CHP: Cost- Effective, Technologically Feasible and Environmentally Beneficial

1. CHP: Cost- Effective, Technologically Feasible and Environmentally Beneficial Kim Crossman U.S. EPA CHP Partnership Presented to the California Energy Commission Workshop on a Distributed Generation Roadmap May 7, 2008

2. EPA & Combined Heat and Power • The EPA CHP Partnership is a voluntary program that seeks to reduce the environmental impact of power generation by fostering the use of highly-efficient CHP • Through 2006, the CHPP has helped Partners put into operation more than 250 CHP projects representing over 3,500 MW of capacity, resulting in the cumulative emission reductions of over 10 million tons CO2 • CHPP works with multiple CHP applications and with multiple fuel types

3. What Is Combined Heat and Power? CHP is a highly efficientenergy system that: • Is located at or near a building/facility (DG) • Generates electrical and/or mechanical power • Recovers waste heat for • heating • cooling • dehumidification • Can utilize a variety of technologies and fuels

4. The Benefits of CHP • Benefits • Environmental - Well sited and sized systems reduce CO2, SO2 and NOx • Technical - Fully commercialised technologies in proven applications nationwide. • Economic – High efficiency and power reliability benefits translate into compelling energy savings and avoided catastrophic losses. • All benefits statements are dependent on a baseline – Better than what?

5. Environmental Benefits of CHP: CO2 Emissions Reductions

6. Environmentally Beneficial in California • CO2 performance = combination of fuel and conversion efficiency • Baseline in California: CO2 Performance of New Gas-fired Combined Cycle Central Plant + 80% Efficient Gas Boiler • When Does CHP Beat This Baseline? • Gas-fired CHP must be thermally base loaded, sized to meet thermal demand and offset a portion of site electricity. • The offset grid transmission and distribution losses should be included for the portion of power used on site. • Biomass-fueled CHP regardless of system efficiency due to carbon neutral fuel and fuel cell projects due to ultra-low emissions profile.

7. Quantifying Environmental Benefits • The ENERGY STAR CHP Awards: • Performance- based award with review of one year of operating data. CHP must beat new gas combined cycle and 80% efficient boiler by at least 5%. • In 2005, EPA revisited methodology and now gives offset T&D losses (7%) to portion of power used on site. • 22 winners nationwide in past 5 years. • Caltech won in 2004 for 12.5 MW CHP plant, > 70% overall system efficiency and uses 30% less fuel than baseline. • The EPA CHPP administers the ENERGY STAR CHP Awards and provides a CHP Emissions Calculator on our website.

8. Technologically Feasible CHP • Turbines, micro-turbines, engines, boilers are fully commercial/ proven with > 95% availability. All available from multiple manufacturers. • Fuel cells and gasifiers are becoming commercialised now. Some products available. • Heat recovery/ thermal technologies are commercial ie, HRSGs, heat exchangers, absorption/adsorption chillers, thermally-activated dessicants. • Controls & switchgear are fully commercial and enable remote operation, safety and flexibility in grid connection or island operation. • The EPA CHPP maintains a CHP Catalog of Technologies and is about to publish a Biomass CHP Catalog of Technologies with technology status, performance and cost information for commercial technologies.

9. Technologically Feasible - Applications • CHP is NOT a technology, it is an application. Best practices in system design integrate seamlessly into existing building systems or new construction. • System sizing and technology selection must be focused on the end use application. • The CHP industry has an excellent track record in successful projects in CA and nationwide. • The EPA CHPP provides 3rd party technical assistance on best practices in design and project development to candidate sites nationwide.

10. CHP Is Already Important to California • 9,200 MW of CHP capacity installed at over 900 sites • Average capacity is 10 MW • 55% of installed capacity is in systems greater than 50 MW • 88% of installed capacity is in systems greater than 20 MW

11. Existing California CHP Capacity Is Primarily in Industrial Applications… Existing CHP Capacity (2006) = 9,196 MW Source: EEA

12. But CHP Is Used by a Wide Variety of Users Existing CHP capacity (2006): 917 sites Source: EEA

13. CHP Applications by Sector in CA Source: EEA

14. Much Potential Remains Undeveloped • Technical potential of over 30,000 MW at industrial and commercial facilities – significant resource for California • Two-thirds of the opportunity is in commercial and institutional applications • Primary opportunity is within-the-fence systems sized for thermal loads • Over 80% of the potential is in systems below 5 MW • Industrial – fabrication and assembly • Commercial – hotels, schools, office buildings

15. Cost-effectiveness and Sustainability • Sustainability and CHP: • Efficiency = cost effectiveness = environmental benefits. • The nexus of efficiency and economy naturally drives design towards the most beneficial systems. • Power generated on site offsets retail electricity. • Economic benefits of power reliability for some sites are included in investment decision. • Cost-effectiveness test for on site power is dependent on the investor, ie risk vs benefit. • The CHPP has a fact sheet on quantifying the reliability benefits of CHP to assist in investment decisions and may provide preliminary feasibility analysis to qualified candidate sites.

