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Undertapped market for natural gas: combined heat and power

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Dick Munson of Recycled Energy Development speaking April 24, with moderator James Van Nostrand of the WVU College of Law and panelists Cheryl Roberto and Vignesh Gowrishankar. Photo courtesy of WVU College of Law. Dick Munson of Recycled Energy Development speaking April 24, with moderator James Van Nostrand of the WVU College of Law and panelists Cheryl Roberto and Vignesh Gowrishankar. Photo courtesy of WVU College of Law.

Distributed power generators — those that are small and close to power users — may be changing electricity markets in a way that allows for a dramatic re-think of the half-century-old electric paradigm.

That was one of the points of a session on combined heat and power, or CHP, offered April 24 at the conference Natural Gas as the Bridge to Sustainability and Economic Growth: Exploring Policies to Stimulate the Use of Shale Gas Resources. The Morgantown event was hosted by the West Virginia University College of Law's Center for Energy and Sustainable Development.

Distributed generation includes a vast array of small, local power that can range from solar panels on homes and small businesses up to industrial- and neighborhood-scale generators of all types.

CHP is a subset of distributed generation that also greatly increases energy efficiency. It's a way for industrial and other facilities to generate their own electricity and, at the same time, to capture heat that typically is wasted and put it to good use, said panelist Vignesh Gowrishankar, sustainable energy fellow with the Natural Resources Defense Council.

Benefits of CHP

Gowrishankar gave the example of an industrial facility that needs 30 units of electricity and 45 units of steam. In today's typical set-up, that facility would get power from a power plant and steam from a separate boiler, at a total cost of 145 units of fuel — just 50 percent efficient, primarily because the generation of power produces so much waste heat. But in a CHP system that captures and uses that heat, the same need for 75 units can be met with 100 units of fuel, with an efficiency of 75 percent.

"It's crazy to use two flames for power and heat when you can use just one," observed panelist Dick Munson, senior vice president of public affairs for Recycled Energy Development of Chicago, a developer of and advocate for CHP systems.

Benefits for industry include reduced energy costs, new income streams and increased competitiveness. Gowrishankar outlined numerous specific examples of facilities that have installed CHP systems and realized those benefits and others.

Also benefiting, he said, are utilities, from increased flexibility in the electric grid and deferred for investment, as well as communities, through reduced emissions of pollutants, more jobs and lower electric rates.

About 9 percent of installed generation capacity in the U.S. is CHP, amounting to 82 gigawatts at 4,100 sites, Gowrishankar said — most of it fueled by natural gas. He cited a report released this month by the NRDC on which he is a co-author, "Combined Heat and Power Systems: Improving the Energy Efficiency of Our Manufacturing Plants, Buildings, and Other Facilities."

But it could be twice or three times that, he said. "It's a huge potential." That potential amounts to more than 65 GW in the industrial sector — 20 GW in chemicals alone, and more in paper, food, and other subsectors — and another 65 GW in the commercial and institutional sector, with more than 30 GW potential in office buildings, plus more in hospitals, colleges and similar settings.

Coming from natural gas, an additional 130 GW would increase the nation's natural gas generation capacity by about 30 percent from the 2011 level that is the U.S. Energy Information Administration's most recent data.

Overcoming barriers

The dismal 33 percent efficiency of electricity generation has not changed in 60 years, Munson said. "When you compare what has happened with computers, cell phones, videos, name it, you have to marvel at — or lament — the lack of progress within the electricity industry."

CHP could bring progress, but here's the rub — or, at least, one rub: A CHP system for a facility is sized by the thermal need, typically leaving the facility with excess power. Yet federal and typical state policies prevent the facility from selling its power. Even the local utility won't buy it.

If CHP systems could sell their excess power, the potential in industrial facilities would be doubled from 65 GW to 130 GW, Gowrishankar said.

Here's another rub Munson identified: Even if a facility operator could sell its excess power, power markets are structured to work only a day ahead. But the bank that would finance a project needs to know that the revenue stream years into the future is going to support repayment of the loan.

Some jurisdictions are working on new policies to make regulations and markets work for the development of CHP. Cheryl Roberto, formerly a commissioner with the Public Utilities Commission of Ohio, spoke of concerted efforts there to break down the regulatory and market barriers and encourage the development of CHP.

Seeing a couple of stresses on the horizon — coming air pollution rules for boilers that are making industrial facilities rethink their systems, along with strain on the electric grid in northern Ohio caused by the shut down of several power plants — PUCO worked in 2012 with the federal Department of Energy to support the development of CHP as a solution to both problems.

A series of five workshops through 2012 and other public education efforts drew strong participation, Roberto said, and kick-started a productive dialog through PUC dockets about how to promote CHP.

Public education is an important component, Munson said. Opposition in Ohio came not only from utilities, he said, which is understandable, but also from environmental and energy efficiency advocates that had chosen to support wind and solar generation and better insulation and lighting, and entirely missed the point of how CHP meets their larger goals.


In spite of the barriers, distributed generation, including to some extent CHP, is expanding rapidly, Munson said, because it reduces costs, encourages resiliency and improves competitiveness. And while electric utilities are so far reacting defensively, he believes markets can be structured in such a way as to align CHP with the utilities' interests.

"We have a rare opportunity to embrace what we claim are our competition and free market principles and redesign regulation so it encourages rather than discourages entrepreneurs," he said.

For those interested in updating state policies, Roberto suggested the March 2013 document from the State and Local Energy Efficiency Action Network, or SEE Action: "Guide to the Successful Implementation of State Combined Heat and Power Policies."