Back in the 1880s, the first electric generators were powered by steam engines. The process was quite inefficient compared to today’s standards, but one technique was employed back then that continues to be the basis for modern combined heat and power (CHP) generation: The excess waste steam was harvested for process use or to heat nearby buildings. To keep up with demand, more efficient, large, steam turbine generators were created. But then the advent of energy from burning coal came into practice. Cheap coal became the fuel of choice for generating electricity. With burning coal, came coal dust and flue gas particulate emissions. That’s what drove the facilities out of the cities and into more rural settings. The power plants were now too far away too expensive to be able to capture, transport and use any excess heat energy. So the use of waste heat simply came to an end.
As advanced combustion turbine technology was being developed in the latter half of the 20th century, hot exhaust gases from a gas turbine that have a relatively high energy content can be used to make steam in a Heat Recovery Steam Generator (HRSG) . . . unlike fuel fired boilers which feed steam turbine generators. Steam for process or space heating in a CHP process can also be obtained by combining that gas turbine exhaust with a waste heat boiler.
The Public Utilities Regulatory Policies Act (PURPA) was adopted in the 1980s. It gave those who used industrial energy financial incentives to adopt CHP, and it spurred the development of even more efficient systems.
Today, there are a number of technologies and systems that are designed to accommodate the needs of the energy end user. But simply put, CHP, also known as cogeneration, is producing electricity and useful heat from a single source of fuel at the same time. The thermal energy is captured and put to use. The fuel can be coal, oil, natural gas, waste heat, biomass, or biogas. Cogeneration is not considered to be a single technology. It is an integrated energy system that can be modified to fit specific needs.
When considering CHP for a facility, EPA is more than willing to help through the process. The agency has created what it calls the “Combined Heat and Power Partnership.” According to EPA’s website, “The mission of the Combined Heat and Power (CHP) Partnership is to increase the use of cost-effective, environmentally beneficial CHP projects nationwide. To accomplish this mission, the Partnership has developed resources to assist energy users to design, install, and operate CHP systems at their facilities.”
Here is the basic outline of EPA’s five-stage project development plan:
- Stage 1: Qualification. This is to determine whether CHP is worth considering at a candidate facility.
- Stage 2: Level 1 Feasibility Analysis. This is to identify project goals and potential barriers. And to quantify technical and economic opportunities while minimizing time and effort.
- Stage 3: Level 2 Feasibility Analysis. This stage looks to optimize CHP system design, including capacity, thermal application, and operation. It also determines the final CHP pricing and return on investment.
- Stage 4: Procurement. The goal is to actually build an operational CHP system according to specifications, on schedule, and within budget.
- Stage 5: Operation and Maintenance. This is the point where the CHP system is maintained in order to provide the expected energy savings and reduction in emissions by running reliably and efficiently.
Of course, one of the most important parts of the process is determining the final pricing of the CHP system. And high on the priority list, when it comes to determining price, is finding out what kind of monetary incentives exist. On the local, state, and federal levels, there are a multitude of incentives-from grants, to loans, to rebates, to taxes, and utility rates.
Brian DePonte is a Senior Vice President at Key Equipment Finance Inc. When it comes to the development of a CHP project, he says the federal, state, and local incentives are identified very early in the process, and form part of the financial analysis that is done for every site to show the value of CHP to the potential system owner. Acting fast is critical when it comes to certain incentives. That’s because a good number of them have expiration dates, so the process to obtain them starts as soon as possible. A lot of the time the process is begun right after the future system owner commits to a system purchase. Other incentives, such as Federal tax credits, won’t “kick in” until after the CHP system has been completed and put in service. Sophisticated developers and EPCs (engineering, procurement, and construction contractors) can explain incentives and their timing to a potential owner, as part of the system sales process.
DePonte looks at incentives as an integral part of the financing process. He says, “Incentives such as accelerated depreciation and tax credits can be embedded into financing solutions such as leases or partnership flips. Other cash incentives may be pledged as additional credit support, or may remain with the system host depending on the financing structure.”
That’s why it’s so important to have developers, EPCs, and financiers who are extremely familiar with the federal, state, and local incentives . . . experts who know about upcoming changes and expirations of incentives. They’re able to maximize value for their client, both in structuring efficient financing, and in getting the most financial benefit out of the system.
According to Michael Turwitt, the President and CEO of 2G Cenergy Power Systems Technologies Inc., CHP incentives are carefully looked at by all potential buyers/owners of CHP systems, and it’s done early on in EPA’s five stages of product development. Stage 2 is when all possible incentives, grants, tax credits, etc. are evaluated and calculated into the overall financial model, to determine the economical side of every project.
Incentives can play a major role in the financing of a project, and more. CHP purchases can be financed or leased up to 100%. In some cases, so-called soft costs can be included, as well as infrastructure costs related to the cogeneration system purchases.
