A new study finds that the propects for cogeneration in the commercial sector is promising. Richard Baillie presents its main findings, as well as looking at the growth prospects for the wider CHP market in the coming decade.
|Cornell University in the US installed a $82 million natural gas CHP plant that has reduced its carbon footprint by 30%|
A recent report by Pike Research Combined Heat and Power for Commercial Buildings, analyses the global market potential for commercial CHP systems for a range of building applications – including hospitals, universities and airports – using technologies such as internal combustion engines, fuel cells, Stirling engines, and Organic Rankine Cycle.
The report finds that current installations of combined heat and power (CHP) systems in commercial buildings are mostly confined to developed markets in Europe, as well as South Korea, Japan and the US.
Today, though, a growing number of commercial users are installing CHP systems as a means of reducing operating costs, improving power reliability and reducing carbon emissions. According to the report, this market for CHP will significantly grow from US$2.2 billion in 2012 to over $11 billion in 2022.
“Falling natural gas prices in the United States and expanding policy incentives across Asia Pacific and Europe are driving an increase in commercial CHP installations,” according to senior research analyst Mackinnon Lawrence.
“While applications to date have been limited to large facilities, such as hospitals and universities, with near 24/7 thermal and electrical loads, improved economics around smaller installations and advances in prime mover technologies are opening up opportunities across previously untapped segments, including smaller retail [outlets], sports clubs and airports.”
Lawrence adds that CHP systems can help reduce the cost of heating, cooling, or providing power to a wide variety of commercial building types. According to the report, annual installations will reach nearly 39 GW in 2012. That number will more than double by 2022, the study concludes, reaching 79.5 GW.
“The use of CHP can reduce a building’s energy demand by up to 40% when compared to the separate production of heat and power,” says Lawrence. “Although the high upfront cost of CHP systems and the challenge of finding suitable uses for the heat generated are key barriers, relatively short payback periods have allowed many major companies to invest in these energy-saving technologies.
“Commercial combined heat and power systems, are garnering increased interest from policy makers, utilities and building owners in a growing number of countries.
The technologies behind many CHP products have been under development for more than a decade. Today, the market is beginning to gain momentum and an increasing number of companies are introducing increasingly standardised commercial products. Driven by concerns about grid reliability, meeting growing demand for electricity, increasing grid efficiency, and reducing greenhouse gas emissions, governments around the world are also focused on increasing subsidies and other incentives for the adoption of CHP systems and related building efficiency technologies, finds the report.
CHP represents a new paradigm for commercial building applications. As an integrated system, CHP includes a suite of prime mover technologies such as gas turbines, microturbines, fuel cells, paired with software and component hardware. Since CHP deployments are not dependent on a single breakthrough technology, they are widely available for a range of applications, but intrinsically difficult to market to potential end users, architects, and engineers, it adds.
The report goes on to state that CHP units are playing an increasingly important role in delivering on-site power and heat for a variety of residential, commercial, institutional, and industrial applications. Cogeneration technologies have been an area of emphasis in Europe since the 1980s but up to this point, CHP has not been widely adopted elsewhere.
Nevertheless, CHP provides an opportunity for end users to generate both electricity and heat on a highly distributed and localised basis, reduce energy expenses and ensure reliable power. Moreover, in some cases, CHP can be integrated into Smart Grids, concludes the report.
It also warns that although the potential for CHP market growth is strong in the commercial sector, several market conditions must coincide in order to make CHP units a reasonable alternative to the grid or even other self-generation technologies. These conditions include appropriate matching of thermal and electrical output to the customer’s needs, cooperation of utilities for interconnection and other implementation requirements, classification of CHP as a renewable energy for inclusion in government programmes, relatively high thermal requirements (compared to electrical requirements), and high or volatile spark spreads.
Pike’s analysis indicates that the right factors are aligning in the market to create a significant growth opportunity for CHP over the next decade, and the firm forecasts strong growth in unit shipments and revenues between 2011 and 2021. During that period, residential and commercial markets are expected to experience the highest growth rates.
CHP’s wider outlook
In terms of geography, Europe is currently the leading market for commercial CHP installations, with North America a close second. Over the next decade, though, according to the report, Asia-Pacific will be the hottest market for CHP in commercial buildings, with a compound annual growth rate of nearly 20%. Growth rates in Africa and the Middle East will also be high, but these markets will remain relativley small.
Richard Martin, editorial director for energy at Pike Research, says that India’s economy has seen massive growth over the past few years, leading to a sharp rise in greenhouse gas emissions, which should help to facilitate the growth in CHP. He estimates that India could grow from its current base of less than 10 GW to almost 28 GW of CHP in 2015 and 85 GW in 2030. CHP and district heating and cooling could be implemented in smaller industrial parks, special economic zones and other areas with a concentration of large commercial and software establishments needing secure, low-cost heat, cooling and power.
