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Exploring Deregulation

The deregulation of the electric power industry, along with real-time pricing and retail wheeling, is fostering a fiercely competitive supply arena. While chiller plant management and specification may require more analysis and greater planning, having a variety of electric and alternative driv e chillers on tap offers school and university energy users the flexibility to choose the most economical option and reap the benefits of electric restructuring.

The deregulation of the electric industry opens the door to a $190 billion market. Although the utility industry is uncertain of its outcome, deregulation surely will develop a competitive environment for power generators. Deregulation also will separate the electric industry into generating, transmission and distribution companies, a process that could take as long as 10 years.

While transmission of electricity will remain a regulated business, power generation will be regulated solely by supply-and-demand economics. Current expectations are that deregulation will force the electric industry to slash costs, become more competitive, and ultimately provide lower average electric prices. This will be accomplished using two principle concepts: retail wheeling and real-time pricing (RTP).

Retail wheeling allows low-cost producers in one area of the country to deliver electricity to customers in another area. RTP prices electricity on an hourly basis. Electricity prices($/kWh) will reflect the real cost of producing and delivering electricity at that given time. RTP prices are developed from daily cost information and can vary hourly, depending on such conditions as weather and demand. A predetermined rate structure or hourly rates published 24 hours in advance are likely to be the most popular RTP schemes implemented.

Peaking ahead Naturally, all institutional end-users are, or should be, interested in less expensive power. However, blindly accepting the generally predicted results of lower electricity prices may be a mistake for chiller-plant owners. Schools will be paying a variety of prices to operate electric chillers; some lower than present, but also some higher. The overall price of electricity may decrease when evaluating total dollars spent in relation to total kilowatt-hours (kWh) purchased, but the cost of electricity during high-demand periods also may increase.

This demand usually occurs at the same time as the peak electric-cooling load. Supply-and-demand economics tell us that during peak electric-demand periods, we will experience peak prices. During critical periods of demand, the marginal cost of supplying power may escalate by a factor of 20, or even 50. That could mean that a customer paying $ .05 per kWh during low-demand periods may pay as high as $2.50 per kWh when electricity is in high demand.

In some areas, the rates are that high. In Southern California, utilities that are spearheading the move to RTP have issued rate structures with on-peak rates as high as $3.50/kWh. Such rates can have a major impact on chiller-plant design and operation indeed.

Facility managers who purchase or specify chillers are faced with a more complex task in a deregulated electric environment. Administrators must be prepared or savings could be missed. Selecting chillers based on lowest operating costs, simple payback or lowest life-cycle cost becomes more complicated. With building loads and electric prices changing every hour, a complete operating-cost evaluation must analyze hourly chiller operating costs. In the extreme case, this could include calculating 8,760 one-hour operating costs.

Testing 1, 2, 3 One strategy is to design chiller plants containing electric-drive and alternative-drive (steam or gas) chillers, also known as hybrid systems. Hybrid systems offer the flexibility to operate with the energy source that provides the greatest operating economics. Staging chillers in a hybrid plant can be accomplished by determining the lowest cost-per-ton-hour of each chiller at a given utility price.

The above hypothesis can be tested by analyzing chiller-plant examples using a variety of electric and alternative-drive chiller combinations. Each plant will serve a maximum load of 800 tons, with 2.4 GPM/ton of chilled water from 54 degrees F to 44 degrees F, and 3.0 GPM/ton of condenser water from 85 degrees F to 95 degrees F.

It is best to compare operating costs and equipment costs, with equipment rating data. The first comparision is an electric-only plant with three different single-fuel-source plants.

The base chiller plant (Figure 2) consists of two 500-ton electric centrifugal chillers. This plant has an annual operating cost of $95,799 and equipment cost of $252,000.

The next comparison is the costs for three different alternative-drive chiller plants: Two-stage direct-fired absorption; single-stage steam absorption; and gas-engine-drive centrifugal (Figure 4).

