Procuring Fuel Cells for Stationary Power: A Guide for Federal Facility Decision Makers (Text Version)
Below is the text version of the webinar titled "Procuring Fuel Cells for Stationary Power: A Guide for Federal Facility Decision Makers," originally presented on May 8, 2012. In addition to this text version of the audio, you can access the presentation slides and a recording of the webinar (WMV 111 MB).
Hello everyone and welcome to the Fuel Cell Technologies Office's webinar series at the Department of Energy. Today you will be learning about Procuring Fuel Cells for Stationary Power: A Guide for Federal Facility Decision Makers. The speaker today is Pete Devlin, the Fuel Cell Technologies Office's Market Transformation team lead at the Department of Energy. He also has a number of guests with him. And so everyone understands, you are all muted, so we will not hear you if you are speaking to us. Your questions can be asked through the chat function of the webinar program. Also, the slides and a recording of this webinar will be posted in approximately two weeks on the Fuel Cell Technologies Office's website.
Our next presentation will be taking place on Tuesday, May 22. The topic has not been announced yet, but it will be shortly, so please keep attention for the next topic. And with that, I hand it over to Pete Devlin. Pete?
Hello, Kristen? Are we good?
[Technical difficulties from time 02:00 to 05:30]
Thanks for listening in, logging on—we are going to talk about procuring fuel cells in federal facilities. The reason why we started this effort nationwide was we noticed that a lot of folks in federal facilities are not familiar with fuel cells. If they are, [echo] they want to know how to get them installed and get third party financing. So… a pretty good basis for coming up with our first draft of a guide. This will probably be redone periodically as more information and more tools and techniques become available. We hope this is useful for you. If there is anything else we can do to help you to make your decision on whether to site a fuel cell at your federal facility, please let us know.
Today, we are going to have a number of topics; the outline should be in front of you now. I am going to start with a little bit of an overview of what fuel cell power can do for you. Jacob Spendelow from our office will talk specifically about how fuel cells function. Then, we are going to get into the guide a little bit and how combined heat and power fuel cells could possibly help you with your federal facility's energy goals. Then Greg Moreland, support contractor for our program, will talk about third party financing. We know it is hard to get capital facility and equipment dollars through the budget process, so we hope this will be useful in making decisions for financing. Joe McGervey, also a support contractor for our program, will talk about project screening for a little bit—about what constitutes a good situation for a fuel cell system for stationary power. Then, a little bit about things you need to do in terms of detailed planning. Mike Penev from the National Renewable Energy Lab is going to talk about our online model and how that might help you with screening and possibly even some more advanced planning. Finally, we will have Joe McGervey go through all the different kinds of financing techniques that have been identified largely through the DOE Federal Energy Management Program. So that is the basis for that.
Okay I see the guide. The website is there and you can certainly download it from that site.
What is combined heat and power and how can it help you? First, it is a distributed generation technology. What that means is it would be closely—proximity, location-wise—close to the consumer of the energy, either inside or near, or next to a building campus or industrial complex. It provides at least part of a load; you can still have grid power and have the fuel cell only partially provide the power for your facility. The combined heat and power aspect of this kind of technology enables things like cooling through heat absorption, dehumidification, water and space heating, and process heating for industrial uses.
It also can be obviously an energy security strategy; it could be part of that, avoiding grid outages - but recognize that your grip power supplier would have to be part of that discussion and decision. You see a picture here of Verizon Garden City; it is seven 200-kilowatt systems or 1.4 megawatts installed. It has been installed since July of 2005. We have a fact sheet on it, a case study on it, on our website if you would like to look at it. We have experienced over 96 percent availability with combined energy efficiency of over 60 percent. This is a particularly good case study because this facility monitors telecommunication for 35,000 customers, so grid outage is unacceptable and costs over $1 million a minute in revenue.
Now I want to talk about what is combined heat and power. You see in this diagram here, we call it a CHP prime mover; that is the electricity generator or the energy conversion device. It is really what we mean by combined heat and power or CHP. CHP is sequential or simultaneous generation of multiple forms of useful energy, either mechanical, electrical, or thermal, into an integrated system. CHP systems consist of a number of components—the generator or energy conversion device, the heat recovery devices, and electrical interconnections—that are configured into a whole integrated system. The type of equipment that drives the overall system typically identifies what kind of CHP system you are looking at. Energy conversion technologies for CHP include reciprocating engines, combustion gas turbines, steam turbines, micro turbines, and of course fuel cells.
