The US state of Texas has a healthy installed CHP base – around 20% of the US total – partly due to a concentration of suitable chemicals and refining industry sites and partly due to the efforts of CHP developers, now organized as the Texas CHP Initiative. But, as Tommy John writes, there is scope for more capacity in all three of the industrial, buildings and biomass sectors.

The 1978 Federal Public Utilities Policy Act (PURPA) required states to implement policies encouraging CHP and power production from waste and renewable resources by requiring utility monopolies to deal fairly with independent generators. The electric utility industry correctly viewed it as the first step in deregulation of generation and strongly opposed it. In Texas, a strong non-utility industry pushed for fair regulations, and as a result, produces 20% of its electrical energy from CHP facilities. CHP generating capacity is about 18 GW out of 100 GW total capacity. Later federal legislation allowed independent wholesale generation.

In 2000, Texas passed legislation completely deregulating the electricity market. This legislation requires the still regulated transmission and distribution utilities to build facilities (and include them in the rate base) to off-take power from any power generating facilities. This has greatly benefited both CHP and renewable projects.

Database of current CHP facilities

The Texas Combined Heat and Power Initiative (TXCHPI) is currently developing an accurate database of active CHP facilities in Texas including size, location, ownership, technology, fuel and grid connection. Starting with a database developed by Bruce Hedman of Energy Analysis Associates for a US Department of Energy study in 2004, data from the Public Utilities Commission of Texas (PUCT), Energy and Environmental Analysis (EEA), and US-EPA e-GRID database were consolidated. Several new facilities have been added and some existing ones removed from the list. The industry knowledge of TXCHPI members is invaluable in the review.

A major challenge is that name and ownership changes have resulted in duplicate listings. A few projects are shut down because of the closure of host facilities or cost of environmental upgrades. Some units are offline because they have been replaced with newer technology (particularly gas turbines) or are being operated to produce power only.

The current list contains 161 sites ranging from 60 kW at an HEB grocery store in San Antonio to 1320 MW at the Dow Chemical facilities in Freeport. The total capacity is 18 GW, but there are likely duplications which have inflated the figure. TXCHPI is continuing to update the database, including contacting operators to confirm the information.

History of CHP in Texas

Texas had a significant amount of CHP even before PURPA. There were industrial back-pressure steam turbine systems installed in the early 20th century. Gas turbine CHP systems were being installed at some of the major refining and chemical facilities from the 1950s to the 1970s. Houston Lighting and Power supplied steam to the Champion paper mill in Pasadena from the Deepwater station from the 1930s, and, in 1979, Southwestern Public Service and Celanese jointly developed a coal-fired CHP plant to supply the Celanese Chemical plant in Pampa.

Other than the utility-owned plants, the CHP facilities only supplied power ‘inside the fence’. One exception occurred during World War II. The US government contracted with Sinclair Rubber and Goodyear to build and operate a synthetic rubber plant in Houston to manufacture newly developed styrene butadiene rubber to replace natural rubber supplies cut off in Southeast Asia. Because of the wartime industrialization, the Houston area was critically short of power. A 35 MW General Electric back-pressure steam turbine generator was redirected to the Sinclair butadiene plant and the power boilers were redesigned to produce 750 psig superheated steam for the steam turbine. The turbine generator supplied the synthetic rubber plant and exported to the grid. After the war, the government sold the plant, and the new owners were not allowed to export power until the passage of PURPA. The generator is currently owned by Texas Petrochemicals and is still in operation.

PURPA

The passage of PURPA encouraged CHP in Texas. Most of the capacity was built near the Gulf Coast, but the demand growth was statewide. This prompted the PUCT to adopt rules for ‘wheeling’ within ERCOT, which included both firm and as-available transactions. A number of projects were built with the investment coming from internal sources. Examples include Dow Chemical at Freeport, the Occidental Chemical Battleground facility and the Big 3 (Air Liquide) facility in the Bayport industrial park.

The owners then took regulatory and legal action to force compliance with PURPA that led to a methodology for firm capacity and energy payments which allowed developers to enter the market with project financing. Texas Utilities contracted with several CHP facilities, existing and new, to provide firm capacity, in part because of delays in completion of the Comanche Peaks nuclear plant.

