Life Cycle Cost Analysis

Natural Gas Versus Coal fired Boiler

Henry Manczyk, CPE, CEM

Director of Facilities Engineering

During the process of equipment selection to renovate or upgrade facilities, one must consider is the economics of the alternatives available to accomplish this. A low-priced system or piece of equipment, for example, might appear initially attractive, but might be excessively costly to operate over its lifetime or its useful life might be unusually short, making the item of less economic value than other alternatives in the long term. The technique of “Life Cycle Cost Analysis” allows one to move beyond the simple acquisition cost of a piece of equipment to evaluating its long term economic impact on the facility for which it is proposed.

The aspects one considers in “Life Cycle Cost Analysis” include ingredients such as: the initial purchase price of the system or piece of equipment; estimated useful life; operating and maintenance costs; energy costs adjusted by energy efficiency factors; and salvage value of the equipment at the end of its useful life (not applicable in this report). Operating and maintenance costs are typically discounted to obtain the net present value of the cost stream.

The report compares the life cycle cost analyses of two boiler systems fired with natural gas as opposed to coal fired boiler that are potentially considered at the moment to be installed at the Unity Hospital as part of an expansion program. Both of the two alternatives have a 25-year estimated useful life. A uniform 6% discount rate is applied to the cost stream of each to calculate the net present value of the annual energy and maintenance costs. The annual energy cost shown, based on natural gas cost of $7.556/decatherm and $0.080/kwh has been adjusted for equipment efficiency. The detailed calculations for each system follow in the report.

Based on the analysis of the given alternatives, the recommended option is a new natural gas fired boiler which is the most attractive economically and environmentally friendly system over the 25-year period.

Motives For Conversion From Coal to Natural Gas Boiler

Recent changes in the price of natural gas have made that fuel economically attractive, with added benefit of reduced omissions of SO², NO² and CO². Therefore, at the Hospital which operates a 24 years old coal fired boiler, a conversion from coal firing to natural gas firing might be an option worth considering.

The price of natural gas has recently become more attractive as a base load fuel due to additional supply and reduced demand from general industry. The obvious solution is natural gas. Compared to coal, natural gas is a high quality energy source. It is also efficient and has low pollution omissions.

The key forces that drive the decision to convert from coal to natural gas are as following; age of the boiler, fuel costs, new needs of plant output and future regulatory enhanced emission requirements for coal fired equipment.

Advantages of Natural Gas

§ Is more environmentally friendly compared to coal, largely because of it has only one carbon and hence, producing less emissions.

§ It is relatively cheap and very cost effective.

§ Emits 60-90% less smog producing pollutants.

§ Due to clear burning process doesn’t produce ashes after energy release.

§ Has high heating value of 1020 BTU’s per cubic feet.

§ Operating costs are lower as opposed to coal.

§ Labor costs are lower from its alternative coal.

§ Contributes to community’s environmental goals.

§ Avoids hospital’s liability to comply with EPA and DEC regulations.

§ Future regulatory enhanced emission requirements for coal fired systems that will increase the cost for the required new anti polluting components and controls.

§ Does not release any particulates and smoke (opacity) to the environment.

§ Reduces breakdowns of equipment thus increasing the reliability of the operations.

§ Eliminates the presence of sulfur dioxide.

Note: While current economic conditions favor natural gas usage, we must keep in mind the impact of future changes in fuel prices and the potential risk associated with natural gas price volatility.

References: Rochester Gas & Electric, Commercial & Industrial Dept. Staff

August 9, 2010

Natural Gas Costs VERSUS Bituminous Coal Costs

At the present time, boiler #4 has the capability to fire with natural gas, fuel oil #2, and Bituminous coal. As a result of past years skyrocketing costs of natural gas, fuel in the form of coal has become much more attractive as well as cost effective, when comparing the production of 1000 pounds of steam (1- MB) with coal versus the natural gas. However, the substantial difference in prizing has changed in the past few years and at the moment both fuels are running very competitive one versus the other.

The existing tri-fuel boiler is 24 years old and is nearing the end of its useful life. Based on economic evaluation it was determined, that it would be more economically feasible to replace the tri-fuel boiler with a new natural gas fire high pressure steam boiler despite the lower annual energy cost with the existing coal fired boiler. We recommend that the baseline measure of a natural gas fired boiler be installed since it is the best life cycle cost alternative when all factors including labor and maintenance costs are considered.