“Estimates of CHP in India have been lacking and those that do exist sometimes disagree over what should be classified as CHP, but it probably currently accounts for around 5% of the total energy generatedm with strong growth potential,” he adds.
China is also actively promoting CHP and has now become the world’s second-largest country in terms of cogen capacity, which provides more than 18% of nationwide thermal generation capacity. Almost 13% of the nation’s electricity and 60% of urban central heating is now generated by cogeneration.
Most of this capacity is coal-fired, serving municipal heating systems and energy intensive industries, consisting of mid-sized or small heat plants and boilers because until quite recently large power plants in China would rarely implement CHP projects.
China is estimated to have tapped into less than 20% of its industrial CHP potential. The National Development and Reform Commission has set a goal of 200 GW of CHP by 2020 – which, based on current projections, would exceed a fifth of installed power capacity.
While ambitious, the target is eminently reachable. Opportunities for CHP growth abound. Yet several factors have slowed adoption of distributed energy and cogeneration strategies. High coal and gas prices coupled with artificially-low electricity tariffs exacerbate the economic challenges of specific projects. Continuing government control and slow energy industry liberalisation create regulatory uncertainty within the electricity sector. Suspicions of technology dependability and maintain-ability still exist and grid interconnection issues persist.
Turning to Europe, cogen currently accounts for about 11% of electricity production in the rgion, but recent trends show that CHP is seen as a key strategy in the battle to improve energy efficiency, increase fuel security and reduce carbon emissions, and is increasingly expected to play a key role in Europe’s, and the world’s, future energy landscapes.
According to the Pike report, the majority of CHP in Europe is fossil fuel based, but there is a growing trend toward using renewable fuels. In particular, biomass.
“CHP grew pretty fast [in Europe] over the past two decades but growth has slowed in many countries recently, A lot of utilities are looking to expand and build new power plants, only a few are actively pursuing CHP, with the majority looking to improve efficiency technologies and cleaner coal solutions for conventional power generation and utilities are moving to reduce CO2 emissions by increasing their share of renewable/biomass energy capacity,” says Martin.
In countries such as Denmark and Finland this is primarily a result of CHP deployment approaching saturation, while in other countries it is due to economic factors such as fluctuating gas and electricity prices, and shifting focus to renewable energies. But the renewed push toward higher-efficiency CHP and biomass-based CHP is likely to stimulate new growth.
“Though there has been limited growth in the deployment of cogeneration technologies in the last few years, there has recently been a renewed push across Europe with new policies and incentives introduced,” adds Martin.
The European Union had a chance to strengthen its CHP laws in 2012, when member states agreed, after assiduous rounds of negotiations, to adopt the Energy Efficiency Directive, or EED. But the CHP industry called it a missed opportunity for European cogen.
The Pike report notes that some electric and gas utilities are promoting the introduction of micro-CHP to the market, working with a range of manufacturers while utilities active in transitional economies in Central and Eastern Europe (including Russia) are seeking to expand large-scale CHP capacity featuring more efficient prime mover technologies for gas/coal-fueled power generation.
Over in Asia, Japan is also starting to see a wider role for CHP in helping to meet emissions targets and energy efficiency goals, accompanied by the introduction of area-wide district energy and other measures to address barriers and raise awareness. The downside is that Japan lacks a national CHP/DHC development strategy and barriers to interconnection remain in place.
Nevertheless, with Japan seeking to boost its renewable energy and energy efficiency programmes, CHP is almost certain to take a bigger slice of the energy pie. Backed by a strong policy network, CHP could generate in the region of 199 TWh per year in Japan by 2030, according to the International Energy Authority. And if Fukushima really did undermine its confidence in nuclear power, as public opinion polls suggest it has, then cogeneration could, particularly if electricity companies raise purchase prices to buy in more electricity.
Given the security of supply issues that Japan now faces, all kinds of CHP are likely to get greater backing from policy makers. But there is likely to be a strong focus on micro-CHP, establishing Japan as a key provider of smaller-scale commercial and residential CHP units using microturbines and fuel cells. In fact, a variety of policies to boost this market already include subsidies for high-efficiency gas-fired units and tax benefits for small and medium-sized businesses that adopt CHP.
But perhaps the outlook for CHP now burns brightest in the US, after President Barack Obama’s September 2012 decision to set binding targets for the proliferation of CHP plants by 2020 a move welcomed as a game changer by the cogeneration industry.
Obama’s order was aimed at accelerating investments in industrial energy efficiency. This could result in the US reducing 150 million tonnes of carbon emissions annually while generating up to 40 GW.
“The most important thing about the US’ approach is that it is targeting regulation, which is probably one of the most important barriers to global growth in CHP,” says Martin.
Pike Research is part of Navigant.. www.navigantresearch.com