These systems are capable of running on a variety of fuels, which include natural gas, landfill gas, digester gas or other bio-derived biogases to produce mechanical or electrical energy. Although the energy from the system is most often used to produce electricity, it can also be used for equipment such as compressors, pumps and fans as part of the system. Thermal energy from the system can be used in direct process applications or to produce steam, hot water, hot air for drying or chilled water for cooling.
The main benefits of the CHP system stem from relatively high efficiency compared to the grid. Because CHP systems simultaneously produce electricity and useful thermal energy, CHP efficiency is measured and expressed in a number of different ways.
Measuring the efficiency is denoted by either a lower heating value, LHV, or higher heating value, HHV. HHV includes the heat condensation of water vapor in the end products.
A couple of definitions: net power is the power efficiency after parasitic losses such as pumps, blowers and fans that are part of the integral system. In a CHP system, the total CHP efficiency seeks to capture the energy from both electricity and usable heat, usually in the form of steam. It is the net electrical output plus the net useful thermal output divided by the fuel consumed in the production of that energy.
Another definition of CHP is effective electrical efficiency. This measure expresses CHP efficiency as a ratio of net electrical output to net fuel consumption where net fuel consumption excludes the portion of fuel that goes to producing useful heat and output. To break this down, you can see that if you are using a lot of the heat effectively, many of these CHP systems can be extremely energy efficient; the question is, can you use all the heat. Fuel cells produce a high grade of heat, not as much as engines or turbines, but in some applications, that may be more useful and effective.
Benefits—if you're trying to reduce your power emissions, and there are incentives in place to do so, or it is a goal of your agency, then fuel cells stack up pretty well. In terms of the electrical efficiency, you can see in the green down there that the NOx, oxides of nitrogen in pounds per megawatt hours, and carbon dioxide are considerably lower than other distributed generation systems like micro turbines or gas turbines and quite a bit lower than the average grid emissions.
Now, when you put in the heat, and use all the heat that the fuel cell is producing and the CO2, the carbon dioxide emission reduction is quite compelling. With or without cogeneration, you are reducing as compared to your average grid emissions and you are reducing in comparison with these combustion techniques. There are many reasons to check it out. I recommend you go to the EPA's combined heat and power partnership catalog; that is where this information came from. This is a very active group and you can get even more information on this.
Power and heat generate high efficiency levels through electrochemical reactions. It is not a mechanical device, it is electrochemical, which takes a chemical, methane, and converts it to hydrogen, producing electricity and heat. So there is no combusting, there is no mechanical shaft movement; it is all done in an electrochemical way so that there are no primary power mechanical devices to wear out. Very quiet, that is important in many places, and as I just explained it is pretty environmentally clean.
There are different kinds of technologies based on the electrolyte, which is the part in the middle that separates the electricity from the chemical: phos acid, solid oxide, molten carbonate and proton exchange membrane. Jacob is going to explain that a little bit more in just a second. I think it is important to recognize that there is enough confidence in this technology that the New York Power Authority used over 12 fuel cells for 4.8 megawatts to serve as part of the power for the new Freedom Towers that are being constructed on Manhattan in place of the World Trade Center.
I am now going to turn it over to Jacob who will talk specifics about these different types of fuel cells.
Hi, this is Jacob Spendelow from Los Alamos National Lab. I am on detail here at DOE. I am going to talk about the science and technology behind fuel cells and I will start by contrasting them versus conventional power generation technology based on combustion engines.
The main advantage of fuel cells is their extremely high electrical efficiency. The reason that they have an efficiency so much higher than conventional combustion engine technology has to do with the fact that fuel cells are electrochemical devices and not heat engines. Any sort of an engine involves taking chemical energy, producing thermal energy, and then converting that to mechanical energy, and that thermal to mechanical conversion step is very inefficient. So it is limited by thermodynamics to an efficiency called the Carnot efficiency. The net resulting efficiency of the whole process will be on the order of 15 to 40 percent. So you are losing a pretty large percentage of your infra energy.
In contrast, a fuel cell is not limited by the Carnot efficiency because it is not a heat engine; there is no step where you turn heat into mechanical energy. The direct conversion of chemical energy into electrical energy in a fuel cell can be very efficient. So practical fuel cells can have an efficiency of 60 percent or even higher.
