STATIONARY FUEL CELLS Economics 101 Jane Price Hill, P. E.February 13, 2003.

STATIONARY FUEL CELLS

Economics 101

Jane Price Hill, P. E. February 13, 2003

Stationary Fuel Cells: Economics 101

• 1839 Fuel Cell

• 1893 Diesel Engine

• Late 1800s Steam Turbine

• 1930s Combustion Turbine


• Fuel cell economics compared to electric utility rates

• Fuel cell economics compared to other distributed generation technologies




• Income tax consequences for capital intensive projects

• Load factor issues

• Risk



• Expenses can be written off for tax purposes in the year in which they are incurred:

$ Fuel$ O&M$ Property taxes$ Insurance$ Labor$ Electricity


• Capital expenditures must be written off over many years:

$ Equipment$ Installation$ Engineering$ Freight$ Site preparation$ Construction


While there are several acceptable ways to evaluate capital costs, there is one common

method which is fundamentally inadequate:


Annualized capital cost =

Capital Cost

Equipment Life


• Time value of money

• Income tax consequences for capital expenditures versus expenses

• Salvage value and tax consequences of salvage


Because this method ignores:


• Income tax rate

• Discount rate

• Project life


• 35 %

• 10 %

• 10 years



0

5

10

15

20

25

Incorrect 15 year depr.,no salvage,

taxable

15 year depr.,25% salvage,

taxable

5 year depr., nosalvage, taxable

Tax exempt, nosalvage

Annualized Capital Cost, Pre Tax Equivalent

% of capital cost


• Diesel engine generator

• Spark ignited engine

• Combustion turbine

• Fuel cell


• 400 $/kW

• 800 $/kW

• 700 $/kW

• 3,000 $/kW



$0

$200

$400

$600

$800

Annual

Pre

Tax

Equiv

alen

t $/K

W

Diesel Engine Spark Ignited Engine Combustion Turbine Fuel Cell

Annualized Capital Cost



Variable O&M

$/kWh

Heat Rate Btu/kWh

(LHV)

Fuel Price $/mmBtu

(LHV)

Diesel engine 0.015 9,500 $6.38

Gas engine 0.012 9,900 $7.17

Combustion Turbine 0.003 14,000 $7.17

Fuel Cell 0.002 8,500 $7.17

Assumptions for Small Commercial Application



=

What is

used What could be used

=kWh generated

kW capacity * 8,760 hours

Load Factor



Cost per KWH, Commercial Site

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

Pre

Tax

Equ

ival

ent $/

kWh

Diesel EngineSpark Ignited Engine

Combustion TurbineFuel Cell

Capital Fixed Expenses Variable O&M Fuel

Average 2001 US commercial electric rate



Cost per KWH, Industrial Site

$0.00

$0.05

$0.10

$0.15

Pre

Tax

Equ

ival

ent $/

kWh

Diesel Engine Spark Ignited EngineCombustion Turbine Fuel Cell

Capital Fixed Expenses Variable O&M Fuel

Paper mill

LF = 89%



Comparison of Commercial and Industrial Sites

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$/k

Wh

at T

ypic

al L

oa

d F

act

ors


Commercial Industrial Commercial Rate Industrial Rate



Capital Cost Installed $/KW

Heat Rate Btu/kWh (LHV)

Diesel Engine $400 8,500

Spark Ignited Engine $450 8,500

Combustion Turbine $600 7,700

Fuel Cell $1,200 6,200

Fuel Cell$1,200Fuel Cell $1,200

Target Values



$0.00

$0.10

$0.20

$0.30

$0.40

Load Factor

Pre

Tax

Equ

ival

ent $/

kWh

- Fi

xed

& V

aria

ble

Cos

ts

11% 23% 34% 46% 57% 68% 80% 91% 100%


Comparison of Technologies Using Targets - Commercial



$0.00

$0.10

$0.20

$0.30

$0.40

Load FactorPre

Tax

Equ

ival

ent $/

kWh

- Fi

xed

& V

aria

ble

Cos

ts

11% 23% 34% 46% 57% 68% 80% 91% 100%

Diesel Engine Spark Ignited Engine Combustion Turbine

Fuel Cell Tariff

Comparison of Technologies Using Target Costs and Efficiencies Industrial Gas Prices


• The ability to reach capital cost and efficiency goals • Identifying sites where high load factor operation is

feasible• Economic value attributed to reduced emissions• Subsidies provided by governments and/or utilities


Factors which will affect fuel cell penetration:


• IC engines: trucks, passenger cars, earth-moving equipment

• Combustion turbines: military and commercial jets

• Fuel cells: the space program


STATIONARY FUEL CELLS Economics 101 Jane Price Hill, P. E.February 13, 2003.

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