New US policy: A boon for distributed energy?

Absorption chiller at St Peter’s University in New Jersey Credit: ENER-G Rudox

Forthcoming US federal regulations on emissions reduction are generally positive for distributed energy but have created uncertainty within the industry, finds Craig Howie

The US Environmental Protection Agency (EPA) released the final version of its heavily anticipated Clean Power Plan (CPP) in early August, after several revisions and some 4.3 million comments submitted within the public consultation period on the 1560 pages of regulations which have lasted since the EPA first announced its plans for new limits in September 2013.

The agency’s goal is to reduce carbon emissions by 32% below 2005 levels by 2030, and to provide America’s first national standard to limit pollution from power plants. US states are expected to show compliance with the recommendations by 2022, on a gradual ‘glide path’ of emissions reductions to 2030.

The plan is being authorised under existing primary legislation – the Clean Air Act – so it does not have to be presented to Congress for approval. The Obama administration expects that implementing these emissions limits will cost $8.4 billion annually by 2030.

After the plan is entered into the Federal Record, which could happen as COSPP goes to press, it will be subject within 60 days to an expected legal challenge from 15 states which are largely invested in the coal industry, and which do not necessarily have significant distributed energy schemes planned or in place.

Many in the industry have compared the regulations to the 2010 effort to create a national cap-and-trade scheme for carbon emissions – a plan that failed to pass the US Senate.

At the CPP’s release, President Barack Obama said: ‘There is such a thing as being too late when it comes to climate change.’ Distributed energy is expected by many to benefit from the new rules, as decentralised, small-scale power production that can be aggregated to meet regular demand, often linking with main grids, is a good fit. Of course, it helps that it can take the form of renewables such as solar and wind power, or harness biogas or biomass and geothermal power, and often incorporate combined heat and power (CHP).

Rob Thornton, president and CEO of the International District Energy Association (IDEA), which has been working with the EPA for 15 years and has contributed to the language and provisions in the CPP’s current and revised forms, said the plan is ‘a structured federal guidance to the states to make the electric generating industry more efficient’. The emissions regulations are ‘generally favourable’ for the distributed energy sector, he suggested, but added that the ‘devil is in the details,’ acknowledging the states’ legal challenges. ‘We see it as being operable in certain states; other states remain to be determined.’

States are expected to present their own plans to achieve emissions reductions in line with the federal regulations, and can comply by employing one of two mechanisms. They can operate on a rate-based system, where they are allowed a certain level of emissions per MWh per unit; or on a mass-based quota that sets an allowance for aggregate total emissions. The rules will affect states in different ways depending on which system they choose.

‘I think CPP is a reasonable compliance measure that can help those states at least move the needle on reducing emissions,’ Thornton said.

Moving the needle

To illustrate how distributed energy can be utilised to reduce emissions, Thornton points to Kendall Cogeneration Station in Cambridge, Massachusetts, a 256 MW gas-fired plant which, under prior ownership, was a market-based electricity generator. Now under new ownership, the station recovers heat that was being rejected into the Charles River, dramatically improving the heat rate of the plant, reducing thermal pollution and supplying more heat to the district network, where it is displacing unregulated boilers.

Thornton said some environmental groups have expressed disappointment that the plan does not lay out an energy vision that is 100% based on renewables such as wind and solar power, but, to Thornton, ‘incremental change is better than none’. He notes that ‘CPP gives us a vehicle from which to explain and demonstrate the advantages of distributed energy, particularly at scale.’

The state of Massachusetts is a leading proponent of distributed power alongside California, New Jersey and Maryland. And state-based emissions initiatives have given it a head start in complying with the federal emissions legislation, notes Moe Barry, a spokesman for Energy Choice, a Somerville, Massachusetts-based provider of power generation and CHP units rated from 100 kW to 7.5 MW.

The CPP rules were not a surprise within the industry, Barry says. ‘More stringent emissions regulations have been consistently happening, it’s something we anticipated happening.’

Energy Choice’s main focus is providing reciprocating engine CHP/cogeneration packagesà‚ utilising natural gas or biogas.à‚ Barry suggests that the key impact of the federal rules will add some cost to smaller projects through the addition of emissions-reducing technology such as selective catalytic reduction (SCR), which may deter some buyers seeking units from 500 kW to 7.5 MW.

‘Emissions catalysts can make a project less feasible. You can still do it and you can hit the emissions regulations, it’s just [that] costs for some of these beneficial CHP technologies are a little more difficult and harder to finalise,’ says Barry.

But he says the CPP ‘really makes us confident we can go to any part of the country, where traditional forms of power generation aren’t feasible anymore. In the northeast, we’re able to soften the fear of what’s permissible today and may be permissible tomorrow.’

The CPP could also affect one of America’s main users of distributed energy: university campuses. Princeton University in New Jersey has also benefited from the state’s long-standing initiatives to promote microgrids that provide more reliability and resilience of supply, of particular importance when the state dealt with Hurricane Sandy and its aftermath in 2012. When the hurricane hit, the university’s 15 MW of power provided by a GE LM1600 gas turbine serving 180 buildings and 12,000 people helped keep the research facilities running. Vital projects in the university’s data centre could have been lost without a separate 1.9 MW gas-fired reciprocating engine that provides cooling power from waste energy. The university has also installed 16,528 solar panels.