Now, there are three main kinds of fuel cells I am going to talk about here that are of interest for distributed power generation. As Pete mentioned, fuel cells are classified according to their electrolyte and the first one I am going to talk about is the molten carbonate fuel cell, which uses a molten carbonate electrolyte. This electrolyte consists of a mixture of potassium and lithium carbonates. It operates a pretty high temperature of over 600 degrees so that the carbonate salt is molten and can conduct electricity, and it uses nickel electrodes so the material costs are not too high; it does not use precious materials.
The next fuel cell technology I will talk about is the phosphoric acid fuel cell. This type of fuel cell uses concentrated phosphoric acid electrolyte. Due to the liquid electrolyte used, the temperature does not need to be as high to produce a molten electrolyte. Therefore, these operate at 130 to 200 degrees C. But because of the lower temperature the electrochemical kinetics are not quite as good, so you need a better catalyst. These use platinum catalysts, which add some cost to them. The big advantage of these phosphoric acid fuel cells is their very high durability. So this technology can run for 80,000 hours or longer on the original stack.
Lastly on the right, we have solid oxide fuel cells, which use a ceramic electrolyte, and in order to be conductive, this electrolyte has to be heated up to very high temperatures, sometimes up to 1,000 degrees. The big advantage of this technology is the very high efficiency. So solid oxide fuel cells can achieve efficiency of 60 percent or even higher.
I am going to walk you through how a fuel cell operates here. This example is a phosphoric acid fuel cell. The first unit in the fuel cell system I will talk about is the fuel processor. This is the device that takes the incoming fuel, which might be natural gas or might be propane, and it turns it into the hydrogen-rich stream, which is required by the fuel cell. So this conversion is accomplished by a device called a reformer; that is the device that directly converts the natural gas or propane into the hydrogen-rich stream called reformate. After generation of the reformate, the fuel has to be cleaned up to remove some contaminants like sulfur, so there are a few gas cleanup steps.
Then this reformate exits the fuel processor and enters the fuel cell stack. This is the heart of the fuel cell system; this is where the electrochemistry occurs. Within the fuel cell, the hydrogen is converted to water, producing electricity. This electricity is the output power from the fuel cell. So this electricity is then conditioned in the power-conditioning module where the DC output from the fuel cell stack is converted to high-quality AC power using a commercially available inverter.
Thank you, Jacob. Kristen, I am assuming you will be controlling the slides as I go from slide to slide and I will instruct you to change the slides.
This is Greg Moreland. I am going to be going through the economic value model for fuel cells. At an early stage of analyzing a distributed generation fuel cell project, you will need to consider these important questions: what is the economic impact of installing a fuel cell? How much will a fuel cell cost? Are there any government incentives that we can use? What will be the impact on a life cycle cost basis? Do the operating savings justify the capital expenditures to install the equipment?
This slide highlights the analysis typically used to evaluate the economic impact of a distributed generation fuel cell project. It was developed in collaboration with the Connecticut Center for Advanced Technology to support an educational effort that highlighted the potential value proposition for supermarkets using distributed generation fuel cells. The economic model for a distributed generation fuel cell project is a make-versus-purchase model. The fuel cell is making electricity, which allows the customer to avoid purchasing an equivalent amount of electricity from the electric utility.
Also, in a combined heat and power application, which is reflected in this example, the heat from the fuel cell can be directed to boilers or chillers used by the customer, which allows a customer to avoid purchasing the equivalent amount of natural gas from the gas utility to fuel the equipment.
The key assumptions are shown in the box on the right hand side. In this example, the Connecticut-located supermarket is using a 400-kilowatt fuel cell and fueled by natural gas at a cost of $6 per million British therms. In this case, 3.3 million kilowatt-hours annually at a 95 percent capacity utilization. This will enable the supermarket to avoid purchasing 3.3 million kilowatt-hours electricity annually, at a cost of 12 cents per kilowatt-hour. Also important to the economic value of the combined heat and power fuel cell is the heat usage. In this example, the heat from the fuel cell, 785,000 Btu per hour, is going to be fully utilized by supporting a 40-ton absorption chiller. This will allow the supermarket to avoid the purchase of natural gas to fuel the chiller system for the refrigeration units.
