Crystal City Integrated Energy Master Plan - Arlingtonva
Crystal City Integrated Energy Master Plan
August 28, 2013
Crystal City Integrated Energy Master Plan
Prepared for Arlington County, Virginia, and Vornado Charles E. Smith, WGL Holdings, Inc.
August 2013
Project Number 65354
Burns & McDonnell Engineering Company, Inc. Kansas City, Missouri
Crystal City Integrated Energy Master Plan
Executive Summary
1.0 EXECUTIVE SUMMARY 1.1
SCOPE OF STUDY
The scope of work completed for the Consortium comprised of Vornado / Charles E. Smith, Arlington County, Virginia, and Washington Gas and Light Holdings, Inc. included the development of innovative, credible and actionable recommendations for the implementation of a prioritized, phased integrated energy master plan (IEMP) based on proven feasibility analytics. The team’s first-hand knowledge of analyzing, developing, designing, constructing, and operating district energy plants allowed it to provide Crystal City with a comprehensive plan to successfully implement the recommended combined cooling, heating, and power (CCHP) plants, and district energy systems. Importantly, the feasibility analysis addressed the cost, schedule, regulatory, environmental, and program risks for integrating a credible and sustainable energy system into the fabric of Crystal City. The following tasks were conducted as part of the Crystal City IEMP study: 1. Existing Infrastructure Assessment 2. Building Equipment Assessment 3. Load Forecast Development 4. District Energy System Development 5. CCHP Plant Alternatives Development 6. Renewable Energy Alternatives Development 7. Energy Conservation Measures Development 8. Financial Model Development 9. Financial Planning and Analysis 10. Energy and Climate Performance 11. Legislative and Regulatory Review 12. Financial Value of Climate Change Legislation 13. Financial and Other Market Incentives 14. Ownership and Operating Structures 15. Market Pricing of Property
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1.2
Executive Summary
BACKGROUND
As part of the Crystal City IEMP Study, Burns & McDonnell and Ever-Green Energy (the project team) collected data, conducted research, and completed numerous analyses on the existing and future planned building stock within the Crystal City planning area. Within this assessment, the project team evaluated the market potential for district hot water (HW), district chilled water (CHW), CCHP plants, renewable energy, and energy conservation measures (ECM) in the near-term and long term planning horizons. The scope of the Crystal City IEMP was a feasibility study, not an investment grade study. This phase of the study was to determine if the project’s potential economics are favorable enough to justify future phases. Professional judgment, industry standards, and the experience of Burns & McDonnell and EverGreen Energy were used to estimate data when it was not available. The assumptions used in this analysis are clearly defined in the report and some are included in the executive summary for the reader’s benefit. The scope of the study included the analysis of 107 buildings, which are included in the boundary line identified below.
Figure 1-1 – Crystal City Planning Area
Reagan Airport Potomac Yards
Crystal City
Pentagon
Pentagon City
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1.3
Executive Summary
KEY ASSUMPTIONS
The following are key assumptions used as the basis for the Crystal City IEMP.
Economic Assumptions o
Study Term 2015 to 2050
o
Inflation 3%
o
District Energy System (DES) Project Start Date 2015
o
DES Ownership: Private Non-Profit Tax Exempt (Other cases prepared)
o
DES Finance Rate 6 percent over 25 years (Other cases prepared)
o
Building Owner Discount Rate 8 percent
o
Net Present Value (NPV) calculations conducted over a 25 year period
o
The economic analysis considered the avoided labor and maintenance costs associated with heating and cooling equipment that would be removed if the building connected to a DE system.
Natural Gas: o
Buildings in Crystal City: Washington Gas Schedule 2 Commercial and Industrial Service
o
District Energy System: Washington Gas Schedule 7 Interruptible Service
Electricity: o
Buildings in Crystal City: Dominion Schedule 10
o
District Energy System: Surplus power exported to the grid is sold back to Dominion based on Dominion Schedule 19
Costs: o
Central Plant Cost: Developed by Burns & McDonnell. The detailed cost estimates of each central plant are provided in Appendix A.
o
Grid Interconnection Cost: $1 million per plant.
o
Land Costs: $1.5M.
o
Chilled Water Transmission Pipeline (36”) Costs: $2000/linear foot
o
Hot Water Transmission Pipeline (12”) Costs: $400/linear foot
o
Building Conversion Costs to Connect to DE Chilled Water System: $150,000 to $450,000 per building
o
Building Conversion Costs to Connect to DE Hot Water System : $75,000 to $215,000 per building
Building Energy Use:
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Crystal City Integrated Energy Master Plan
o
Executive Summary
Utilized estimates for building heating and cooling energy use based on building size, occupancy, and usage.
Customers: o
DE Customers: For scenarios 1 through 14, it was assumed that all buildings will connect to the DES on the first day of its operation
o
DE Compatibility: Assumed that future buildings will be built with 4-pipe hydronic HVAC systems
1.4
DISTRICT ENERGY SYSTEM ALTERNATIVES
The Crystal City IEMP studied 14 DES alternatives, ranging from distributed alternatives serving only two buildings to Crystal City-wide options serving the entire study area. Generally speaking, these 14 alternatives are classified in two categories: distributed and central alternatives.
1.4.1 Distributed District Energy System Alternatives Ten options for distributed district energy plants were analyzed to determine which site conditions yield the best financial and greenhouse gas (GHG) reduction performance for plant siting. Crystal City was subdivided into 5 areas for this exercise, and each subdivision was connected to a CCHP plant with either a combustion turbine generator (CTG) or a reciprocating engine generator (REG) prime mover. The geographic subdivisions are established as follows:
Northwest Crystal City: North of 23rd Street, west of Jefferson Davis Highway
South Hotels: South of Airport Access Road
Parks and Plazas: South of 20th Street, North of 26th Street, east of Jefferson Davis Highway
Squares and Malls: South of 15th Street, North of 20th Street, east of Jefferson Davis Highway
A 900 Unit Multifamily Complex
The map below identifies the four district energy zones included in the study.
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Executive Summary
Figure 1-2 - Potential District Hot Water Loops Considered
The distributed plants were also configured with CCHP equipment to improve efficiencies over conventional systems. In each of these cases, however, there is only one connected plant (this is not a requirement to make them work, but does yield a lower capital expenditure than multiple plants). For high-level results of the distributed DE scenarios, see Table 11-11 below.
Table 1-1- Distributed DES Alternatives - 25 Year Economic Results Summary
Type CCHP Plant (s) Location Prime Mover Technology NPV Life Cycle Costs
OPTION 5 Distributed CCHP
OPTION 6 Distributed CCHP
NW Crystal City NW Crystal City Combustion Reciprocating Turbine Engines
OPTION 7 Distributed CCHP
OPTION 8 Distributed CCHP
OPTION 9 Distributed CCHP
Sout Hotels Combustion Turbine
Sout Hotels Reciprocating Engines
Parks & Plazas Combustion Turbine
OPTION 10 Distributed CCHP
OPTION 11 Distributed CCHP
OPTION 12 Distributed CCHP
OPTION 13 [1] Distributed CCHP Multifamily Parks & Plazas Squares & Malls Squares & Malls Building Reciprocating Combustion Reciprocating Combustion Engines Turbine Engines Turbine
OPTION 14 Distributed CCHP Multifamily Building Reciprocating Engines
Base Case
$68,675,000
$68,675,000
$78,000,000
$78,000,000
$66,713,000
$66,713,000
$57,206,000
$57,206,000
$12,968,000
$12,968,000
CHP Case
$87,157,000
$75,019,000
$89,789,000
$84,128,000
$89,735,000
$78,729,000
$55,163,000
$52,648,000
$24,570,000
$26,699,000
($18,482,000)
($6,344,000)
($11,789,000)
($6,128,000)
($23,022,000)
($12,016,000)
$2,043,000
$4,558,000
($11,602,000)
($13,731,000)
0.96%
4.74%
2.87%
4.69%
‐1.48%
2.98%
N/A
‐4.35%
NPV Savings over Base Case IRR over Base Case
6.91%
[1] Option 13 does not yield a positive annual net cash flow during the forecast and does not have an IRR.
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Crystal City Integrated Energy Master Plan
Executive Summary
1.4.2 Central District Energy System Alternatives The central plant alternatives analyzed for this study examine a district cooling loop which is composed of the buildings located within Crystal City and Potomac Yard which are compatible with district cooling (chilled water cooling) and those buildings that are district hot water compatible in Northwest Crystal City and the South Crystal City.
Four alternatives were examined, two each using CTGs as prime movers and two configured with REGs. The prime movers were selected and optimized to meet the projected loads of the district in 2015 (the earliest that these systems could be planned for installation).
There will be two total plants built for each of these options to realize the operational and economic benefits described herein; one on the north end of Crystal City, and one to the south.
