In 1997, the US Department of Veterans Affairs (VA) was looking for ways to save money on its growing utility costs and take better control of energy assets at its two Chicago medical centers. One site, called North Chicago, is adjacent to the Great Lakes Naval Training Center. The other, Chicago West Side (the Jesse Brown VA Medical Center), is located near the University of Illinois–Chicago.

Within a year, the VA started a review of its entire asset portfolio, rethinking its core mission and how best to enhance services to veterans. As a result, the energy project was put on hold. Two years after a VA study of what type of capital asset realignment should be done in the Chicago area, the energy study was reopened. "The North Chicago site," says Ed Bradley, the VA's program leader for energy, "was good to go as a medical center and would be a part of that realignment. We revitalized the original energy project at that time."

The VA is the second-largest cabinet agency and has an inventory of sites that includes 168 hospitals and hundreds of other medical facilities, such as nursing homes and outpatient clinics, throughout the US. About 4.5 million veterans and family members receive care from the VA each year. With the rising costs of providing health care, the VA constantly looks for ways to reduce other costs so that more dollars can go directly to providing medical services.

The cogeneration (combined heat and power or CHP) concept has been around for nearly 20 years. Other federal agencies using it include: the Department of Defense, US Mint, General Services Administration, and US Postal Service. "We are interested in a centralized cogeneration facility," Bradley says, "in lieu of just doing small-scale combined heat and power or putting down a packaged generator to basically do peak shaving."

Cynthia Cordova, a member of the VA's central energy team, adds: "We did a study in 2003 that looked at all of our facilities for cogeneration potential and identified those sites that seemed to have the highest potential for energy and cost savings. Out of our 168 medical facilities, we found about 48 sites with high potential for benefiting from this type of cogeneration arrangement. Hospitals are often good candidates for cogeneration because they have high thermal loads in relation to electric loads."

To contract for the installation of cogeneration plants, the VA uses a special authority called enhanced-use leasing. This allows the VA to lease underutilized land and buildings to other parties in return for services or other forms of consideration. For cogeneration projects, the lease is part of a public-private partnership between the VA and a selected contractor to construct and operate a cogeneration energy center.

When the only alternative in North Chicago appeared to be continuing to purchase steam from the neighboring Navy facility and electricity from the local utility, Commonwealth Edison (ComEd), the VA decided on the more cost-effective choice.

Energy Systems Group
After the request for proposals (RFP) was put out and bids were submitted, the company that eventually won the project was Evansville, IN-based Energy Systems Group (ESG), which does performance contracting according to Norm Campbell, the firm's marketing director. "This includes consulting, engineering, installation, operations, and even financing. ESG guarantees their results, both in energy savings and final outcome. If we don't perform, we're financially responsible.

"This particular project, though, was completed five months ahead of schedule and right on target. One interesting part about the whole project is if you look at the players that are at the table: the VA, national and local; the US Navy; the University of Chicago Medical School; our company; the equipment vendors; and also the utility itself, it was like a big saucepot. It really took a whole lot of hands pulling together to make this project work and was a good deal all around.

"It really allows the VA some pretty good flexibility in being able to leverage the different utility services [electricity, steam, and chilled water] out of our energy center; it increases the overall efficiencies to make it a very cost-effective solution."

"This whole project was on hold," says Drew Gosling, ESG's program manager, "for roughly two and a half years. That's why this was a project with an RFP that went out in 1997, yet no one signed a contract until 2002. The VA had selected the contractor to do the project and then it went on hold for the study. The VA didn't want to implement an energy center in case this study came up with the results that the hospital had to be shut down."

The VA's Two Chicago Sites
The VA's North Chicago site is adjacent to the NTC, from which the VA used to buy steam. "There are a lot of benefits for the VA with this application," Campbell says. "Our energy center provides energy security and independence to the North Chicago VA facility. The facility has been there a long time. Its more than 20 buildings date back to World War II times. There are existing steam tunnels that we've revitalized and utilized for our utility as well as making sure that the electric distribution systems are able to maximize the benefits of a cogeneration setup."

The VA originally bought all its steam from Great Lakes Naval Training Station and all its electricity from Commonwealth Edison. It was tied to this system. "The cost that the VA was paying for their steam," says Gosling, "made them decide to put out their RFP to see if they could do it, finance it, get economic results that could make it cheaper for them to put a system in and operate it, pay for the capital on it, and still save money."

Preliminary economic analyses done by an outside consultant indicated that these were good sites at which to build an energy center, and that it would save money. Nearly one quarter of the Navy's steam output—23%—went to the VA. "The real kicker in all this," Gosling says, "is that when the Navy had outgrown their landlocked base and required additional land to build recruit barracks; VA land was available. As part of the deal, the VA negotiated with the Navy to buy steam and electricity from the new energy center as part of the interagency agreement. Thus the chief rationale was that instead of having to buy electricity and steam from ComEd and the Naval Training Center, the VA now has an energy center there that produces its own steam and electricity.

"As the Navy load grows, the VA's savings gets better because the Navy takes a higher percentage of the usage of the plant. They are becoming a bigger user with the number of barracks increasing. The more the Navy uses the more they have to share in the fixed costs of the facility and therefore it just increases the savings that the VA experiences.

