NARUC 2015 Winter MeetingFebruary 16, 2015

Combined Heat and Power and the Clean Power Plan

Bruce HedmanInstitute for Industrial Productivity

Agenda

• Review of CHP and its benefits• The potential for natural gas CHP • Initial thoughts on a CHP as a

compliance pathway for the Clean Power Plan

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CHP Captures the Heat Normally Lost in Power Generation, Increasing Overall Efficiency …….

150 units Total Fuel

Fuel

Fuel

94 units

56 units

30 units

Power Plant32% efficiency

Boiler/Furnace80% efficiency

45 units

Electricity

Heat

Combined Efficiency~ 50%

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Fuel

Fuel

Fuel100

units

94 units

56 units

30 units

Power Plant32% efficiency

Boiler/Furnace80% efficiency

CHP75% efficiency

45 units

Electricity

Heat

Combined Efficiency~ 50%

Combined Efficiency~ 75%

CHP Captures the Heat Normally Lost in Power Generation, Increasing Overall Efficiency …….

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Fuel

Fuel

Fuel100

units

94 units

56 units

30 units

Power Plant32% efficiency

Boiler/Furnace80% efficiency

CHP75% efficiency

45 units

Electricity

Heat

Combined Efficiency~ 50%

Combined Efficiency~ 75%

…. and Reducing Greenhouse Gas Emissions

30 to 55% less greenhouse gas emissions

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CHP Is Already an Important U.S. Energy Resource

Source: CHP Installation Database, March 2014

• 83.3 GW of installed CHP at over 4,220 industrial and commercial facilities

• Avoids more than 1.8 quadrillion Btus of fuel consumption annually

• Avoids 241 million metric tons of CO2 compared to separate production of heat and power

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Natural Gas is the Preferred Fuel for Existing CHP (Based on Capacity)

Estimated Natural Gas Load of 4.2 Tcf

70%Natural Gas

Coal 15%

Oil 1%

Waste 9%

Wood 2%Other 1%

Biomass 2%

Source: ICF CHP Installation Database (2012 data)

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Market Drivers for CHP

20002001

20022003

20042005

20062007

20082009

20102011

20122013

2014

2015-...0

1

2

3

4

5

6

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Annual CHP Capacity Additions (GW)

Source: CHP Installation Database and ICF Internal Tracking, November 2014

Forecasted Additions

• Benefits of CHP recognized by Federal and State policymakers

• Game changing outlook for natural gas in North America

• Opportunities created by environmental drivers

• CHP enhances resiliency in the face of man-made and natural disasters

Annu

al C

apac

ity A

dditi

ons

(GW

)

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CHP Saves Energy and Reduces Emissions

Based on: 10 MW Gas Turbine CHP - 30% electric efficiency, 70% total efficiency, 15 PPM NOx Electricity displaces National All Fossil Average Generation (eGRID 2010 ) - 9,720 Btu/kWh, 1,745 lbs CO2/MWh, 2.3078 lbs NOx/MWH, 6% T&D losses

Thermal displaces 80% efficient on-site natural gas boiler with 0.1 lb/MMBtu NOx emissions

Category 10 MW CHP

10 MW PV

10 MW Wind

Annual Capacity Factor 85% 25% 34%

Annual Electricity 74,446 MWh 21,900 MWh 29,784 MWh

Annual Useful Heat 103,417 MWht None None

Capital Cost $24 million $45 million $24.4 million

Annual Energy Savings 343,747 MMBtu 225,640 MMBtu 306,871 MMBtu

Annual CO2 Savings 44,114 Tons 20,254 Tons 27,546 Tons

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CHP Is a Cost-Effective Resource

Source: Bloomberg Sustainable Energy Factbook 2014

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The Remaining Potential for CHP Is Large

Source: ICF Internal Estimates

• Technical Potential of 120+ GW (Industrial 60 GW; Commercial/Institutional 63 GW). (ICF estimates)

• 40+ GW with payback less than 10 years. (AGA)

• 111(d) could support 20 GW of new CHP nationwide. (ACEEE)

• 111(d) could support 10 GW of CHP potential with concentrations in the Midwest and Southeast. (CCAP)

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The Market Is Evolving

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AGA CHP Study - Summary• Total Technical Potential 123 GW

• Base Case Economic potential of 41.6 GW (<10 year payback):– 35.2 GW Moderate Potential (5 to 10 years) – 6.4 GW Strong Potential (<5 years)

• Cost reduction will improve overall economics and increase the economic potential (25 % reduction in capital cost increases economic potential to 54.4 GW):– 37.9 GW Moderate Potential (5 to 10 years) – 16.5 GW Strong Potential (<5 years)

• Spark spread is a critical factor in economic competitiveness for CHP (15% increase in electric prices increases economic potential to 62.7 GW)– 45.3 GW Moderate Potential (5 to 10 years) – 17.4 GW Strong Potential (<5 years)

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AGA CHP Study - Economic PotentialBase Case

Moderate Potential(5 to 10 year payback)

Strong Potential (<5 year payback)

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AGA CHP Study - Economic Potential25% Cost Reduction

Moderate Potential(5 to 10 year payback)

Strong Potential (<5 year payback)

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AGA CHP Study - Economic Potential15% Electric Price Increase

Moderate Potential(5 to 10 year payback)

Strong Potential (<5 year payback)

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Impact of Scenarios on Gas Consumption

Economic Potential includes moderate and strong potential. Incremental gas use equals CHP consumption minus avoided boiler fuel.

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• Possible federal policies– Continuation of investment tax credit– Include CHP as a qualified resource in any national clean energy

standards – Federal procurement requirements– Encourage CHP participation in ancillary services markets

• Possible state policies– Include CHP as a qualified resource in energy efficiency resource

standards and rate-payer efficiency programs– Standardized interconnection requirements– Reasonable standby rates– Utility ownership– 111(d) compliance option

Policy actions can increase the economic potential and reduce perceived risks of CHP

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CHP as a 111(d) Compliance Option• The EGU emission reduction impacts of non-affected CHP are

similar to the emission reduction impacts of other end-use energy efficiency measures

• Deployment of CHP reduces demand, and overall emissions, from affected EGUs

• CHP provides long-term, persistent savings and is:• Measurable• Enforceable• Quantifiable• Verifiable

• Best practices exist in terms of crediting emissions savings from CHP, state programs to promote CHP markets, and in EM&V

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