Table 1-2- Central DES Options - 25 Year Economic Results Summary OPTION 1
OPTION 2
OPTION 3
OPTION 4
OPTION 2 + 2020 / 2025 Growth
Type CCHP Plant (s) Location Prime Mover Technology NPV Life Cycle Costs
Central CCHP WWTP / NW Crystal City Combustion Turbine
Central CCHP WWTP / NW Crystal City Reciprocating Engines
Central CCHP WWTP / NW Crystal City Combustion Turbine
Central CCHP WWTP / NW Crystal City Reciprocating Engines
Central CCHP WWTP / NW Crystal City Reciprocating Engines
Base Case
$300,379,000
$300,379,000
$300,379,000
$300,379,000
$331,016,000
CHP Case
$325,462,000
$301,837,000
$351,587,000
$308,725,000
$318,370,000
NPV Savings over Base Case
($25,083,000)
($1,458,000)
($51,208,000)
($8,346,000)
4.48%
5.96%
2.91%
5.58%
IRR over Base Case
$12,646,000
6.77%
As shown in the table Option 2 provides the lowest net-present value life-cycle cost (NPV LCC) and the greatest NPV benefit over the base case scenario. The impact of future HW and CHW load growth on Option 2 was also evaluated to assess the impact of adding future customers in 2020 and 2025 once the system was developed. As expected, the incremental cost to add additional HW or CHW load to the DES is less than the initial build out and thus increases the overall IRR of the project. Based on this analysis, a
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Executive Summary
properly sized large central system performed better than several smaller distributed plants developed and operated independently. The greatest financial benefit per unit cost of investment will be derived from the areas of the district where thermal heat can be delivered.
1.5
DISTRICT CHILLED WATER SYSTEM DEVELOPMENT
Based on the data collected and market potential analyses conducted, the cooling load within the entire district is dense enough to justify a comprehensive district CHW system. The cumulative building load is significant and most of the existing and future planned buildings are compatible with connecting to a district CHW system. The load is spread out throughout the district and a full district system could be built initially if the customers were all contracted early on in the development process. A general layout of the proposed district CHW system is provided in . The figure identifies where the projected 2015 thermal loads are located, the size of the thermal loads, which buildings are candidates for connecting to a DES, locations of existing cooling plants, potential locations for new CCHP plants, and potential routings for CHW transmission pipelines.
1.6
DISTRICT HOT WATER SYSTEM DEVELOPMENT
The potential for a new district HW system within Crystal City is not as favorable as district CHW, given various challenges posed by building systems’ compatibility and load significance. Given these challenges, district HW should be considered in concentrated areas, rather than throughout the district. The project team considered several separate clusters of buildings in this analysis where the heating and domestic hot water systems are compatible with district HW and the loads are significant enough to justify a HW energy cluster. The two groups, or clusters, that were identified as being the most viable near-term opportunities that could also be integrated with a new district CHW system and the respective CHW plants proposed in Northwest Crystal City and South Crystal City. A general layout of the proposed district HW systems is provided in . The figure identifies where the thermal loads are located, the size of the thermal loads, which buildings are candidates for connecting to a DES, potential locations for new CCHP plants, and potential routings for HW transmission pipelines.
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Executive Summary
Figure 1-3 - Proposed Main District Chilled Water Loop
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Executive Summary
Figure 1-4 - Proposed Main District Hot Water Loops
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1.7
Executive Summary
COMBINED COOLING, HEATING, AND POWER PLANTS DEVELOPMENT
Once the top candidate groups for district HW and district CHW were identified, the project team developed numerous CCHP plant technology options to meet the projected loads identified. CCHP systems are proposed to take advantage of superior efficiencies and to reduce overall GHG emissions for the Crystal City community. The proposed option would include two district energy plants feeding thermal utilities into the north and south ends of Crystal City. Each plant is configured with a REG as its prime-mover for CCHP production. The proposed REGs have been sized to maximize production output based on annual thermal loads. Heat recovered from the engines’ exhaust streams is used to create steam which is used to make hot water for the customers’ buildings, or is used to drive mechanical equipment to make chilled water to cool customers’ buildings. In addition to the two new district energy plants, the proposed DES option could utilize existing CHW capacity located at the existing Squares and Malls CHW plants. By capturing the heat that would otherwise be lost in the REG’s exhaust stack and recovering the heat from the REG jacket water cooling system, Crystal City will be harnessing better value for every unit of fuel. Properly managed DES are often more reliable than systems that feed individual buildings. This is due to a number of reasons, including the consolidation of assets and ability to cost-effectively introduce redundancy, dedicated and highly skilled maintenance and operational staff, and the robustness of larger equipment and systems installed in plant environments. In CCHP applications, an additional layer of reliability is introduced by the onsite power production capability which potentially enables the plant to operate when the power grid is down, such as is the case during a major weather-related event. It should be noted that in the event of an outage, the customer buildings in Crystal City without backup power generation would still be without power, though the plant could meet some of the hot and chilled water demand. A summary of the proposed CHW and HW plant capacities is provided in the figures below. A general process flow diagram of the CCHP systems that would be included in each of the new plants and a conceptual layout diagram is provided.
The Crystal City IEMP included estimates of all of the costs necessary to develop a district energy system in Crystal City, from the development of the central plant, to the piping infrastructure, to the operations and maintenance costs.
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Executive Summary
Figure 1-5 - Proposed Main District Chilled Water Loop with CCHP Plant CHW Capacities
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Executive Summary
Figure 1-6 - Proposed Main District Hot Water Loops with CCHP Plant HW Capacities
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Executive Summary
Figure 1-7 - CCHP Plants General Process Flow Diagram Purchased Power Natural Gas No. 2 Fuel Oil
POWER EXPORT TO GRID E
ENG1
E
ENG2
HEX
HEX
RECIPROCATING ENGINES HOT WATER RETURN
H R S G 1
HRU1
GAS BOILER BOILER 3
HRU2
HEAT RECOVERY STEAM GENERATORS
GAS BOILER BOILER 3
BOILERS HOT WATER SUPPLY SALES CHILLED WATER RETURN
ST
ST CH
M CH
Steam Driven Chillers
CH
M
CH
Electric Driven Chillers HOT WATER SALES
CHILLED WATER SUPPLY SALES
Note: Diagram is a general representation of how the CCHP plants operate. The number of engines, HRSGs, boilers, and chillers is for illustrative purposes only.
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Executive Summary
Figure 1-8 - CCHP Plants Conceptual Equipment General Arrangement
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1.8
Executive Summary
UTILIZING EXISTING HEATING AND COOLING EQUIPMENT
Many buildings in Crystal City have heating and cooling assets that are relatively new and still reside on the balance sheets of the prospective customers. In many of those instances, building owners may be concerned with “moth-balling” these new heating or cooling assets and be unwilling to connect to the DES. The District Energy Business (Business) could take advantage of those cooling and heating assets for dispatch during periods of high demand, which has the potential to lower the upfront cost of developing the DE system. If utilization of the existing assets occurred, a variety of contractual arrangements could be implemented to compensate the building owner for utilization of the assets.
1.9
OWNERSHIP OF DISTRICT ENERGY SYSTEM
A DES ownership, governance and organizational charter must be established early in the development process to guide decisions making. The Business’ structure may follow a number of different variations, depending upon the interests of the key stakeholders leading the development of the system. There are three primary models that the Business could follow including Private Non-Profit, Private For-Profit, and Publicly Owned
Ownership could also be a hybrid of these options (e.g., a public-private partnership). Chapter 17 of this report details the pros and cons of each business model. Many different models across North America have worked for the implementation of DE and what works for one community may not necessarily work for the next. It is important to select the structure that works best for the Crystal City community, partners, customers, and overall business. One commonality for any successful DES is a strong partnership between the building owners, the local community and the local government entities.
1.10
DISTRICT ENERGY CUSTOMERS
Due to the large up-front capital investment requirements of a district energy system, significant focus must be placed on recruiting district energy customers early in the development phase. The expected customer base will be a major driver in design decisions, business plan development and the long-term goals of the Business. Most project financing alternatives will require that a significant percentage of the plant and system thermal capacity is committed through long-term energy service agreements. Communication is a key ingredient to obtaining the energy service agreements. The current building owners will need to be educated on the benefits and reliability of being a customer of a district energy system. Having champions from a few of the major building owners in Crystal City will be essential to successfully developing the Business. 1-16
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1.11
Executive Summary
DISTRICT ENERGY UTILITY RATES
As an unregulated utility, the district energy company has the ability to set chilled water and hot water rates for its customers. The allocation of system development costs and ongoing operational expenses can be divided between those two energy sources in any number of different, defensible ways. To determine CHW and HW utility rate alternative A, costs were allocated between chilled water and hot water service on an energy (BTU) basis. These rates are based on a non-profit ownership model, which means that energy prices are based on the cost of energy production, not based on how much the market is willing to pay for energy. This rate estimation is reasonable for this phase of the feasibility study, however, rates could be restructured in future phases of the study to meet customer demand and optimize the DE system.
