### SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis September 20, 2007

Final Staff Report with Appendices for Revised Proposed Amendments to Rule 4703 

# APPENDIX C

Cost Effectiveness Analysis for Revised Proposed Amendments to Rule 4703 (Stationary Gas Turbines)

September 20, 2007

### SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis September 20, 2007

Final Staff Report with Appendices for Revised Proposed Amendments to Rule 4703 

### C-2 COST EFFECTIVENESS ANALYSIS

Rule 4703 (Stationary Gas Turbines)

I. SUMMARY

District staff has performed a preliminary cost effectiveness analysis for the proposed amendments of Rule 4703 as required by the Ca lifornia Health and Safety Code. Rule 4703 is being amended to specify Best Availabl e Retrofit Control Technology (BARCT) emission limits and all feasible measures for stationary gas turbines in the San Joaquin Valley Air Basin. Cost effectiveness is the total annualized cost, in dollars, of the proposed control option divided by emissions reduction, in tons, of the proposed control option.

Four scenarios were analyzed for cost effectiveness. Each scenario considered the installation of a selective catalytic reducti on (SCR) control system to comply with the proposed NOx emission limits. The scenarios included low cost and high cost estimates to retrofit existing turbines and low cost and high co st estimates for new turbine installations. Several cases were analyzed for each scenario. The cases analyzed included different

size turbines and different annual hours of operation. Table 1 below summarizes the results of the cost effectiveness analysis for fu ll time units. Table 2 below summarizes the

results of the cost effectiveness anal ysis for units operated 877 hrs/year.

Table 1 Summary of Cost Effectiveness Analysis Results for Full Time Units

Cost Effectiveness ($/ton) Turbine Size, MW New Installation

Low Cost New Installation High Cost Retrofit

Low Cost Retrofit High Cost

1 $ 27,813 $ 29,827 $ 30,844 $ 41,912

2 $ 16,914 $ 18,928 $ 20,943 $ 31,013

4 $ 10,447 $ 12,317 $ 14,187 $ 23,539

6 $ 10,964 $ 13,344 $ 12,355 $ 21,707

8 $ 9,757 $ 12,137 $ 11,407 $ 20,758

10 $ 9,011 $ 11,392 $ 13,772 $ 25,674

25 $ 10,504 $ 14,075 $ 17,645 $ 35,498

### SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis September 20, 2007

Final Staff Report with Appendices for Revised Proposed Amendments to Rule 4703 

### C-3 Table 2 Summary of Cost Effectiveness Analysis Results for Units Operated 877 Hrs/year

Cost Effectiveness ($/ton) Turbine Size, MW New Installation

Low Cost New Installation High Cost Retrofit

Low Cost Retrofit High Cost

1 $ 59,999 $ 78,105 $ 95,215 $ 186,746

2 $ 49,100 $ 67,206 $ 85,313 $ 175,847

4 $ 46,538 $ 65,938 $ 85,339 $ 182,339

6 $ 56,540 $ 81,231 $ 83,224 $ 180,225

8 $ 55,147 $ 79,838 $ 82,130 $ 179,131

10 $ 54,287 $ 78,978 $ 103,669 $ 227,125

25 $ 67,560 $ 99,658 $ 131,757 $ 292,249



### In general, the cost effectiveness analysis indica ted that the larger units with the higher annual hours of operation had the lower cost e ffectiveness. The smaller units with the lower annual hours of operation had the higher co st effectiveness. Although a few of the results indicated a high cost effectiveness, su ch results are influenced more by the effect of the low emissions reduction and not from high annual costs. District staff feels that the

cost effectiveness results are reasonable for the cases analyzed. The results of the analysis are at the end of this appendix.

Industry provided cost estimates for retrofitti ng different types of turbines commonly used by the petroleum industry that show that for sm all turbines the installed cost ranges from $420/KW to $1300/KW. District staff feels that the cost estimates ($100/KW to $450/KW) used for the cost effectiveness analysis are reasonable for the cases analyzed.

II. REQUIREMENTS OF THE ANALYSIS

Pursuant to Section 40920.6 of the California Health and Safety Code, prior to adopting rules or regulations to meet the requirement for BARCT or for a feasible measure, the District is required to review the informati on developed to assess the cost effectiveness of the proposed control option. Cost effectivene ss is the total annualized cost, in dollars, of the proposed control option divided by the emi ssions reduction, in tons, of the proposed control option.

### SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis September 20, 2007

Final Staff Report with Appendices for Revised Proposed Amendments to Rule 4703 

### C-4 III. COST EFFECTIVENESS ANALYSIS

As noted above, four scenarios were analyzed for cost effectiveness. Each scenario

considered the installation of a SCR cont rol system to comply with the proposed NOx

emission limits. The scenarios included low co st and high cost estimates for new turbine installations and low cost and high cost estimate s to retrofit existing turbines. The four

scenarios are listed below:

Scenario 1 - new turbine installation low cost estimate ($100/KW)

Scenario 2 - new turbine installation high cost estimate ($150/KW)

Scenario 3 - retrofit installation low cost estimate ($200/KW)

Scenario 4 - retrofit installation high cost estimate ($450/KW)

These estimated capital costs (in $/KW) of the SCR control system were provided by industry. Several cases were analyzed for each scenario. The cases considered turbine sizes of 1 to 10 MW and 25 MW. These sizes are comparable to the sizes of the turbines subject to the proposed NOx em ission limits. In addition, the cases considered annual operating hours that ranged from 877 to 7884 hours. As detailed below, the estimated

NOx emissions reduction and the estimated annual costs of a SCR control system were

calculated. The estimated NOx cost effectiveness was then determined for each case.

A. Cost Effectiveness Calculation

The cost effectiveness analysis was performed as follows for each case of each scenario:

1. The estimated annualized capital costs and additional operating and maintenance costs for the selective catalytic reducti on (SCR) system were calculated using the methodology from a 1999 study prepared by ONSITE SYCOM Energy Corporation and SCR costs from Solar Turbines Incorporated (STI). Table A-5, 1999 Conventional SCR Cost Comparison, in the ONSITE SYCOM Energy Corporation study contains a methodology for calculating the total annual costs for SCR systems for different size turbines. District staff used this methodology (4.2 MW turbine) to calculate the total annual costs of the SCR systems. As appr opriate, dollar amounts were adjusted to 2007 dollars (assume CPI increased 4%/year). Table 3 below presents a sample

calculation of the SCR annual costs.

2. The estimated Current Annual NOx emissi ons and the estimated Potential Annual NOx emissions were calculated using the following equation:

NOx = LF x MMBtu/hr x HR x EF / 2,000 lb/ton

### SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis September 20, 2007

Final Staff Report with Appendices for Revised Proposed Amendments to Rule 4703 

### C-5 Where:
NOx = Current annual NOx emissions or Potential annual NOx emissions

LF = turbine load factor MMBtu/HR = heat input rating

HR = annual hours of operation

EF = NOx emission factor in pounds per MMBtu

Where: EF = NOx emission factor in ppmv x 0.00366 ppmv = NOx emissions in parts per million corrected to 15% oxygen

0.00366 = Conversion factor used: 0.00366 lb/MMBtu per ppmv NOx

3. The estimated annual NOx emissions r eduction was calculated using the following equation:

NOx Emissions Reduction = Current annual NOx emissions - Potential annual NOx

emissions.

4. The cost effectiveness was calculated by di viding total annual costs by the tons of NOx emissions reduced per year.

B. Assumptions for the Cost Effectiveness Calculation

The more significant assumptions made in the cost effectiveness analysis are listed below.

1. It was assumed that units would comp ly with the proposed Tier 3 NOx limits.

2. It was assumed that units with an annual operating hours limit on their permit were

available for the full amount of those hour s and that other turbines were operated 90% of the year due to maintenance, etc.

3. It was assumed that units would operat e the same number of hours as they are currently operated.

4. It was assumed that units are and would be operated at 75% of rating.

5. It was assumed that equipment has a 15-year life and that the annual interest rate is

10%.

6. It was assumed that units operate on PUC quality natural gas.

7. It was assumed that a SCR system woul d be retrofit on a unit during a normally

scheduled overhaul of the unit or installed during the scheduled installation of a unit.

### SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis September 20, 2007

Final Staff Report with Appendices for Revised Proposed Amendments to Rule 4703 

### C-6 8. It was assumed that cost estimates for a SCR system for a new turbine installation range from $100/kW to $150/kW and for a SCR syst em retrofit on an existing turbine installation the cost estimates range from $200/kW to $450/kW.

