Combined heat and power: a technology whose time has come.

• Author: Ferraina, Steven

1. INTRODUCTION II. BACKGROUND: CHP'S LONG, BUT NEGLECTED LIFE A. What is CHP? B. Energy and Environmental Benefits of CHP Systems 1. Environmental Benefits 2. Financial Benefits for Businesses C. A History of Federal Government CHP Incentives III. Analysis: How do These Financial Incentive Programs Work A. Rebate Programs 1. A State Example: New York 2. A State Example: Massachusetts B. Grant Programs 1. A State Example: Massachusetts 2. A State Example: New York 3. A State Example: New Jersey C. CHP Feed-In Tariffs IV. CHALLENGES: WHY SOME STATES DO NOT HAVE FINANCIAL INCENTIVE PROGRAMS A. General CHP Criticisms B. A State Example: Florida C. A State Example: Missouri V. CHP'S TIME HAS COME A. Create an Organization to Form a CHP Legislative Blueprint B. Include All Three Financial Incentive Programs in the Legislative Blueprint and Allow States to Choose Two of the Three Programs C. Include CHP in States' Renewable Portfolio Standards or Energy Efficiency Standards VI. CONCLUSION I. INTRODUCTION

   On October 29, 2012, Hurricane Sandy blew through the largely populated areas of New Jersey, New York, and Connecticut. (1) It was, at the time, the largest storm in the region's history. (2) While many areas lost electricity from the electrical grid, the few buildings equipped with Combined Heat and Power ("CHP") remained lit and heated. (3) For example, many residential and commercial facilities lost power for days after the storm, but natural gas powered CHP systems at the Co-Op City apartment complex and New York University, Fairfield University, and Princeton University kept their buildings functioning. (4) According to Ross Tomlin, an employee of Gulf Coast Clean Energy Application Center of the Department of Energy, "because CHP relies on natural gas delivered through underground pipelines, [the systems] can weather just about any storm." (5) But minimizing the effects of natural disasters is only one of CHP's many benefits.

   CHP is the process of capturing heat from existing heat sources, such as boilers, and using the heat to power energy sources, such as steam-powered turbines, to create electricity, hot water, and heat. (6) The technology not only reduces energy costs through efficiency--at least twenty to thirty percent more efficient than separate heat and power systems (7)--but it also protects the environment by burning less fuel, and thus reducing greenhouse gas emissions and air pollution. (8) While this technology has seen continued barriers over the years, one company, Recycled Energy Development ("RED"), recognized that "the US lags far behind the world leaders when it comes to producing energy through [CHP]" and has taken steps to utilize the technology. (9)

   The average increase in energy costs for households between 2001 and 2012 was forty-three percent. (10) This increase in energy costs affects consumers and businesses alike, with electricity costs topping many businesses' lists of expenses. (11) America undeniably faces a severe energy crisis both in the private sector, due to rising energy costs, and in the public sector, due to gridlock in government. (12) Among the many green energy technologies currently available, CHP is "the least sexy" (13) and considered "a 'homeless' suite of technologies" when compared to solar, wind, and hydropower energy systems. (14) Recently, however, the federal government gave CHP a second look as it attempted to educate state governments and companies about the benefits of the CHP technology. (15) The severe lack of effective and efficient state government incentive programs is hindering the CHP technology from reaching its full potential of providing cheap, sustainable power to businesses. (16)

   This Comment will argue that, given the policy benefits of the CHP technology, the federal government should create an organization to establish and monitor a CHP legislative blueprint with three financial incentive program options; states should establish two of those three financial incentive programs; and states should include CHP in their Renewable Portfolio Standards. This Comment will analyze the financial barriers hindering effective widespread use of CHP among private sector companies, examine current effective and ineffective state financial incentive programs, and determine which financial incentive regulations the federal government should include in the legislative blueprint. (17) Because this is mainly a state law issue, no "one size fits all" approach will suffice; however, a legislative blueprint can educate state legislatures about the financial incentives that can be put in place to allow for effective and widespread use of the CHP technology. Such a legislative blueprint must include: 1) a rebate for installed costs of the technology, 2) a feed-in tariff (18) to entice companies to re-funnel excess power through the grid system, (19) and 3) a provision of grants to companies who successfully complete CHP installations.