A gas price of $.35 per therm is assumed for these plants. The first-cost differential of the chillers was compared to the operating-cost differential to determine a simple payback as compared to the electric centrifugal base plant.

Keep in mind that a complete evaluation would require examining the total installed costs rather than simply equipment costs. While electric chillers require electrical service and switchgear, alternative-drive units may require exhaust systems, steam piping or larger cooling towers. Due to these variables, equipment first cost is used for this example. However, a maintenance premium was included in the operating cost of the gas-engine-driven centrifugal units.

The operating cost of the two-stage direct-fired absorption plant is $76,956, or $18,843 per year less than the electric-only chiller plant. The price premium for these chillers is $177,000, with a simple payback in about 9.4 years.

With an annual operating cost of $136,666, a single-stage steam absorption plant is higher than the electric plant. The first cost is only slightly higher than the electric-only plant. However, since there is no operating-cost savings, this plant is not a viable option for this application.

The annual operating cost of a gas-engine-drive chiller plant is lower than any other plant operating cost. This is not surprising since engine-drive systems are extremely efficient. The higher first cost of this plant, however, puts the simple payback at a marginal seven years.

In summary, the two-stage direct-fired absorption and engine-drive plants offer significant savings in total operating cost when compared to the all-electric plant, but with paybacks of 7 to 9 years. At first glance, we might dismiss the usefulness of alternative-drive chillers for this application.

A practical combination Next, look beyond the total operating costs to the operating cost at each temperature bin. Note that the electric-chiller plant is less expensive to operate below 75 degrees F, while the direct-fired absorption plant is less expensive to operate above that temperature, which holds true for the other alternative-drive plants analyzed. It appears our hypothesis is correct. To quantify this finding, it is necessary to compare a variety of hybrid plants with the electric-only plant.

Hybrid-plant operating strategy The traditional operating strategy for hybrid plants is to avoid peak electric charges by operating alternative-drive chillers during a defined on-peak period. This normally coincides with the cooling season. The on-peak period is defined by the electric utility, and penalties such as demand or ratchet charges are applied to customers that operate electric chillers during peak periods.

RTP replaces the demand (peak)/non-demand (off-peak) schedule. School and university managers can operate alternative-drive chillers during hours when electricity cost is high, and operate electric chillers when electricity cost is low. RTP provides many hours of operation with very low electric rates, typically when low entering-condenser-water temperatures (ECWT) also are available.

The hybrid-plant operating strategy takes advantage of the relationship between load and hourly utility rates. The operating schedule may change daily in response to the electric rates. The strategy, however, remains the same-operate the chiller that has the lowest operating costs. An automation system that can monitor electric rates and determine the most cost-effective operating sequence will provide the lowest possible operating costs. Determining chiller operating costs at various load-points and ECWTs is required for the system to determine the proper sequence.

Traditional hybrid systems A traditional hybrid plant incorporates two equally sized chillers, an electric unit and an alternative-drive unit. The operating scheme for this plant requires the alternative-drive chiller to be base-loaded during hours of high electric costs. The electric chiller then handles the remaining load. This operating scheme is analyzed for a variety of hybrid plants. The simple payback is calculated against the base electric-only plant.

Figure 5 - Two-Stage Direct-Fired Absorption/Electric Centrifugal Plant Figure 5 shows the performance of a hybrid plant consisting of a two-stage direct-fired absorption chiller (the same type illustrated in Figure 3) and an electric centrifugal chiller. Its annual operating cost is $35,627 less than the all-electric plant, resulting in a simple payback of less than 2.5 years (a dramatic improvement over the plant utilizing two, direct-fired absorption chillers).

The next example is a hybrid plant consisting of a single-stage steam absorption chiller and an electric centrifugal chiller. Its operating cost is $7,806 less than the all-electric plant, while the equipment cost premium is only $3,000, resulting in an almost immediate payback.

The third traditional hybrid plant consists of a gas-engine-drive centrifugal chiller and an electric centrifugal chiller. The operating cost of $57,247 is the lowest of the three traditional hybrid plants, resulting in a reasonable payback of 3.6 years.