This make-versus-purchase model compares the cost of installing and operating the fuel cell versus the cost of purchasing the equivalent amounts of electricity and natural gas in the utilities over a 15-year life cycle. The results of the analysis are summarized on the left-hand side of the slide: a net present value of $775,000 on a discounted value basis at 7 percent, an internal rate of return of 18 percent, and a three-year payback. Also on the left-hand side is a summary of the capital investment cost of the combined heat and power fuel cell system including $1.8 million for the fuel cell and $726,000 for the installation and related equipment.
This summary also highlights the importance of federal and state incentive programs to the cost of the fuel cell. In this case, the federal ITC reduces cap ex (capital expenditures) by $758,000 and a Connecticut Clean Energy Fund grant reduces cap ex by a million.
It is important to note that many key elements have changed since this slide was prepared in 2010. The cost of natural gas has declined substantially. The State of Connecticut has also changed its incentive program. In developing your economic analysis, it is important to work closely with the fuel cell vendors and the project developers to make sure that the government incentives are correctly captured and reflected in the analysis.
Next slide please, Kristen.
We can also dimension the economic value of a distributed generation fuel cell on a cost of electricity basis, especially if you are considering a power purchase agreement, or PPA, to finance the project on a cost per kilowatt-hour basis. This slide highlights the relevant impacts of the major cost drivers when evaluating a fuel cell project on a cost of electricity basis. The major cost drivers are shown on the vertical scale. The green areas on the horizontal bar chart suggest economically attractive ranges for the cost drivers shown on the vertical scale, and the yellow areas suggest relatively unattractive cost ranges.
Let us just consider one example, the natural gas cost at the top. For natural gas costs, the lower the cost, the more attractive in relation to the cost of electricity. In fact, today's natural gas prices in many areas of the country are lower than the range shown on the chart.
Next slide please.
Stationary fuel cells and distributed generation and combined heat and power applications offer several advantages highlighted here. Pete previously talked about these, so I won't be redundant; I will go through them quickly: reliability benefits, power quality, peak power, environmental benefits, efficiency benefits, infrastructure resilience, energy security, low natural gas prices, and opportunity fuels, which means the ability to use waste biogas from wastewater treatment plants or landfills.
On the bottom is an illustration that provides a sense of scale of the annual CO2 benefits in using a fuel cell in a CHP application versus conventional generation. This has been discussed before; I won't be redundant now. If we can go to the next slide, Kristen.
This slide shows some real-world examples of the benefits in the previous slide. The fuel cells pictured in this slide are among the first to be successfully demonstrated in real world operating environments. Since these projects, hundreds of megawatts of commercial stationary fuel cells have been installed at sites worldwide, and also featuring generational performance improvements versus the fuel cell systems used in these examples.
Now let's go clockwise beginning with the top left picture. In 1999, the First National Bank of Omaha installed an 800-kilowatt fuel cell system to provide primary power and energy security to its data center. The data center has never experienced a shutdown. The fuel cells have demonstrated five-nines availability. First National has reduced its energy costs by selling electricity to the grid and using the waste fuel cell heat.
Pete has already discussed the Verizon central office, but at the 4 Times Square building in New York City the owner of the building installed a 400-kilowatt stationary fuel cell system to maintain power to critical operations during power outage. The fuel cells support the building's nighttime electricity demand. The fuel cell system is located on the fourth floor of this 48-story building. The thermal energy generated by the fuel cells is used to heat the building's perimeter and to help heat the domestic hot water.
The last two pictures are examples of early demonstration projects by the New York Power Authority, or NYPA. In 2003, the Central Park Police Station's fuel cell system received a lot of public attention because it continued to provide power to the police station while New York City suffered a major blackout. The police station was one of only a few buildings that continued to operate while the rest of New York City was without electricity. The successful operation of the fuel cell system demonstrated the value of a fuel cell as an off-grid power source.
In regard to using renewable biogas from anaerobic digesters, the New York Power Authority demonstrated one of the first applications of distributed generation fuel cells to run on biogas from wastewater treatment plants. The NYPA renewable gas demonstration included wastewater treatment plants in the Bronx, Brooklyn, Staten Island, and Yonkers.
Since its demonstration, there have been many deployments of fuel cells using biogas from wastewater treatment plants and other sources of anaerobic digester gas. In fact, in one of the applications at a wastewater treatment plant operated by the Orange County Sanitation District, the fuel cell combined heat and power system is also generating hydrogen, which is being used to fuel a fleet of fuel cell vehicles at the site.
