This episode of Alternative Power Plays is Part 1 of a discussion with Al Neuner, Vice President of Facilities Operations at Geisinger Health System. Neuner is responsible for introducing a Combined Heat and Power (CHP) system at Geisinger’s flagship hospital and healthcare site in Central Pennsylvania in the late 1990s – making him a true pioneer in the world of CHP. Since then, the system has delivered Geisinger consistently reliable energy in addition to millions in energy savings.
This episode is hosted by Alan Seltzer and John Povilaitis, Energy attorneys at Buchanan Ingersoll and Rooney. The two of them focus their legal practice in the energy and public utility space, with specific work helping clients navigate the world of Combined Heat and Power.
Part 1 of the interview with Neuner centers around his decision to bring a CHP system to Geisinger when few other healthcare facilities were even considering it. They talk about the biggest challenges with deploying CHP, the estimated cost to install and maintain, the estimated savings over the past 20-plus years, and more.
Make sure to tune in to the next episode to hear Part 2 of this enlightening energy conversation.
For any facility or business considering CHP or more closely examining their energy needs, visit www.BIPC.com/CHP and www.Brattle.com to learn more about how Buchanan and the Brattle Group can help you navigate all the steps involved.
To read more about Al Neuner and Geisinger, visit https://www.geisinger.org/.
Alan Seltzer: Hello, and welcome to Alternative Power Plays, a podcast from Buchanan Ingersoll & Rooney and The Brattle Group. In Alternative Power Plays, we talk about the new and innovative ways in which businesses are getting electricity to their facilities, buildings and other sites. I’m Alan Seltzer, an energy attorney at Buchanan, and I’m joined by my co-host and colleague at Buchanan, John Povilaitis. The two of us focus our legal practice in the energy and utilities space with specific work helping clients navigate the world of combined heat and power also known as CHP or cogeneration.
John Povilaitis: Thanks, Alan. Over the years, we’ve been lucky enough to work with some groundbreakers in the world of combined heat and power, commonly known as CHPs. And today we have with us someone who took the leap into CHP when few others would. And for him and his organization it has paid off many times over. On this episode of Alternative Power Plays, we welcome Al Neuner, Vice President of Facilities Operations at Geisinger Health System. Al first got into the world of CHP way back in 1988, and while cogeneration didn’t make a ton of financial sense in the 80s, it gave him the knowledge he needed in the late 90s to introduce a CHP system at Geisinger's flagship healthcare site in central Pennsylvania that has since delivered consistent and reliable energy in addition to millions in energy savings. Al is a true leader in this space, and we can’t wait to hear from him.
Al, thanks for joining us and handling some questions Alan is eager to pose.
Alan Seltzer: Thanks, John.
Al, as someone whose been working with CHP technology for some time, can you explain to our listeners what combined heat and power is and how it works at the facilities at Geisinger.
Al Neuner: Thanks for having me guys. I appreciate the opportunity to share some knowledge.
Combined heat and power is kind of what it says. Typically, in the electric generation process, a lot of heat is produced that power plants waste. You can typically see a power plant from maybe thirty miles away because of the large plumes of steam that you see. So, the result of that is that the processes are probably about 30% efficient and they’re throwing away about 70% of that waste heat. So, the combined heat and power process, like we have in our hospitals and are used at universities and other applications, that process we’re able to utilize that waste heat. So instead of throwing that heat away, we use that to heat our buildings, to create steam, in some cases to create cooling from steam turbine chillers. The steam can be used for building heating, humidification, food service all of those things. So what happens is instead of having a process that’s about 30% efficient, we raise that to about 75-80% efficient because we’re able to capture that heat and put it to good use.
Alan Seltzer: Can you take us through the process to adopt a CHP system? What kind of gamble did it represent back in the 1980’s and why in the 90’s did the technology finally make sense for you at Geisinger?
Al Neuner: It really comes down to financial situation and analysis. And back in the 80’s, utility prices in a regulated environment were very stable. We didn’t see much movement in them. They escalated relatively slowly, and so when we looked at this process initially, even though it was recommended when I came here to Geisinger, my studies indicated that it would not make us any money and in fact was a bad idea. What changed at the end of the 90’s, was that electric became deregulated. It became market priced. So, electricity prices at the time quickly escalated and in fact kind of paralleled natural gas pricing. But that gave us the impetus and the opportunity to implement this with some cost savings, which then became much greater once Marcellus Shale took over in the mid 90’s because that drastically, reduced not only the cost of natural gas to us but to transportation costs embedded in that which made our process even more profitable.
Alan Seltzer: So, what I’m really understanding you to be saying is that for health and hospital systems like yours, the CHP move was really an economic decision because you really thought that you could save money as opposed to purchasing electricity directly from the grid and having better or equal reliability.
Al Neuner: That’s true. We did see tremendous cost advantage. In fact, on our unit, we saw less than a two-year payback. Once we got into it, we realized that there were other benefits. The fact that less overall fuel is used compared to a powerplant, this has other implications on public health, global warming, and other things. When you take a holistic look at it, it’s really got a lot of benefits other than cost.
