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Gas-Fueled CHP Adoption Seen Picking Up

Combined heat and power (CHP), or cogeneration, is only about 8% of U.S. generating capacity and more widespread use, particularly of gas-fired CHP, would increase efficiency and reduce greenhouse gas (GHG) emissions, according to the U.S. Environmental Protection Agency (EPA). But understanding barriers to adoption is tricky, according to a new whitepaper.

"Natural gas is the most common primary energy source used in CHP plants..." the National Regulatory Research Institute (NRRI) said in a whitepaper on gas-fueled CHP released late last month. "The abundance of natural gas will make gas-fired CHP systems the preferred technology of the future."

CHP allows for the recovery of the heat created by electricity generation. The heat, which would otherwise be wasted, is used for space, water and process heating. Most of the growth in CHP occurred from 1980 to 2005. But then new federal energy regulation, volatile prices for natural gas and the weakening of Public Utility Regulatory Policies Act requirements led to declining interest in CHP, according to NRRI.

However, capacity additions of CHP increased in 2012 and are thought to have been even higher in 2013, the whitepaper said. "The prospects for CHP technologies, according to many experts, appear bright given recent developments on the energy and environmental fronts," NRRI said.

According to EPA, an additional 40 GW of CHP generating capacity, representing about a 50% increase from 2012 levels, would save one quadrillion Btu of energy, reduce carbon dioxide emissions by 150 million metric tons and save energy users about $10 billion per year.

EPA estimates that the potential market for CHP at existing industrial facilities is about 65 GW, with roughly an equivalent potential market for CHP at commercial and institutional facilities. About 87% of the current installed CHP capacity is in the industrial sector, with the remaining capacity in the commercial or governmental sectors. The three sectors with the most CHP capacity are chemicals, refining and paper.

Growth in the use of CHP technologies depends mostly upon economic factors, federal and state policies, technological advancements and past successes, according to NRRI. "At the least, state [regulatory] commissions should attempt to remove those barriers that would obstruct the socially desirable development of CHP," NRRI said.

One way regulators can impede the wider adoption of CHP is by approving inefficient rate designs that induce consumers to make choices that fail to consider the full costs of producing and delivering energy. "Regulators may also restrict promotional practices, such as advertising by gas utilities on the benefits of CHP that could provide customers with valuable information on the life-cycle costs of alternative energy sources," NRRI said.

When the costs and benefits of conversion to CHP are weighed, such conversions likely have a long- and short-term adverse effect on electric utilities and a positive impact on gas utilities, NRRI said. However, the whitepaper noted criticism by some analysts of cost-benefit tests for excluding "public benefits and the benefits to the utility grid that CHP provides," NRRI said. "Public benefits are external to the CHP operator, the utilities and their customers. These analysts are, in other words, saying that the tests being applied understate the society-wide benefits of CHP."

A conversion to CHP might have greater benefits and lower cost impact for an electric utility than it experiences when a customer converts to renewable distributed generation, NRRI said. "The reasons are that most CHP technologies are dispatchable and normally depend less on ancillary and balancing services."

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