Pete Devlin will be presently the next slide, so it is over to you, Pete.
Okay thanks, Greg. I wanted to point out a small physical footprint, not carbon footprint, which we have already talked about. But as you can see in this aerial overhead, this 300-kilowatt system that is installed at the U.S. Postal Service in San Francisco, not taking up much room, in fact it's pretty much in downtown San Francisco, so you don't need a lot of room to site a fuel cell with a lot of power. The system went online February 2006; we have a lot of data on it and so does the postal service that is publicly available. You can certainly check this out from an availability standpoint of overall operability. The waste heat is used… [audio break]
…for hot water and they still get towards the value here.
Many of you know that as renewable portfolio standards in—I think it is 23 states now—many of them are requiring federal facilities or leased federal facilities to comply with these standards. Some of them are quite stringent. Obviously, a reduction in pollution emissions and greenhouse gas agency-wide were all under the executive orders that require energy intensity to be reduced; compliance with general environmental laws; enhanced program visibility—to be a good neighbor around your community, this would be a good way to demonstrate that and also show leadership in the whole federal government and, for that matter, state governments.
The photos are the three primary large distributed generation domestic manufacturing companies: Fuel Cell Energy, United Technology/UTC Power, and Bloom Energy.
I am going to go quickly through this; this is in the guide. You need to have a decent-sized load to even consider this for a significant install, although there are micro CHP systems for small buildings. You need electric loads, peak load of about 0.7, so that you can get the full advantage of the energy efficiency. You have to look at chilled water and how you can use the heat through heat absorption for cooling. Things like data centers are very popular. A thermal load that is continuous, not just in the winter when you need space heating but something that you can use all-year-round. And thermal demand needs to be in synch with the electric loads of both daily cycles and seasonal cycles. To really make it pay, you have to operate at least 6,000 hours a year. This equipment is expensive and you can't afford to have it sitting idle.
With that, I am going to turn it over to Mike Penev.
Thanks, Pete. Can we go to the next slide?
I am Mike Penev, I work at the National Renewable Energy Laboratory, I am an analyst at the Hydrogen Systems and Technology Center and I have a background in industry for designing residential CHP fuel cell systems. So one of the factors you want to consider is that not all locations are created equal. When you look at the United States, some places have more expensive electricity; some places have more expensive natural gas. Those are important factors in the economics of the fuel cell.
In this map here, we show the prices of electricity; you will note in red denotes places where electricity is more expensive. Those are locations that are more desirable from the point of view that if you put in a fuel cell you are going to be offsetting more expensive money streams. So locations like California, the Northeast, and some places in Texas and New Mexico, they have very expensive electricity. Those are areas that you want to look at.
So an additional aspect to look at is the price of natural gas, as that is the feedstock that the fuel cell uses. You are going to be interested in places where you do not have to pay very much to run the fuel cell.
In this chart, we have an updated county level map of what the prices of natural gas are. So for example, California has a moderate price of natural gas but the Northeast has very expensive gas and also the gas in the Southeast is relatively expensive. So from an economic point of view for the cost of operating fuel cells, you want to look for areas where the gas is relatively inexpensive. Next slide.
A convenient way to look at this is to look at the ratio of cost of electricity to cost of natural gas. So if you look at places where the electricity is expensive, and you are offsetting a lot of costs, the natural gas is cheap, and you are not paying a lot to run the fuel cell. That ratio—highlight areas such as California, where electricity is very expensive, natural gas is moderately expensive. Some places in Texas come up as in red, where the ratio is higher; and in the Northeast, there are spots where the ratio is high.
Now besides looking strictly at the ratio of natural gas and electricity, you have to consider which states have incentives. So for example if we look at California, they have very high population densities in some areas and air quality issues have shown that incentives are required to promote lower emission fuel cell systems and they provide additional incentives on top of the overall economics of high electricity price and low natural gas prices.
Pete, it's back to you.
Thank you Mike. This is Joe McGervey, I am with SRA International, one of the support contractors to DOE. To this point, we have covered a range of technical elements: fuel cell installation including the chemistry; electricity; and fuel prices. I want to turn our attention to the step-by-step planning process described in the fuel cell guide. Generally, the planning process is similar to other energy-saving projects. The fuel cell guide highlights elements of the planning process that are unique to a fuel cell installation. The information presented here on project planning and finance has been fully reviewed and concurred on by FEMP, the Federal Energy Management Program.
