CHP a ‘powerful combination’ for plants

While combined heat and power faces challenges, it offers intriguing opportunities.

08/04/2016


Roy M. Palk is an attorney and senior energy advisor for national law firm LeClairRyan, based in Glen Allen, Va.The pressure is on for industrial plants to become radically more energy efficient. The ongoing renaissance in combined heat and power (CHP), also known as cogeneration, is a major reason why.

Stories already abound of industrial plants using CHP to ramp up their efficiency and reduce their environmental footprints. In Kentucky, one manufacturer uses leftover sawdust and other wood waste as fuel for boilers that produce high-pressure steam to run turbines. This generates about 40% of the plant’s electricity. A Kentucky wood products mill uses CHP to meet 75% of its electricity needs. When the factory shuts down for the night, this system feeds the excess power back into the grid for resale. That’s a nice residual benefit for the company.

Cogeneration clearly is poised for rapid growth given the ongoing advances in renewable-energy technology, the renewal of the 10% Business Energy Investment Tax Credit for CHP, and the increasing push for CHP among regulators at both the state and federal levels. Installations are one bellwether: According to a May 2016 report by Transparency Market Research, the global CHP installation market will grow from an estimated $525 billion in 2014 to $813 billion in 2024.

A competitive advantage

Energy efficiency, in other words, is rapidly becoming an even more essential part of building and operating competitive industrial plants. This is particularly true in states that take an aggressive stance on renewables.

New York, which wants 50% of its energy to come from renewable sources by 2030, has been a leader in CHP adoption since May 2013, when Gov. Andrew Cuomo announced $40 million in funding for these projects. Today, at least 53 state-supported CHP projects are underway or on the drawing board across New York. California continues to put a priority on reducing its reliance on out-of-state power supply resources, which can overburden transmission lines. In the most optimistic case, CHP could save California energy users up to $3 billion annually by 2030, according to a February 2012 report by consultancy ICF International.

The push for CHP also hinges on the need for better emergency preparedness. Hurricane Sandy, in particular, exposed the vulnerability of the nation’s critical infrastructure during major disasters. When powered by CHP, however, hospitals, schools, and places of refuge are often able to enjoy uninterrupted electric service even during disasters. This is precisely why the federal government just announced the Combined Heat and Power for Resiliency Accelerator. The initiative works to support and expand CHP across the country.

Power stability

But greater stability isn’t just useful for emergency preparedness—it also makes good sense for industrial plants’ bottom lines. According to a 2013 report by the Obama Administration, an estimated 679 widespread power outages occurred between 2003 and 2012 as a result of severe weather. These outages cost the economy billions of dollars in part because they forced so many industrial plants to go offline, sometimes for days. Figuring out the exact cost of power outages is difficult, but a Congressional Research Service study from 2012 estimated the inflation-adjusted cost of weather-related outages at between $25 billion and $70 billion annually—a staggering amount no matter how you slice it. “Grid resilience is increasingly important as climate change increases the frequency and intensity of severe weather,” the White House noted in the report.

Consider, then, the potential benefits of CHP for a hypothetical cardboard plant: In adopting the technology, the plant eliminates the cost of hauling thousands of tons of cardboard waste to the landfill each year and, instead, uses this waste to power its operations and save 40% on energy. The changes give the plant the ability to keep operating during power outages and disasters, boosting its productivity. It wins federal and state tax breaks and, finally, is able to function as a power station during off hours by selling excess electricity back into the grid.

Facing obstacles

Unfortunately, this optimistic example would not apply to every industrial plant. While CHP is growing at an impressive rate, it still faces some obstacles. A 2012 paper by researchers from the University of Chicago, for example, highlighted that CHP systems tend to be cost-competitive primarily in large-scale applications. To make CHP work at smaller scales, they concluded, more state and federal incentives are needed. On this score, Congress’ December 2015 renewal of the 10% Business Energy Investment Tax Credit is certainly helpful.

While CHP might still be too expensive for some, consider the trajectory of solar to understand how those dynamics might change. Not so long ago, solar panels were considered far too expensive and inefficient for most. Today, however, the economics of solar installation are penciling out for a growing number of businesses and other users. According to the Solar Energy Industry Association and GTM Research, the U.S. solar market will contribute about 72 gigawatts of new capacity between 2016 and 2020. This would bring net solar capacity in the United States up to more than 100 GW or about 3.5% of total U.S. electrical usage. If these projections are accurate, solar will be a $30 billion-a-year business by 2020,  employing 420,000 Americans.

The same forces driving solar happen to be fueling the growth of CHP. They include the greater efficiency and lower cost of the technologies involved; the introduction of new federal, state, and, in some cases, local incentives; and expanding competitive pressures to ramp up energy efficiency and environmental sustainability. It is therefore quite likely that CHP will become increasingly doable even for smaller-scale plants in the years and decades to come.

For the owners and operators of industrial plants, then, the time is now to start exploring your options with respect to CHP. Work with your legal counsel to determine how you might integrate CHP in compliance with existing regulations and to track the growth and development of technology opportunities. You could also investigate the viability of working with investment partners to capitalize on this trend. Is your particular trade association talking about CHP? If not, consider working with association representatives to put together more panel discussions and other conversation-starters tailored specifically to cogeneration’s potential to be a boon to your sector.

Energy efficiency is bound to loom larger for industrial plants across the country. Why not beat the competition to the punch by staying ahead of this rapidly emerging curve?

- Roy M. Palk is an attorney and senior energy advisor for national law firm LeClairRyan, based in Glen Allen, Va. He can be reached at roy.palk@leclairryan.com.



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