C. Results of the Cost Effectiveness Calculation

Table 3, Sample Calculation of SCR Annual Costs, lists the methodology (from a 1999 study prepared by ONSITE SYCOM Energy Corpor ation) used in calculating the estimated annualized capital costs and additional operating and maintenance costs for the selective catalytic reduction (SCR) system. The results of the cost effectiveness calculations for the cases for full time operation for the four scenarios are contained in Table 4 below.

IV. INCREMENTAL COST EFFECTIVENESS ANALYSIS

The procedure for incremental cost effectivene ss analysis is detailed in California Health and Safety Code Section 40920.6(a)(3). The incremental cost effectiveness analysis proceeds from the bottom up and compares the differences in costs and differences in emissions reduction of the candidate control opti ons. This method is useful for comparing

the cost effectiveness of candidate controls , but the incremental cost effectiveness analysis results do not reveal the emissions reduction potential of the control options. In general, there is no correlation between emissi ons reduction and cost effectiveness. In other words, there is no assurance that a more cost effective control option would result in a greater, or significant, emissions reduction. The top-down analysis, on the other hand, identifies the control option with the greatest emissions r eduction and an acceptable cost

effectiveness.

Although incremental cost effectiveness analysis results in a ranking of relative cost effectiveness values, incremental cost e ffectiveness analysis alone does not produce an absolute cost effectiveness value for any contro l option. The relative values produced in the incremental cost effectiveness analysis and abs olute cost effectiveness values are not interchangeable and cannot be evaluated similarl y. Incremental cost effectiveness analysis results should not be compared with t he District’s acceptable values for cost effectiveness. As there were no more effective controls than what is proposed, no incremental cost effectiveness analysis was possible.

### SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis September 20, 2007

Final Staff Report with Appendices for Revised Proposed Amendments to Rule 4703 

### C-7 Table 3 Sample Calculation of SCR Annual Costs

ITEM SOURCE COST

Turbine Rating 1 MW

SCR Cost/KW $200/KW
Operating Hours 7884 hrs/year

Direct Capital Costs Total Capital Investment (TCI) $ 200,000

Direct Annual Costs Operating Costs
Operator 0.5 hr/shift, $25/hr OAQPS $ 16,859

Supervisor 15% of operator OAQPS $ 2,529

Maintenance Costs

Labor 0.5 hr/shift, $25/hr OAQPS $ 16,859

Material 100% of labor cost OAQPS $ 16,859

Utility Costs
Electricity Costs Variable $ 5,747
Cat. Replacement MHIA $ 5,621
Cat. Disposal OAQPS $ 211