16. What Makes CHP Possible in California • Favorable spark spread – cost of fuel vs power Avg. retail cost of power to C&I consumers in CA ~ $.125

17. The Impact of Market Factors on Cost-effectiveness • Rapidly changing market factors increase the perception of risk and result in a long and expensive project development cycle for all DG applications. • May be either actual or perceived benefits or risks • Fuel and electricity cost and volatility • Grid and site electricity reliability • Customer awareness & acceptance • Sector specific trends such as new construction or expansion, outsourcing, etc. • The EPA CHPP provides information on current market factors and provides assistance to energy users and the CHP industry to overcome the barriers to investment caused by perceived risks.

18. Market Opportunities for CHPIdentifying the Low-hanging Fruit • Traditional applications • Industrial processes • Hospitals • Universities & Colleges • Emerging/strategic markets • Hotels and casinos • Municipal wastewater treatment • Biorefineries – ethanol production • Biomass-fired CHP • Utility-owned CHP • Data centers • The CHPP has conducted analyses, created collateral and provided outreach to these strategic market sectors. Information and materials are available on our website.

19. The Impact of Enabling Policies on Cost-effectiveness/ Customer Acceptance • Incentives provide capital recovery, reduce operating costs, add revenue streams, increase acceptance • Grants provide capital cost offset and demonstrate political recognition of public benefits • Gas incentives such as cogeneration transportation rates reduce operating costs • Environmental revenue streams provide value of environmental benefits to investor. • Removing unintended barriers reduces uncertainty, capital and operating cost and development time. • Simplified/ streamlined interconnection • Output based emissions standards • Fair and justifiable standby rates • Exit fees or other departing load charges recognize & reward public benefits of Clean DG. • The EPA CHPP maintains a database of all state and federal enabling policies and provides analysis, best practices and technical assistance to local, state and federal policy makers.

20. Policy Impacts on Cost-Effectiveness:Cogen gas rates examples (from 2004) • Application: 250,000 sq ft Hospital • Peak Demand: 2,000 kW • Average Demand: 1,600 kW • CHP System: • 925 kW Natural Gas Engine • 33% net electric efficiency • Thermally based system • 3.3 MMBtu/hr hot water output • Location: Pacific Gas and Electric territory and Con Ed/Keyspan Energy territory

21. PG&E Gas Transportation Rate • Boiler Transportation: • $0.75/MMBtu – Summer • $0.99/MMBtu – Winter • CHP Transportation • $0.15/MMBtu

22. Sensitivity of Payback to Gas Price – PG&E

23. Keyspan Gas Transportation Rate • Boiler Transportation (General Service – Heating): • $5.85/MMBtu – up to 50 therms/month • $3.03/MMBtu – > 50 therms • CHP Transportation (Baseload DG < 1MW): • $1.13/MMBtu – April through October • $1.45/MMBtu – November through March

24. Sensitivity of Payback to Gas Price – ConEd/Keyspan

25. Policy Impacts on Cost-Effectiveness:Environmental Revenue Streams Environmental Revenue Streams: Any number of programs that reward clean power generation and provide a one time or ongoing additional revenue source. Emissions Programs • Emission allowance trading programs (cap and trade) • New source emission offset programs • CO2 offset programs Generation Programs • Energy portfolio standard programs • Voluntary green market programs EPA CHPP will be publishing a “Guide to Environmental Revenue Streams” targeted towards project developers and candidate sites in June of 2007.

26. Project Economics Sample Projects • A 3 MW landfill power plant selling power to the grid • A 10 MW CHP plant (with or w/o SCR) operating behind-the-fence to avoid the retail purchase of electricity and boiler fuel.

27. Baseline Economics Project Cost Project Payback

28. Added Value of Revenue Streams with Payback Improvement

29. For More Information Kim Crossman, Team Leader Combined Heat and Power Partnership U.S. Environmental Protection Agency crossman.kim@epa.gov ph.: (202) 343-9388 fax: (202) 343-2208 www.epa.gov/chp