As part of this analysis, building specific pro forma cash flow models were prepared for every building connecting to district heating and district cooling in order to compare the LCC of receiving HW and CHW service from a DES company versus on-site heating and cooling. Generally new buildings and existing buildings planning to replace aging CHW equipment were found to be better off connecting to a central chilled water system due to the fact the building owner could offset the capital cost of installing new cooling equipment while also benefitting from lower production costs. Buildings with year round hot water loads (i.e. hotels), typically had better results with district HW than those with lower thermal loads (i.e. offices).
The same example buildings’ utility cost pro forma cash flow models were also assessed under an alternative rate scenario, Rate Alternative B, to demonstrate the impact of increasing chilled water rates (by 5%) to decrease hot water rates (by 20%).The two alternatives are show below.
Rate Alternative A
Rate Alternative B
$20,117,500
$21,123,000
$5,377,000
$4,371,500
Chilled Water Costs
Hot Water Costs
Total Costs
$25,494,500
$25,494,500
Blended Chilled Water Rate
$0.20 / Ton-hr
$0.21 / Ton-hr
Blended Hot Water Rate
$16.73 / MMBtu
$13.60 / MMBtu
This would likely result in the DES recruiting more hot water customers and fewer chilled water customers, which would in turn change the HW and CHW rates because a different number of customers 1-17
Crystal City Integrated Energy Master Plan
Executive Summary
are connected to the system. Rate setting is a complex and dynamic process and this feasibility study did not include conducting a rate optimization analysis. Future phases of this study will need to develop a more sophisticated pricing model to optimize the both the size of the DE system and the price of energy that is sold to customers. Pricing optimization will have a significant impact on the financial strength of the DE Business and overall system viability.
1.12
RENEWABLE ENERGY PROJECT DEVELOPMENT
The project team investigated numerous renewable energy supply alternatives for the purposes of the Crystal City IEMP. These energy sources included solar PV, solar thermal, ground and wastewater heat pumps, on-site wind, and renewable energy credits (REC’s). Based on input from the County staff, the wastewater treatment system infrastructure within Crystal City does not look promising for feasible application of a wastewater heat pump system. The County area does not receive sufficient, consistent wind supply to make wind energy an economically viable option. Solar energy has been implemented within the County in the past, proving the climate is suitable for solar energy production. While the total cost to generate power with solar PV is still relatively high, it is becoming more affordable and should be reevaluated in the future.
1.13
BUILDING ENERGY EFFICIENCY PROGRAM DEVELOPMENT
The project team conducted a high-level review of the existing building stock and associated HVAC systems within Crystal City. Based on the assessment, the team prepared example simulations of various building types to determine the level of energy savings that could be achieved within those types of buildings. The project team did not conduct detailed energy audits of the buildings within Crystal City. Definitive evaluations of energy efficiency potential should be conducted through building-specific study which includes detailed energy audits of the buildings as part of subsequent analysis and planning. As described within the report, many of the office, residential, and hotel buildings have the potential for significant energy savings however additional detailed investigation needs to be conducted. Energy efficiency should be used as the first step to reducing GHG emissions. Results from the theoretical study indicate that a 7% reduction in GHG emissions could potentially be possible through Crystal City-wide energy efficiency programs.
1.14
ECONOMIC ANALYSES
The project team prepared multiple financial analyses for each of the DES options considered. For each DES option, building pro forma cash flow models were developed. The pro forma cash flow models
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allowed for the assessment of the costs and benefits of receiving HW and CHW service from the proposed DES option. The DES options developed in the study were also evaluated as portfolios to determine which mix of CCHP plants, energy conservation measures (ECMs), and renewable energy projects met the Consortium’s GHG reduction goals at the lowest cost. Based on the results of the economic analyses conducted, the proposed DES system costing between $200 million and $250 million could be economically integrated into Crystal City using the phased approach (described in Section 7.3) and provide an overall positive net present value benefit to Crystal City and project IRR between 6.0 and 7.0 percent. Scenarios were also developed to assess the impact of other factors such as a U.S. carbon tax, type of ownership structure, and property value impacts. Additionally, the development of distributed solar PV and building ECM projects should be included to provide additional energy cost savings and GHG emissions reduction.
1.15
SENSITIVITY ANALYSIS
The project team conducted several sensitivity analyses to assess the impact of the key factors which may influence the overall economics of the proposed DE system. The analyses included the following:
Project Capital Cost +/- 20% - The DE total project cost estimate was varied by +/-20% (+/- $40M) to account for the various unknowns associated with the total project cost estimate.
Wholesale Natural Gas Price +/- 20% - As historical experience has proven in the PJM market, as wholesale natural gas prices increase so do wholesale power prices and Dominion’s retail electric rate riders. Any increases in wholesale natural gas prices will add value to the proposed DE project.
Building Owner Discount Rate +/- 2.0% - The baseline model developed for the Crystal City IEMP currently assumes that all building owners have a discount rate of 8.0% and thus all buildings’ pre-tax utility costs developed within this study have been discounted at this rate.
In addition to the metrics above, the potential of a smaller DES project was considered to assess the financial and rate impact to the DES project of not connecting various existing and future buildings to the system. Numerous buildings’ CHW loads and the associated system CHW capacity in north and south Crystal City were removed from the project as an alternative situation. Table 1-3 shows the impact of reducing the CHW load by nearly 66 percent while maintaining the majority of the HW customers.
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Figure 1-9 - Sensitivity Analyses
Capital Cost
‐20%
Wholesale Gas
+20%
+20%
‐20%
Bldg. Discount Rate 8%
10% $60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
6%
$10,000,000
$0
($10,000,000)
($20,000,000)
($30,000,000)
NPV Benefit/Cost ($)
Table 1-3 - Connected Load Sensitivity Analysis
Type CCHP Plant (s) Location Prime Mover Technology
OPTION 2
OPTION 2
OPTION 2
Central CCHP
Central CCHP
Central CCHP
WWTP / NW Crystal City
WWTP / NW Crystal City
WWTP / NW Crystal City
Reciprocating Engines
Reciprocating Engines With Reduced Cooling & Heating Loads
Reciprocating Engines
Base Line Scenario
48,300
16,600
121
110
Increase (Decrease)
‐31,700
Peak System Cooling Load
(Tons)
Peak System Heating Load
(MMBtu/hr)
Total Cooling Plant Cost
($)
$ 167,548,000
$ 60,227,000
$ (107,321,000)
Total CHP Plant Cost
($)
$ 50,280,000
$ 47,376,000
$ (2,904,000)
Total Plant Cost
($)
$ 217,828,000
$ 107,603,000
$ (110,225,000)
Chilled Water Rate
($/Ton‐hr)
$ 0.2088
$ 0.2307
$ 0.0220
Hot Water Rate
($/MMBtu)
$ 17.40
$ 19.23
$ 1.83
Base Case NPV LCC
($)
$331,016,000
$ 157,535,000
$ (173,481,000)
CHP Case NPV LCC
($)
$318,370,000
$ 160,025,000
$ (158,345,000)
NPV Savings over Base Case
($)
$12,646,000
IRR over Base Case
(%)
Base Case CO2 Emissions
(Tons)
CCHP CO2 Emissions Reduction
(Tons)
CCHP Case CO2 Emissions
(Tons)
CCHP CO2 Emission Savings
(%)
19.06%
‐11
$ (2,490,000) $ (15,136,000)
6.77%
5.86%
‐0.91%
390,487
390,487
0
‐74,425
‐55,265
19,160
316,062
335,222
19,160
14.15%
‐4.91%
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Executive Summary
The sensitivity analyses demonstrates that an increase in development costs of 20 percent, a decrease in natural gas prices of 20 percent, or a significant reduction in the number of connected DE customers would each put significant strain on the project’s economics and could make the project economically unviable. Conversely, if development costs are lower, if natural gas prices are higher, or if the number of customers were increased compared to the numbers assumed in this study, the project’s economics would be improved.
There are a number of items that can carry significant cost variability from the budgeted amounts. These costs must be researched should the Crystal City IEMP continue to the next phase. Each of the following cost assumptions has the potential to increase upfront capital cost by more than $10 million each.
Land costs. The study budgeted $1.5M for land costs for both the north and the south plants. Actual land cost could potentially be millions of dollars higher than the estimate. Conversely, land costs could also be zero should the DE plant be located on County-owned land. Thus, it is important that future phases of this project identify low-cost options for siting DE plants.
Electrical grid interconnection costs. $1.0 million was budgeted for grid interconnection costs. Grid interconnection costs could range from a few hundred thousand dollars to over $10 million. Further study is required in conjunction with Dominion and PJM to develop a more accurate cost estimate.
