IHRS Programme – identifying projects and assessing feasibility

IHRS Programme – identifying projects and assessing feasibility
04 December 2018

Industrial Heat Recovery Support Programme – identifying projects and assessing feasibility

My last blog discussed the types of project for which grant applications to the Industrial Heat Recovery Support (IHRS) Programme can be made. It also explained what a strong application would look like.

Under Phase 1 of the Programme, applications can be made for funding to carry out feasibility studies for heat recovery and re-use. In this blog, I discuss some of the more important steps involved in identifying an opportunity for heat recovery, and assessing its technical and financial feasibility. It will be useful for those preparing applications for feasibility study grant funding and those embarking on feasibility studies.

A structured approach to identifying opportunities and assessing feasibility

At any industrial or data centre site, there may be a number of potential sources of waste heat (‘sources’) that could be used for process or space heating (‘sinks’) – which may be at or close to the site. Where this is the case, it is possible for there to exist a range of solutions (combinations) for the matching of sources with sinks. For example, one source could feed more than one sink and one sink could be fed by more than one source, and any combination in between. Because of this range of possible solutions, it is advisable to follow a structured, systematic approach when evaluating a solution, so that it can be objectively compared against the other options. In this way, when a feasibility study is concluded, a clear, unambiguous decision can be made about whether to pursue to the next stage a potential heat recovery option (or options).

The Programme’s Delivery Partner advises that, although each site is free to make more than one feasibility study grant application, each application should relate to a single identified opportunity. Nevertheless, many of the steps involved in discriminating between potential options are necessary when carrying out a feasibility study to evaluate, in detail, one specific option. There are four main steps.

Step 1 Identify and characterise the sources and sinks on site

This starts with using existing knowledge of the site and any available data to identify the most significant sources of waste heat and most significant sinks. Each of these is then characterised in terms of its temperature, flow rate, temporal characteristics and the composition of the waste heat stream. Data collected from recent site audits may provide what is needed. Data collected routinely via plant monitoring and control activities are another potentially valuable source. Where data are not current or lacking, then gaps can be filled by collecting new measurements of temperatures, flow rates and compositions. Other possibilities for filling data gaps include the use of plant specification data and even theoretical calculations. However, the more empirical the data, the more credibility the feasibility study findings will have in the eyes of decision makers. This is especially important if you wish to seek grant funding for the project’s latter stages.

Clearly, data on temperatures and flow rates are indispensable for determining the quantities of heat available and demanded. However, knowledge about the composition of the medium carrying the waste heat is key at this early stage. This is because it will indicate whether there are likely to be issues with contamination or corrosion, which could restrict the available range of heat recovery technologies.

Knowledge of the temporal characteristics of each source and sink is also indispensable. This means knowing when heat is available (source) and when it is needed (sink). Sources and sinks that look promising in terms of temperatures and chemical compatibility may prove infeasible if they are significantly out of phase with each other. Smoothing of supply and demand can be achieved via heat storage, but the costs of this can be significant and will have to be included in the economic assessment. It will also limit options to the supply of heat to lower grade heat sinks.

It is also important at this stage to understand the physical availability of waste heat, that is whether current site and plant configurations allow the waste heat to be accessed.

Step 2 Match sources to sinks

Good data collected during Step 1 will enable a robust assessment to be carried out of the compatibility of potential heat source(s) and heat sink(s) in terms of the quantity of heat available, temperature matching and chemical compatibility.

Moreover, it enables another very important characteristic of the heat streams to be understood – their ‘quality’. From the point of view of a sink, not all of the heat recoverable from a source may be useful. The quality of heat can be thought of as its ability to perform a particular duty. This property of heat is known as its ‘exergy’. In basic terms, the greater the excess temperature a source of heat has over its surroundings, the higher its exergy and the greater the potential there is for that heat do useful work – in other words, be useful to the sink.

