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Why Utilities Are an Essential Partner for a Strong CHP Future

October 18, 2012 - 9:50am
By Anna Chittum, Visiting Fellow

Last month ACEEE released a new research report that finds that much of the coal-powered electric generating capacity expected to be retired in the near future could be replaced by cheaper and cleaner combined heat and power (CHP). Replacing capacity with CHP would be more likely if utilities were encouraged to make such investments.

During the past few weeks, stakeholders from inside and outside the CHP community have responded enthusiastically to the report and noted that they, too, expect to see better collaboration with utilities on CHP projects in the near future. Electric utilities are not currently motivated to encourage CHP since a customer using CHP to generate electricity on-site will typically end up purchasing less electricity from the utility. However, utilities in some states appear open to the idea of making their own investments in CHP and encouraging customer-sited CHP so long as they can earn a return on such investment similar to other capital projects. This is great news because utilities can take a longer-range view of investments, and are well equipped to invest in CHP systems, which can have payback periods of five years or more.

Utilities are planning to make major capital investments in the near future to replace the retiring coal capacity, and have expressed deep concern over the impacts of these retirements on customer electric rates. Last month’s report suggests that investing in CHP instead of new conventional generation assets or pollution controls could offer substantial cost benefits to all system users. Utilities can also work to help their customers comply with new air quality regulations by encouraging them to replace older, dirty boilers with CHP. As noted earlier this year by Recycled Energy Development’s Sean Casten, the U.S. Environmental Protection Agency’s Boiler MACT represents an important economic opportunity for CHP. The U.S. Department of Energy’s Clean Energy Application Centers have begun to target this particular opportunity in key regions.

Certain states are doing better than others in supporting CHP, but states have much more that they could do. States were explicitly encouraged to help support CHP in a new Executive Order from President Obama calling for 40 GW of new CHP to be installed by 2020—a nearly 50 percent increase over the currently installed 82 GW of CHP capacity. This goal is laudable, but may be hard to meet unless current trends in CHP installations are improved. Only 569 MW of new CHP was installed in 2011, due in part to a lack of policies that explicitly encourage CHP.

In many areas, CHP is the least-cost solution for utilities developing their long-term resource plans, and CHP can help utilities satisfy environmental regulations while serving as a customer retention and economic development strategy. CHP is cheaper than new natural gas-powered centralized generation, and can be deployed using established technology. Utilities now have the opportunity to lock in cleaner, low-cost energy for generations. What’s needed now is a conversation about how regulatory and policy changes could encourage utility investment in CHP. Such policy changes could encourage utilities to stop viewing CHP units as economic threats, but instead embrace them as economic opportunities.