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Combined heat and power poised for big growth

Combined heat and power poised for big growth

Combined Heat and Power, also referred to as CHP or cogeneration, represents a fantastic opportunity to gain energy efficiency, reduce emissions, promote resiliency, and further a host of sustainability initiatives. In the United States, about 50,000 MW of CHP has been implemented since 1980, accounting for only 12% of total U.S. electric generation according the website of the CHP Association. In contrast, the same website reports that CHP accounts for 60% of electric generation in Denmark.

A confluence of events bodes well for wider CHP adoption in the United States. Initially, President Obama’s Executive Order issued August 30, 2012, that called for an additional 40 GW (yes, GW) of industrial CHP by the end of 2020 raised the profile of CHP.

Second, it’s no secret that utility rates, including electric rates, are increasing. As electric rates rise, businesses look for ways to reduce energy costs. CHP offers such a method, especially for businesses that investigate what’s truly best for the business in the long-run. By panning back the focus from yearly financial performance, or even quarterly or monthly financial performance, to a longer time horizon, businesses can realize significant direct and indirect financial savings from implementing CHP by lowering direct energy costs and by avoiding environmental compliance costs.

Third, the American economy is growing again. Additionally, the economy is “re-shoring” manufacturing industries that moved abroad to take advantage of perceived lower costs in a number of areas. Manufacturers and industrial users in the chemical, pharmaceuticals, metals, food processing, petrochemical and other industry sectors with big electric loads and thermal needs are finding CHP to beneficial to their bottom line. Although not an example of a re-shored manufacturing operation, the Kennecott Utah Copper Refinery implemented CHP at its Salt Lake County, Utah, facility in 2010. Kennecott operates the CHP system at over 80% efficiency and gains significant environmental benefits in the form of reduced emissions (90% NOx emission reductions and 99% SO2 emission reductions!) from CHP.

CHP makes financial sense. MillerCoors has used CHP since the 1930’s at its Golden, Colorado, operations. The longevity with which CHP has been used at MillerCoors demonstrates its financial benefits as it is a publicly-traded company that has financial responsibilities to its shareholders.

Another trend that will push more businesses to look at CHP is that modification of standby rates and interconnection practices are receiving renewed interest. Standby rates have long been a hurdle over which a CHP system needed to overcome. Some elements of standby rates that are proposed for change include unbundling of generation and transmission components of reservation fees, the use of load reduction plans to mitigate backup demand charges, the assessment of daily standby generation charges to promote improved performance of CHP systems, and more. A number of these issues and more are addressed in the joint report prepared by Brubaker & Associates, Inc. and the Regulatory Assistance Project for Oak Ridge National Laboratory titled Standby Rates for Combined Heat and Power Systems that was issued in February 2014.

Likewise, interconnection standards, to the extent they exist, are poorly understood by the business community, and a complicated interconnection process sometimes raises transaction costs to the point where businesses give up looking into CHP. Wiping away the veneer of complexity in the interconnection process will lower the perceived transaction costs and foster implementation of CHP. The American Council for an Energy-Efficient Economy provides excellent information on interconnection standards on its website.

Finally, attitudes about microgrids, in which CHP plays a significant role, are changing amongst utilities. Utilities are beginning to recognize that CHP provides resiliency benefits to the grid and that opportunities abound for integrating CHP into the utility’s business model. Some of those opportunities are identified in a white paper prepared by ICF International (registration required). As more and more utilities recognize the benefits of CHP, barriers to CHP adoption will break down, and CHP systems will achieve more widespread deployment.

While CHP has not achieved the market penetration in the United States in the same way it has in Denmark, the confluence of the above events provides a solid foundation for the future of CHP. If your business has not looked into CHP, now is the time to do so. Make it a priority to put the long-term financial success of your business ahead of short-term financial metrics, provide your business with resiliency against electric service interruptions, avoid environmental costs through improved emissions, and enjoy the other benefits of CHP. Act now!

By David McGimpsey

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