Ammonia Variable $ 1,008
NH3 Inject Skid MHIA $ 2,916

Total Direct Annual Costs $ 64,394

Indirect Annual Costs

Overhead 60% of O and M OAQPS $ 31,864

Administrative 0.02 x TCI OAQPS $ 4,000

Insurance 0.01 x TCI OAQPS $ 2,000
Property Tax 0.01 x TCI OAQPS $ 2,000

Capital Recovery 0.13 x TCI (10% int. rate, 15 yr period) OAQPS $ 26,000

Total Indirect Annual Costs $ 65,864

Total Annual Costs $ 130,166

### SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis September 20, 2007

Final Staff Report with Appendices for Revised Proposed Amendments to Rule 4703 

### C-8 Table 4 Cost Effectiveness Results for Full Ti me Operation for Scenarios 1, 2, 3 and 4

MW MMBtu/hr Current NOx EF,

ppmv A Potential NOx EF,

ppmv B NOx

Reduction

Tons/Year C SCR

Cost/KW D Installed

Control Equipment

Cost ($) E Annualized Equipment

Cost ($) F Total Annual Cost ($) G Cost

Effectiveness ($/ton) H

Scenario 1 - new turbine installation low cost estimate

1 15.0 35 9 4.22 $ 100 $ 100,000 $ 13,000 $ 117,375 $ 27,813

2 30.0 35 9 8.44 $ 100 $ 200,000 $ 26,000 $ 142,760 $ 16,914

4 56.0 35 5 18.18 $ 100 $ 400,000 $ 52,000 $ 189,911 $ 10,447

6 66.0 35 5 21.43 $ 100 $ 600,000 $ 78,000 $ 234,904 $ 10,964

8 88.0 35 5 28.57 $ 100 $ 800,000 $ 104,000 $ 278,726 $ 9,757

10 110.0 35 5 35.71 $ 100 $ 1,000,000 $ 130,000 $ 321,778 $ 9,011

25 275.0 25 5 59.51 $ 100 $ 2,500,000 $ 325,000 $ 625,136 $ 10,504

Scenario 2 - new turbine installation high cost estimate

1 15.0 35 9 4.22 $ 150 $ 150,000 $ 19,500 $ 125,875 $ 29,827

2 30.0 35 9 8.44 $ 150 $ 300,000 $ 39,000 $ 159,760 $ 18,928

4 56.0 35 5 18.18 $ 150 $ 600,000 $ 78,000 $ 223,911 $ 12,317

6 66.0 35 5 21.43 $ 150 $ 900,000 $ 117,000 $ 285,904 $ 13,344

8 88.0 35 5 28.57 $ 150 $ 1,200,000 $ 156,000 $ 346,726 $ 12,137

10 110.0 35 5 35.71 $ 150 $ 1,500,000 $ 195,000 $ 406,778 $ 11,392

25 275.0 25 5 59.51 $ 150 $ 3,750,000 $ 487,500 $ 837,636 $ 14,075

Scenario 3 - retrofit installation low cost estimate

1 15.0 35 9 4.22 $ 200 $ 200,000 $ 26,000 $ 130,166 $ 30,844

2 30.0 35 9 8.44 $ 200 $ 400,000 $ 52,000 $ 176,760 $ 20,943

4 56.0 35 5 18.18 $ 200 $ 800,000 $ 104,000 $ 257,911 $ 14,187

6 84.0 35 5 27.27 $ 200 $ 1,200,000 $ 156,000 $ 336,904 $ 12,355

8 112.0 35 5 36.36 $ 200 $ 1,600,000 $ 208,000 $ 414,726 $ 11,407

10 110.0 35 5 35.71 $ 200 $ 2,000,000 $ 260,000 $ 491,778 $ 13,772

25 275.0 25 5 59.51 $ 200 $ 5,000,000 $ 650,000 $ 1,050,136 $ 17,645

Scenario 4 - retrofit installation high cost estimate

1 15.0 35 9 4.22 $ 450 $ 450,000 $ 58,500 $ 176,875 $ 41,912

2 30.0 35 9 8.44 $ 450 $ 900,000 $ 117,000 $ 261,760 $ 31,013

4 56.0 35 5 18.18 $ 450 $ 1,800,000 $ 234,000 $ 427,911 $ 23,539

6 84.0 35 5 27.27 $ 450 $ 2,700,000 $ 351,000 $ 591,904 $ 21,707

8 112.0 35 5 36.36 $ 450 $ 3,600,000 $ 468,000 $ 754,726 $ 20,758

10 110.0 35 5 35.71 $ 450 $ 4,500,000 $ 585,000 $ 916,778 $ 25,674

25 275.0 25 5 59.51 $ 450 $ 11,250,000 $ 1,462,500 $ 2,112,636 $ 35,498

A 

### NOx Limit for a turbine in compliance with Tier 2 limits of Rule 4703.

B 

### Proposed NOx limit from draft Rule 4703.

C 

### Emissions Reduction = Annual Current NOx Emissions - Annual Potential NOx Emissions

D 

### The estimated costs of the SCR control system were provided by industry.

E 

### Installed Control Equipment Cost = MW x SCR Cost/KW x 1000

F 

### Annualized Equipment Cost was calculated based on a 15-year life and 10% interest. The annual cost factor multiplier is 0.13. Annualized Equipment Cost = Installed Control Equipment Cost x Annual Cost Factor Multiplier

G 

### Total Annual Cost = Annualized Equipment Cost + Change in Annual O&M Cost

H 

### Cost Effectiveness = Total Annual Cost / NOx Emissions Reduction in Tons/Year

### SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis September 20, 2007

Final Staff Report with Appendices for Revised Proposed Amendments to Rule 4703 

### C-9