   Section II includes a background discussion of the CHP technology that will help facilitate an understanding of how the technology works and what financial incentives previously existed. Section III includes an analysis of financial incentives, illustrated by state examples that will help analyze how the incentives operate. Section IV includes an analysis of states with little financial incentive programs and demonstrates why it hinders the CHP technology. Section V discusses the proposed solution to this problem, as introduced above.

2. BACKGROUND: CHP'S LONG, BUT NEGLECTED LIFE

   Background information about CHP will help foster an understanding about the positive attributes of the technology. This section provides the necessary foundation for understanding how CHP systems achieve lower energy costs, limit greenhouse gas emissions, and benefit businesses and regions surrounding them. Additionally, a brief overview of past and present federal CHP-related financial incentive programs will demonstrate how federal investment schemes in the CHP technology have changed over time.

   1. What is CHP?

      The amount of energy lost in wasted heat from machinery in America is greater than Japan's entire energy needs. (20) This is a massive waste of potential energy. A business without a CHP system normally uses boilers or furnaces to produce thermal energy, such as steam, for hot water and heating systems. The business then separately purchases electricity from a power plant through the electrical grid system. (21) Alternatively, a CHP system collects the wasted heat produced by machinery, such as boilers and steam turbines, and uses the wasted heat to produce additional electricity within a single system. (22) The CHP technology allows the system to create its own electrical power and thermal energy within a single energy efficient source, while cutting out the need to purchase separate electricity from a power plant. (23) A standard CHP system operates at roughly sixty-five to seventy-five percent system operation efficiency, as opposed to forty-five percent system operation efficiency of separate heat and power systems used by many businesses. (24) CHP systems must be powered by a fuel source, which is usually natural gas. Increasingly lower natural gas costs make the CHP technology more affordable to run on a daily basis. (25)

      Businesses can choose from two different types of CHP systems--a topping cycle or a bottoming cycle--that are either retrofitted on top of existing heat units, such as boilers or furnaces, or installed as a new system. (26) A topping cycle consists of fuel powering a "prime mover such as a gas turbine or reciprocating engine," which produces electricity, and then the excess heat is collected to provide heating or hot water for the building. (27) A bottoming cycle consists of fuel powering a boiler or furnace, which operates a steam turbine that generates electricity, and then excess heat from the machinery is collected to produce heat or hot water. (28) In the first system, the fuel powers the generator, and in the second system, the fuel powers the boiler, which powers the generator. In both types of CHP systems, the electricity produced by the turbine can be used to power the building or be recycled back through the grid system. (29)

      CHP systems have many practical benefits. Because CHP systems combine heat and power into one efficient system, the system reuses the fuel's energy multiple times. Thus there are fewer greenhouse gas emissions, such as carbon dioxide, nitrogen oxide, and sulfur dioxide. (32) CHP systems are also an extremely reliable source of energy, as witnessed during Hurricane Sandy, because "they are independently fueled and operated." (33) There are also financial benefits when installing CHP systems, such as "avoid[ing] needless and economically inefficient investment in new transmission capacity." (34) These benefits occur because the system is located "at the site of demand" and saving fuel and energy costs by creating its own electricity. (35) One of the biggest reasons companies hesitate about whether to install a CHP system is that CHP systems have expensive upfront costs in the amount of $700-$3,000 per kW, which is at least $1.4 million for an average 2MW CHP system. (36) A study completed by the American Council for an Energy-Efficient Economy ("ACEEE") in 2011 found that economic challenges were the first or second largest barrier to CHP system implementations in every state. (37) These environmental and financial issues will be discussed below in further detail.

   2. Energy and Environmental Benefits of CHP Systems

      The benefits of CHP systems include both environmental benefits for the surrounding region and financial benefits for businesses. (38) A company's energy use is more efficient, environmentally friendly, and cheaper when using a CHP system. This is because the company is buying less from the electrical grid, the burden on the electric grid is reduced, and regional greenhouse...