Spark spread boost for US CHP

New analysis from Frost & Sullivan finds that relatively moderate hikes in the price of natural gas ensure positive spark spread, boosting the prospects for combined heat and power (CHP) development in the US.

As per the executive order issued by the Federal Government in 2012, 40 GW of CHP capacity will be added by 2020, taking US CHP capacity up to 130 GW, with additional potential for 65 GW each for the industrial and commercial/institutional sectors.

Nevertheless, unclear utility value proposition, limited supply infrastructure and inadequate end-user awareness regarding the benefits of CHP systems are hampering deployment rates. Apart from these challenges, the price of input fuels will play an important role in deciding the growth of the CHP market in North America.

‘As more than 67% of CHP facilities in the US use natural gas as the input fuel, any volatility in its prices could prove detrimental to the market,’ observed Frost & Sullivan Energy & Environment Research Analyst Rasholeen Nakra. ‘Natural gas prices are, however, expected to increase only moderately compared to electricity prices, resulting in positive spark spread and high investments in the CHP market.’

CHP accounts for 8% of US electricity generation capacity, but 12% of its annual power generation, reflecting the longer operating hours of CHP plants compared to plants involved in conventional forms of power generation.

Approximately 87% of CHP units supply heat and power to industries such as chemicals, paper, refining, food processing and metals. The remaining 13% is employed for commercial, institutional and residential purposes.

Frost & Sullivan finds that the US market earned revenues of $1.50 billion in 2014 and estimates this to reach $1.95 billion in 2021.

‘Strong government support in the form of tax credits and incentives gives impetus to the use of CHP systems in North America. The market will also get a boost from legislation such as the Energy Policy Act of 2005 and Energy Independence and Security Act of 2007, which mandates incentives for CHP and waste energy recovery,’ said Frost & Sullivan Energy & Environment Industry Analyst Mahesh Radhakrishnan.

If you are interested in finding out more about Frost & Sullivan’s North American Combined Heat and Power Generation Market, please click here.

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