Deregulation

The wholesale market in ERCOT was deregulated in 1995 and the retail market was deregulated in 2000. This, along with rapidly improving gas turbine technology, prompted a building boom that resulted in about 30,000 MW of F-class combined cycle merchant capacity being installed state-wide. About 7500 MW of this capacity is CHP with the extraction of steam for process use; in addition, another 2500 MW of CHP using smaller gas turbines was constructed.

The construction boom resulted in over-capacity which, along with stringent regulations for NOx emissions and the increased flexibility in purchasing power in the deregulated market, inhibited new CHP development.

Figure 5 shows the capacity addition by year between 1980 and 2005. Note the build-up in capacity in the 1980s following implementation of PURPA and after 2000 resulting from market deregulation.


Figure 5. CHP capacity additions in Texas from 1980 to 2005
Click here to enlarge image

null

CHP potential

The development of CHP projects is active now because of high fuel costs and falling reserve margins due to continuing economic and population growth. Because of its greater fuel efficiency, CHP is the least-cost option for adding base load capacity.

According to a recent study for the Department of Energy by Energy and Environmental Analysis in 2004, Texas has the potential to add another 11,000 MW at industrial facilities large and small and 9000 MW of CHP at smaller facilities serving hospitals, universities and schools, hotels, office buildings, food processing plants, manufacturers, farms, and wastewater treatment facilities. Although the market penetration is greatest in the large industrial area, there is still a lot of potential there. There are also many smaller industrial sites with a significant heat load. The commercial and light industrial areas are underserved. There is a fair amount of capacity in the institutional market, but there is clearly need for much more.

One consideration for the latter markets is that the Texas climate does not have a long heating season, so most applications will be at facilities needing process heat or hot water.

A strong selling point is that CHP reduces energy costs and makes Texas businesses more competitive in global markets. Installation of CHP systems creates good paying jobs for Texans who design, construct, manufacture and operate them. There are numerous facilities that supply and service turbomachinery, engines and heat recovery systems throughout the state. In addition, Texas has a large number of consultants, engineers and developers with experience in CHP.

Renewable resources

There is 346 MW of CHP in Texas that uses renewable fuel, primarily associated with forestry and agriculture. There is potential for much more. Sources of biomass fuel include urban wood waste, land clearing, agricultural waste, forestry waste and wastes from lumber mills and paper mills. CHP enhances the benefits of renewable resources because it extends the environmental benefit from the resource and adds more value. Renewable generation is generally less efficient than fossil fuel generation, which means that there is more benefit from CHP because there is more waste heat available.

There are opportunities for using wood waste in east Texas. In central and west Texas there is interest in using biomass associated with land clearing. Species like mesquite, juniper and Chinese tallow have invaded much of what was originally grass prairie. They usurp the water resources, causing the soil to become barren and subject to erosion. Good land management practice requires clearing of the unwanted species. Open burning is currently the only practical option for disposal. There is an opportunity to use that waste as a renewable fuel. By integrating with the heat requirements of local industry, the reduction of fossil fuel use can be maximized.

Current rules can discourage CHP using renewable resources. Power generation from renewable sources is eligible for Renewable Energy Credits (RECs), but if steam is extracted from the steam turbine for heat energy, power output (and thus REC) is reduced, although overall plant efficiency is higher and more fossil fuel is replaced. Since there is no credit for thermal energy, there is a disincentive to do the right thing. As an example, a 10 MW power plant would receive $1 million per year if RECs are valued at $11/MWh. If the plant is designed as a CHP facility producing power and 150 psig steam for a process, the power output would be 4.2 MW, generating only $350,000 per year of RECs. The CHP facility would reduce overall fossil fuel energy consumption by an additional 20 million m3 of natural gas, even compared to very efficient generation with a combined cycle power plant and boiler. The effect would be that the operator of a conventional power plant would receive $642,000 per year to waste 20 million m3 of natural gas and 387 million litres of water.

Environmental impact

To demonstrate the environmental benefits of CHP, the TXCHPI developed Figure 6 to compare typical CHP air emissions to those of the actual emissions from electricity production in Texas in 2000. The CHP emissions are estimated from the CHP Emission Calculator developed by the United States DOE and EPA. A mix of small to medium-sized natural gas CHP applications were assumed typical of commercial and small industrial applications.


