Technical Support Document for the Registry of Recoverable Waste Energy
Sources, Section 372 of the 2007 Energy Independence and Security Act
(EISA) 

Prepared by ICF International for the U.S. Environmental Protection
Agency

August 29, 2008

CONTENTS

Payback Calculation for Waste Heat Recovery Projects1. Payback
Calculation for Waste Heat Recovery Projects

Introduction

Section 372 of the 2007 Energy Independence and Security Act (EISA)
calls for EPA to publish a rule to establish a Registry of Recoverable
Waste Energy Sources (Registry) and requires that, to be included in the
Registry, a project “at the site shall be determined to be
economically feasible by virtue of offering a payback of invested costs
not later than 5 years after the date of first full project operation
(including incentives….)”.  EPA intends to populate the Registry
through responses to an ongoing Waste Energy Recovery Survey (Survey),
also required under EISA.  The survey is designed to estimate the
potential for waste energy recovery projects at sites based on readily
available information on the site and each potential waste energy source
at the site.  

A simple payback calculation is the recommended approach for determining
the economic feasibility of the potential waste energy recovery
projects.  This is a standard industry approach for initial project
screening and is consistent with the level of information gathered by
and simplifying assumptions used in the Waste Energy Survey.  A more
elaborate discounted payback approach that includes the cost of capital,
projected inflation rates and alternative investment options, would
require identifying discount rates that vary by industry, application
and levels of project details that are beyond the scope of a reasonable
Survey.

Simple payback for a waste energy recovery project can be calculated by
dividing the total installed cost of the project by the projected annual
savings of the project.  The annual savings are estimated by calculating
potential savings from reduced purchases of electricity (essentially the
electricity generated by the waste energy recovery system multiplied by
the average purchase price for electricity at the site) less any
incremental operating costs required by the project (e.g., operating and
maintenance (O&M) costs for the energy recovery equipment, incremental
fuel use for traditional CHP projects).  EISA specifically requires that
the payback determination include any financial incentives established
in Sections 373 and 374; these would be added to the projected annual
savings of the project as described above.  At this time, the only
incentives that are quantified are the $10/MWh electric and
$10/3,412,000 Btu thermal recovery grants under Section 373.  This is
paid to the owners or operators of waste energy recovery projects and
only during the first three calendar years of operation.

Algorithms embedded in the survey will estimate total installed costs,
incremental O&M costs, electricity generated, and incremental fuel use
and cost for each potential waste energy recovery project at a
responding site based on input from the respondent.  Each of these
estimates will be based on rules of thumb for sizing, efficiency, and
costs that are specific to each of the potential waste energy recovery
categories (e.g., waste heat recovery, waste gas recovery, pressure drop
recovery, traditional CHP).  While the performance and cost estimates
will vary by category, the calculation approach to payback itself will
be similar.

Payback Calculation

As described above, economic feasibility of a waste heat recovery
project is a function of total installed capital costs, amount of
electricity generated, operating costs, and retail electricity prices
(assuming the electricity generated is used to displace purchased
electricity for the site).  Capital costs, amount of electricity
generated, and operating costs are functions of system capacity and
technology type.  In the case of waste heat recovery, steam turbine
power cycles are primarily used for waste heat temperatures above 800 F.
 A steam turbine recovery system would include a heat recovery boiler to
recover heat from the hot exhaust and generate high pressure steam, and
a steam turbine generator to produce electricity.  Organic Rankine
cycles (ORC) would be the primary technology used with waste heat
temperatures below 800 F.  ORCs are based on the same Rankine power
cycle as a steam-based recovery system, but they use a different working
fluid, substituting a hydrocarbon for steam.  The hydrocarbon working
fluid in an ORC evaporates at lower temperatures and pressures than
steam, enabling ORCs to generate power from lower temperature exhaust
streams.  The steps to estimate the financial feasibility of a potential
waste heat recovery system include:

Estimate Capital Costs.  The capital costs of heat recovery for power
systems are a function of capacity and operating temperatures.  These
are set by the conditions of the exhaust stream – primarily
temperature and flow.  The temperature of the exhaust stream specifies
the technology type, and a combination of temperature and flow
determines the amount of heat available for recovery, essentially
setting the potential capacity of the recovery system.  