Other issues identified by the Consortium as major variables in the total project cost estimate include the underground transmission pipeline cost estimates and building energy transfer station (ETS) costs. Currently, the cost estimate for the transmission pipeline does not assume any cost saving synergies with the development of the Crystal City streetcar. If the streetcar and the DE transmission pipeline were installed at the same time, total costs could decrease as much as $10 million. Total ETS cost could vary by +/- $10 million.
1.16
ANNUAL GREENHOUSE GAS EMISSIONS
For each of the DES alternatives and portfolios developed, annual GHG emissions estimates were developed by building and the system as presented in the previous section of this report. The GHG emissions included in the forecast included those associated with providing heating, cooling, domestic hot water, and electricity for the buildings within Crystal City. For the lowest cost portfolio, Option 2 + DSM + Renewables, a forecast of annual GHG emissions was prepared and is presented in Figure 1-10.
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Figure 1-10 - Annual CO2 Emissions Forecast
The combination of district energy, energy efficiency and renewable energy could produce GHG emissions reduction of 30 percent in the Crystal City area under the DES option discussed above. This significant reduction could potentially be even larger if additional energy efficiency opportunities are pursued and if renewable technology improves. These large reductions in global GHG emissions help the County move closer to its goal to reduce per capita emissions to 3.0 mt/capita.
1.17
COMMUNITY RELATIONS
A primary step in the successful development of a district energy system is to effectively communicate a district energy system’s advantages to the community as well as positioning the Crystal City area for a renewable and sustainable energy future. It is important to recognize that this can be a very labor and time-intensive education process as there are very few sources of local energy generation and emissions in Arlington. However, the communication process will effectively develop the vision of a shared community energy asset.
Once Phase 2 activities are completed, the Consortium and / or lead project development team can decide to proceed with Phase 3 of the DES project which includes detailed design, construction, and operation of the DES business if warranted.
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1.18
Executive Summary
RECOMMENDATIONS AND CONCLUSIONS
The project team recommends that the Consortium continue with subsequent phases of development of the proposed Crystal City DES project and DES business. The Crystal City IEMP shows a potential business case for the development of a DES, but the precise scope, size, schedule and cost of the DES project will need to be further studied in order to conclude economic viability. Among the conclusions of the Study, the project team has concluded the following:
The installation of a DES to serve the compatible buildings within Crystal City appears technically and environmentally viable based on results of this conceptual analysis. The economics of this phase appear positive enough to deserve a subsequent phase of study to further assess the long term viability of a business model.
Of the 14 options analyzed, the most favorable option is a Crystal City-wide DES. This option would include two district energy plants feeding thermal utilities into the north and south ends of Crystal City. Each plant is configured with a REG as its prime-mover for CCHP production. The proposed REGs have been sized to maximize production output based on annual thermal loads.
By using locally generated electricity, superior efficiency, and waste heat from a natural gas-fired CCHP system, this DES scenario would reduce global GHG emissions by approximately 20 percent.
In general, larger DES options were found to have more favorable economics than smaller options. The smallest option which included a DES serving a 900 unit apartment complex produced an IRR of negative 4 percent.
The proposed DES option exhibits potential operational savings over the life of the analysis when compared to the business as usual method of delivering site produced utilities (base case). The operational cost savings are on the order of 6 to 7 percent on a Crystal City-wide basis.
The business model and rate structure for the DES will, in part, determine if it is economical for each building to connect to the system.
The sensitivity analyses show natural gas prices and upfront capital costs significantly impact the economic viability of the DES. The DES will be more economically viable if natural gas prices are higher than assumed in this study, and the converse is also true.
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1.19
Executive Summary
NEXT STEPS
The next critical step will be the in-depth investigation of the potential customers’ properties which will allow more accurate definition of the DES project. Once the project is further defined and costs further developed, contracts for services can be developed with potential customers. Table 1-4 and present the various stages of developing a community DES project, and which of those stages have been addressed within the Crystal City IEMP Study, and which will need to be addressed in subsequent efforts. The Crystal City IEMP Study has addressed the Phase I stages of developing a DES project within an existing community. These stages include objective setting, data gathering, project definition, and an options appraisal. In order to further develop and define the proposed project the Consortium and / or lead project development team will next need to complete Phase 2 of the DES project development which will include: (1) establishing the business structure of the proposed DES and (2) conducting a more detailed analysis of the proposed DES in a comprehensive feasibility analysis which would address the following items listed in .
Customer Definition
Financial Modeling
Energy Production Modeling
Distribution Modeling
System Design Development
Permitting, Easement, and Regulatory Evaluation
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Table 1-4 - District Energy System Project Development – Phase 1
Phase I
Stage
Lead
Data needs and considerations
Support
1
Crystal City IEMP Study
Preliminary planning City/district plan/master • Planners plan Climate Action Plan • Economic development officers • Government officials • Project developer
• Location and demands of new development • Engineering, planning or sustainability consultants • Existing energy demands • Community members, stakeholders and • Existing energy installations interest groups • Resource assessment • Other planning bodies or project • Emissions reduction developers • Objectives
2
Crystal City IEMP Study
Objectives setting
• Other planning bodies or project developers
3
Crystal City IEMP Study
Data gathering
4
Crystal City IEMP Study
Project definition
• Economics and cost-effectiveness • Environmental benefits and emissions reductions • Energy security • Development density • Demand loads • Mix of uses • Age of buildings • Anchor loads • Barriers and opportunities • Energy mapping • Prioritize clusters with maximum density, diversity and anchors, and identify key buildings to be connected
5
Crystal City IEMP Study
Options appraisal
• Detailed analysis of options identified in Stages 1 to 4
• Engineering, planning, or master planning consultants • DOE Clean Energy Application Centers
• Government officials • Planners • Economic development officers • Project developer • Government officials • Planners • Economic development officers • Project developer
• Government officials • Planners • Economic development officers • Project developer • Government officials • Planners • Economic development officers • Project developer
1-25
• Engineering, planning, or master planning consultants • Building owners and managers • DOE Clean Energy Application Centers • Engineering consultants • DOE Clean Energy Application Centers
Crystal City Integrated Energy Master Plan
Executive Summary
Table 1-5 - District Energy System Project Development - Phase 2 and Phase 3
Phase III
Phase II
Stage
Lead
Data needs and considerations
Support
6
Next Stages of Business structuring DES Project Development
• Project developer
• Define the structure of the Business • Establish the Governance of the Business • Establish the general rate structure
• Local Government • District energy system operator/manager
7
Next Stages of Financial modeling DES Project Development
• Project developer
• Consultants • Financial advisors • District energy system operator/manager
8
Next Stages of Customer Definition DES Project Development
• Project developer
• Capital cost • Operational cost • Revenue • Detailed financial viability assessment based upon the preferred option & ownership structure • Meet with individual building owners to guage interest in connecting to district energy • Evaluate buildings on an individual basis to establish estimate for connecting to district
9
• Project developer Next Stages of Energy Production Modeling, Distribution Modeling, and System Design Development DES Project Development
• Establish likely customer base and locations • Engineering Consultants • District energy system operator/manager • Define initial & phased production needs • Identify existing production assets for incorporation • Establish possible production site locations & distribution maps • Develop 30 percent system design and engineering cost estimate for project.
10
Next Stages of Permitting, Easement & Regulatory Evaluation DES Project Development
• Project developer
• Permits required for implementation & expected timelines • Possible regulatory requirements • Franchise or easement requirements
• Engineering Consultants • Local Government • District energy system operator/manager
11
Next Stages of System Detailed Design Development DES Project Development
• Project developer
• Sufficient design to allow for lump-sum construction bids • Sufficient design to facilitate permitting & easement process • Finalization of energy production sites & utilization of existing assets
• Engineering Consultants • Architectural and business community • Other project developers • Local Government • District energy system operator/manager
12
Next Stages of Business modeling DES Project Development
• Project developer
• • • •
Consultants Legal advisers Tax and/or bond counsel District energy system operator/manager
13
Next Stages of Project procurement and delivery DES Project Development
• Project developer
• Project type • Attitude to risk • Desire for long-term control • Regulation implications • Access to finance and the desired Internal Rate of Return • Level of public/private-sector involvement • Overall project viability
• • • •
Engineering consultants Procurement officers Legal advisers District energy system operator/manager
*****
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• Engineering Consultants • District energy system operator/manager
Burns & McDonnell 9400 Ward Parkway Kansas City, MO 64114 Phone: 816-333-9400 Fax: 816-333-3690 www.burnsmcd.com
August 28, 2013
Crystal City Integrated Energy Master Plan
Prepared for Arlington County, Virginia, and Vornado Charles E. Smith, WGL Holdings, Inc.
