Report Highlights CHP Clean Power Plan Compliance

A report from the Institute for Industrial Productivity and David Gardiner and Associates presents a road-map that states can use to capture the economic and environmental benefits of Combined Heat and Power (CHP) and comply with the EPA’s proposed Clean Power Plan, a revised version of which President Obama unveiled to the nation on Monday.

With systems up and running across all 50 U.S. states, CHP produces 8 percent of U.S. electric capacity and 12 percent of total power generation. It’s true potential is far from being fully realized, however, according to the report: ¨Combined Heat and Power (CHP) as a Compliance Option under the Clean Power Plan.¨

A typical CHP unit produces electricity with half the emissions of conventional fossil fuel generation sources at substantially less cost and and substantially less in the way of environmental degradation and health threats, the authors highlight in the report, which was produced for for the American Gas Association, American Chemistry Council, and the American Forest & Paper Association.

Clean Power Plan compliance: Combined Heat and Power

Capturing heat from myriad thermal processes to generate power, CHP can be used by institutional, industrial and commercial facilities nationwide, offering a means to significantly reduce carbon and greenhouse gas emissions, reduce energy costs and create jobs in construction, installation and maintenance.

In addition to describing how CHP can be incorporated into state Clean Power compliance plans, the report describes how states can measure and verify emission reductions. It also provides a set of relevant tools and information resources.

According to the report, CHP can perform well whether electricity prices are determined at a rate or mass-based market system.

¨Indeed, when thermal output is properly accounted, well-designed and properly operated CHP systems generate electricity at a lower effective emissions rate than most affected EGUs and proposed state targets. Alternatively, under a mass-based approach, CHP systems would reduce demand from the affected units and generate credits.¨

Included in the report is a template that enables decision-makers to examine how the EPA and state air quality agencies might treat CHP under each of the four “approvability” criteria EPA will use to evaluate state compliance plans, namely:

1. Enforceability;
2. Performance;
3. Measurement and verification (“M&V”), and
4. Accountability.

The report authors point out that those considering implementing CHP systems to comply with the Clean Power Plan should first consider a set of threshold questions:

• If it will rely on “outside-the-fence” measures such as energy efficiency and renewable energy, rather than rely solely on the limited “inside the fence” options for meeting its emissions limits;
• If it will pursue a rate-based or mass-based compliance path;
• If it is taking on any of the emission reduction obligation (“State Commitment”), or if it will impose the full responsibility on power plant owners; and
• Whether compliance with either rate or mass limits will be measured unit-by-unit, or fleet-wide, and whether to allow trading with other states.

CHP, EPA and state air quality agencies

EPA allows states much in the way of flexibility to determine exactly how they comply with the Clean Power Plan. The revised version requires an overall national reduction in greenhouse gas emissions of 32 percent by 2030 with  2005 as the base reference year. States and facilities managers, for their part, will invariably take different approaches in complying, the report authors note.

Among the examples provided is the case of Philadelphia Gas Works. The municipal utility addresses the hurdle of up-front capital costs by providing loans to commercial and industrial customers for small- and mid-size CHP systems (70 watts to 7 MW to date).

As the report authors explain: ¨The facility signs a promissory note for the full cost of the system, but the five-year through-the-bill financing eliminates the site’s need for upfront capital. After PGW cost recovery, the customer enjoys the benefits of ongoing energy savings during the remaining lifetime of the CHP equipment.¨}

Another example comes from New Hampshire, where in 2012 the state Public Utility Commission amended its net-metering rules to include CHP systems up to 1 megawatt. Several aspects of the rules are favorable for CHP in particular, according to the report.

Though it caps CHP at 4-MW of the state’s 50-MW aggregate net-metering limit, this allows facilities which are planning to make use of CHP to size their systems to match their thermal load, as well as sell the surplus electricity supplied to the local grid back to the utility.

Viewed as perhaps President Obama’s strongest action on climate change yet, the new version of the Clean Power Plan was produced in light of public comments. Presenting it to the nation, the President said: ¨We have a moral obligation to leave our children a planet that’s not polluted or damaged.

¨The effects of climate change are already being felt across the nation. In the past three decades, the percentage of Americans with asthma has more than doubled, and climate change is putting those Americans at greater risk of landing in the hospital.¨

*Images credit: IIP, DGA; ¨Combined Heat and Power (CHP) as a Compliance Option under the Clean Power Plan¨