Combined Heat and Power: Connecting the Gap between Markets and Utility Interconnection and Tariff Practices (Part I)

Susanne Brooks, Brent Elswick, and R. Neal Elliott

March 2006

Executive Summary

The adoption of combined heat and power (CHP) systems by American industries has made substantial strides in the last few years. Viewed on many levels, this progress is most certainly a win for all involved—the industry, the utilities, the consumer, and the environment. Many states have programs in place financially endorsing the adoption of CHP, easing the economic transition, and many utilities are now working with those states in that regard. Some utility companies have begun to optimistically acknowledge the market potential for CHP on their own. But to say that substantial strides have been made is not a convincing reason to ignore that much work is yet to be accomplished. The increased adoption of CHP nationwide still faces major hurdles: stiff barriers to entry from a sluggish utility core; technological, economic, and safety inhibitors; and an industry information gap in regard to varied state and utility policies. In order to expose and explore these issues more broadly, ACEEE embarked on an initial state review of utility company policies and practices focused on distributed energy resources (DER), and CHP more specifically. The results were both heartening and emblematic.

Given the above, the purpose of this report is threefold: one, to expose still existent barriers to entry for proposed CHP facilities; secondarily, to highlight the need for a national interconnect standard; and lastly, to show the hierarchy that currently exits in regard to the progressivism of CHP policies nationwide on a state-by-state and regional basis. That is to say, some regions of the United States have developed policies promoting the adoption of the technology, while other areas have yet to focus on it as a potential market interest. From the initial round of investigation and research, there clearly exists a four-tier stratum with regard to utility operations toward the adoption of CHP:

• Level Four, those actively promoting the adoption of CHP through varied incentives;


• Level Three, those not explicitly promoting the adoption of CHP, but willing to work with industry;


• Level Two, those ambivalent, by choice or regional market trends; or those not in the market, or outside the industrial pockets where the adoption is least likely; and


• Level One, those actively working against the adoption of CHP.

The states comprising the focus of this initial study are as follows:

The utilities involved ranged from the largest in relation to service territory, generating capability, or customers served—national symbols such as Xcel Energy and Pacific Gas & Electric (PG&E)—to the small, local, publicly owned municipalities, such as Austin Energy or Seattle City Light (SCL), and the not-so-small Sacramento Municipal Utility District (SMUD). Together, the utilities studied create an intricate fabric of interlaying and disparate policies, which ultimately emphasize the need for the reduction of barriers and a comprehensive national interconnect standard.

In several regions (the Northeast, Wisconsin, and California), CHP systems are promoted through implicit incentives. Other utilities in the West, South, and Southeast have yet to actively address CHP or take a role in the debate—a government and/or industry push has yet to materialize or is in its infancy. Further complicating matters are the changes of the utility industry in a constantly evolving and expanding condition. At the time of this study’s publication, Xcel Energy had a service territory that included no fewer than 13 states; MidAmerican Energy was in the throes of purchasing PacifiCorp; Duke Energy was purchasing Cinergy; and Florida Power and Light and Constellation Energy were merging to create the nation’s largest competitive energy supplier and its second largest electric utility. The dynamic nature of the constantly evolving utility sector, we believe, further strengthens the need for a comprehensive national plan easing the adoption of energy efficiency technologies such as CHP. However, while a plan on the national level would be extremely beneficial, experience in recent years has led us to the realization that such a plan is probably not a viable option. Thus there is a necessity to focus on advancing progress in the states, which was our goal in embarking upon this state review and report.

An appendix is provided at the end of the report, highlighting the trends found in particular states and the utilities that operate within and around them. The results of this research show the varied cultures among the nation’s states and utilities, their insecurities, operational incentives, preconceived biases, and in some instances, their progressive spirit. Part II of this project is expected to be completed in the spring and will review the remaining states that were not covered in this report. In addition to highlighting barriers, regional trends, and utility culture, the full report (including Parts I and II), should serve as a tool for those interested in bridging the gap between the valued economics of increased efficiency compared with current energy supply and demand.

View full report as a PDF or click to order hard copy.

34 pp., 2006, $20.00, IE062