The convergence of a series of environmental concerns, including the Gulf of Mexico situation, coupled with advances in technology, is due to have a positive effect on the development of distributed electricity generation, and CHP in particular, in the US and further afield – writes Duane DeRaad

To understand the Distributed Electrical Generation (DEG) changes of the future, we must first look to the past. Electrical generation in the US has been dominated by large central station generating plants owned and operated by regulated utility companies. There are a smaller number of municipal utilities and cooperatively owned systems that also own and operate relatively large-scale central station generating plants.

DEG has typically been located on higher education and industrial campuses, and in some larger cities there are private companies that provide thermal and electrical energy to their customers. These Combined Heat and Power (CHP) plants are designed to generate electricity, and harvest the waste heat from the prime mover to provide useful thermal energy for their customers.

During the late 1990s, a considerable movement occurred to deregulate electrical generation in an effort to provide a competitive environment for the benefit of consumers. Most states entertained legislation to accomplish the change. Some of the first deregulated states experienced unfortunate consequences, and many of the legislative initiatives were not completed. As a result, currently 23 states and Washington, DC, have deregulated retail electrical industries, and the remaining 27 states remain regulated. All wholesale electrical activities have been unregulated for some time. This situation is likely to remain for the foreseeable future.

DEG facility owners currently deploy two types of system. The most common is emergency generation installed to provide life safety and essential power requirements to facilities in the event of electrical grid failures. These systems are typically internal combustion engine-driven generators, intended to operate for relatively short durations until grid service is restored. Some of these generators are also operated during high load conditions for peak shaving.

The other type of DEG system consists of steam turbine or combustion turbine-driven generators with heat recovery systems. Recovering what would be wasted thermal energy results in system efficiencies up to 70%, compared to approximately 40% typically achieved by central station plants. While increased efficiency is appealing, it has been relatively difficult to implement new DEG projects due to the fact that, until now, these projects were judged primarily on the merit of their financial investment performance.

Since DEG competes with central station electrical generation economies of scale, the relative costs of constructing and operating a DEG system was a deterrent. However, in order to assess the true value of DEG, its non-financial advantages must be considered, including increased efficiency, reduced emissions, cleaner power and better reliability.

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Thermal Energy Corporation’s district energy plant at the Texas Medical Center in Houston features a CHP system that will, when completed in 2014, provide 100 MW of on-site power generation, 80,000 tonnes of chilled water, 152,000 tonne-hours of chilled water storage and 540,000 pounds per hour of heat recovery steam generation to 75% of the facilities at the Texas Medical Center. Designed by Burns & McDonnell as part of the initial phase of the central plant master plan, the system will double the operating efficiency of the existing plant, as compared to the plant being fed from the grid; significantly reduce greenhouse gas emissions; and improve the security, reliability and emergency operation capacity of the utility infrastructure serving the world’s largest medical center.

For a CHP system to be financially viable, it has to be located adjacent to a coincident electrical and thermal base load. Consequently, it takes a slice out of the local electrical provider’s base load. Typically, utility companies provide the base load power with their most cost-effective generation assets, and they dispatch less-efficient generation units for shorter portions of the load. Losing base load impacts the utility company economics, consequently they have not welcomed the development of DEG in their service areas.

Utility companies also participate in defining electrical interconnection requirements and the development of standby charges through the public utility regulating agencies. Because of that influence, those issues can be barriers to CHP implementation, even though the federal government encourages the implementation of this technology.


The convergence of national environmental concerns and technical advancements will
drastically alter the landscape for CHP development in the US and perhaps internationally. The following factors will drive the future implementation of CHP at a much faster rate than has been the case in the past:

  • environmental concerns – carbon footprint, implementation of carbon legislation and Gulf of Mexico oil contamination
  • tax incentives and grant awards for CHP implementation
  • technology to access the massive natural gas fields in Pennsylvania and West Virginia
  • reliability for hospitals requiring continuous off grid operation
  • lack of a carbon-free alternative energy source to meet the current US energy needs
  • smart grid implementation.


Previous economic analysis of CHP investment opportunities would rarely provide a clearly advantageous return when compared to a traditional central utility plant using natural gas-fired boilers and grid-supplied electricity for chilled water generation. Again, it was the financial impact of a small, complex system competing with the economies of scale of a large, central station generating plant.

However, the current environmental concerns and pending legislation are combining to substantially alter the landscape in favor of the highly efficient, environmentally friendly CHP systems. Facility owners are now willing to seriously consider investing in CHP to reduce their carbon footprints in addition to reducing their energy bills. Current estimates of carbon cost, as result of legislation, range from $15 to $30 per tonne. A carbon cost of $20 per tonne will make nearly every CHP investment opportunity favorable compared to a traditional central utility plant using natural gas fuel and grid power.

These issues, which were already a rapidly growing concern in the US, have received international attention because of the current oil release in the Gulf of Mexico. This brings into question the availability of substantial oil reserves and highlights the risks of acquiring them from beneath deep water. Broadly implemented, CHP would reduce the US dependence on foreign oil.


The US government has been encouraging CHP system implementation for the past 10 years. The federal government’s supportive measures include financial support of demonstration projects, intended to establish design configurations based on commercially available components and to provide well-documented field performance data. Recently established investment tax credits and rapid depreciation schedules assist facility owners with the substantial capital investment required for implementing the electrical generation component of CHP systems.

