Utility Policies Keep Efficiency Off the Grid

August 8, 2006


Washington, D.C. — Individual utility interconnection and tariff practices continue to be significant barriers faced by combined heat and power (CHP) projects, according to the American Council for an Energy-Efficient Economy’s (ACEEE) new report Combined Heat and Power: Connecting the Gap between Markets and Utility Interconnection and Tariff Practices (Part II). Although many states are making positive progress on CHP policies, significant barriers still stunt the realization of CHP’s nationwide potential. This report is the second of two reports documenting individual utilities’ CHP/distributed energy policies and practices state-by-state. Part I covered 15 states; Part II addresses the remaining states and also provides a nationwide and regional perspective.


Utility interconnection and tariff practices have long been identified as major barriers to expanded CHP. Lack of progress at the federal level via legislation or regulation has shifted the focus to states for remedies to these problems.


“This summer’s record heat wave dramatizes the need for CHP, as outages afflict New York City, St. Louis, and California. CHP projects not only reduce the risk of blackouts, they lower electricity and natural gas prices, and reduce air pollutants and greenhouse gas emissions.   But to realize CHP’s potential, utility policies need to change,” stated Susanne Brooks, lead author and a research staff member with the Industry Program team at ACEEE. “While federal action would be most effective, it is unlikely for the near future. This puts the spotlight on state and regional efforts for policy action. The CHP community must focus its efforts on states and regional transmission organizations to bring CHP’s benefits to the nation’s power grid.”


The report focuses on interconnection and tariff practices for key utilities, as well as their friendliness in general to CHP projects. It exposes barriers to entry for proposed CHP facilities, highlights the need for a national interconnection standard, and illustrates the existing hierarchy regarding the progressiveness of CHP policies on a state-by-state and regional basis. It identifies major utilities nationwide and reviews them systematically, placing them into a four-tiered ranking system based on their friendliness to CHP. It also reviews recent developments in CHP policy and markets, explores several emerging market trends, and makes some policy recommendations to address these barriers.


CHP systems, sometimes known as cogeneration, generate electricity and thermal energy in a single, integrated system. These systems are more energy efficient than separate generation of electricity and thermal energy because heat normally wasted in conventional power generation is recovered as useful energy for thermal demand such as steam, process heat, or space heating and cooling. CHP systems can be employed in many commercial, institutional, and industrial facilities.


Several regional and state initiatives have succeeded in lending technical support to CHP projects and educating utilities and the public on the benefits of CHP. “Despite these good efforts, discontinuities in interconnection standards, discriminatory tariff rates, utility disincentives, negative impact on utility profits, lack of awareness of CHP benefits, misconceptions about safety issues, and a general lack of education amongst those outside the CHP community remain significant barriers to the expanded adoption of CHP nationally,” added Brooks.


“There is a wide variety of attitudes and practices within the utility industry regarding CHP, ranging from those that actively promote the adoption of CHP through varied incentives to those that are actively working against the adoption of CHP in their territories,” stated Neal Elliott, co-author and Industry Program Director at ACEEE. “Part of the purpose of this review is to give credit where it is deserved and to highlight the states and utilities that still have a long way to go.”


“This report also documents the impacts that the U.S. Department of Energy’s and Environmental Protection Agency’s CHP efforts at the state and regional level have had over the past decade,” said Elliott. “In view of these successes, it is regrettable that the Bush Administration has called for largely eliminating these efforts in its 2007 budget request. Congress should restore full funding to CHP and distributed energy efforts.” Combined Heat and Power: Connecting the Gap between Markets and Utility Interconnection and Tariff Practices (Part II) is available for free download at http://www.aceee.org/research-report/ie063 or a hard copy can be purchased for $30 plus $5 postage and handling from ACEEE Publications, 529 14th Street, N.W., Suite 600, Washington, D.C. 20045, phone: 202-507-4000, fax: 202-429-2248, e-mail: aceee_publications@aceee.org.