Combined Heat & Power (CHP), an integrated set of technologies for the simultaneous, onsite production of electricity and useful heat, is an idea whose time has finally come. A perfect storm of circumstances has set the stage for its renaissance as the distributed power generation technology of choice. And it’s poised for growth, as the website Fierce Energy points out: “The CHP market covering Europe, North America, and Asia-Pacific across the residential, commercial, industrial, and institutional sectors earned revenues of $4.26 billion in 2012 and should generate $4.91 billion in 2017, according to projections from Frost & Sullivan.”
CHP isn’t without hurdles—namely the high upfront cost and the challenge of finding suitable uses for the heat it generates. But these concerns are offset by the relatively short payback periods that have allowed many major companies to invest in these energy saving technologies.
Once the challenges can be worked through, CHP has potential to answer the urgent quest for technology that can improve the efficiency of fuel conversion. Here are the four major factors contributing to CHP’s emergence as a power player on the industrial technology scene.
In 2012, President Obama set a goal of adding 40 gigawatts (GW) of new CHP production by 2020, which would amount to a 50 percent increase in the resource. CHP now provides about 82 GW in the United States—about 87 percent of that for industrial purposes (in the commercial market, hospitals and institutional buildings represent the greatest number of CHP installers). Obama’s target promises a significant increase, given that the United States added only about 3.4 GW of CHP between 2006 and 2011, according to ICF International. Getting the President’s attention on CHP has been a boon for the technology. The target intends to promote investments in industrial energy efficiency, which could save manufacturers at least $100 billion in energy costs over the next decade, according to the White House. To meet the President’s 40 GW CHP goal, however, would require $40 billion to $80 billion of new capital investment in American manufacturing facilities.
For true adoption of CHP, changes to state-level regulations and policies will be necessary. State interest in CHP is slowly growing, and many states are incorporating CHP into their clean energy policies. In 2012, the energy department announced $11 million in funding for seven regional centers that will help their local businesses develop CHP projects. Interest in the Northeast is particularly high: States have tax credits, streamlined permitting, capital incentives, and other supports for CHP.
Natural disasters prove salient reminders for the need for a reliable energy source. For example, the devastation of the East Coast electric grid by Hurricane Sandy in 2012 renewed corporate interest in securing reliable backup power during blackouts. A guaranteed power supply—a critical factor for hospitals, data centers, and universities—is one of the major drivers of CHP’s attractiveness. CHP’s ability to act as a capacity resource, balance system power fluctuations, and provide ancillary services make it a viable solution in the face of natural disasters.
2. Natural gas supply/price
CHP’s viability depends on the difference between gas and electric prices, called the spark spread. According to the Rocky Mountain Institute’s website:
“Based on the difference between gas and electricity prices, it can reveal the savings in $/MWh of running CHP, given by the difference in cost between buying electricity from the grid and generating it onsite with a CHP unit. In calculating the spark spread, the CHP plant’s heat rate is adjusted to account for the improved system efficiency as a result of using the waste heat. At a constant fuel price, the savings due to operating CHP increase as the price of electricity increases. At a constant price of electricity, the savings increase as the fuel price decreases. The best case for a CHP operator is high electricity prices and low fuel prices.”
With gas prices having fallen dramatically and the nation’s new abundance of natural gas, CHP has much more leverage. Shale gas production has increased 14-fold since 2005, according to ICF International. CHP isn’t solely dependent on gas, though. Most CHP systems are designed for multiple fuel options: When oil and natural gas become too costly, the system can also be run on biomass or diesel. If the facility has access to a reliable renewable or waste energy source, it has even stronger buffer against a volatile market.
The winter of 2013-14 will certainly go down in history as one of the coldest in recent history. It remains to be seen what affect the added demand for natural gas will have on long term prices, but some increases in natural gas cost recovery mechanisms (a component of nearly everyone’s gas bill) seem all but certain in the coming year. Natural gas storage reservoirs are at all-time low levels and will also provide upward pressure on short term gas prices.
It seems likely that electricity bills will also feel the same growing pains. The increased reliance on natural gas for electric generation will mean that electricity prices will likely see similar increases.
What’s important to remember, however, is that the electricity, hot water and steam generated through CHP can still achieve total efficiency levels of 60-80%, compared to about 33% for conventional power plants. While there are certainly no guarantees, this relationship indicates that the spark spread advantage of CHP seems unlikely to change significantly.
3. Environmental protection
The federal government’s new or looming emissions mandates tap into another of CHP’s most critical benefits—its ability to curtail carbon emissions. According to the U.S. Department of Energy, if CHP were to supply 20 percent of U.S. electricity-generating capacity by 2030, the projected increase in carbon dioxide emissions would be cut by 60 percent. Pressure to cut back on oil and coal positions CHP favorably, as does the desire to achieve energy independence.
With all the advantages CHP offers, it deserves to be strongly considered as a profitable path to sustainability. Its one drawback—dependence on natural gas—can be mitigated if CHP is used to supplement and support greater renewable energy development.