Modeling the Reliability Value of Combined Heat and Power Generators in the PJM Interconnection Zone

Open Access
Miller, Drew Kenneth
Area of Honors:
Energy, Business, and Finance
Bachelor of Science
Document Type:
Thesis Supervisors:
  • Seth Adam Blumsack, Thesis Supervisor
  • Seth Adam Blumsack, Honors Advisor
  • Zhen Lei, Faculty Reader
  • CHP
  • Reliability
  • PJM Interconnection
  • Energy Economics
  • Pareto Modeling
The United States is currently suffering from an outdated and unreliable electrical grid. Electricity blackouts have been estimated to cost American consumers $79 billion a year. Increasingly violent weather events and costly blackouts have regenerated an interest in analyzing reliability and determining a way to increase the strength of the power grid. Combined heat and power (CHP) is an efficient technology that can simultaneously power and heat a facility. The use of CHP as a backup source can provide reliability benefits and protect a business from economic loss due to a power outage. In this study, the private economic value of the reliability benefits of CHP is determined. The report focuses entirely on customers in the commercial and industrial sector. This paper analyzes the outcomes of 81 power outages in the PJM interconnection zone from 1990-2010. The economic loss from a blackout in the PJM zone is modelled using blackout duration values and estimated values of lost load for small and large commercial and industrial customers. The costs of installing and operating a CHP unit is then integrated into the model. The study seeks to answer two questions: On average what is the annual value of economic harm endured because of blackouts and how does this relate to CHP cost? Furthermore, what is the annual reliability value of CHP that will negate the capital cost of a 1 MW CHP system over its lifetime? The results show that CHP generators could provide $50,741,112 - $78,145,293/MW demand in benefits to small commercial and industrial businesses, and $4,330,658 - $6,931,782.11/MW demand in benefits to large commercial and industrial business over the entire 15 year lifetime of the CHP system. It is important to note that these values are heavily reliant on the values of lost load (VOLL) that are used in this study, and the results could be drastically different if these values were to be changed.