To reflect this reality, the heat available from the source and that demanded by the sink should be analysed in terms of the exergy of each. Then, by superimposing the temporal characteristics of the source and sink, the exergy of each can be expressed in terms of a heat power availability from the source and heat power demand needed by the sink. When these are plotted as a function of time, a meaningful temporal overlap of the source and sink become apparent, with an overlap occurring over each interval of time when the exergy of the source exceeds that of the sink. Therefore, determining the temporal exergy of all of the available sources and sinks is a very powerful way of identifying the source/sink combinations with the greatest potential for heat recovery and re-use.

Step 3 Select the right heat recovery technology

Having identified the source/sink combinations offering the greatest potential for heat to be recovered and re-used, it is now necessary to select the most appropriate technology for achieving this. To identify appropriate technologies, it will be necessary to specify to technology suppliers the mechanism by which heat will be transferred from the source to the sink, the medium carrying the waste heat, the applicable operating temperatures of source and sink, and the physical envelope that the technology can occupy. Much of this information should have been collected during Step 1. From these specifications, technology suppliers will be able to propose suitable technologies, and their associated capital and operating costs and maintenance requirements. This data can then be fed into an economic analysis of the opportunity (see later).

It should not be forgotten that, for sources which (for whatever reason) have not been successfully paired up with sinks, there is an opportunity to convert the heat to power. This power can displace power that would otherwise be imported form the grid. It is certainly worth considering this option as, in recent years, the price of electricity has increased at a faster rate than that of gas at many sites, meaning that the value of each unit of displaced grid electricity is appreciably higher than it was.

Step 4 Evaluate the financial and environmental case for linking matched sources and sinks

For each technically feasible opportunity, it is now necessary to evaluate its financial performance and determine whether this is acceptable from the organisation’s point of view. It is worth keeping in mind that, should you wish to assess IHRS grant funding to take a chosen option to Phase 2 of the Programme, you will have to argue the additionality that grant funding would bring to the project. In other words, you will have to demonstrate that, although the project is technically feasible and has the potential to save energy and abate carbon dioxide (CO2), its payback or return on investment does not meet your organisation’s internal investment  hurdle rate.

As such, your evidence on the economic case needs to be robust. A robust economic case will establish a credible, appropriate baseline against which the project’s costs and benefits can be measured. This means appropriately using the data gathered in Step 1 to arrive at the monetary value of using recovered heat to displace primary fuel consumption on the site or grid imports.

All of the costs associated with implementing the project need to be included in the analysis. This means using evidenced capex and opex, and being careful to include the specific maintenance costs that often accompany heat recovery projects. In terms of the financial benefits derived from the project, these will, of course, include fuel and electricity cost savings. However, there will also be Climate Change Levy savings to factor in and, if the site is covered by the European Union Emissions Trading System (EU ETS), the CO2 avoided will also have a monetary value to the site.

Several methods are used to describe the financial performance of a proposed project – these range from ‘simple payback’, through ‘accounting rate of return’ to more sophisticated methods relying on discounting future costs and benefits to a present value (i.e. ‘net present value’ and ‘internal rate of return’). Projects with the potential to generate savings over many years should be evaluated using one of the discounting methods. While simple payback will give a rough feel for a project’s financial performance, it fails to take into account positive cash flows arising after payback is achieved, which may occur for many years. A project that appears relatively unattractive from a simple payback point of view may, when viewed over the longer term, produce acceptable returns. Your decision making will be improved and your case for grant funding strengthened by taking this longer view of a project’s cash flows.

How Ricardo can help

We work with you to:

  • Identify potential sources of waste heat and candidate sinks.
  • Collect and collate data necessary to qualify and quantify the opportunity to recover and re-use waste heat, and establish the technical feasibility for this.
  • Advise on recovery technologies available and use our market knowledge to source robust information on capex and opex for technical solutions.
  • Develop robust analyses of the likely financial and environmental performance of candidate opportunities.

If you’d like to get in touch with me to discuss, please email: Richard.Hodges@ricardo.com