Alan Seltzer: Tell us a little bit about how you started deploying the CHP facility at your initial flagship hospital.
Al Neuner: It was a fun project because obviously before this, we had never done it. The curious thing was that none of the contactors that we hired to assist us, electrical and mechanical contractors had ever installed one either. So, it was a learning process for all of us. We did have some assistance from some engineering firms who had done this before. However, we had a lot of input to that design because we had to shoehorn this into an existing powerplant. We are not blessed with a lot of space to site this around our existing powerplant. And since we needed to be able to pipe the steam into our steam system, it kind of limited our locations. The process started out with a feasibility study. The feasibility study showed that this was a good investment. Our initial project was $5.3 million in total. We received about $2.75 million in grants. Giving us a net project cost around $2.6 million. And on that we had an annual first year savings of $2.2 million. And then when we added a steam turbine chiller to our system so that we could utilize more of the wasted heat in the summer, we increased those savings to $2.5 million annually.
Alan Seltzer: Fantastic! What was the most difficult part of the process, in recognizing there was a large learning curve because you were so on the vanguard of deploying this technology. Looking back on this now, what was the hardest thing you had to deal with as part of the process that would be a lesson learned for some of our listeners.
Al Neuner: I think it was some of the unknowns. We’d go down one path and then discover that we had limitations, and we had to actually change our design. For instance, our engineer had spec’ed a large firetube boiler, and when we finalized the design, we realized that the existing floor loading of the powerhouse would not support that. We had to change course rather quickly. We moved to a water tube boiler because it had much less weight. We could have reenforced the floor, but that was rather costly and didn’t have any return on that cost. The other thing that was a real monkey wrench, and I’ve testified in the past to PUC, was our local DEP office wanting us to comply with formaldehyde standards and actually put a scrubber on the exhaust. We had not seen that take place in any of the other cogeneration installations and there were several previous to ours at Reading and at Penn State that were the same units but they didn’t require that level of pollution control. We challenged that. Pennsylvania is unique in that the six DEP regions act rather independently. So, we appealed that to the Secretary of DEP and fortunately prevailed because that would have been a cost of about a quarter million dollars onto our construction costs, plus ongoing annual maintenance cost to maintain that. And these things burn so clean that I really didn’t think that was necessary. It was a challenge, but we prevailed. I think we’re better for it.
Alan Seltzer: Thanks. Recognizing that it’s been a number of years since you embarked on the initial installation and cost and benefits have changed a lot. What do you think generally that the range of cost might be to implement and do a CHP project today, for folks who may be contemplating something like this?
Al Neuner: Our costs were slightly over a million dollars a megawatt hour but that’s over 10 years ago. I’m suspecting the costs today are more like $2 million a megawatt hour. It really depends on what you have to do to get the thing installed. I know some hospitals in Pennsylvania that had to do a major structural redesign and build over an existing central utility plant to do this. And they spent $5 million a megawatt hour. At that point I think you start to lose the financial benefit of it. I think the ROI starts to stretch out pretty greatly. So, if you can keep this down to $2 million a megawatt hour, I think you’re going to have a financially successful project. But it really depends on what other infrastructure you need to do to implement the technology.
Alan Seltzer: Al, you talked a little while ago about what kind of savings you saw from your initial project and what you saw in your first year. Can you generally talk about how you assessed what the payback period was for the investment?
Al Neuner: The way I do it, because I like the financial folks to be able to follow it very clearly, so I don’t like to compare kilowatt hour costs and those kinds of things because you’ve got heating implications as well as electrical. So, what I merely do is I take our total costs for our organization at that site and then compare that to the new scenario with cogeneration. And that’s where the $2.2 million I referred to previously comes from. That $2.2 million related to a 14-month return on investment. So, in other words, the unit was paid off in 14 months. Anything after that is pure profit. And that also related to an 87% return on investment. I always refer to these things as printing money. They just run and run, and they’ve got about a 98% uptime and for every hour it runs it saves us thousands of dollars.
Alan Seltzer: That’s great Al. We’ve really covered a lot of ground here. And there’s more we’d like to talk to you about in terms of the different types of CHP technology our listeners consider. Would you be able to stick around for a little longer with us today?
Al Neuner: Sure. As long as you’re buying coffee.
Alan Seltzer: To our listeners, be sure to tune into part two of our discussion with Al Neuner from Geisinger where we’ll dive deeper into the environmental benefits of cogeneration and some of the different types of systems that facilities can deploy. In the meantime, for any facilities or businesses considering CHP or thinking about their energy options, head to BIPC.com or Brattle.com to learn more about how Buchanan and the Brattle Group can help businesses across industries through the CHP consideration, approval and installation process. Until then, I’m Alan Seltzer along with my cohost John Povilaitis of Buchanan Ingersoll & Rooney. Thanks for joining us on Alternative Power Plays.