Turwitt points to states like New York, which offers the “Combined Heat and Power Acceleration” program through NYSERDA (New York State Energy Research and Development Authority). “The Combined Heat and Power Acceleration program provides incentives for the installation of prequalified and conditionally qualified CHP systems by approved CHP system vendors in the size range of 50 kilowatts to 1.3 megawatts,” he says. “NYSERDA will accept applications only from approved CHP system vendors like 2G Cenergy, whose entire product line has been qualified and approved by NYSERDA.”
As for pursuing and applying for incentives, Turwitt explains there are clearly defined processes and guidelines. But such steps and procedures are different depending on type, federal, state, or local, and individual project circumstances.
Financial incentives can take a variety of forms including direct financial grants, tax incentives, low-interest loans, rebate programs, and feed-in tariffs. Turwitt adds that there are also policy opportunities such as establishing output-based emissions regulations, implementing standardized interconnection requirements, and including CHP targets in stage energy and climate plans.
Ilker Budak is a Business Development Manager at Dresser-Rand. The company makes and installs cogeneration systems, and started developing a packaged cogeneration system in December of 2012 for the North Shore Medical Center in Salem, MA. Completion was scheduled for this summer. Budak says the system is comprised of a lean burn natural gas IC engine generator set, with associated heat recovery equipment and control/switch panel. It’s housed in an enclosure that has integrated noise attenuation, ventilation, lighting and safety systems, and ease of access for maintenance. The components include a Caterpillar 3516LE natural gas engine, and a heat recovery steam generator. The system controller is monitored and controlled locally by a master control system that has operational and diagnostic capabilities.
The system is expected to generate approximately 40% of the Medical Center’s electricity while using the waste heat to produce steam for heat and hot water.
It has been Budak’s experience that, “Incentives may increase the chances of a project going forward, or may kill it right at the beginning.” He echoes the sentiment that incentives need to be explored during the initial feasibility stage. And that the most important things to know about them are: when do they become effective, when do they expire, what are the qualifications, what is the dollar amount, and what is the payout schedule?
And on a Really Large Scale of CHP…
Caterpillar not only makes bulldozers and excavators of all sizes, it’s also heavily involved the business of cogeneration. Caterpillar Energy Solutions describes the penetration of CHP in North America as being “low”-something around 10% of the total generating capacity.
Tim Scott is the marketing manager of Caterpillar’s Electric Power Division. He says there are plenty of opportunities for cogeneration expansion in the food industry, manufacturing, commercial facilities, and institutions. “I’m confident with the right environment, the deployment of CHP in North America could approach the level already experienced by a number of countries in the European Union,” he says. “That would double the penetration we have today, and I think we could grow from there.”
He believes that to accelerate CHP, some fundamental issues need to be addressed. “Here I’m thinking about things like standardized and straightforward utility interconnection rules, adoption of output based emission regulatory methods, as well as modernized electric utility standby rate methodologies,” he adds.
Scott goes on to say that utilities usually do not have an incentive that causes them to provide enthusiastic support for CHP, which is badly needed.
Incentives at all levels play a role to help move payback periods to a level that business and industries can accept. Caterpillar Energy Solutions does see some of its large-scale CHP projects move ahead with limited to no incentives. But according to Scott, to really accelerate the growth of CHP in North America, clear investment incentives are needed.
Especially when the benefits are so obvious. One of Cat’s customers, GI Energy in New York City, NY, installed a state-of-the-art, 6.2-MW CHP plant into One Penn Plaza. The office building is the fourth largest in New York City. It has a total peak electrical demand ranging from 1011 MW in the summer, and 6.57 MW in the winter. Three Cat 3520C gas generator sets (2,055 kWe) were installed along with HRSGs that are all housed in a sound-attenuated enclosure. The housing itself is two stories tall and weighs 650,000 pounds. The cogeneration plant produces just less than 6 MW of power in the summer and 4.5 MW in the winter, which amounts to more than 1/2 of the electrical demand for One Penn Plaza during the same time periods.
John Brogan, the senior vice president for GI Energy, which developed and operates the plant says, “Waste heat from the engines is processed through the HRSGs to produce high-pressure steam. The steam is used in the summer months to cool the building with steam turbine chillers. In the winter, the steam preheats domestic water and conditions the temperature of secondary water.”
Caterpillar is also one of its own best customers. Cogeneration is being used at a number of Cat facilities. Scott says, “As a company we have an objective to reduce our absolute greenhouse gas emissions from our facilities by 25% by 2020 compared to 2006.”
Michael Turwitt of 2G Cenergy looks at it this way-as abundant and numerous as they are, incentives are not the major driver of cogeneration projects. “In the majority of all cases when site owners are interested in installing CHP systems, well-designed CHP systems can easily provide huge financial advantages, significant cost savings, and a quick ROI [return on investment] for potential owners and CHP operators without considering any incentives at all,” he says. “It all depends on individual specific circumstances, and in the majority of cases, CHP systems are a smart investment without even including available financial incentives.”