Resources // Blog

  • CHP – Today’s Major Player in the U.S. Energy Portfolio

    Posted by Coles Jennings, Building Sciences Manager

    CHP – Today’s Major Player in the U.S. Energy Portfolio

    A series of well-known facts:

    1. Turbines and engines burn fuel to make electricity. 

    2. Burning fuel generates a lot of heat. 

    3. Heat is a useful source of energy.

    These are the three fundamental truths that make combined heat and power (CHP), AKA cogeneration, a reality.  Most turbine generators are between 30% and 40% efficient, meaning there is a lot of excess heat generated from combustion and friction.  A traditional power plant would simply reject this heat into the atmosphere. A CHP plant reclaims this heat and uses it. The heat can be used for a variety of applications that would otherwise consume more fuel:

    • Steam production
    • Hot water production
    • Chilled water production (via an absorption cycle)

    CHP is commonly confused with combined cycle power plants (CCPPs), which use waste heat from a prime mover (i.e. a gas turbine) to drive a secondary engine such as a steam turbine. While heat recovery is the key principle behind both strategies, the difference is that CCPPs produce only power, while CHP produces power and reclaim energy in the form of one or more of the utilities listed above. This is the typical line that is drawn between CHP and CCPPs, although some plants may include aspects of both.  CHP is typically targeted more for localized applications where waste energy can be applied to the specific needs of a site, instead of widespread distribution such as a utility plant.  The local application incentivizes efficiency and puts the site owner in charge of their own power generation.

    Basic CHP Schematic:

    Basic CHP Schematic

    Graphic courtesy of United States Environmental Protection Agency

    CHP’s Roots

    CHP has had a circuitous path to widespread application in the US. The first power plant in the United States, Thomas Edison’s Pearl Street Station, was actually a CHP plant, starting operations in 1882.  But as the electricity market boomed and demand spread to more remote parts of the country, CHP became more difficult to apply, and utility-grade power-only plants became the norm.

     In fact, CHP was not really economically viable until the 1970’s, when the country finally began to turn its consciousness to the importance of fuel conservation and energy efficiency. One of the many lasting effects of the oil crisis in the early 70’s was the passage of the Public Utilities Regulatory Policies Act (PURPA), which pushed the standards for energy-efficient power production.  Piggybacked onto PURPA was a series of tax incentives and shortened depreciation cycles for CHP equipment, suddenly making CHP an attractive option for many.

    The Expansion of CHP

    Since PURPA, CHP has grown into a major player in the US energy portfolio. Today, the US has approximately 85 GW of installed capacity, or roughly 9% of the grid. Much of this is concentrated in industrial facilities such as paper mills and oil refineries, with a high waste heat demand and a heavy incentive for energy efficiency to maximize profitability.  However, CHP installations have more recently become common in institutional and commercial use.

    There are a few reasons for this sudden expansion of smaller CHP installations. One is that the US government continues to push CHP.  Emissions restrictions are further tightening as global warming is pushed further to the forefront of key policy decisions. Further, a recent executive order called for adding 40 GW of CHP by the year 2020, to push more efficient power generation and reduce demand for foreign oil.

    Above all, though, the main driver is the recent surge of natural gas availability due to the development of shale gas production via hydraulic fracturing, AKA fracking.  Fracking is not without its controversy, as there are many environmental and political questions that surround its widespread development, but there is no denying that is has completely reshaped the US energy market.  Natural gas prices have fallen dramatically, and the once-mythic quest for US energy independence is now much closer to reality. Natural gas now provides a cheaper and much cleaner source for on-site power generation.

    The Building Owner

    Let’s put ourselves in the position of a building owner for a second, to understand some of the reasons an owner may choose to go with CHP for their utility needs.  The local electric utility relies primarily on coal power, which is becoming further and further regulated and more expensive to operate.  Grid power prices in the area have steadily increased and project to do so in the near future.  Meanwhile, the local natural gas utility is knocking at your door, offering attractive and steady prices and a free upgrade of your service at the promise of years of steady gas consumption for power generation.  Further, your building has a constant need for waste energy, be it for your heating needs in the winter or chilled water in the summer. It all starts to add up, doesn’t it?

    If only it were that easy. Here’s another well-known fact: gas turbines aren’t cheap.  Many developers struggle to get the capital required for the basic needs of their project, and although CHP may offer a nice long-term savings plan, a lot of folks just don’t have an extra few million lying around. As such, funding remains a major hurdle, but there is one popular option which is making localized CHP increasingly viable for all manner of property owners.

    Energy Savings Performance Contracts

    This option is an energy savings performance contract (ESPC).  The basic tenants of an ESPC are as follows: an energy services contractor (ESCO) with money to invest approaches an owner with a need for CHP. This ESCO offers to purchase, install, and operate the CHP equipment over a predetermined contract period.  During that time, the ESCO absorbs the cost associated with utilities, maintenance, and operation.  In exchange, the owner pays for this cost in installments over the life of the contract.  The installment cost is still a fraction of the projected energy costs, and over time the ESCO recoups their initial capital investment and pays for their operating costs.

    Let’s play owner again. I’ve decided I want CHP to reduce my energy bills and stabilize my long-term cost projections, but I can’t afford the equipment. An ESCO approaches me and offers to install and operate my CHP equipment for me. In exchange, I pay a monthly installment which is still less than what my energy bills would be if I went with a traditional grid-power approach. At the end of the installments, I get to keep my equipment and realize the full energy savings of CHP. The ESCO absorbs all the risk, and if they’ve done their homework, they will come out on top at the end of the contract as well. Win, win.

    Of course this is oversimplifying things. There is plenty of risk involved, and a good ESCO has to pay careful attention to energy price projections and control of capital and operating costs. But this simple exercise helps illustrate why and how CHP is becoming increasingly applied at the level of institutions and commercial enterprises.

    A Long-Term Solution?

    So is there a moral here? Is CHP the long-term solution to all of our energy needs? Or is it the flavor of the month?

    The answer probably lies somewhere in the middle.  Based on the estimates of the sheer quantity of shale gas available, affordable natural gas is here to stay for quite a while, and for the near future has quieted a lot of concerns over the peak oil Armageddon. CHP offers arguably the most sensible use of this natural gas, especially for owners with a continuous application for waste heat. At the end of the day, though, it’s still a fossil fuel technology, and even an oil tycoon would have to admit that fossil fuels are a finite resource. We’ll run out of things to burn eventually, even if it’s a dozen generations from now.  Further, the issue of global warming continues to surge to the forefront of energy policy, and while natural gas burns without many excess pollutants, it still produces plenty of CO2. So while CHP is a great option for this generation, and it makes sense that the US government is pushing it to even greater heights, it should not detract from the long-term development of sustainable, renewable energy.

    As with all technologies, application of CHP requires a careful review of the specific needs and utility demands of each site.  In places where high-grade waste heat is not necessarily useful, other options may make more sense. With that said, given the right application and a careful engineering analysis, CHP has proven to successfully lower energy costs and consumption long-term for a variety of installations.

    Top image courtesy of supakitmod /