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Determining CHP Savings in an Energy Efficiency Resource Standard

November 23, 2012 - 1:14pm
By Anna Chittum, Visiting Fellow

Combined heat and power (CHP) systems efficiently generate multiple types of power, usually electricity and thermal energy such as steam, using a single fuel input. These systems can run on a number of fuels and serve energy needs in a variety of sectors. They save users money and reduce overall emissions compared to traditional generation of electricity and thermal energy. For these reasons, states have increasingly looked to CHP to help meet rising energy efficiency goals such as those set by energy efficiency resource standards (EERS).

One of the most important ways states can support and encourage CHP through policy is by explicitly including CHP as an eligible resource in an EERS or other portfolio standard. An important caveat is that when designing portfolio standards, energy efficiency targets need to be set based on an energy efficiency potential assessment that includes new CHP. Portfolio standards are most supportive of CHP when they treat CHP savings as equivalent to those from other efficiency resources. Six states do this, and one, Massachusetts, actually developed a portfolio standard specifically for CHP and related technologies. Whether within an EERS or another standard, explicitly encouraging CHP sends a clear signal that CHP is valued and should be prioritized.

The strength of the signal (and thus incentive to pursue CHP) can vary considerably. Most states with an EERS do allow CHP savings to count towards EERS savings---that is, CHP is not explicitly excluded. However, most of these states offer no specific model for counting CHP savings, leaving little clarity for developers and utilities. The economic value of CHP is harder to ascertain. As more states begin to look at CHP as a substantial efficiency resource, they will need to determine how CHP savings will be calculated.

Several models already exist. ACEEE, Massachusetts [PDF], and the Southwest Energy Efficiency Project [PDF] have all published documents in recent years outlining different approaches. ACEEE does not believe that there is a single model that is appropriate for all states. Instead, it is wise to observe [PDF] how existing models [PDF] are influencing investment in CHP. States must balance the administrative burden of a method with the desired degree of accuracy, being careful not to substantially understate or overstate the energy impact of a new CHP system on the grid. Understanding the efficiency and emissions benefits of a CHP system relative to local grid-provided power is necessary to fully understand how the CHP system is impacting the local market.

Another challenge facing policy makers is that long-term savings of a CHP system may be hard to forecast. However, while the energy savings of a thousand energy-efficient light bulbs can be clearly calculated and the light bulbs expected to operate at certain efficiency levels over their lifetimes, a CHP system’s performance will vary with the energy needs of its host facility. Some utilities have claimed that they cannot support CHP within their existing financial incentive programs because they cannot accurately determine the efficiency savings from year to year. ACEEE does not believe this is a deal-breaker as utilities can structure incentives that are calculated based on annual or biannual evaluations of savings.

Clear guidelines for determining annual savings will allow utilities and CHP developers to more clearly understand the benefits of CHP within an EERS early on (which is when the decision to invest in a CHP system is made), while ensuring that the potential savings from CHP actually benefit customers. Establishing clear parameters for CHP savings and treating such savings as equally important to other energy efficiency savings will also help states take advantage of the tremendous potential [PDF] for CHP.