Richard Meyer Cutting Costs and Reducing Emissions Today with Combined Heat and Power

Report shows room for 40 GW of CHP this decade – enough to power nearly 30 million homes.

The economic recovery continues to chug along and businesses contending in this challenging marketplace look to ways to maintain a competitive edge. Energy costs can often account for a large portion of the cost of doing business. Options to reduce energy usage and improve environmental profiles provide a win-win opportunity for businesses and the public.

Enter CHP.  Combined heat and power is the simultaneous generation of useful heat and electricity. It sometimes goes by the name cogeneration. It’s a process that captures waste heat from electricity generation and re-appropriates that heat for useful purposes, thereby improving efficiencies and reducing overall fuel consumption. Because a CHP unit generates electricity on-site using natural gas, a business does not have to purchase as much (if any) grid electricity. Lower electricity bills mean big cost savings.  And the process is very efficient. Getting more useful energy from the same amount of fuel means companies can purchase less, cut costs and reduce emissions.

For the same amount of usable energy, the CHP system (right) only uses 100 units of fuel input. Less efficient conventional generation (left) needs 154 – a 54% increase. Less fuel for the same useful energy means lower costs and lower emissions. Source: ICF data. Graphic created by AGA

For the same amount of usable energy, the CHP system (right) only uses 100 units of fuel input. Less efficient conventional generation (left) needs 154 – a 54% increase. Less fuel for the same useful energy means lower costs and lower emissions.
Source: ICF data. Graphic created by AGA

CHP makes sense for businesses that have lots of heat and electricity needs. Hotels, hospitals, universities and manufacturing plants are all likely candidates. There’s lot of these kinds of businesses out there that could use CHP. But how much potential really exists?

A new study from ICF International puts some numbers to this question. The report The Opportunity for CHP in the United States identifies more than 40 gigawatts (GW) of cost-effective CHP that could be installed and paid back within 10 years. This amount of CHP would use about 3 Tcf of natural gas a year– not a trivial figure. And this amount of electric generation capacity is enough to power nearly 30 million households.

This year the nation will get about 12 percent of its electricity from CHP. About 82 GW of CHP is currently installed, three quarters of which is fueled by natural gas. The addition of 40 GW of CHP would increase the total by about 50 percent.

Today, about 4,100 facilities across the country use some type of CHP application. A lot of CHP units are operated by large independent power producers that sell the heat byproduct to nearby industrial customers. Metals fabricators, food processors and chemical manufacturers are all typical industrial CHP customers. In addition, many commercial institutions like universities and hospitals use CHP to reliably generate their own electricity while appropriating the waste energy for useful heating purposes. Some of these made headlines after Superstorm Sandy, when their facilities were the only ones with lights on after the electric grid collapsed.

Unfortunately, installation of CHP has slowed to a crawl since 2005. The Energy Policy Act of 2005 amended the part of the Public Policy and Regulatory Act (PURPA) related to cogeneration power production purchase and sale requirements, amendments designed to address new realities of the evolving and increasingly deregulated electricity market at the time. One consequence, however, was the elimination of some key incentives for CHP. In combination with higher and more volatile natural gas prices at the time, new CHP came to a virtual standstill.

Times are changing once again. With increased natural gas production and a strengthened resource base driven by technological advances, lower and more stable natural gas prices can help strengthen the economics and make CHP a more attractive investment. Lower natural gas prices – especially in areas where electricity prices are high – mean that, all things being equal, CHP begins to make more sense for business.

Growing recognition from policymakers may help this market as well. Last year, President Obama announced an executive order (EO) that established a national goal of installing more than 40 GW of new CHP capacity. The EO directs the federal government to align its multi-agency resources to support adopting best practices and identifying financing mechanisms and regulations to support the accelerated adoption of CHP. The ICF report, by sheer coincidence, identified almost the same amount of cost-effective CHP. ICF found that 41.6 GW of CHP could achieve a payback period of 10 years or less while creating just under 3 Tcf of new natural gas demand per year –approximately 12 percent of current annual demand. Incrementally, this represents only 1.8 Tcf per year if we assume the new natural gas CHP displaces an existing natural gas boiler.

There’s a lot more in the report and I encourage you to read it here.

Utilities will play a critical role in helping advance the adoption of CHP technologies. Regulators, policymakers, utilities and customers will all have to work together to identify best practices, policies and innovative financing mechanisms in order to achieve the potential of CHP.

Optimizing our domestic natural gas resources requires that we utilize it as efficiently as possible. Combined heat and power is a great solution for businesses and the nation to take advantage of cleaner burning natural gas to reduce costs and emissions. More CHP will enhance manufacturing competitiveness and create jobs. Furthermore, CHP relies upon a suite of existing technologies that are made in the U.S. and installed with domestic labor. It’s a here-and-now energy efficiency solution with enormous promise for building a more secure and clean energy future.

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