All three hybrid plants fully load the alternative-drive chiller during periods of high electric costs, while the electric chiller is only partially loaded. The resulting operating-cost savings offer some very reasonable paybacks that are well worth considering.

Non-traditional hybrid schemes A non-traditional hybrid design sizes the alternative-drive chiller to service the entire load during high-cost electric hours, while an electric chiller sized for off-design conditions operates during hours of low-cost electricity. The idea is to eliminate the use of an electric chiller during periods of high electric cost.

The first such plant analyzed uses an 850-ton single-stage steam absorption chiller to handle the entire load above 79 degrees F, when electric costs are highest. Then a 650-ton electric centrifugal chiller takes over below 79 degrees F. The operating cost is $27,019 less than the all-electric plant, and the payback is 1.5 years.

Next, consider a plant consisting of an 850-ton two-stage direct-fired absorption chiller and a 650-ton electric centrifugal chiller. The operating cost of $52,765 is the lowest thus far, resulting in a payback of 5.2 years.

Finally, consider the performance of a plant using an 850-ton gas-engine-drive centrifugal chiller and a 650-ton electric centrifugal chiller. The operating cost is $43,297, which is 55 percent less than the all-electric plant, and the payback is 4.8 years, which is worth considering given the large operating-cost savings that would be available for the other 20 years of the chiller's life.

So, by maximizing the use of alternative-drive chillers during periods of high electricity costs, the non-traditional hybrid plants generate the greatest operating cost savings, and the added equipment costs are not so large as to result in unreasonable paybacks.

One of the factors holding down equipment costs is ECWT: the electric centrifugal chiller can be selected for the off-design ECWT of 74 degrees F maximum rather than the 85 degrees F maximum required in the all-electric or traditional hybrid plants. This means that the same size unit can handle more tons with less energy. As a result, a non-traditional hybrid plant is not only cheaper to operate, it also has more redundancy because of its higher installed capacity.

Making good cents With electricity deregulation imminent, assuming that electric-only plants are best in a deregulated environment may be costly. Chiller-plant owners should consider adopting a hybrid chiller-plant design for selected operations. It will cut operating costs by reducing or eliminating the use of expensive electricity to operate the chiller plant during high-demand periods.

There is another significant benefit of a hybrid system. Because it has a lower on-peak demand and a flat load profile, the facility becomes a more attractive customer for the electric utility. This may result in lower off-peak electric rates, reducing the cost to operate electric base-loads, such as lights.

When dealing with deregulation, combining the benefits of electric and alternative-drive chillers simply makes good sense.

Highs, lows and real-time pricing To understand the impact of RTP on chiller plants, it is imperative to examine building loads, electric rates and their relationship to ASHRAE weather data.

ASHRAE has organized hours into 5 degrees temperature bins. Chiller operating costs can be analyzed by estimating the load in each of the ASHRAE temperature bins, and assigning a cost to the power sold during each hour in that bin from an RTP schedule.

Most of the RTP pricing schedules used today are shaped like a bell curve, with a significant range between the highest and lowest priced electricity. Low prices occur during off-peak demand hours, while high prices are during on-peak demand hours.

When using electric chillers in conjunction with the typical RTP schedule, it's vital to understand how this pricing structure will affect electricity bills. Figure 1 shows the RTP in relation to the temperature bins and corresponding hours of operation.

This RTP schedule has a low electric price ($.03/kWh) during low electric-demand hours, which corresponds to low building-load hours, and a high price ($.45/kWh) during high electric-demand hours, or high building-load hours. Although the vast majority of operating hours are at lower loads, when electricity costs less, there are significant hours of operation when electric prices are high.

Therefore, for institutional facilities to benefit economically in a deregulated environment, electric chillers should operate primarily during low-load, low-cost hours of operation, while alternative-drive, or non-electric, chillers run during high-load, high-cost hours. This is the key to lowest life-cycle cost.

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