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Are Utilities Missing Out on the Benefits of Combined Heat and Power?


July 18, 2013 - 9:40am
By Anna Chittum, Visiting Fellow

When a power plant generates power, it also generates massive amounts of heat. Though that heat is a valuable resource, it is typically rejected as waste and dumped into rivers or lakes or vented into the air. In other words, it’s lost.

Instead of wasting that heat, combined heat and power (CHP) systems use it: as steam in industrial processes; as hot water for domestic needs; as space heating in the winter. In capturing more of a fuel’s energy content, these systems generate energy that is far more cost-effective and far cleaner than non-CHP systems. And since CHP systems are located near the point of consumption (instead of hundreds of miles away), they increase the reliability of the electricity system while reducing the amount of energy lost piping it to distant customers.

CHP is the most efficient way to generate electricity today. It offers tremendous benefits to the utility systems in which it is located. These include:

  • Avoided or deferred investments in distribution and transmission systems, as seen in a strategically sited CHP system in New York City that helped Con Edison defer a major distribution system upgrade;
  • Increased system resiliency, as seen in the tremendous benefits CHP systems provided during recent storms and hurricanes; and
  • Reduced costs of energy resources, as seen in Massachusetts where utilities recently saw dramatically reduced lifetime costs of their energy efficiency resources---from $0.022 per kWh to $0.016 per kWh---due largely to new CHP.

The opportunity for utilities to invest in CHP is tremendous. Today the technical potential for CHP in existing facilities is 130 gigawatts---the equivalent of over one-third of the installed operable coal generating capacity in the United States, or more than the entire net summer electric generating capacity of California and Florida combined. So why has CHP growth been anemic in recent years? Why does it represent only 8% of installed electric generating capacity when it could be so much higher? Why are utilities building all sorts of other assets instead of CHP?

The answer: economics and inertia. The benefits of CHP are most often considered in terms of direct benefits to the individual facility hosting the system, like a manufacturing facility or a hospital. And while these benefits are important, they are likely less compelling than those that accrue to the utility system at large and all of its users. If utilities could better understand and value the benefits of CHP to their systems as a whole, they could stimulate tremendous growth in CHP, offering their customers lower cost energy and improved system resiliency, all while reducing harmful emissions.

However, utilities’ business and regulatory structures tend to discourage investments in CHP and encourage them instead to pursue investments in other types of assets, such as new centralized generation resources or distribution infrastructure. Additionally, utilities’ investment decisions are tied to cost-benefit analyses that usually ignore or deeply discount CHP’s system-wide benefits.

The few utilities that have actively worked to deploy CHP in their service territories understand the benefits of this technology, but still find their programs to be small compared to other investments. Even at utilities with a strong interest in CHP, staff often find their hands are tied by internal disinterest in it, reflecting the lack of economic incentive to pursue it.

Today ACEEE released three products designed to help utilities, policymakers, regulators, and end-users better appreciate and understand the immense value CHP can offer to an energy system: a detailed externally reviewed report describing the myriad benefits of CHP and the manner in which utilities are currently valuing them; a white paper for electric utilities interested in better understanding how their peers are valuing CHP; and a white paper for natural gas distribution utilities exploring how CHP can be a strategic business opportunity.

Electric and natural gas utilities are very well positioned to make significant investments in CHP. With an appetite for long-term investments and strong relationships with the facilities best positioned to host these systems, utilities could make a major impact on the CHP market.

Regulators and policymakers should understand how increased CHP deployment – hastened by utilities – could offer all system users cleaner, cheaper, and more reliable power. By better valuing the many benefits of this technology and working with utilities to address their disincentives to pursuing it, policymakers and regulators could help everyone better enjoy the tremendous economic and environmental benefits of CHP.