August 2013
Project Number 65354
Burns & McDonnell Engineering Company, Inc. Kansas City, Missouri
Crystal City Integrated Energy Master Plan
Executive Summary
1.0 EXECUTIVE SUMMARY 1.1
SCOPE OF STUDY
The scope of work completed for the Consortium comprised of Vornado / Charles E. Smith, Arlington County, Virginia, and Washington Gas and Light Holdings, Inc. included the development of innovative, credible and actionable recommendations for the implementation of a prioritized, phased integrated energy master plan (IEMP) based on proven feasibility analytics. The team’s first-hand knowledge of analyzing, developing, designing, constructing, and operating district energy plants allowed it to provide Crystal City with a comprehensive plan to successfully implement the recommended combined cooling, heating, and power (CCHP) plants, and district energy systems. Importantly, the feasibility analysis addressed the cost, schedule, regulatory, environmental, and program risks for integrating a credible and sustainable energy system into the fabric of Crystal City. The following tasks were conducted as part of the Crystal City IEMP study: 1. Existing Infrastructure Assessment 2. Building Equipment Assessment 3. Load Forecast Development 4. District Energy System Development 5. CCHP Plant Alternatives Development 6. Renewable Energy Alternatives Development 7. Energy Conservation Measures Development 8. Financial Model Development 9. Financial Planning and Analysis 10. Energy and Climate Performance 11. Legislative and Regulatory Review 12. Financial Value of Climate Change Legislation 13. Financial and Other Market Incentives 14. Ownership and Operating Structures 15. Market Pricing of Property
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1.2
Executive Summary
BACKGROUND
As part of the Crystal City IEMP Study, Burns & McDonnell and Ever-Green Energy (the project team) collected data, conducted research, and completed numerous analyses on the existing and future planned building stock within the Crystal City planning area. Within this assessment, the project team evaluated the market potential for district hot water (HW), district chilled water (CHW), CCHP plants, renewable energy, and energy conservation measures (ECM) in the near-term and long term planning horizons. The scope of the Crystal City IEMP was a feasibility study, not an investment grade study. This phase of the study was to determine if the project’s potential economics are favorable enough to justify future phases. Professional judgment, industry standards, and the experience of Burns & McDonnell and EverGreen Energy were used to estimate data when it was not available. The assumptions used in this analysis are clearly defined in the report and some are included in the executive summary for the reader’s benefit. The scope of the study included the analysis of 107 buildings, which are included in the boundary line identified below.
Figure 1-1 – Crystal City Planning Area
Reagan Airport Potomac Yards
Crystal City
Pentagon
Pentagon City
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Crystal City Integrated Energy Master Plan
1.3
Executive Summary
KEY ASSUMPTIONS
The following are key assumptions used as the basis for the Crystal City IEMP.
Economic Assumptions o
Study Term 2015 to 2050
o
Inflation 3%
o
District Energy System (DES) Project Start Date 2015
o
DES Ownership: Private Non-Profit Tax Exempt (Other cases prepared)
o
DES Finance Rate 6 percent over 25 years (Other cases prepared)
o
Building Owner Discount Rate 8 percent
o
Net Present Value (NPV) calculations conducted over a 25 year period
o
The economic analysis considered the avoided labor and maintenance costs associated with heating and cooling equipment that would be removed if the building connected to a DE system.
Natural Gas: o
Buildings in Crystal City: Washington Gas Schedule 2 Commercial and Industrial Service
o
District Energy System: Washington Gas Schedule 7 Interruptible Service
Electricity: o
Buildings in Crystal City: Dominion Schedule 10
o
District Energy System: Surplus power exported to the grid is sold back to Dominion based on Dominion Schedule 19
Costs: o
Central Plant Cost: Developed by Burns & McDonnell. The detailed cost estimates of each central plant are provided in Appendix A.
o
Grid Interconnection Cost: $1 million per plant.
o
Land Costs: $1.5M.
o
Chilled Water Transmission Pipeline (36”) Costs: $2000/linear foot
o
Hot Water Transmission Pipeline (12”) Costs: $400/linear foot
o
Building Conversion Costs to Connect to DE Chilled Water System: $150,000 to $450,000 per building
o
Building Conversion Costs to Connect to DE Hot Water System : $75,000 to $215,000 per building
Building Energy Use:
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Crystal City Integrated Energy Master Plan
o
Executive Summary
Utilized estimates for building heating and cooling energy use based on building size, occupancy, and usage.
Customers: o
DE Customers: For scenarios 1 through 14, it was assumed that all buildings will connect to the DES on the first day of its operation
o
DE Compatibility: Assumed that future buildings will be built with 4-pipe hydronic HVAC systems
1.4
DISTRICT ENERGY SYSTEM ALTERNATIVES
The Crystal City IEMP studied 14 DES alternatives, ranging from distributed alternatives serving only two buildings to Crystal City-wide options serving the entire study area. Generally speaking, these 14 alternatives are classified in two categories: distributed and central alternatives.
1.4.1 Distributed District Energy System Alternatives Ten options for distributed district energy plants were analyzed to determine which site conditions yield the best financial and greenhouse gas (GHG) reduction performance for plant siting. Crystal City was subdivided into 5 areas for this exercise, and each subdivision was connected to a CCHP plant with either a combustion turbine generator (CTG) or a reciprocating engine generator (REG) prime mover. The geographic subdivisions are established as follows:
Northwest Crystal City: North of 23rd Street, west of Jefferson Davis Highway
South Hotels: South of Airport Access Road
Parks and Plazas: South of 20th Street, North of 26th Street, east of Jefferson Davis Highway
Squares and Malls: South of 15th Street, North of 20th Street, east of Jefferson Davis Highway
A 900 Unit Multifamily Complex
The map below identifies the four district energy zones included in the study.
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Executive Summary
Figure 1-2 - Potential District Hot Water Loops Considered
The distributed plants were also configured with CCHP equipment to improve efficiencies over conventional systems. In each of these cases, however, there is only one connected plant (this is not a requirement to make them work, but does yield a lower capital expenditure than multiple plants). For high-level results of the distributed DE scenarios, see Table 11-11 below.
Table 1-1- Distributed DES Alternatives - 25 Year Economic Results Summary
Type CCHP Plant (s) Location Prime Mover Technology NPV Life Cycle Costs
OPTION 5 Distributed CCHP
OPTION 6 Distributed CCHP
NW Crystal City NW Crystal City Combustion Reciprocating Turbine Engines
OPTION 7 Distributed CCHP
OPTION 8 Distributed CCHP
OPTION 9 Distributed CCHP
Sout Hotels Combustion Turbine
Sout Hotels Reciprocating Engines
Parks & Plazas Combustion Turbine
OPTION 10 Distributed CCHP
OPTION 11 Distributed CCHP
OPTION 12 Distributed CCHP
OPTION 13 [1] Distributed CCHP Multifamily Parks & Plazas Squares & Malls Squares & Malls Building Reciprocating Combustion Reciprocating Combustion Engines Turbine Engines Turbine
OPTION 14 Distributed CCHP Multifamily Building Reciprocating Engines
Base Case
$68,675,000
$68,675,000
$78,000,000
$78,000,000
$66,713,000
$66,713,000
$57,206,000
$57,206,000
$12,968,000
$12,968,000
CHP Case
$87,157,000
$75,019,000
$89,789,000
$84,128,000
$89,735,000
$78,729,000
$55,163,000
$52,648,000
$24,570,000
$26,699,000
($18,482,000)
($6,344,000)
($11,789,000)
($6,128,000)
($23,022,000)
($12,016,000)
$2,043,000
$4,558,000
($11,602,000)
($13,731,000)
0.96%
4.74%
2.87%
4.69%
‐1.48%
2.98%
N/A
‐4.35%
NPV Savings over Base Case IRR over Base Case
6.91%
[1] Option 13 does not yield a positive annual net cash flow during the forecast and does not have an IRR.
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7.72%
Crystal City Integrated Energy Master Plan
Executive Summary
1.4.2 Central District Energy System Alternatives The central plant alternatives analyzed for this study examine a district cooling loop which is composed of the buildings located within Crystal City and Potomac Yard which are compatible with district cooling (chilled water cooling) and those buildings that are district hot water compatible in Northwest Crystal City and the South Crystal City.
Four alternatives were examined, two each using CTGs as prime movers and two configured with REGs. The prime movers were selected and optimized to meet the projected loads of the district in 2015 (the earliest that these systems could be planned for installation).
There will be two total plants built for each of these options to realize the operational and economic benefits described herein; one on the north end of Crystal City, and one to the south.