Figure 6. Emissions and water use impact of CHP installations in Texas
Click here to enlarge image

The typical CHP units will reduce NOx emissions by 84% and CO2 by 51%. SOx is essentially eliminated compared to the average power plant emissions in Texas. Water resources are a big issue in Texas, particularly in central and west Texas. CHP conserves water because the heat sink for CHP is useful thermal energy, not the evaporation of precious water resources. The typical CHP application does not increase the use of water. By comparison, a conventional 800 MW coal fired generating unit consumes enough water to supply the needs of over 300,000 citizens.

Regulatory issues

The Texas Commission on Environmental Quality (TCEQ) has a standard permit rule to expedite permitting for projects that improve the environment or are for a common application. If a project meets stipulated requirements, it is basically pre-approved, which reduces the permit time and cost. The rule has been very successful in expediting projects that benefit the environment and could be of great benefit to CHP projects. Presently the Standard Permit for electric generators discourages all but the very largest CHP projects.

The Standard Permit for electric generators uses the concept of ‘output-based NOx emissions’, which does partially recognize the benefits of CHP, but the rule also has overly restrictive NOx emission limits for small electric generators. The current rule requires any electric generator in east Texas and electric generators greater than 10 MW anywhere in Texas to produce no more 63.6 g of NOx per kWh, which is based on the most efficient large natural gas combined cycle power plant equipped with selective catalytic reduction (SCR). Credit is given for the usable heat recovered, but the benefit is undervalued by the assumption of 100% conversion of fuel to heat in a direct-fired boiler or heater.

SCR is a technology that is most effective for treating power plant exhaust that has a high concentration of NOx, such as a coal plant. It has been applied to a number (but not all) of the very large natural gas combined cycle power plants in Texas, particularly in the non-attainment areas. It is not a cost-effective way to reduce NOx from small systems. Since most CHP opportunities are for smaller systems, the rule arbitrarily imposes costs that prevent the project from being economic. The Permit By Rule (PBR) for new small boilers allows three times the credit provided for usable heat recovered by the Standard Permit for electrical generators. The PBR for engines and gas turbines in any services other than electrical generation allows for NOx emissions 40 to 60 times higher.

The Texas CHP initiative supports TCEQ’s goals to reduce NOx in Houston-Galveston and other areas of east Texas. It also supports a Standard Permit using output-based NOx emissions. However, the standard permit for electricity generators is actually counterproductive because it inhibits CHP competing with less efficient existing and proposed base load coal power plants, which emit more of all air pollutants, including NOx, SOx, CO2 and mercury.

ERCOT plans to adopt a nodal system in late 2008 having 4000 nodes or transaction points for trading energy. All sub-stations will be a node as well as major load areas. The economic value of a CHP plant will be based on Locational Marginal Pricing (LMP) variations. That is expected to encourage CHP because it is more likely to be located near load. Legislation in 2000 created an energy efficiency programme to be administered by the T&D utilities. Cogeneration projects are currently prohibited from participation under the current regulations. Recent legislative changes and efforts by advocates will modify and strengthen the programme, and TXCHPI is optimistic that CHP projects will become eligible for participation. Deregulation of the ERCOT market provides more flexibility for CHP facilities to buy and sell power to the grid. In the beginning, the market platforms did not accommodate small resources very well, but there is increasing recognition of the market for managing CHP operations by aggregators and retail providers.

Municipal utilities and co-ops have the option to open their systems to competition, although none have opted to do so. Because of various regulatory issues, none of the utilities outside of ERCOT have open access.

Legislation

The Texas Constitution proscribes the legislature meeting for 180 days every two years. As the 80th Legislature Session began in January 2007, a large battle was under way over future generation resources as TXU was lobbying for fast track approval of 11 coal-fired generating units. The effort was opposed by a number of environmental, citizens’ and business groups. ERCOT projected that the reserve margin would drop below 12.5% by the summer of 2009, primarily because of continuing population and economic growth.

The TXCHPI began operation in January 2007 as the legislative session was beginning. Despite a very late start, under the leadership of Executive Director Rich Herweck, the TXCHPI was successful in bringing CHP to the table as part of the strategic solution to Texas energy needs, pointing out that CHP can fulfill a vital need in the state’s economy for a highly efficient, reliable source of clean energy.

Representative Joe Deshotel of Port Arthur filed a bill to create a portfolio standard requiring an additional 5000 MW of CHP by 2016. Although the bill died in committee, a provision was incorporated in successful energy efficiency legislation requiring a study of CHP and a report for the 81st Legislature by the PUCT. TXCHPI is assisting the PUCT with information and advice. The bill expands the Energy Efficiency programme by increasing the goals and providing utilities with incentives to maximize the benefit-to-cost relationship. It also removes transmission level customers from the programmes.

