As electric utilities look to more efficient ways of generating power at reduced risk and cost, combined heat and power (CHP) has become an increasingly attractive option.
There is roughly 83 GW of existing CHP generating capacity in the United States, more than 8% of total electric capacity, but only about 3% of installed CHP capacity is owned by utilities, according to a white paper just released by ICF International (NASDAQ:ICF).
CHP is an efficient approach to generating electric power and useful thermal energy from a single fuel source. CHP, along with other forms of distributed generation (DG), has seen a sharp increase in attention in recent years driven by DG technology cost reductions, increased supplies of low-cost natural gas, state and federal policy, accelerated deployment of automated metering infrastructure, and concerns about grid reliability.
Electric industry groups have identified DG as the largest disruptive threat to utilities’ business model; however this perspective has started to change, and industry studies have found that most public and private power providers plan to actively engage with new stakeholders on DG, according to the white paper.
The ICF document was done by ICF Project Manager Anne Hampson and Senior Associate Jessica Rackley.
Recent interest in CHP is driving increasing numbers of installations, with system announcements showing significant amounts of capacity poised to come online in 2014 to 2016. This new capacity includes several large systems over 300 MW, representing a resurgence of large system development that has been absent in recent years.
An analysis of EPA’s 111(d) proposed New Source Performance Standards (NSPS) to regulate CO2 emissions from existing power plants, estimates that 3.5 GW of CHP could be built by 2030 in response to the regulation. The Department of Energy (DOE) has also found much interest in CHP as an emissions compliance option.
Some utilities have embraced DG through investments in and financing of CHP systems. Utilities could also potentially own CHP through siting new power plants in energy parks or industrial parks. In this model, the utility could own and operate the CHP system while enjoying the benefits of selling two products, both electricity and steam.
“These are not risky ventures and have been implemented across the country in different sizes and industries,” according to the ICF white paper. The document looks at CHP projects involving Southern (NYSE:SO) utility Alabama Power as much as the Austin Energy municipal utility in Texas.
“Utilities are in a unique position to gain advantage from CHP. Utilities are often more aware of where CHP systems would provide the most value for their customers and the grid,” according to ICF. “CHP systems also provide a number of benefits that utilities are well-suited to appreciate, including reducing locational grid congestion, improving reliability, and easing compliance with new environmental regulations,” ICF said in the white paper.
Natural gas is by far the dominant fuel used for CHP, accounting for 70% of existing CHP capacity, however there is also strong growth in biomass and waste-fueled systems that take advantage of free or low cost fuel sources. Most CHP capacity is located at industrial plants although there is growth in commercial and institutional CHP markets as well, according to ICF.