Table 1-2- Central DES Options - 25 Year Economic Results Summary OPTION 1
OPTION 2
OPTION 3
OPTION 4
OPTION 2 + 2020 / 2025 Growth
Type CCHP Plant (s) Location Prime Mover Technology NPV Life Cycle Costs
Central CCHP WWTP / NW Crystal City Combustion Turbine
Central CCHP WWTP / NW Crystal City Reciprocating Engines
Central CCHP WWTP / NW Crystal City Combustion Turbine
Central CCHP WWTP / NW Crystal City Reciprocating Engines
Central CCHP WWTP / NW Crystal City Reciprocating Engines
Base Case
$300,379,000
$300,379,000
$300,379,000
$300,379,000
$331,016,000
CHP Case
$325,462,000
$301,837,000
$351,587,000
$308,725,000
$318,370,000
NPV Savings over Base Case
($25,083,000)
($1,458,000)
($51,208,000)
($8,346,000)
4.48%
5.96%
2.91%
5.58%
IRR over Base Case
$12,646,000
6.77%
As shown in the table Option 2 provides the lowest net-present value life-cycle cost (NPV LCC) and the greatest NPV benefit over the base case scenario. The impact of future HW and CHW load growth on Option 2 was also evaluated to assess the impact of adding future customers in 2020 and 2025 once the system was developed. As expected, the incremental cost to add additional HW or CHW load to the DES is less than the initial build out and thus increases the overall IRR of the project. Based on this analysis, a
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Crystal City Integrated Energy Master Plan
Executive Summary
properly sized large central system performed better than several smaller distributed plants developed and operated independently. The greatest financial benefit per unit cost of investment will be derived from the areas of the district where thermal heat can be delivered.
1.5
DISTRICT CHILLED WATER SYSTEM DEVELOPMENT
Based on the data collected and market potential analyses conducted, the cooling load within the entire district is dense enough to justify a comprehensive district CHW system. The cumulative building load is significant and most of the existing and future planned buildings are compatible with connecting to a district CHW system. The load is spread out throughout the district and a full district system could be built initially if the customers were all contracted early on in the development process. A general layout of the proposed district CHW system is provided in . The figure identifies where the projected 2015 thermal loads are located, the size of the thermal loads, which buildings are candidates for connecting to a DES, locations of existing cooling plants, potential locations for new CCHP plants, and potential routings for CHW transmission pipelines.
1.6
DISTRICT HOT WATER SYSTEM DEVELOPMENT
The potential for a new district HW system within Crystal City is not as favorable as district CHW, given various challenges posed by building systems’ compatibility and load significance. Given these challenges, district HW should be considered in concentrated areas, rather than throughout the district. The project team considered several separate clusters of buildings in this analysis where the heating and domestic hot water systems are compatible with district HW and the loads are significant enough to justify a HW energy cluster. The two groups, or clusters, that were identified as being the most viable near-term opportunities that could also be integrated with a new district CHW system and the respective CHW plants proposed in Northwest Crystal City and South Crystal City. A general layout of the proposed district HW systems is provided in . The figure identifies where the thermal loads are located, the size of the thermal loads, which buildings are candidates for connecting to a DES, potential locations for new CCHP plants, and potential routings for HW transmission pipelines.
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Crystal City Integrated Energy Master Plan
Executive Summary
Figure 1-3 - Proposed Main District Chilled Water Loop
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Crystal City Integrated Energy Master Plan
Executive Summary
Figure 1-4 - Proposed Main District Hot Water Loops
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Crystal City Integrated Energy Master Plan
1.7
Executive Summary
COMBINED COOLING, HEATING, AND POWER PLANTS DEVELOPMENT
Once the top candidate groups for district HW and district CHW were identified, the project team developed numerous CCHP plant technology options to meet the projected loads identified. CCHP systems are proposed to take advantage of superior efficiencies and to reduce overall GHG emissions for the Crystal City community. The proposed option would include two district energy plants feeding thermal utilities into the north and south ends of Crystal City. Each plant is configured with a REG as its prime-mover for CCHP production. The proposed REGs have been sized to maximize production output based on annual thermal loads. Heat recovered from the engines’ exhaust streams is used to create steam which is used to make hot water for the customers’ buildings, or is used to drive mechanical equipment to make chilled water to cool customers’ buildings. In addition to the two new district energy plants, the proposed DES option could utilize existing CHW capacity located at the existing Squares and Malls CHW plants. By capturing the heat that would otherwise be lost in the REG’s exhaust stack and recovering the heat from the REG jacket water cooling system, Crystal City will be harnessing better value for every unit of fuel. Properly managed DES are often more reliable than systems that feed individual buildings. This is due to a number of reasons, including the consolidation of assets and ability to cost-effectively introduce redundancy, dedicated and highly skilled maintenance and operational staff, and the robustness of larger equipment and systems installed in plant environments. In CCHP applications, an additional layer of reliability is introduced by the onsite power production capability which potentially enables the plant to operate when the power grid is down, such as is the case during a major weather-related event. It should be noted that in the event of an outage, the customer buildings in Crystal City without backup power generation would still be without power, though the plant could meet some of the hot and chilled water demand. A summary of the proposed CHW and HW plant capacities is provided in the figures below. A general process flow diagram of the CCHP systems that would be included in each of the new plants and a conceptual layout diagram is provided.
The Crystal City IEMP included estimates of all of the costs necessary to develop a district energy system in Crystal City, from the development of the central plant, to the piping infrastructure, to the operations and maintenance costs.
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Crystal City Integrated Energy Master Plan
Executive Summary
Figure 1-5 - Proposed Main District Chilled Water Loop with CCHP Plant CHW Capacities
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Crystal City Integrated Energy Master Plan
Executive Summary
Figure 1-6 - Proposed Main District Hot Water Loops with CCHP Plant HW Capacities
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Crystal City Integrated Energy Master Plan
Executive Summary
Figure 1-7 - CCHP Plants General Process Flow Diagram Purchased Power Natural Gas No. 2 Fuel Oil
POWER EXPORT TO GRID E
ENG1
E
ENG2
HEX
HEX
RECIPROCATING ENGINES HOT WATER RETURN
H R S G 1
HRU1
GAS BOILER BOILER 3
HRU2
HEAT RECOVERY STEAM GENERATORS
GAS BOILER BOILER 3
BOILERS HOT WATER SUPPLY SALES CHILLED WATER RETURN
ST
ST CH
M CH
Steam Driven Chillers
CH
M
CH
Electric Driven Chillers HOT WATER SALES
CHILLED WATER SUPPLY SALES
Note: Diagram is a general representation of how the CCHP plants operate. The number of engines, HRSGs, boilers, and chillers is for illustrative purposes only.
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Executive Summary
Figure 1-8 - CCHP Plants Conceptual Equipment General Arrangement
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Crystal City Integrated Energy Master Plan
1.8
Executive Summary
UTILIZING EXISTING HEATING AND COOLING EQUIPMENT
Many buildings in Crystal City have heating and cooling assets that are relatively new and still reside on the balance sheets of the prospective customers. In many of those instances, building owners may be concerned with “moth-balling” these new heating or cooling assets and be unwilling to connect to the DES. The District Energy Business (Business) could take advantage of those cooling and heating assets for dispatch during periods of high demand, which has the potential to lower the upfront cost of developing the DE system. If utilization of the existing assets occurred, a variety of contractual arrangements could be implemented to compensate the building owner for utilization of the assets.
1.9
OWNERSHIP OF DISTRICT ENERGY SYSTEM
A DES ownership, governance and organizational charter must be established early in the development process to guide decisions making. The Business’ structure may follow a number of different variations, depending upon the interests of the key stakeholders leading the development of the system. There are three primary models that the Business could follow including Private Non-Profit, Private For-Profit, and Publicly Owned
Ownership could also be a hybrid of these options (e.g., a public-private partnership). Chapter 17 of this report details the pros and cons of each business model. Many different models across North America have worked for the implementation of DE and what works for one community may not necessarily work for the next. It is important to select the structure that works best for the Crystal City community, partners, customers, and overall business. One commonality for any successful DES is a strong partnership between the building owners, the local community and the local government entities.
1.10
DISTRICT ENERGY CUSTOMERS
Due to the large up-front capital investment requirements of a district energy system, significant focus must be placed on recruiting district energy customers early in the development phase. The expected customer base will be a major driver in design decisions, business plan development and the long-term goals of the Business. Most project financing alternatives will require that a significant percentage of the plant and system thermal capacity is committed through long-term energy service agreements. Communication is a key ingredient to obtaining the energy service agreements. The current building owners will need to be educated on the benefits and reliability of being a customer of a district energy system. Having champions from a few of the major building owners in Crystal City will be essential to successfully developing the Business. 1-16
Crystal City Integrated Energy Master Plan
1.11
Executive Summary
DISTRICT ENERGY UTILITY RATES
As an unregulated utility, the district energy company has the ability to set chilled water and hot water rates for its customers. The allocation of system development costs and ongoing operational expenses can be divided between those two energy sources in any number of different, defensible ways. To determine CHW and HW utility rate alternative A, costs were allocated between chilled water and hot water service on an energy (BTU) basis. These rates are based on a non-profit ownership model, which means that energy prices are based on the cost of energy production, not based on how much the market is willing to pay for energy. This rate estimation is reasonable for this phase of the feasibility study, however, rates could be restructured in future phases of the study to meet customer demand and optimize the DE system.