Determining the system capacity is the first step in estimating capital
costs.  The Survey respondent is requested to input temperature and flow
for all significant exhaust streams greater than 500 F and 7,000
scf/min.  The survey tool will initially calculate the total amount of
heat available for recovery in the stream and screen to determine that
the amount is sufficient to support a 1 MW waste heat to power recovery
system.  This system capacity was selected as the current minimum
economically feasible size based on a review of systems currently in use
and discussions with manufacturers and developers.  

Potential system capacity is a function of the amount of heat available,
and the temperature of the exhaust.  The efficiency of Rankine power
cycles is highly temperature dependent (Figure 1).  The efficiency and
the amount of heat available in the stream determine the amount of
potential electricity generation capacity for the system

Figure 1 – Electricity Generation Efficiencies of Waste Heat Recovery
Cycles (Preliminary)

The efficiency sets the minimum exhaust flow as a function of
temperature (see Figure 2).

Figure 2 – Minimum Exhaust Flows for 1 MW Heat Recovery (Preliminary)

The potential electricity generation capacity of the heat recovery
project is estimated based on the amount of heat available for recovery
and the appropriate technology and efficiency for the waste source
temperature.  

Total installed system capital costs are then determined based on
industry rules of thumb as shown in Figures 3 and 4.

Figure 3 – Capital Costs for ORC Systems (Preliminary)

Figure 4 – Capital Costs for Steam Turbine Systems (Preliminary)

Amount of Electricity Generated.  The amount of electricity generated on
an annual basis is estimated by multiplying the system capacity
determined in Step 1 by the annual hours the waste heat source is
available.  The annual operating hours of the waste heat source is an
input on the survey.

Annual Operating Costs.  The operating costs are estimated based on
industry rules of thumb for non-fuel operating and maintenance costs for
ORC and steam turbine based systems.  The costs are typically a function
of system capacity, and of kWh generated.  Embedded cost estimates in
the algorithm will be in terms of $/kWh generated, and will be
technology and capacity dependent.

Retail Electricity Prices.  The payback calculation will estimate user
savings from the waste heat recovery system based on valuing the
electricity generated at the average retail electricity price currently
paid by the site.  The current average electricity price is requested as
an input on the survey.  

Calculate Estimated Simple Payback.  As described above, simple payback
for a waste heat recovery project is calculated by dividing the total
installed cost of the project by the projected annual savings of the
project.  The annual savings are estimated by calculating potential
savings from reduced purchases of electricity (i.e., the electricity
generated times the average purchase price for electricity at the site)
less any incremental operating costs required by the project (i.e.,
operating and maintenance (O&M) costs).  Incentives are included by
adding the potential average annual revenue for the first five years of
operation to the purchased electricity savings (essentially $6/MWh
assuming the amount of electricity generated is the same for the first
five years - $6/MWh = $10/MWh * 3/5).

The progression of the algorithm is:

Total Capital Cost        =	Function of system capacity and temperature
(Figures 3 and 4) 

Total Annual Savings   = 	(Electricity Generated, kWh * Average
Electricity Price, $/kWh)

			         	+  (Electricity Generated, kWh * $0.006 $/kWh)

-   (Electricity Generated, kWh * O&M costs, $/kWh)

Simple Payback 	     =	Total Capital Costs / Total Annual Savings

 Figures 1, 2, 3 and 4 are derived from internal ICF data and analysis,
as well as information included in “Waste Energy Recovery
Opportunities for Interstate Natural Gas Pipelines”, an ICF report to
the Interstate Natural Gas Association of America, February 2008.

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ICF International

