining momentum. Incentives that can be realized from a required asset like the emergency generator can boost a building's bottom line.

Jack Simpson. P. Eng,  is Vice President of Generation with Toronto Hydro Energy Services Inc., which provides equipment optimized for peak shaving and distributed energy through an affordable lease program, with maximum market incentives and single point accountability. For more information, see the web site at www.Thenergyservices.com.