As you can see on this slide, there are four major planning steps: direction—identify the needs and goals relevant to the project; staffing—assembling the onsite team; site evaluation of the fuel cell options; and considerations of the project requirements.
On direction, facilities considering fuel cell projects should identify upfront why they are pursuing a fuel cell specifically. Fuel cell installations represent a major capital investment and may not be economically justified strictly on the basis of displacing the purchase of electricity from the grid; a case for fuel cells may require satisfying multiple program objectives and these should be identified early in the procurement cycle.
Staffing: a fuel cell project requires a team of specialists including energy, facilities, financial and legal. Fuel cells can be more complex than other procurements at a facility because it includes the acquisition of hardware, ongoing fuel needs, maintenance, displacing electricity purchases, and integration with other facility systems. Because the project will affect many elements of a facility, a one-man band approach will not work and teamwork will help avoid oversights that may result in unnecessary costs and scheduled delays.
Site evaluation: evaluating whether a fuel cell will work at a facility must consider many technical factors and it is not unusual for a project to change as details of the system are studied. A powerful tool for assessing the viability of a fuel cell project is the FCPower model that Mike will discuss in just a moment.
In addition to the technical performance of the fuel cell, the project team should investigate other project elements that will affect the viability of a project such as the warranty on the hardware, available square footage and system size, and especially incentives. Because the nominal price of fuel cells is high, incentives can help offset the substantial upfront cost of installing a fuel cell system.
Looking outward from the fuel cell itself there are other issues that may be important such as local capacity to supply and maintain the system, utility interconnection, electrical and mechanical room issues may be important at a particular facility site. Beyond that, there are considerations that the fuel cell team should look at to ensure that the project is viable. These include an interconnection agreement between the facility and the utility. Communication is important and should begin early in the process to make sure that all the technical issues are taken into account and to avoid unexpected delays later in the process. NEPA and air permitting rules must be complied with although most of these regulators in this area recognize the clean nature of fuel cell technology.
This slide lists the project financing options for a fuel cell project. At this point in the process, the technical and economic viability of the project should be established. The first choice, fundamental choice, is whether the fuel cell will be directly funded by the agency where it is purchased outright or whether we will use one of the available financing options. There is a lot of overlap in slides where I am going to discuss these options and I will try not to repeat myself too much.
The first: Mike is going to discuss the FCPower model.
NREL has worked on developing a fuel cell power model. This model is an Excel-based model, it is publicly available and documentation, user's guide, is available for download by anybody. The model is flexible in validating a lot of CHP applications but also more advanced applications such as CHHPN may be a subject of a future webinar.
Now in general for CHP applications, the model is prepopulated with the performance specifications of a number of different fuel cell types such as phosphoric acid fuel cells, molten carbonate fuel cells, PEM fuel cells. At the moment we don't have a solid oxide fuel cell prepopulated, but if you have communication with OEMs that manufacture those fuel cells, you can get specifications and the model will be able to run solid oxide fuel cells.
The model itself runs on an hourly basis since the price of electricity changes from hour to hour. It is very important to keep in account which hour, how much electricity did you produce or offset, did you shave off a sharp peak of power production during the middle of the day. Therefore, we run analysis that is on an hourly basis, and that is one of the inputs to the model.
When you're looking at evaluating such models, it is important to collect data that is hourly—electricity demands, hourly natural gas or cooling demands, and if you have cooling demand that's part of the analysis. This type of information can be readily obtained from your facility manager or if they do not have it readily available, your utility company should have that information, especially if your facility is relatively large or in the few hundred kilowatts of power.
Another input is what are the prices of your feedstock; what is your natural gas? How much do you pay per MMBtu? Does the price vary throughout the year? Do you have any other sources of gas such as biogas or are you looking at natural gas? Can you purchase renewable gas credits? Additional equipment can be put in, so if you have, for example, you are considering putting solar panels or you already have solar panels, this model would evaluate the correction of your offsite demand and power production equipment.
The model would also look at incentives. What incentives are available? Are they at risk to come out? You can look at different scenarios and of course financing options. Are you going to consider paying out of budgets or are you going to have a third party with their own return on investment requirements? Are there taxing implications?
