The Ebb and Flow of CHP

The basic principles behind CHP are not new. According to Con Edison Company of New York, Brooklyn's Waterside Generating Station, which opened in 1901, and Hudson Avenue Generating Station, completed in the 1920s, were pioneers of the process.

But technical and regulatory factors converged in the early to mid-twentieth century to encourage the centralized production of electricity by regional utilities at more remote power plants across the country. Over the decades, regulations, business practices, and technology developments reinforced this method of electrical production and delivery.

The tides turned again for on-site power generation in the 1970s, as oil prices began to soar and the inefficiencies of centralized production became more apparent. In 1978, the federal government passed the Public Utility Regulatory Policies Act (PURPA), which required electric utilities to interconnect with qualified energy producers and provide them with backup power at reasonable rates. As a result of this and new federal tax incentives for energy-efficient technologies, CHP projects increased in the United States. But federal legislation in the 1990s that deregulated wholesale markets for electricity undermined the CHP opportunities originally established by PURPA.

Today’s Status in the States

Although there is still no overarching national policy to mandate CHP, a host of factors are making the approach a serious contender for certain projects. Some of these factors are national in scope, such as advances in the various components that make up CHP systems and the fear of a cap-and-trade tax on carbon emissions that would penalize the biggest emitters. Others are more regional in nature, such as recent weather-related blackouts that left customers in some utility districts in the dark for days, and the growing challenges for utility companies in highly populated areas to keep up with peak electricity demand.

According to the 2008 ORNL report, CHP systems represent about 9 percent of the electricity generation capacity in the United States. The report's authors contend that, with the right technologies and policies in place, CHP systems could make up 20 percent of the country's electricity generation capacity by 2030, yielding a savings of 5.3 quads of energy and avoiding 848 million metric tons of carbon dioxide emissions.

It should be noted, however, that most current CHP systems in this country still depend on the combustion of fossil fuels and therefore do not completely eliminate greenhouse gases and other undesirable emissions. Furthermore, the favorable natural gas prices that are cited by many as a reasoning for moving to CHP are a result of the increase in supply of domestic natural gas due to the relatively new and highly controversial extraction method known as hydraulic fracturing, or “fracking.”

Choosing CHP

Despite the overall reduction in emissions, long-term operational savings, and potential increase in reliability that CHP offers, the system's initial cost and payback period appear to be the primary factors influencing an owner's decision. And because the initial cost for CHP systems tends to be higher than for conventional equipment, projects are more likely to specify CHP within jurisdictions that offer financial incentives. They are also more likely to be built in regions with a favorable “spark spread,” which the American Council for an Energy-Efficient Economy (ACEEE) defines as “the difference between the cost of fuel required to power the CHP system and the cost of grid-provided heat and power to a facility had the CHP system not been installed.”

The decision to go with CHP is also influenced by utility regulations. One of the biggest impediments to CHP is standby rates, a fee that utility companies typically require building owners to pay just in case additional or backup power is needed temporarily from the grid.

In addition to the local cost of electricity and the degree of financial and political support, CHP advocates note that buildings with a continuous demand for significant amounts of thermal energy are the best candidates for on-site power generation. And they recommend that the system be designed and sized to meet the thermal, rather than electric, needs of the building to maximize overall energy efficiency.

Although CHP systems can be configured with many types of prime movers and use many types of fuels, the more recent BCHP projects seem to favor reciprocating engines, microturbines, or fuel cells that run on natural gas.

Examples of such projects are illustrated on the following pages. The variation in their stories underscores the fact that CHP systems—whether fully custom designed or built up from modular units, and whether for new construction or retrofits—must be tailored to the unique conditions of the building and local policies.