During the past year, the federal government made substantial grant funding available for CHP system implementation through the American Recovery and Reinvestment Act. The US Department of Energy is encouraging the nation to implement new CHP generation systems to the point that it will provide 20%, or 241 GW, of the US power generation capacity by 2030. Increasingly more successful examples of operating CHP systems, with better construction and operational cost and economic performance data, will provide potential facility owners with the confidence to make investments in their own systems to make this goal reality.


The substantial implementation of natural gas-fired electrical generation has impacted the US natural gas market. Limitations on the production, transportation and storage capabilities, along with available natural gas reserves in the US made the financial viability of CHP systems somewhat uncertain, due to the volatility of the natural gas market.

Recent technological developments now provide access to massive natural gas fields in Pennsylvania and West Virginia, greatly improving the natural gas supply outlook. These natural gas deposits are in a particular geological rock formation that has traditionally been difficult to access and, therefore, not economically viable to produce. The recently developed solution to that problem has provided the US with an adequate source of relatively clean hydrocarbon fuel which, when burned in an energy-efficient CHP system, results in a process roughly 2.5 times cleaner than the same electrical and thermal production from grid-supplied electricity and natural gas combustion for heating.

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In a central power delivery system, only a third of every unit of energy consumed is converted into electrical energy, with the rest going up the stack or cooling tower. An on-site CHP energy delivery system converts three-quarters of every unit consumed into useful electric and thermal energy for the hospital.

This is not the ultimate environmental solution the world needs, but it is currently available technology and an energy source that can provide a substantial reduction in greenhouse gases per unit of useful output energy, when it is implemented into the appropriate situations.


Increasingly, certain types of facilities are requiring a higher level of reliability for the utility services. This is particularly true for hospitals, some of which are now requiring full-service operation independent of all external utility sources for periods up to seven days. This emerging reliability requirement stems from experiences with major electrical grid failures experienced in the US, most recently those resulting from hurricanes Katrina and Rita on the Gulf Coast.

While this goal can be accomplished with emergency generators, a more cost-effective and reliable solution is to employ one or more highly efficient, low-emission CHP units as the primary power source for these critical facilities with redundancy provided from the electrical grid.

Law enforcement and military facilities can benefit from the enhanced security of CHP applications to mitigate the threat of terrorist activities. Energy requirements for these facilities are currently in development and indications are that in many cases complete independence from the electrical grid will be required. The one difference in requirements for military and law enforcement facilities might be that redundancy will be designed into the local energy plant to eliminate the connection to the electrical grid for required redundancy.

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The control room operator at Thermal Energy Corporation’s (TECO) district energy plant at the Texas Medical Center in Houston can better manage plant systems through integration. Burns & McDonnell provided engineering, procurement and construction management services for the expansion of TECO’s district energy plant, which features a CHP system as part of the initial phase of the central plant master plan.


Historically, the electrical load has been considered unmanageable and electric generation has been operated in response to the ramping up and down of the system demand. This is very inefficient in terms of the generation capacity has to be available. Base load units are in operation at all times except during required maintenance shut downs. As the load ramps up, less–efficient, less capital-intensive units are brought online. Many of these units are operated relatively few hours of each year. A flatter load profile would allow the most efficient generation to meet a larger portion of the load and substantially reduce the total generation capacity required to meet the system demand.

Flattening the electrical load profile is the ultimate purpose of smart grid. At the operating level, smart grid translates into system flexibility, information availability and control. A large element of that operational flexibility will ultimately be provided by highly efficient biomass and natural gas-fired CHP plants dispersed throughout the electrical grid wherever appropriate thermal loads exist. This combination of flexibility, fuel efficiency and low emissions will make CHP an integral and significant component of the nation’s transition toward a carbon-free energy environment.

CHP systems can be designed with thermal energy storage capability, which can be recharged during periods of low demand and discharged during periods of peak demand, effectively functioning as storage of electrical power. Operationally flexible CHP plants will contribute to the effective implementation of the Smart Grid, while minimizing the capital investment required for central station power plants and the associated transmission infrastructure.


It is clearly evident from the review of the past DEG landscape and the gathering forces of the present, that there will be a vastly different Landscape for the implementation of DEG/CHP projects as the future unfolds into the present. The current reluctance of many utility companies to embrace CHP in their service areas will evolve into interest, and then business initiatives to own and operate CHP systems in collaboration with the owners of the thermal loads. Once carbon legislation is enacted, the impact of these drivers will filter through the electric power economy and the investment potential for CHP will rapidly become much more favorable.

In addition, DEG and CHP technology is currently available and can be readily implemented in magnitudes that will immediately contribute to the relief of generation and transmission constraints. The CHP systems that have been designed for hospitals with their integration into the grid and ability to isolate from grid to continue service makes them prototype ‘microgrids’ which have been identified as a critical element of the coming smart grid. The future landscape for implementing DEG/CHP in the US will be much more amenable than in the past.

Duane DeRaad is a project manager with Burns & McDonnell, Kansas City, Missouri, US. Email: dderaad@burnsmcdcom


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