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Cogenera Solara’s solar CHP uses silicon hotovoltaics as well as concentrating optics, single-axis tracking and a thermal transfer system to deliver electricity and hot water to businesses and multi-family homes.

The Obama administration wants to significantly increase export of CHP and other clean energy products over the next five years through a new strategy designed to overcome barriers to foreign sales. But it is unclear how many US CHP companies will respond to the call, since their home market offers vast opportunity – at least if domestic policies become stronger. Elisa Wood writes.

Like many US green-tech startups, ClearEdge Power chose California as the first place to market its new product, a micro combined heat and power (CHP) system for homes and small businesses. The state’s appeal lies in its high energy rates, generous incentives and green-minded celebrities who can afford the $50,000 fuel cell systems.

But the Oregon-based company is also looking abroad to a market with a very different appeal: South Korea. The Asian nation is one of the world’s most densely populated, which has led to close-quarter, high-rise living, conducive to district heating and CHP. As a result, the South Korean government is backing these technologies with the hope of bringing them to one in six households in just a few years (See COSPP, Sept-Oct 2010).

ClearEdge Power is just the kind of company that the Obama administration wants to encourage with its new strategy, designed to ramp up international sales of renewable energy and energy efficiency technologies over the next five years. Unveiled in December 2010, the strategy marks the first time the nation has systematically worked on export of green energy. The US exported only $2 billion in renewable energy goods in 2009, a pittance in the $6 trillion global energy market, of which clean energy is the fastest growing segment.

‘Spurring domestic clean energy innovation to meet America’s needs is only half of the picture. Empowering US business to create and deliver those new technologies to energy-hungry foreign markets is the other,’ said US Commerce Secretary Gary Locke, writing in the White House Blog in late December.

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Princeton Hospital, where NRG Energy operates a 4.6 MW gas-fired CHP project

Many US clean energy companies do not export. Those that do typically export to only one or two markets, according to a report by the Trade Promotion Coordinating Committee Working Group on Renewable Energy and Energy Efficiency, an inter-agency group chaired by Locke. The report blames several factors: little available market research, lack of manufacturing capacity, unfamiliarity with export logistics, risk aversion to foreign markets, lack of links to foreign partners or buyers, currency fluctuations, and financing snags abroad.

The administration pegged the international export market for renewables and efficiency at $162 billion in 2009, with more than 100 foreign programmes now underway to encourage green energy. US trade officials expect the market to grow as the economy improves. To help US companies capture those markets, the government plans to create new financial products, ramp-up trade missions to open doors for US firms, and undertake research to help companies find and navigate foreign markets.

For district energy and CHP products, the US International Trade Administration (ITA) sees China and India as the greatest potential markets. China is expected to spend $360 billion over the next decade on district heating and cooling, alone. Some US firms that offer CHP, district energy or energy efficiency already have footholds abroad, among them Rockwell Automation, Honeywell, and Johnson Controls, according to the ITA.

Barriers exist, however, to further inroads. These include lack of protection for intellectual property, and demands by some foreign governments that companies offer unconditional guarantees on letters of credit, and no cap on economic losses in contract guarantees.

BEGIN AT HOME

The Obama administration hopes to help US companies overcome these barriers. But some companies say an even greater boost for export would be stronger programmes at home to help new CHP products prove their worth to the world. One such company is Cogenra Solar, a California start-up marketing a solar-driven CHP system.

Cogenra Solar uses silicon photovoltaics with concentrating optics, single-
axis tracking, and a thermal transfer system in an integrated hybrid receiver to deliver electricity and hot water for businesses and multi-family homes. As one of its initial projects, the company installed a 272 kW system in 2010 at Sonoma Wine Company in northern California. CHP made sense for the winery’s 17,000 m2 bottling facility because it needs large quantities of hot water for bottling and processing. Cogenra’s hybrid system occupies 1200 m2 at the winery and is expected to displace 64 MWh of electricity and 12,500 therms of natural gas annually.

The firm aims to introduce its system into international markets in 2011/2012. How can government help? Gilad Almogy, CEO, says what Cogenra needs most is not an export strategy but a domestic policy that places solar hot water on equal footing with PV; US states are notorious for offering incentives for PV and not solar thermal. Strong domestic policy would give him a chance to prove his system’s worth. ‘If you can’t sell it at home, it’s not convincing,’ he said.