As part of this analysis, building specific pro forma cash flow models were prepared for every building connecting to district heating and district cooling in order to compare the LCC of receiving HW and CHW service from a DES company versus on-site heating and cooling. Generally new buildings and existing buildings planning to replace aging CHW equipment were found to be better off connecting to a central chilled water system due to the fact the building owner could offset the capital cost of installing new cooling equipment while also benefitting from lower production costs. Buildings with year round hot water loads (i.e. hotels), typically had better results with district HW than those with lower thermal loads (i.e. offices).
The same example buildings’ utility cost pro forma cash flow models were also assessed under an alternative rate scenario, Rate Alternative B, to demonstrate the impact of increasing chilled water rates (by 5%) to decrease hot water rates (by 20%).The two alternatives are show below.
Rate Alternative A
Rate Alternative B
$20,117,500
$21,123,000
$5,377,000
$4,371,500
Chilled Water Costs
Hot Water Costs
Total Costs
$25,494,500
$25,494,500
Blended Chilled Water Rate
$0.20 / Ton-hr
$0.21 / Ton-hr
Blended Hot Water Rate
$16.73 / MMBtu
$13.60 / MMBtu
This would likely result in the DES recruiting more hot water customers and fewer chilled water customers, which would in turn change the HW and CHW rates because a different number of customers 1-17
Crystal City Integrated Energy Master Plan
Executive Summary
are connected to the system. Rate setting is a complex and dynamic process and this feasibility study did not include conducting a rate optimization analysis. Future phases of this study will need to develop a more sophisticated pricing model to optimize the both the size of the DE system and the price of energy that is sold to customers. Pricing optimization will have a significant impact on the financial strength of the DE Business and overall system viability.
1.12
RENEWABLE ENERGY PROJECT DEVELOPMENT
The project team investigated numerous renewable energy supply alternatives for the purposes of the Crystal City IEMP. These energy sources included solar PV, solar thermal, ground and wastewater heat pumps, on-site wind, and renewable energy credits (REC’s). Based on input from the County staff, the wastewater treatment system infrastructure within Crystal City does not look promising for feasible application of a wastewater heat pump system. The County area does not receive sufficient, consistent wind supply to make wind energy an economically viable option. Solar energy has been implemented within the County in the past, proving the climate is suitable for solar energy production. While the total cost to generate power with solar PV is still relatively high, it is becoming more affordable and should be reevaluated in the future.
1.13
BUILDING ENERGY EFFICIENCY PROGRAM DEVELOPMENT
The project team conducted a high-level review of the existing building stock and associated HVAC systems within Crystal City. Based on the assessment, the team prepared example simulations of various building types to determine the level of energy savings that could be achieved within those types of buildings. The project team did not conduct detailed energy audits of the buildings within Crystal City. Definitive evaluations of energy efficiency potential should be conducted through building-specific study which includes detailed energy audits of the buildings as part of subsequent analysis and planning. As described within the report, many of the office, residential, and hotel buildings have the potential for significant energy savings however additional detailed investigation needs to be conducted. Energy efficiency should be used as the first step to reducing GHG emissions. Results from the theoretical study indicate that a 7% reduction in GHG emissions could potentially be possible through Crystal City-wide energy efficiency programs.
1.14
ECONOMIC ANALYSES
The project team prepared multiple financial analyses for each of the DES options considered. For each DES option, building pro forma cash flow models were developed. The pro forma cash flow models
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Crystal City Integrated Energy Master Plan
Executive Summary
allowed for the assessment of the costs and benefits of receiving HW and CHW service from the proposed DES option. The DES options developed in the study were also evaluated as portfolios to determine which mix of CCHP plants, energy conservation measures (ECMs), and renewable energy projects met the Consortium’s GHG reduction goals at the lowest cost. Based on the results of the economic analyses conducted, the proposed DES system costing between $200 million and $250 million could be economically integrated into Crystal City using the phased approach (described in Section 7.3) and provide an overall positive net present value benefit to Crystal City and project IRR between 6.0 and 7.0 percent. Scenarios were also developed to assess the impact of other factors such as a U.S. carbon tax, type of ownership structure, and property value impacts. Additionally, the development of distributed solar PV and building ECM projects should be included to provide additional energy cost savings and GHG emissions reduction.
1.15
SENSITIVITY ANALYSIS
The project team conducted several sensitivity analyses to assess the impact of the key factors which may influence the overall economics of the proposed DE system. The analyses included the following:
Project Capital Cost +/- 20% - The DE total project cost estimate was varied by +/-20% (+/- $40M) to account for the various unknowns associated with the total project cost estimate.
Wholesale Natural Gas Price +/- 20% - As historical experience has proven in the PJM market, as wholesale natural gas prices increase so do wholesale power prices and Dominion’s retail electric rate riders. Any increases in wholesale natural gas prices will add value to the proposed DE project.
Building Owner Discount Rate +/- 2.0% - The baseline model developed for the Crystal City IEMP currently assumes that all building owners have a discount rate of 8.0% and thus all buildings’ pre-tax utility costs developed within this study have been discounted at this rate.
In addition to the metrics above, the potential of a smaller DES project was considered to assess the financial and rate impact to the DES project of not connecting various existing and future buildings to the system. Numerous buildings’ CHW loads and the associated system CHW capacity in north and south Crystal City were removed from the project as an alternative situation. Table 1-3 shows the impact of reducing the CHW load by nearly 66 percent while maintaining the majority of the HW customers.
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Crystal City Integrated Energy Master Plan
Executive Summary
Figure 1-9 - Sensitivity Analyses
Capital Cost
‐20%
Wholesale Gas
+20%
+20%
‐20%
Bldg. Discount Rate 8%
10% $60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
6%
$10,000,000
$0
($10,000,000)
($20,000,000)
($30,000,000)
NPV Benefit/Cost ($)
Table 1-3 - Connected Load Sensitivity Analysis
Type CCHP Plant (s) Location Prime Mover Technology
OPTION 2
OPTION 2
OPTION 2
Central CCHP
Central CCHP
Central CCHP
WWTP / NW Crystal City
WWTP / NW Crystal City
WWTP / NW Crystal City
Reciprocating Engines
Reciprocating Engines With Reduced Cooling & Heating Loads
Reciprocating Engines
Base Line Scenario
48,300
16,600
121
110
Increase (Decrease)
‐31,700
Peak System Cooling Load
(Tons)
Peak System Heating Load
(MMBtu/hr)
Total Cooling Plant Cost
($)
$ 167,548,000
$ 60,227,000
$ (107,321,000)
Total CHP Plant Cost
($)
$ 50,280,000
$ 47,376,000
$ (2,904,000)
Total Plant Cost
($)
$ 217,828,000
$ 107,603,000
$ (110,225,000)
Chilled Water Rate
($/Ton‐hr)
$ 0.2088
$ 0.2307
$ 0.0220
Hot Water Rate
($/MMBtu)
$ 17.40
$ 19.23
$ 1.83
Base Case NPV LCC
($)
$331,016,000
$ 157,535,000
$ (173,481,000)
CHP Case NPV LCC
($)
$318,370,000
$ 160,025,000
$ (158,345,000)
NPV Savings over Base Case
($)
$12,646,000
IRR over Base Case
(%)
Base Case CO2 Emissions
(Tons)
CCHP CO2 Emissions Reduction
(Tons)
CCHP Case CO2 Emissions
(Tons)
CCHP CO2 Emission Savings
(%)
19.06%
‐11
$ (2,490,000) $ (15,136,000)
6.77%
5.86%
‐0.91%
390,487
390,487
0
‐74,425
‐55,265
19,160
316,062
335,222
19,160
14.15%
‐4.91%
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Crystal City Integrated Energy Master Plan
Executive Summary
The sensitivity analyses demonstrates that an increase in development costs of 20 percent, a decrease in natural gas prices of 20 percent, or a significant reduction in the number of connected DE customers would each put significant strain on the project’s economics and could make the project economically unviable. Conversely, if development costs are lower, if natural gas prices are higher, or if the number of customers were increased compared to the numbers assumed in this study, the project’s economics would be improved.
There are a number of items that can carry significant cost variability from the budgeted amounts. These costs must be researched should the Crystal City IEMP continue to the next phase. Each of the following cost assumptions has the potential to increase upfront capital cost by more than $10 million each.
Land costs. The study budgeted $1.5M for land costs for both the north and the south plants. Actual land cost could potentially be millions of dollars higher than the estimate. Conversely, land costs could also be zero should the DE plant be located on County-owned land. Thus, it is important that future phases of this project identify low-cost options for siting DE plants.
