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 was the basis for modern combined heat and power (CHP) generation. The excess wastesteam 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 and 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 is producing electricity and heat from a single source of fuel at the same time. Those fuels 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. It can even be combined with mountains of garbage. We’ll get to that later, but first things first.
For those considering CHP for a facility, US Environmental Protection Agency (EPA) is more than willing to help. The agency has created the “Combined Heat and Power Partnership.” EPA’s website says, “The mission of the 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. Determines whether CHP is worth considering at a candidate facility.
Stage 2- Level 1 Feasibility Analysis. Identifies project goals and potential barriers, and quantifies technical and economic opportunities, while minimizing time and effort.
Stage 3- Level 2 Feasibility Analysis. Looks to optimize CHP system design, including capacity, thermal application, and operation. It also determines the final CHP pricing and return on investment (ROI).
Stage 4- Procurement. The goal here is to build an operational CHP system according to specifications, on schedule, and within budget.
Stage 5- Operation and Maintenance. The point where the CHP system is maintained in order to provide the expected energy savings and reduces 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 at every level—from grants, to loans, to rebates, to taxes and utility rates.
Brian DePonte, a senior vice president at Key Equipment Finance Inc., says that when it comes to the development of a CHP project, 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, because a good number of them have expiration dates, and so the process to obtain them starts as soon as possible. A lot of the times, the process begins 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. “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,” he says.
That’s why it’s so important to have a developer, EPC, and financier who is 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, a company that 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 Vaporphase 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 and use 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 they become effective, when they expire, what are the qualifications, what is the dollar amount, and what is the payout schedule.
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, marketing manager of Caterpillar’s Electric Power Division, says there are plenty of opportunities for cogeneration expansion in the food industry, manufacturing, commercial facilities, and institutions. “I’m confident that, 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. 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.” 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 sees 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, 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 10-11 MW in the summer and 6.5-7 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 under 6 MW of power in the summer and 4.5 MW in the winter, which amounts to more than one half 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.”
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 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.”
According to a recent whitepaper by ConEdison Solutions, owners of large-scale properties in New York City would be wise to adopt a CHP system. It would help them achieve long-term reductions in operating costs by taking heat that would otherwise have been wasted, and using it for space heating and domestic hot water.
The whitepaper presented a hypothetical example of a 1.2-million-square-foot, Class A office building in Manhattan. Upfront costs, including the CHP system and a backup generator, would amount to approximately $3 million. The owner would see about $480,000 in yearly savings and revenue, and receive up to $1 million in incentives that are available through the New York Independent System Operator (NYISO), NYSERDA, and Con Edison. The projected payback period for the investment would be just over four years.
Now the Trash Talk
A different kind of cogeneration is beginning to emerge. It’s one that utilizes landfill gas. The landfill gas/CHP lesson is being implemented at the University of New Hampshire (UNH).
In 2006, UNH started using a cogeneration plant. The CHP facility is the primary source of heat and electricity for the Durham campus, which spans 5 million square feet. It resulted in an estimated reduction in greenhouse gas emissions of 21% in the academic year of 2006, compared to 2005. The cogen plant cost an estimated $28 million (all self-financed) with an anticipated payback of about 20 years.
Then, in 2009, the university teamed up with Waste Management of New Hampshire Inc., to create a project called, “ECOLine.” ECOLine piped enriched and purified gas from Waste Management’s landfill in Rochester, to the Durham campus. The landfill gas replaced the commercial natural gas as the primary fuel for UNH’s cogeneration plant. The landfill gas fueling the CHP facility provides the electricity and heat for the main campus buildings, which means ECOLine can provide up to 85% of the campus energy from the landfill gas.
The combination also stabilizes energy costs, provides energy security, and demonstrates environmental responsibility. The university has embarked on an aggressive climate action plan, called “WildCAP,” in which it seeks to lower its emissions to basically zero. The plan calls for cutting its greenhouse gas emissions 50% by the year 2020, and 80% by 2050.
As for the ROI, ECOLine costs about $49 million. UNH expects the payback to occur within 10 years of the project. Both the cogeneration plant, and the landfill gas projects were financed by the school through borrowing. UNH began selling renewable energy certificates (RECs) in 2009. The RECs are associated with ECOLine’s electricity generation and will help finance the capital costs of the project. In addition, they will help the university invest in other energy efficiency projects on campus.
The World Alliance for Decentralized Energy (WADE) Cogeneration Industries Council is expecting a bright future. It believes that cogeneration, also known as CHP, is the most economic, efficient, and reliable onsite energy option for anyone in the industrial, commercial, or institutional sectors looking to install a distributed energy system.
WADE describes itself as “a global non-profit research, promotion, and advocacy organization established in June 2002 to accelerate the worldwide deployment of decentralized energy systems. WADE is the world’s leading organization focused on advancing clean and efficient decentralized energy technology in developed, as well as developing, countries around the world.”
The WADE Cogeneration Industries Council sees a changing market for cogen systems. It points to news that abundant natural gas supplies are expected to keep the price of fuel at multi-year lows for the foreseeable future. That makes the economics of CHP development more attractive, driving interest in the technology. Add to that policymakers who now understand the air emission benefits involved.
New equipment and advancing technology, new ways to finance projects, and new government policy initiatives are all helping facilities reach the decision to install new cogeneration systems.