Almogy’s lament is echoed by CHP firms that use other fuels. They cite a lack of US government incentives and policies that recognize the high efficiency of CHP, whether the system runs on solar, natural gas, biomass or some other fuel. Without such recognition, CHP may neither achieve a domestic goal of growing from 8.6% to 20% of US generating capacity, nor gain serious ground abroad. In fact, CHP is pretty much ‘homeless’ in the US when it comes to state public policy, according to the American Council for an Energy Efficient Economy (ACEEE).

ACEEE’s Anna Chittum and Nate Kaufman, who have been researching CHP, say: ‘Few state energy offices or public service commissions prioritize CHP. It is often treated as a homeless suite of technologies, not well-suited for renewable energy programmes (because it often is powered by non-renewable fuels) and too expensive for most short-term energy efficiency programmes. (Its payback period is long and its up-front costs are high compared to alternatives.) Few state administrations or lawmakers have taken up the cause of CHP. Some areas offer almost no active support for CHP other than that from one or two small not-for-profit organizations.’

This problem exists, say the researchers, even though ‘CHP is often – when presented with a level regulatory playing field – cost-effective on its own, absent of incentives or rebates of any kind.’ Few other forms of alternative energy can make such claims.

TURNAROUND YEAR FOR CHP?

Hope ran high after Obama’s inauguration that a new boom would occur in CHP development, especially after federal government instituted a 10% investment tax credit (ITC) for the resource in early 2008 that expires in 2016. But the economic slowdown, with its accompanying plunge in electricity prices, has created a dearth of investors willing to back capital-intensive CHP projects. Skittish businesses are often unable or unwilling to finance the $700 to $2000 per kW initial cost on their own, especially when faced with other core-mission capital investment needs, says ACEEE.

The economic climate also has made it hard for CHP developers to secure long-term power purchase agreements (PPAs), says R Neal Elliott, ACEEE’s associate director for research. ‘In 1999 you could sign a long-term PPA and hedge your volatility in the marketplace. Today I talk to guys who are bragging about negotiating six-month fixed-cost contracts. You can’t make a long-term investment with a six-month outlook.’

CHP also suffers from unwillingness by customers to pursue energy efficiency projects with more than a 12-month payback. (CHP payback is typically four to six years.) ‘The aversion to longer payback projects has had a tremendous dampening effect on CHP project development, according to developers. While several years ago, a CHP project boasting a four-year payback might be viewed as attractive, today it is viewed as too risky, and a “non-essential” investment for a company loath to invest in anything that will tie up capital for more than six months,’ said the ACEEE.

All in all, these factors have severely slowed US CHP development over the last two years. ‘The CHP industry is about as low as it’s been. It’s not good,’ said Tom Casten, chairman of Recycled Energy Development, a waste heat recovery developer in Illinois.

But both Elliott and Casten also say the news is not all bad. The economy appears to be recovering, the financial markets are thawing, and the investment tax credit is likely to finally produce results in 2011. The expectation that CHP would surge immediately after passage of the investment tax credit was unrealistic, Elliott said. The industry needed time to ramp up.

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Princeton HealthCare’s thermal plant from the hospital roof

‘We’re just beginning to see new projects incentivized by the tax credit. There are project formation time lags that happen in the real world. You have to engineer it, get the permits, order the equipment. It is not like going down to Home Depot with your flatbed truck and coming back with your CHP unit in a box,’ said Elliott.

In addition, some states are pressing forward with decoupling, interconnection rules, new grants, loans, tax credits, output based emissions standards, energy efficiency resource standards and other innovations to help CHP. ACEEE ranked California highest among the 50 states for the number of new CHP sites built from 2005 to 2010, followed by New York, Connecticut, Massachusetts and Pennsylvania. Measured in terms of new capacity added, the ACEEE placed Texas first with more than 380 MW added, followed by Connecticut, California, Illinois and New York.

Still, states cannot spur the industry alone. Their hodgepodge of rules and programmes makes it difficult for CHP firms to scale up across state borders. Heading into 2011, industry advocates are urging Congress to consider nationwide innovations, such as a clean energy portfolio or performance standard. The approach is somewhat like the renewable portfolio standard, but instead of mandating that utilities adopt specific technologies, it requires their generation supply portfolio meet standards, such as tonnes of pollution per MWh of electricity generated.