Electrical grid interconnection costs. $1.0 million was budgeted for grid interconnection costs. Grid interconnection costs could range from a few hundred thousand dollars to over $10 million. Further study is required in conjunction with Dominion and PJM to develop a more accurate cost estimate.
Other issues identified by the Consortium as major variables in the total project cost estimate include the underground transmission pipeline cost estimates and building energy transfer station (ETS) costs. Currently, the cost estimate for the transmission pipeline does not assume any cost saving synergies with the development of the Crystal City streetcar. If the streetcar and the DE transmission pipeline were installed at the same time, total costs could decrease as much as $10 million. Total ETS cost could vary by +/- $10 million.
1.16
ANNUAL GREENHOUSE GAS EMISSIONS
For each of the DES alternatives and portfolios developed, annual GHG emissions estimates were developed by building and the system as presented in the previous section of this report. The GHG emissions included in the forecast included those associated with providing heating, cooling, domestic hot water, and electricity for the buildings within Crystal City. For the lowest cost portfolio, Option 2 + DSM + Renewables, a forecast of annual GHG emissions was prepared and is presented in Figure 1-10.
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Crystal City Integrated Energy Master Plan
Executive Summary
Figure 1-10 - Annual CO2 Emissions Forecast
The combination of district energy, energy efficiency and renewable energy could produce GHG emissions reduction of 30 percent in the Crystal City area under the DES option discussed above. This significant reduction could potentially be even larger if additional energy efficiency opportunities are pursued and if renewable technology improves. These large reductions in global GHG emissions help the County move closer to its goal to reduce per capita emissions to 3.0 mt/capita.
1.17
COMMUNITY RELATIONS
A primary step in the successful development of a district energy system is to effectively communicate a district energy system’s advantages to the community as well as positioning the Crystal City area for a renewable and sustainable energy future. It is important to recognize that this can be a very labor and time-intensive education process as there are very few sources of local energy generation and emissions in Arlington. However, the communication process will effectively develop the vision of a shared community energy asset.
Once Phase 2 activities are completed, the Consortium and / or lead project development team can decide to proceed with Phase 3 of the DES project which includes detailed design, construction, and operation of the DES business if warranted.
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Crystal City Integrated Energy Master Plan
1.18
Executive Summary
RECOMMENDATIONS AND CONCLUSIONS
The project team recommends that the Consortium continue with subsequent phases of development of the proposed Crystal City DES project and DES business. The Crystal City IEMP shows a potential business case for the development of a DES, but the precise scope, size, schedule and cost of the DES project will need to be further studied in order to conclude economic viability. Among the conclusions of the Study, the project team has concluded the following:
The installation of a DES to serve the compatible buildings within Crystal City appears technically and environmentally viable based on results of this conceptual analysis. The economics of this phase appear positive enough to deserve a subsequent phase of study to further assess the long term viability of a business model.
Of the 14 options analyzed, the most favorable option is a Crystal City-wide DES. This option would include two district energy plants feeding thermal utilities into the north and south ends of Crystal City. Each plant is configured with a REG as its prime-mover for CCHP production. The proposed REGs have been sized to maximize production output based on annual thermal loads.
By using locally generated electricity, superior efficiency, and waste heat from a natural gas-fired CCHP system, this DES scenario would reduce global GHG emissions by approximately 20 percent.
In general, larger DES options were found to have more favorable economics than smaller options. The smallest option which included a DES serving a 900 unit apartment complex produced an IRR of negative 4 percent.
The proposed DES option exhibits potential operational savings over the life of the analysis when compared to the business as usual method of delivering site produced utilities (base case). The operational cost savings are on the order of 6 to 7 percent on a Crystal City-wide basis.
The business model and rate structure for the DES will, in part, determine if it is economical for each building to connect to the system.
The sensitivity analyses show natural gas prices and upfront capital costs significantly impact the economic viability of the DES. The DES will be more economically viable if natural gas prices are higher than assumed in this study, and the converse is also true.
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Crystal City Integrated Energy Master Plan
1.19
Executive Summary
NEXT STEPS
The next critical step will be the in-depth investigation of the potential customers’ properties which will allow more accurate definition of the DES project. Once the project is further defined and costs further developed, contracts for services can be developed with potential customers. Table 1-4 and present the various stages of developing a community DES project, and which of those stages have been addressed within the Crystal City IEMP Study, and which will need to be addressed in subsequent efforts. The Crystal City IEMP Study has addressed the Phase I stages of developing a DES project within an existing community. These stages include objective setting, data gathering, project definition, and an options appraisal. In order to further develop and define the proposed project the Consortium and / or lead project development team will next need to complete Phase 2 of the DES project development which will include: (1) establishing the business structure of the proposed DES and (2) conducting a more detailed analysis of the proposed DES in a comprehensive feasibility analysis which would address the following items listed in .
Customer Definition
Financial Modeling
Energy Production Modeling
Distribution Modeling
System Design Development
Permitting, Easement, and Regulatory Evaluation
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Crystal City Integrated Energy Master Plan
Executive Summary
Table 1-4 - District Energy System Project Development – Phase 1
Phase I
Stage
Lead
Data needs and considerations
Support
1
Crystal City IEMP Study
Preliminary planning City/district plan/master • Planners plan Climate Action Plan • Economic development officers • Government officials • Project developer
• Location and demands of new development • Engineering, planning or sustainability consultants • Existing energy demands • Community members, stakeholders and • Existing energy installations interest groups • Resource assessment • Other planning bodies or project • Emissions reduction developers • Objectives
2
Crystal City IEMP Study
Objectives setting
• Other planning bodies or project developers
3
Crystal City IEMP Study
Data gathering
4
Crystal City IEMP Study
Project definition
• Economics and cost-effectiveness • Environmental benefits and emissions reductions • Energy security • Development density • Demand loads • Mix of uses • Age of buildings • Anchor loads • Barriers and opportunities • Energy mapping • Prioritize clusters with maximum density, diversity and anchors, and identify key buildings to be connected
5
Crystal City IEMP Study
Options appraisal
• Detailed analysis of options identified in Stages 1 to 4
• Engineering, planning, or master planning consultants • DOE Clean Energy Application Centers
• Government officials • Planners • Economic development officers • Project developer • Government officials • Planners • Economic development officers • Project developer
• Government officials • Planners • Economic development officers • Project developer • Government officials • Planners • Economic development officers • Project developer
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• Engineering, planning, or master planning consultants • Building owners and managers • DOE Clean Energy Application Centers • Engineering consultants • DOE Clean Energy Application Centers
Crystal City Integrated Energy Master Plan
Executive Summary
Table 1-5 - District Energy System Project Development - Phase 2 and Phase 3
Phase III
Phase II
Stage
Lead
Data needs and considerations
Support
6
Next Stages of Business structuring DES Project Development
• Project developer
• Define the structure of the Business • Establish the Governance of the Business • Establish the general rate structure
• Local Government • District energy system operator/manager
7
Next Stages of Financial modeling DES Project Development
• Project developer
• Consultants • Financial advisors • District energy system operator/manager
8
Next Stages of Customer Definition DES Project Development
• Project developer
• Capital cost • Operational cost • Revenue • Detailed financial viability assessment based upon the preferred option & ownership structure • Meet with individual building owners to guage interest in connecting to district energy • Evaluate buildings on an individual basis to establish estimate for connecting to district
9
• Project developer Next Stages of Energy Production Modeling, Distribution Modeling, and System Design Development DES Project Development
• Establish likely customer base and locations • Engineering Consultants • District energy system operator/manager • Define initial & phased production needs • Identify existing production assets for incorporation • Establish possible production site locations & distribution maps • Develop 30 percent system design and engineering cost estimate for project.
10
Next Stages of Permitting, Easement & Regulatory Evaluation DES Project Development
• Project developer
• Permits required for implementation & expected timelines • Possible regulatory requirements • Franchise or easement requirements
• Engineering Consultants • Local Government • District energy system operator/manager
11
Next Stages of System Detailed Design Development DES Project Development
• Project developer
• Sufficient design to allow for lump-sum construction bids • Sufficient design to facilitate permitting & easement process • Finalization of energy production sites & utilization of existing assets
• Engineering Consultants • Architectural and business community • Other project developers • Local Government • District energy system operator/manager
12
Next Stages of Business modeling DES Project Development
• Project developer
• • • •
Consultants Legal advisers Tax and/or bond counsel District energy system operator/manager
13
Next Stages of Project procurement and delivery DES Project Development
• Project developer
• Project type • Attitude to risk • Desire for long-term control • Regulation implications • Access to finance and the desired Internal Rate of Return • Level of public/private-sector involvement • Overall project viability
• • • •
Engineering consultants Procurement officers Legal advisers District energy system operator/manager
*****
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• Engineering Consultants • District energy system operator/manager
Burns & McDonnell 9400 Ward Parkway Kansas City, MO 64114 Phone: 816-333-9400 Fax: 816-333-3690 www.burnsmcd.com