The Kendall Cogeneration Station in Cambridge, Massachusetts Credit: Jon Reis Photography

With a setup like this already in place, Ted Borer, Princeton’s energy plant manager, says that the ‘shock to the system’ of any new federal regulations ‘wouldn’t be nearly as strong. We’re burning natural gas as our primary fuel. Diesel is only a backup, so there is low or zero impact at our scale’ from the CPP, Borer explained.

Alongside facilitating the use of distributed power by way of renewables including solar and wind, some CHP companies invested in natural gas see increasing benefits from the CPP regulations.

Tim Hade, a spokesman for New York-based ENER-G Rudox, which has supplied some 4000 backup power generators utilising cogeneration, says: ‘We’re very interested in the outcome of CPP and, in particular, how it’s going to be implemented. Right now there’s a lot of uncertainty, but CPP is a step in the right direction.

‘What will come out on the other side,’ he says, ‘is policy that integrates greater use of natural gas.’

‘Ultimately we’re looking at what states are doing in order to comply, forward-thinking the process that they come up with to meet targets. That’s a state we’re very interested in focusing on. Conversely, if a public utility is fighting the rule, then we’re probably going to stay away from those states.’

However, some distributed power providers see benefits in seeking business in coal-reliant states, seeing greater potential than in states that already have many such systems in place.

Some 15 states have joined a potential lawsuit to challenge the CPP. While the challenge is being led by West Virginia, which is synonymous with America’s coal industry, states involved in the lawsuit from the Midwest including Indiana, Michigan and Ohio also present significant opportunities for CHP providers, said Patricia Sharkey, policy director for the Midwest Cogeneration Association (MCA), which has been working to educate its member organisations throughout coal-reliant states.

The MCA is working to pull together a distributed energy template in partnership with the Great Plains Institute, while working on a potential eight-state compact to become ‘trading ready’ or by way of a mass-based emissions plan. Some states will be dragged into the CPP ‘kicking and screaming’, Sharkey said, as it is a better alternative than refusing to follow the regulations, which then would involve greater federal oversight and allocation of state energy resources.

‘Some utilities are very friendly to the notion that we’re moving into new era of distributed generation as part of the overall energy mix. Others are fighting it tooth and nail. Indiana [has] a lot of resistance; [there is] a big battle in Michigan. Ohio [is] split also. That tells you that some of the industry groups really understand that energy efficiency can lower the energy costs,’ Sharkey noted. ‘They have the potential to be doing the kind of projects in our coal states, have the potential to offset coal emissions and keep those plants going because they’re able to buy allowances from the industrial CHP generators.’

Such additional funds could be valuable given that distributed energy and CHP projects in the Midwest can also be hindered by smaller-margin spark spreads, lack of money for regional greenhouse gas initiatives, and reductions in federal aid for natural disaster planning and response, which can feed into distributed energy. Even then, Sharkey says, legislators in coal-reliant states are keeping an eye on how other states are responding to the CPP legislation, as a means of developing a ‘Plan B’ response to avoiding the federal oversight and allocation plan: ‘There’s a lot of push and pull, but the CHP component is getting a lot of attention. CPP is one more thumb on the scale for CHP.’

One state without such residual opposition is California, which has learned its lessons from its energy crisis of 2000-2001 when capacity shortages led to blackouts. It has, as a result, pursued distributed energy as a matter of political necessity.

The state’s use of coal in electricity generation is practically negligible, and it operates an energy cap-and-trade system under the nation’s most stringent greenhouse gas emissions regulations. Some 19% of its electricity comes from renewable sources, according to the California Energy Commission.

Beth Vaughan, executive director of the California Cogeneration Council, said that her group has fielded multiple calls from businesses headquartered outside the state with one question: How will this affect us?

But Vaughan, who has also held positions in the Canadian and New Zealand governments advising on climate change issues, cited a lack of widespread distribution of information at the federal level as contributing to an air of uncertainty about the new regulations within the distributed power industry. ‘Dissemination of information is not consistently done at a national level; you need to get the communication in the background,’ she says.

Despite this, the message to companies already operating within California’s heavily regulated economy is: ‘Don’t worry, you’re already covered’, Vaughan says. However, she notes that also high on the priorities list should be: ‘How do we go the extra mile?’

This is a message that the American Council for an Energy Efficient Economy, a non-profit research organisation based in Washington DC, may have taken to heart.

In the wake of the CPP’s release, the group has worked to convene energy producers, distributers and users in working groups to discuss the way CHP is treated under the new EPA rules. Meegan Kelly, a senior research analyst with the group, thinks that such outreach will help the EPA reach its goal of significant emissions reduction across America.

‘We think that the CPP could represent a big opportunity for the distributed energy sector and CPP can help states achieve significantly lower emissions, increase competitiveness and energy reliability and resiliency,’ Kelly says. ‘Business owners are likely to benefit from the cap-and-trade aspect, lower operating costs and by investing in efficiency.’

Craig Howie is a journalist based in Washington, DC

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