In addition to discussion on the federal level, the state of Massachusetts also is exploring its possibilities as part of an aggressive state requirement to cut greenhouse gases.

With the promise of such policies ahead, and a vast amount of wasted heat in the power and commercial, industrial and institutional sectors to be tapped, companies like NRG Energy say they are content for now to market within US borders. Headquartered in New Jersey, NRG Energy operates power plants totaling about 24,000 MW. Even in the worst of the downturn, the firm shepherded a CHP project through at New Jersey’s 60,000 m2 Princeton HealthCare System.

Under construction in early 2011, the $34 million gas-fired project uses excess heat to produce steam for the hospital’s heating system. The 4.6 MW project features three, 11,000 kg/hr boilers, three 910 tonne electric chillers, a 630 tonne steam absorption chiller, a heat recovery steam generator, emergency backup generators, and a thermal energy storage system for off-peak chilled water production. ‘Remember that project is in initial construction, so the commitment to build that plant was made a couple for years ago when the economy really was rough,’ said Michael Carroll, president of NRG Thermal, a subsidiary of NRG Energy and one of the largest third-party steam providers in the US.

New Jersey is often cited as one of the more attractive markets for CHP in the United States, with its favourable spark spread, incentives and policy innovations. The state made available $18 million in federal stimulus funds for CHP projects. But more significantly, New Jersey adopted a policy in 2010 that is one of the most talked about in the nation among CHP insiders, according to ACEEE. The rule helps CHP systems find a market for their excess power by explicitly letting projects sell power to any facility where they also sell thermal energy. The rule secures the CHP facility’s access to existing infrastructure to transport power.

Markets are opening in other states as well, according to Carroll. ‘What we are seeing now is the economy has improved. There is no question about that. We’ve seen a real increase in interest in CHP, coupled with the expansion of existing facilities or the construction of new facilities, primarily in Texas and Louisiana. We are actively chasing a number of projects; we didn’t see any of that two years ago,’ he said.

But it is not just favourable rules opening the way for CHP. Utilities have announced plans to retire thousands of megawatts of coal-fired generation. CHP stands ready to offer a low-cost alternative that significantly cuts carbon dioxide emissions. Industry leaders are trying to make Congress aware of the value of CHP as a capacity replacement. ‘We’ve seen what happened in China. China made a stunning improvement by saying build no power plant until you have ruled out the possibility of doing a CHP project,’ ACEE’s Elliott said.

Whether the US makes equally stunning progress remains to be seen. Industry insiders are hopeful that 2011 will be a turnaround year for domestic growth. The Obama administration is hopeful that growth will not be confined to the US borders. The coming year will be a test for just how far and how fast CHP can make a comeback.


 

Key elements of US export strategy for renewable energy and efficiency

Released in December 2010, the export strategy was developed through the US Trade Promotion Coordinating Committee Working Group on Renewable Energy and Energy Efficiency, which includes representatives from the departments of Commerce, Energy, State, and Agriculture, as well as the Export-Import Bank of the United States (Ex-Im), the Overseas Private Investment Corporation (OPIC), the US Trade and Development Agency, and the Office of the United States Trade Representative.

The strategy includes several new services to help US clean energy companies export products and services, described below.

The federal government launched a new online portal to provide clean energy companies easy access to    government export resources.

n  The Commerce Department committed to an increase in the number of clean energy trade and trade-policy missions.

n  Government will create new foreign buyers’ guides for US RE&EE technologies.

n  OPIC will invest an additional $300 million in financing for clean energy in emerging markets and new financial products for energy efficiency subordinated debt financing and clean energy technology equipment leasing.

n  OPIC and Ex-Im will streamline financing applications.

n  The Office of the US Trade Representative will address market access barriers facing the US RE&EE industry in foreign markets through a new subcommittee.

The USDA’s Market Access Program will expand to include biomass wood pellets. The programme has focused on biofuel products but not biomass in the past.


 

Elisa Wood is a COSPP US correspondent. She writes about energy from Virginia. Email: cospp@pennwell.com

 

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