Now, the model output is levelized cost of electricity, by determining how much natural gas cost avoidance has been applied by providing some of the waste heat. You can determine what the price of the electricity is depending on different scenarios. Of course, we are looking at avoided emissions, so the model would execute a scenario where it would look at base case scenario if you do business as usual versus if you run the model—the model would also run a fuel cell scenario to determine how much emissions you have avoided for CO2, for NOx emissions, or methane emissions.
The model should be used as a second tier of analysis. The first-tier analysis is spark spread to look at is this facility in a favorable location? If it is in a location where it has incentives, it has a favorable price of electricity and price of gas, then you should run this model to look at what kind of fuel cells would make sense for this facility. You can make sure it is the right size, and look at what kind of scenarios and financing you should pursue. Then as a third tier, you may contact the manufacturer to do a detailed engineering analysis.
The model itself is available at the link at the bottom of that slide. Thank you.
Thank you Mike. I think taking the financial outputs of the model really set up the last part of this, which is looking at the different procurement options. The most straightforward approach is an agency-funded project. Aside from the fact this is a fuel cell, the procurement cycle is similar to other major acquisitions. The first is to secure the funding. The program budget may specify a fuel cell for use in the secure facility for instance. The other steps—develop the scope, the RFP cycle, and awarding the contract and commissioning—are similar to other projects.
An agency-funded project uses a well-understood acquisition process and avoids any financing costs. The major con is that the project will not be eligible for the tax incentives because the equipment is being purchased by the federal government. Most facility managers will look to some form of financing to manage the risk and to capture the savings from the tax incentives.
Power purchase agreements or PPAs are one mechanism familiar to many facility managers. PPA is a legal agreement between the electricity generator, the provider, and the power purchaser, the buyer, or the government in this case. The contractor secures funding for the project, maintains and monitors energy production, and sells the power to the government at a contracted price for the term of the contract, perhaps 10 or 20 years.
To pursue a PPA, the facility manager should address any PPA-specific issues such as whether PPAs are permitted in the state where the facility is located and the authority of the agency to enter into a PPA. The major reason to use a PPA is that the developer will be likely eligible for tax incentives, which will lower the cost of the procurement. The PPA also shifts some of the burdens to the contractor for O&M, risk on capital equipment, and this arrangement encourages the contractor to operate the system as efficiently as possible.
Among the major cons of the involvement of another party, it increases costs for the overall project, and federal sector experience with procuring power generating equipment in this system is limited.
Another financing mechanism is an energy savings performance contract. ESPCs are used in the federal sector for energy efficiency projects and they are now viewed as an option for fuel cell projects. An ESPC is a guaranteed savings contracting mechanism that requires no upfront cost by the government. An energy services company, or ESCO, incurs the cost of implementing the fuel cell project and is paid through the energy savings.
The last one we are going to list here is a utility energy services contact. This is similar to a PPA except that the contract is with the utility company instead of with a third party developer. As I said earlier, there are more details on all of these financing mechanisms as well as on the planning process in the guide.
I will now turn the webinar back to Pete.
Thanks, Joe. Just some additional information that you might want to look at. First of all, we have been going over the guide and that is the URL to get to this guide for federal facility decision-makers. You may also want to look at some of these business cases that we mentioned and showed in some photos and find out exactly why some of the industry folks are adopting and what their experiences are. On a state-by-state basis, we have this report called the "State of the States," and you can look and see what is actually installed in your state. If you are interested in how the fuel cell industry is doing, we have a market report that shows by application what the sales have been and what the forecast is for the future.
In addition, we continue to do research and development primarily on low temperature fuel cells for other applications, and as a result—we have an annual review of all of our projects and you can look at our review proceedings. You can also look at our progress report, which is a snapshot of every research, development, and deployment project that we have sponsored in any given year.
Our next merit review is coming up next week in Arlington, Virginia, so we wanted to make you aware of that. There is a lot of information on fuel cells that you can tap into.
Okay, so that was kind of like taking a drink of water from a fire hose and if you have any questions specific to these materials, please feel free to contact us, either by email or phone: general overview for me, Jacob Spendelow for technical, Greg Moreland for specific cost benefits, Mike Penev for the fuel cell module, and Joe McGervey for different kinds of financing options he just described.
We thank you and we would like to see if there are any questions with the remaining time.
One of them is prospects for solid oxide fuel cells in stationary power facilities for CHP and in DG, distributed generation. We went over that briefly and solid oxides is kind of a newcomer to stationary fuel cells. Bloom Energy is very successfully installing them in industry and I would suggest that you check that out as a way to get more knowledgeable.