A bill was passed to provide an incentive of $20 per dry tonne (909 kg) of biomass used for generation of electricity in a unit placed in service after 31 August 2009. Funding was left to the next legislative session. Another measure created an advanced clean energy project grant and loan programme for energy projects that use coal, biomass, petroleum coke, solid waste or fuel cells using hydrogen derived from such fuels. The programme, which will provide $10 million per year in grants and $5 million per year in loan guarantees, could provide useful stimulus for a range of smaller projects, including CHP.

Tommy John is a consulting engineer to energy related industries and Vice President of the Texas Combined Heat & Power Initiative (TCHPI).
e-mail: tjohn@indian-creek.net

CHP in Texas – current status

Although not 100% complete, there is sufficient information in the database to make important observations. As illustrated in Figure 1, most of the existing CHP capacity is provided by large plants. Only 2800 MW of 18,000 MW is from plants with a capacity of less than 100 MW. Only 7 MW of the total CHP capacity is from plants smaller than 1 MW.


Figure 1. Cumulative CHP site capacity in Texas
Click here to enlarge image

Most CHP systems in Texas use natural gas, as Figure 2 shows. Although natural gas has become more expensive, the efficiency of CHP makes it a competitive fuel for electricity generation. Although biomass facilities represent a small fraction of CHP in Texas, there is potential for substantial growth. The ‘Waste’ and ‘Other’ categories include coal, petroleum coke, black liquor, by-product gas and liquids, and waste heat.


Figure 2. Fuel used by CHP plants in Texas
Click here to enlarge image

Figure 3 shows that gas turbines are the primary power source for over 90% of the capacity; about 16% of the capacity uses gas turbines with heat recovery only and almost 80% of the capacity uses a combined cycle of gas turbine with heat recovery and steam turbine.


Figure 3. Primary power source in CHP plants in Texas
Click here to enlarge image

As figure 4 shows, 94% of the existing CHP capacity serves chemicals and petroleum refining. Other major industrial applications include 300 MW each for the paper and oil and gas extraction industries. The latter has potential for growth as more energy-intensive secondary and tertiary recovery methods are implemented. There are 10 sites at universities with 175 MW of capacity and 24 MW at seven hospitals. Other applications include 190 MW at a variety of sites including other industrial, office buildings and laboratories, and 37 MW of agriculture and biomass.


Figure 4. Host facilities for Texas CHP plants
Click here to enlarge image

Texas has three independent grids (and four grid operators) in the state. The Electric Reliability Council of Texas (ERCOT) serves 85% of the load and is connected only through two DC ties to the eastern interconnect. The arrangement exempts ERCOT from federal regulation and allows the PUCT more flexibility in regulating the industry. The eastern interconnect serves most of the bordering areas around ERCOT through the SERC Reliability Corporation (SERC) and the Southwest Power Pool (SPP). In the far western corner, El Paso Electric is interconnected to the Western Electricity Coordinating Council (WECC). All areas have significant CHP capacity as indicated in Table 1.

Click here to enlarge image

 

Texas CHP Initiative

Following the implementation of PURPA, the Gulf Coast Cogeneration Association (GCCA) was formed and became the strongest regional cogeneration organization in the US. After the federal legislation that allowed independent wholesale generation, the GCCA expanded its horizons into an independent power organization, changing its name to the Gulf Coast Power Association. Recognizing the need for an organization to support CHP because of increasing energy costs and environmental concern, interested industry participants formed TXCHPI (www.texaschpi.org), which works closely with the Gulf Coast CHP Regional Applications Center (www.gulfcoastchp.org) and the US Clean Heat and Power Association (uschpa.admgt.com) to promote CHP through education to users, clean energy advocates and public officials. The mission of TXCHPI includes both promoting the implementation of CHP to all potential users and helping direct public policy to encourage CHP.

Gulf Coast CHP Regional Applications Center

The Gulf Coast CHP Applications Center was created by the US Department of Energy in 2005. Located at the Houston Advanced Research Center in The Woodlands, Texas, the Center is one of eight such centres providing services in all fifty states. The Gulf Coast Center provides educational workshops and feasibility analysis to industrial, commercial, and institutional end-users and other interested parties in Texas, Louisiana, and Oklahoma.