CHP’s status in the US varies greatly between states, but high electricity prices along with low gas prices and generous incentives ensure many areas offer a healthy market, in which schemes can become even more viable by featuring renewables, reports Scott Backer.
|The Northeast Water Pollution Control Plant Biogas Project in Philadelphia, PA|
The US market for on-site combined heat and power (CHP) plants is a healthy one as public and private entities seek to reduce energy costs, boost reliability, and lower their environmental impact. Despite falling costs of utility generation fuel in certain markets, utility electrical commodity costs for the end-user remain high.
According to the US Environmental Protection Agency’s (EPA) Combined Heat and Power Partnership, 88% of existing CHP plants are for industrial purposes. The other 12% are commercial and institutional entities such as hospitals, municipal and state governments, and public schools, colleges, and universities.
These capital-constrained public entities are using state and federal incentives, attractive third-party financing, and innovative project delivery arrangements to achieve their energy and cost saving goals. These incentives, combined with abundant supplies of natural gas – which analysts expect to keep natural gas at historically low prices for the foreseeable future – make CHP highly attractive not only to public entities but also to private ones in fields such as industry and commerce.
WHAT IS DRIVING THE INSTALLATION OF CHP FACILITIES?
Currently, the following factors drive installation of CHP systems:
- high electricity prices;
- low natural gas prices;
- state and federal financial incentives including grants and loans, utility incentives, and state and federal tax incentives, including the Federal Investment Tax Credit (ITC) of 10% for CHP plants;
- the need for highly reliable/high quality power;
- third-party financial solutions allowing implementation of CHP facilities without a capital investment by the end user.
Economics are normally the driving factor behind the justification and authorization of a CHP facility. When justifying a CHP system, a facility must take into account several key factors and costs that will be used to calculate a return on investment. These include:
- cost of CHP equipment;
- cost of electrical power purchased from the grid;
- cost associated with the thermal load that will be generated by the prime mover;
- stand-by charges payable to the utility company in the event of a CHP shutdown;
- fuel costs.
A user benefits from an on-site CHP plant designed to operate as a backup generator when power supplied from the local utility is interrupted by natural or man-made disasters. On-site CHP plants may achieve a higher level of economic benefit and reliability if fuelled by a renewable fuel, such as biogas, which is sometimes available on-site or within a short distance from the facility.
During past domestic disasters such as the 11 September 2001 terrorist attacks, the northeastern US blackout on 14 August 2003, and Hurricane Katrina in August 2005, facilities with on-site CHP applications that were designed to operate independently from the grid had access to thermal and electrical energy during the crisis. For example, during both Hurricane Irene in late August 2011 and the snowstorm of 31 October 2011, the Bradley International Airport cogeneration facility in Windsor Locks, CT, was fully operational.
|The 4.3 MW biogas capture and cogeneration facility at the Dallas Water Utility|
Another driver for on-site CHP plants is the imminent shortfall of utility-provided electricity due to projected higher demand and the planned retirement of power generation assets fuelled by coal. This driver is further complicated when combined with the difficulty of locating and financing large-scale power plants. The existing infrastructure is often unable to deliver reliable electrical power in ‘grid-constrained’ locations, such as rural areas. This encourages the development and installation of on-site CHP plants in those areas as well.
|Bradley Airport’s CHP energy centre in Connecticut|
Some geographical areas are more suitable for on-site CHP plants than others due to fuel availability. The CHP market is strong in the northeastern US because of heavy industrialization, high grid electricity prices and the nearby abundance of Marcellus Shale, which has estimated gas resources of 11.6 trillion m3, or 55% of total US resources, according to a report commissioned by the US Energy Information Agency (EIA).
Other areas of the US currently do not have the infrastructure or even the need for CHP plant proliferation. Much of the gray areas of Figure 1 shows the relative lack of CHP plant facilities due to a sparse population or low cost benefit because of already low electricity costs or a lack of industry. This is common across much of the US central states.
CHP FOR CAPITAL-CONSTRAINED END USERS – AN EXPANDING MARKET
Well-capitalized industrial companies use internal funds to implement CHP installations. More recently, capital-constrained public and private non-profit entities such as hospitals, state universities, and municipalities are implementing CHP projects with the help of innovative solutions such as outsourcing the design, construction, ownership and operating responsibilities.
These organizations may obtain funding through tax-exempt financing facilities such as public or private placement revenue bonds, tax exempt leases in the case of municipalities, or they may choose to enter into a power purchase agreement (PPA) with a third party in order to monetize the ITC and other tax- based incentives.