"The Navy needed more space," Gosling continues. "The VA wanted to pay less than what they did have to pay for steam and electricity. Between both those things happening and the VA deciding to go ahead and do an energy center, that's how they are going to be able to, over the long-term, save significantly large amounts of money. Probably by the time they get to year three, when the Navy barracks are fully online, they're looking at savings of over a million dollars per year."

The North Chicago project had two phases. Phase I was a brand-new cogeneration energy center because there wasn't an existing steam plant or energy system in place. "It was what they call a Greenfield-type construction--so it was very much a straightforward new-plant construction," Gosling says. "With this one it wasn't like you were going to go back and retrofit an already-existing plant. Here we basically had to construct an entire plant and deal with running steam and electric lines to tie into the distribution system, as well as all interconnection with all the existing steam and electric distribution systems. Phase II was an expansion of the energy center that was already built in Phase I.

In Phase I of the energy center, ESG had two 53,000-lb/hr package boilers and a 5-MW Solar Taurus 60 turbine, with a 60,000-lb/hr heat-recovery boiler attached to it. The phase had a total of three boilers, one a recovery boiler mated up with the turbine.

Phase II added another 53,000-lb/hr boiler, a slightly larger 7-MW Solar Taurus 70 turbine, and another 60,000-lb/per hour heat-recovery boiler attached to that turbine. Now the VA has two turbine heat-recovery boiler trains and three package boilers at the energy center. All the turbines for both phases are natural gas–fired. Steam and electricity is metered and split at the plant. Some gets sent directly to the VA; some gets sent to the Navy distribution for its barracks.

"ESG does not have to be commercially available with Phase II until February 2005," Gosling says. "Everything is there and in place, still being wired and piped, and will be operational and ready for testing by this winter. Once online and operational, Commonwealth Edison will then buy back excess power from the energy center."

Both of ESG's Chicago VA projects were standalone operations. "They are both very similar plans and designs," says Lawrence Roth, head of corporate operations for ESG, "but the Chicago West Side facility was actually purchasing their steam from the University of Illinois–Chicago. What we did was build them a new steaming facility in an existing dairy building [circa 1920]. Thus we were utilizing an existing structure that was 80-plus years old. This was a cast-in-place concrete building, two floors in size … about 20,000 square feet total."

The equipment that had to go into the Chicago West Side site included a gas turbine, gas compressors, two package boilers, a heat-recovery boiler on the turbine, a two-stage absorption chiller, and a cooling tower on the roof. The two ESG energy center sites are about 30 miles apart.

"The main thing that the VA seemed to be looking for," says Roth, "was independence. Both facilities were purchasing their steam from other sources, the Navy and the University of Illinois at Chicago. They wanted to take control of their own destiny in a sense."

Roth admits to having the normal "little hurdles" in working on this project. "It is always challenging to work with a utility when your project will produce electricity paralleled and into their grid. There's a lot of red tape and precautionary measures required. The utility we worked with in Illinois was much more stringent in their requirements than what I was used to. They are very thorough in their review of your design and they specify a lot of requirements. These requirements add up, creating a great deal of expense to provide the interconnect work."

Expectations and Results
The main expectation of the project was that the VA would be able to have an energy center installed. With that, the VA could then pay for its steam and electricity as well as the cost of the energy center's operations--and actually be paying less, out of pocket, than what it was paying for steam and electricity originally.

"That was the bottom line," says ESG's Gosling. "ESG was the general contractor. Everyone was under us. We designed it, built it, and now we operate it. We don't directly receive payments from the Navy. They pay the VA. The VA is responsible for procuring all the power and steam for both those parties. The VA and Navy settle up the Navy's usage between the two of them. Commonwealth Edison is the local electrical utility, and the VA could still draw the full site load of electricity from them if they had to. Under normal operation, they are constantly connected to the local electric utility."

One part of the results has changed. When the contract was signed the baseline was different. Gas prices at that time, (2002) were about $3.50 per MMBtu. Now gas costs are $6 to $7 per MMBtu. The reality is that the Navy uses gas and it has to charge more for its steam now, too. The bottom line is that the VA will consistently save from a half million to a million per year compared to the baselines.

Win-Win Situation for the VA
According to Luke Brockman, ESG's director of operations and maintenance services, one of the beauties of an energy center is how it handles a blackout. "Having an energy source that is fully reliable and secure is of the highest importance to us and our customer," he says. "The outskirts of our Mountain Home, Tennessee, VA facility noticed some of the effects of the 2003 Northeast blackout. The control systems for the Tennessee facility detected the direct effects of what was happening throughout the Northeast, and these systems were set up so that the facility and attached customers could ride through the disturbance without any impacts. The energy center's customer [VA hospital operations] did not notice the event as the energy center disconnected from the electric grid at the first indication of a disturbance.

"It's a highly reliable system and design operation, but in short, the way we have structured our energy centers, they are able to ‘island' themselves so everybody else can be out of power and we'll still be running," Brockman notes.

The VA's Bradley is satisfied with the results and has an eye on the future. "From what we've seen, we're matching or exceeding our expectations with this project. The future looks bright for the Chicago projects and for implementing cogeneration energy centers in other VA facilities. But I will add that it all depends on the economics for cost-effectiveness. In time we may be looking at other technologies and fuel sources. Our project agreement specifies that we remain as up-to-date a facility as possible. If there are changes in technology and fuel options, those are things that at that time we will address."

PETER HILDEBRANDT writes extensively on engineering and scientific subjects.

DE - January/February 2005