Part VI
Let’s now look more closely at the realities of running a DG system, in order to be profitable and stay in business. The assumption here is that one is able to build the system within budget, “commission” it (which means get it running, approved, fine-tuned and operating to produce energy), and then provide operation and maintenance on it.
Our systems all ran on natural gas, as Diesel engines are not an option for a primary power system (as opposed to a backup system), because they are not that clean and the rules do not allow for continuous operation of diesel generators. Same goes for coal and other forms of carbon-based fuel. So, natural gas is used for a few reasons. First, natural gas is the cleanest fuel around. Part of the whole idea of DG is to be “Green” and produce more environmentally friendly energy. Also, based on anticipated pricing, we expected that natural gas would work within the bounds of the proforma.
But, natural gas – like all commodities – has variable pricing. That is, like the cost of apples or gas at the pump, the price of natural gas can go up one day and down the next. However, it is anticipated to be within a band, whose expected average should be somewhat predictable and should work for the proforma. When we started building these DG systems, the price of gas was $3 MMBTU (measurement of a quantity of gas). The prices would vary, but generally stay within perhaps 20% of that price.
However, based on many factors, including 911 and the ensuing wars in the Middle East, the so-called “gas crisis” and just plain politics, the price of natural gas nearly tripled – to around $8 MMBTU. This would be analogous to going into the trucking business and buying a fleet of MAC trucks, figuring the cost of gas will average $3.00 per gallon. If it goes to $2.50 that is good, and if it goes to $3.50, that is not good, but probably something you can live with. But when it goes to $8.00 – well, at those prices, it does not make sense to even start the trucks’ engines.
So, while all the benefits of the DG systems exist, if they can’t be run profitably, they won’t be run at all – if not at first, then over time, when the money starts to run out. One of the complexities of this business is being, among many other things, a buyer of gas, a “hedger,” prognosticator and implementer. After all, like the old adage: “It takes money to make money,” so too does it take energy – gas – to make energy – electricity!
When the price of natural gas goes past some calculable threshold, when the production of electricity and thermal energy becomes necessarily unprofitable, it is time to turn the engines off. However, we were not in business to NOT generate energy. So, it is easy to imagine how one can get caught in betwixt and in between in the DG business!
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