The Economics of Generating Our Own Electricity

 

If you have read my blog entitled, “What is the Best Kind of Generator For a Condominium Building” you will know that the cost of electricity from the grid is increasing and that the most cost effective way to generate our own electricity is by using a natural gas powered combined heat and power (CHP) generation system.

We will recall that when we use the waste heat from the generator for space heating or hot water heating in the building. We then get heat and electricity from the gas we burn in the generator. Using the combined heat and power (CHP) approach the efficiency of natural gas generators is boosted into the 70 to 90% range.

So, let’s do some calculations and see if it makes financial sense for a condominium to generate its own electricity.

If we know that the energy consumption rate of a typical 65kW gas generator is 900 Mega joules per hour and that the energy content of natural gas is typically about 40 Mega Joules per cubic metre, then the generator will consume about 900 Mega joules per hour divided by 40 Mega joules per cubic metre or 22.5 cubic metres of gas per hour. Since 35% of the energy is used to generate electricity and the generator total fuel efficiency is 85%, we can divide 35% by 85% to determine that 41% of the fuel is being used to generate the 65kW of electricity. So, if we multiply 22.5 cubic metres per hour total gas consumption by the 41% portion used to generate electricity, we find that the generator is consuming 22.5 times 41% or 9.23 cubic metres per hour to generate 65 kilowatt Hours (kWHr) of electricity.  If we use the 18.5¢ per cubic metre 2014 cost for natural gas we can determine that the generator is using 9.23 cubic metres per hour times 18.5¢ or about $1.71 per hour to generate 65 kWhr of electricity. We can determine the cost per kilowatt hour by dividing the hourly cost by amount of electricity or $1.71 per hour for gas divided by 65 kWHr electricity generated, which equals about 2.6¢ per kilowatt hour.   (These calculations are made on the basis that the other 59% of the fuel is being used to generate useful heat that will have the same value as the cost of the natural gas used to create the 50% heat.)

This 2.6¢ per kilowatt hour electricity cost will fluctuate with cost of natural gas and from generator to generator and we need to add about 1.2¢ per kilowatt hour for operation and maintenance, giving us a total cost of about 3.8¢ per kilowatt hour. It is easy to see that 3.8¢ will be much less than the current mid-peak cost of 11.4¢ per kilowatt hour from your local electrical utility. See the graph at the top of the page.

So, now that we know how much it will cost us to generate our own electricity, let’s figure out how long it will take the generator to pay for itself.

 

Return on Investment -Natural Gas Generator

65 kW Annual Energy Cost from utility (11.4¢/kWHr)

 $61,230

Cost of fuel and maintenance for our natural gas generator (3.8¢/kWHr)

-$21,637

Ongoing Annual Electricity Cost Savings

 $39,593

 

 

Cost of 65 kW CHP Generator & Installation

$200,000

Estimated 40% Save On Energy Incentive

-$80,000

Net Cost (Cost – Incentive)

$120,000

Generator Investment Payback

36 Months

 

If we use 11.4¢ per kilowatt cost of electricity hour from the local electrical utility and the 3.8¢ per kilowatt hour cost to generate our own electricity calculated above, we can see from the table above that a 65kW natural gas generator will save us $39,593 per year in electricity cost.

And, if we estimate the OPA Save On Energy Incentive to be 40% of the cost, then the net cost of our 65kW generator will be about $120,000. Then, dividing the cost by the annual savings we see that the generator will pay for itself in about 36 months.

 

So, it is cost effective to install and own your own natural gas CHP generator. If you are interested in investigating this and other ways of saving energy for condominiums, contact us at 416 410-3815 or info@rikos.com. Let’s talk…

 

Glenn Allen P. Eng.

Project Director,

Energy and Sustainability

Rikos Engineering Ltd.

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