Under a PPA, a third party entity would own, operate and finance the plant while delivering the electricity and heat supplied by the CHP plant to the customer in exchange for payments. This payment stream would be used by the third party entity to finance the project and earn a return on its investment. The CHP plant ownership would transfer to the customer after the expiration of the PPA term.
USING RENEWABLE FUELS – BIOGAS CHP PROJECTS
The many facility types installing on-site CHP plants include wastewater treatment plants (WWTP). In some cases, WWTPs have anaerobic digesters that create methane as a by-product of digestion of biosolids. Some of these facilities combust the methane by flaring but installing a CHP system fuelled with waste methane can greatly increase operational efficiency, reduce energy costs, raise the reliability of power supply and cut greenhouse gas emissions.
Water and wastewater utilities have business models that normally operate 24/7. These facilities have been designed and built to withstand a long‐term investment horizon. Typically, these facilities are regulated entities that are not at risk of going out of business. Hence, they appeal to lenders and offer opportunities for implementing on‐site biogas generation projects.
Below are some examples of CHP projects that are either in design or operational. In all cases, Ameresco was responsible for designing, building, operating, and maintaining the CHP plants.
On‐site power and thermal generation using biogas renewable fuels – Philadelphia, PA
The Northeast Water Pollution Control Plant (NEWPCP) Biogas Project in Philadelphia will generate electricity and thermal energy for use on‐site, fuelled mainly by biogas from the NEWPCP digesters. The $47.5 million construction project, designed to generate 5.6 MW of power, is expected to reduce energy costs over the course of a 16‐year contract. This project is being funded with no initial capital outlay. The city will make lease payments with monies generated from the energy savings provided by the project.
Power and heat generation using renewable fuels – Dallas, TX
This 4.3 MW biogas capture and cogeneration facility at the Dallas Water Utility (DWU) plant generates electricity and thermal energy to power DWU’s facilities. It is expected to save at least $1.5 million annually and offset about 60% of the electricity that DWU currently pulls from the grid.
Bradley Airport CHP Energy Center, Power Island – Windsor Locks, CT
The State of Connecticut expressed interest in providing highly reliable power to the newly expanded Bradley International Airport in Windsor Locks. At the same time, the airport was looking for ways to reduce its operating costs. The solution was to design, build, and maintain a freestanding cogeneration plant to accomplish the state’s goals.
|Figure 1. Installed CHP systems, 2005–10 Source: ICF International|
The energy plant generates 3.8 MW of electricity using three natural gas reciprocating engines (two at 1200 kW, one at 1400 kW), 3.8 MW of engine heat recovery (110°C hot water), one 500 tonne hot water absorption chiller, two electrical centrifugal chillers with a combined capacity of 1500 tonnes and two 3.5 MW dual fuel, hot water boilers.
During Hurricane Irene in August 2011 and the snowstorm of October 2011, when many facilities in New England lost power, this plant operated without interruption.
The market for on-site CHP plants will remain healthy for the near future as long as electricity costs are high and natural gas costs are low. It makes financial sense for large businesses to employ CHP on-site simply because it improves their bottom line. CHP, coupled with the use of renewable fuels such as landfill or digester gas, is a good way for a company to save even more money. It also enhances a company’s image by demonstrating the organisation has a strong commitment to the environment.
|Figure 2. Anatomy of a CHP system showing simultaneous generation of electricity and hot water Source: EPA|
An on-site CHP plant powered by renewable fuel provides a secondary benefit in the form of a relatively secure power source in case of service interruptions. CHP plants of this type should be a key component of any business continuity plan due to their ability to power mission-critical functions.
The use of CHP plants in the US varies widely from state to state, primarily in line with economic factors such as the varying price of electricity and the desire of local utilities to embrace privately owned CHP facilities. State incentives can also support CHP by improving the return on investment.
Wherever they are located, on-site CHP plants are becoming a power source of choice for many industrial entities as well as a growing number of commercial and institutional entities.
Scott Backer is a senior project developer with energy efficiency and renewable energy company Ameresco, Framingham, MA, US.
What is CHP?
CHP is a proven technology consisting of a prime mover such as a steam turbine, gas turbine, or reciprocating internal combustion engine; a generator; a heat recovery system; and an electrical interconnection packaged together into one system. CHP plants generate electricity while capturing the waste heat from the prime mover to produce heating or cooling energy, all from a single fuel source.
According to the Oak Ridge National Laboratory in Oak Ridge, Tennessee, generating electricity and thermal energy from traditional plants is 45% efficient, whereas CHP systems can be up to 75% efficient. Environmental impact is reduced even further when the CHP plant uses biogases such as those from landfills and wastewater treatment plants.