R. Neal Elliott, Ph.D., P.E. &
Bruce Hedman, Onsite Energy Corporation
July 2001
Executive Summary
Texas is facing both increasing demand for electricity capacity and increasing criteria pollutant non-attainment in urban areas. Traditionally, solving either of these problems would exacerbate the other, but today Texas has a great opportunity to expand the use of combined heat and power (CHP) to ease both problems simultaneously. This report outlines the history and potential for CHP in Texas, as well as policy responses that will further this power generation technology in the market, lowering the potential for blackouts and declining air quality.
CHP (also known as cogeneration) generates electricity (and/or mechanical energy) and thermal energy in a single, integrated system (see Figure ES-1). This contrasts with common practice of separate heat and power (SHP) where electricity is generated at a central power plant, and on-site heating and cooling equipment is used to meet non-electric energy requirements. The thermal energy recovered in a CHP system can be used for heating or cooling in industry or buildings. Because CHP captures the heat that would otherwise be rejected in traditional separate generation of electric or mechanical energy, the total efficiency of these integrated systems is much greater than from separate systems (e.g., in the example at right, the CHP system has an efficiency of 85% while the separate systems have a combined efficiency of only 45%).
CHP is inherently more efficient than any equivalent traditional system owing to the production of two or more usable energy outputs from a single fuel source. In a CHP system, heat created in electricity generation is recaptured and used, reducing the amount of waste heat from the power generation process. By using only one fuel for two processes, CHP produces fewer emissions than traditional power distribution. CHP also allows for on-site generation of power and heat, cutting the need for transmission infrastructure.
| Figure ES-1. Schematic Comparing Combined and Separate Heat and Power Systems |
 |
This technology approach is good news for Texas, which, without increased CHP use, will need to build more transmission infrastructure over the coming years to avoid shortages. CHP will solve Texas's potential transmission capacity shortage by opening a way for companies to decrease reliance on the grid for both heat and power. The application can help prevent blackout/brownouts for residents and industries during peak periods.
Texas already leads the country in CHP, with 10% of its base of power comprised
of CHP (see Figure ES-2). However, further potential exists in the commercial
and industrial segments for additional capacity in excess of 20,000 megawatts
(MW)
In order for this potential to be realized, Texas must take policy steps to make the use of CHP appealing to industry, thus easing the stress on the grid and in the air. A variety of motivational tactics exist that the Texas legislature could employ to make CHP more appealing to industry. After concluding that CHP is a practical way to provide Texas with solutions to some of its air and power problems, we recommend the following four actions for the Texas legislature to maximize the use of CHP.
| Figure ES-2. CHP Capacity in Texas by End-User Sector. |
 |
Output-Based Environmental Permitting
Output-based environmental permitting is a simple concept that is used for setting
emissions rates for cars. The rate is determined by dividing emissions by the
usable output of the system (for cars it is grams per mile). However, most stationary
sources are permitted based on emissions per unit of fuel consumed (e.g., pounds
per million Btu [lb/MMBtu]) or based on the concentration of a pollutant in exhaust
gases (e.g., parts per million [ppm]). Neither of these approaches credits the
efficiency of the system. From the perspective of meeting Texas's energy needs
while addressing its environmental challenges, an output-based strategy for allocating
emissions will insure that the state gets the most usable energy for each pound
of pollution emitted. Since CHP is inherently efficient, output-based environmental
permitting will provide an incentive to implement CHP.
Electric Utility Regulation
Texas has been a leader in removing regulatory barriers to CHP and distributed
energy. The Texas Public Utility Commission (TPUC) has developed model CHP interconnect
language that is now being used in other states. While significant progress has
been made, more work remains. The Commission staff is currently working on tariff
and contract provisions. This work needs to be supported and accelerated. In addition,
Texas has yet to fully address the issue of stranded costs as part of its utility
restructuring process. One suggestion exempts CHP from the competitive transition
charges, similar to the actions taken by New Jersey, Illinois, Massachusetts,
and California.
Development of Energy Parks
Most of the CHP installed in Texas is at large industrial or institutional facilities.
Historically, the user has owned these facilities but in the past two decades,
the trend has shifted to ownership by a third party. If the heating and cooling
loads for a number of smaller users could be aggregated, the demands of the various
users would be better balanced and provide an attractive opportunity for a developer.
These energy parks would provide heating, cooling, and high-quality electric power
to customers. A CHP system is the most cost-effective way to generate these energy
products.
Energy parks could be a particularly important strategy for emerging Internet server farms. These buildings have very large, high-reliability power requirements, and represent a significant portion of the projected load growth for the Austin and Dallas-Fort Worth regions. A significant portion of this load is cooling, which could be met with absorption refrigeration drive using the heat from a CHP system. Unfortunately, current siting and permitting regulations were not established with these technology and energy service relations in mind, and they could unduly hinder development of these parks. The state needs to identify these hurdles and take steps to addresses them so that CHP energy parks can be created to meet the needs of these growing loads.
Property Tax Treatment of CHP
Problems with federal tax depreciation treatment of CHP are documented. While
the state cannot address these issues, it could compensate in part by offering
favorable state tax treatment to clean and efficient CHP systems. Our recommendation
is to define clean and efficient CHP systems as pollution reduction equipment
that would exempt the equipment from local property taxes.
31 pp., 2001, $13.00, IE011
For more information on CHP please visit the ACEEE CHP/DER page.
Go to: |Top|Order Form|ACEEE Home Page|