What about emissions from phosphoric acid? You showed only molten carbonate. Is there a significant difference?
Not very much between molten carbonate and phos acid. We have some information on our website if you want to see those differences, but it is pretty negligible.
What actions are required by the industry to make fuel cells more economically attractive than other power options?
Well, this is probably industry and government. More installations will achieve economies of scale in manufacturing volumes that will drive the cost down. The first car that was built in the 1890s was pretty expensive, and it wasn't until volume manufacturing occurred that most people could afford them. So that is our strategy. There are also a number of incentives, federal and state, to help reduce that first capital cost.
Are there investing incentives for any of these systems?
Good question. There is an investment tax credit that is available to taxpaying entities and that is why we talked about third party financing since federal government is not a taxpaying entity. They could sell you the power and take the tax credit through investors. That is one way. We do not have any preference. The next part of this question is there any preferred? We do not have any preferences on what kinds of investment incentives are best. We look at the states carefully. There is a generous investment tax credit in California; other states have other kinds of incentives like renewable energy credits.
Can you speak to the price of natural gas over the next 5, 10, 20 years and factors that influence the price… I think you mean of fuel cells?
Well this is the time to look at stationary fuel cells because natural gas prices are at record lows. Some quotes have been under $2 a million Btus; that wasn't even on our chart because it is so low. That is going to have a significant effect on the cost of the power, up to 30 percent or thereabouts. Therefore, it is a real good time to look at natural gas-fed fuel cell power.
Can you comment on the cost of hydrogen rather than natural gas?
I don't think I can. It is a little off topic; it would depend on the situation. Hydrogen as a fuel will experience the same kinds of affects as low cost natural gas feedstocks, meaning the price is lower than it would normally be.
What about hydrogen produced from electrolyzers? Would solar and wind in the business case still be attractive?
Yes, that is a good question. It is a little bit out of scope of what this guide is about, but yes, hydrogen produced from electrolyzers, water electrolyzers using wind or solar, can be cost-effective in some areas and we have got a number of projects that you could look at on our website that are demonstrating that.
Cost of electricity comparison among different types of fuel cells. Well, the cost of electricity, the different type of fuel cell, and the equipment is only one factor as we described and it really depends on where you are and the situation that you are in in terms of getting more power. I would go to the power module and try your situation and see what you come up with using different quotes from vendors on their equipment.
What are the federal statutes for interconnection? We need to override multinational utilities so we can make them the backup.
Federal statutes for interconnection? I would defer to the FERC people, Federal Energy and Regulatory Commission. It would be FERC.
Okay here is one: Mike Penev are you on? It says, "Please explain the units for spark spread."
Yes, so spark spread can be defined in a number of different ways and some people define it as the difference between the cost of electricity and cost of natural gas on an energy basis. Other people define it as a ratio between electricity and natural gas prices and that was displayed in here. The units that are used in this particular slide are the ratio of cents per kilowatt-hour divided by cents per million cubic feet of natural gas.
The takeaway from this particular slide is to show you where the relative price of electricity to natural gas, where is it more favorable and less favorable? If you have many facilities you want to look at, specifically where are they located? Are they in places where the relationship between gas and electricity prices is favorable or not? You may want to focus on the places where things are more favorable first.
Thanks Mike. Couple more questions: are there case studies on hybrid PV, photovoltaic, with fuel cells to maximize efficiencies?
No, but we would sure like to form those. If you have some information on a hybrid project, if you could supply it to one of us, we would like to pursue that.
Do you see other new technologies replacing natural gas to provide hydrogen? Well certainly all the renewables can provide the electricity for water electrolysis but also biogas, from landfill, wastewater treatment, anaerobic digesters, and other sources of biogas, could be another good source for feedstock for fuel cells.
Just a couple more: Is there any money available from DOE?
Not much. That is why we have this guide.
Do you have an estimate on operating costs?
Yes, we do and I would go to our website to get more information on what those operating costs are against the capital equipment costs. So that is the last question and thank you for your attention and I hope this was useful.
Just to reiterate: these slides and a recording of this presentation will be available and emailed to everyone who attended this webinar in approximately two weeks. Again, we have another webinar scheduled for May 22; that topic has yet to be disclosed, but please check back on our website to see what that webinar will be. Thank you.