Rethink North American CHP strategy

Dec. 3, 2012
Peter Garforth asks do we really encourage distributed energy supply.

Hurricane Sandy is bringing a multitude of energy-related questions back into focus. One is the resilience of the heat and electrical supply systems in the face of severe weather. Two weeks after Sandy hit, large numbers of consumers in one of the world’s wealthiest cities were still without electricity and heat. The equally important question of energy’s role in climate change once more clawed its way into the headlines. This even prompted New York City Mayor Michael Bloomberg to make a presidential endorsement on this issue alone.


There is a proven range of solutions that effectively addresses the challenge of energy reliability and reducing greenhouse gas emissions. Cogeneration of heat and power (CHP) using natural gas engines and turbines is ideally suited for deployment in many urban settings. This comes in sizes ranging from a few kiloWatts to a few megaWatts that can provide the heating and electricity needs of single buildings or entire neighborhoods.

In normal circumstances, CHP is a reliable source of heating and domestic hot water, is frequently a source of low-cost electricity, and helps to reduce grid peaks during periods of high electrical demand. Sized correctly, CHP typically doubles fuel efficiency compared to traditional sources. The combination of using natural gas as a fuel and the high fuel efficiencies of a CHP system dramatically reduces carbon emissions.

In abnormal circumstances where electrical networks fail, CHP offers the possibility of maintaining heating supply and some local electricity, as long as gas networks remain intact. For critical environments such as community centers, hospitals, and the like, relatively simply dual fuel strategies ensure CHP could survive a gas network failure.

In any rational world, when considering both normal operation and emergency applications, there would be a growing market measured in the thousands of installations per year in cities across the United States and Canada. In reality, a few hundred units are installed, and, while growing, the small and medium CHP market is falling far below its potential. This is a totally different picture from Europe and parts of Asia, and one worth looking at a little more closely in North America.

Installing and operating small- and medium-scale CHP is often no more complex than a furnace or a boiler. However, the decades of operating experience around the world make CHP reliability, risks, and economics highly predictable. Sized correctly for the local heat and electricity loads, they would never need to export electricity to the grid, minimizing the challenge for the electrical utility. Bottom line, the technical and economic challenges are minimal for both the end user and the utility.

Peter Garforth heads a specialist consultancy based in Toledo, Ohio and Brussels, Belgium. He advises major companies, cities, communities, property developers and policy makers on developing competitive approaches that reduce the economic and environmental impact of energy use. Peter has long been interested in energy productivity as a profitable business opportunity and has a considerable track record establishing successful businesses and programs in the US, Canada, Western and Eastern Europe, Indonesia, India, Brazil and China. Peter is a published author, has been a traveling professor at the University of Indiana at Purdue, and is well connected in the energy productivity business sector and regulatory community around the world. He can be reached at [email protected].
Subscribe to the Energy Expert RSS feed

The barriers to wide-scale use of small CHP can be found in the myriad regulations that deter even the most enthusiastic proponent from moving forward. Each of the 50 states has its own regulations for the use of CHP. Most treat even small systems that will never export electricity to the grid with similar rules as those for much larger units. Most ignore the fact that the real value of CHP in normal circumstances is as a heat source and focus entirely on the electrical aspects.

For the facility owner wanting to install a few hundred kiloWatts of capacity, the obstacle course begins with the technical interconnections standards. These are rarely simple and are frequently over-regulated with cost and approvals controlled by state government and the utility. Most applications are given up at this stage, frustrated by bureaucracy and complexity.

Then comes into play the way in which the generated electricity is treated. In some states the environmental benefit is beginning to be recognized, and CHP may qualify at least for net-metering, where the local generation is subtracted from the utility bill. A couple of Canadian provinces are even adopting a “feed in tariff” approach and offering a premium for locally generated electricity. Even these incentives are giving rise to confusing anomalies. As an example, in Ohio, a gas-fired micro-turbine CHP unit qualifies for net-metering, while a gas-fired reciprocating engine does not, even though it would normally be as low-carbon as the eligible technology.

Once the user has worked through the barriers of the value allowed for electricity, the next financial barrier that appears is capacity charge. This is a charge that state regulators have allowed utilities to apply notionally to maintain adequate standby capacity in the event the CHP is not operating. However, this is calculated totally ignoring the portfolio effect of many thousands of units in terms of shared risks and peak demand reduction.

The combination of investigative effort, completing technical and regulatory applications, and losing most economic benefits through connection and standby charges discourages most from moving forward. I was recently describing this picture to a German colleague and he commented that it sounded like Germany before 1990. Over there, a series of policy and technical reforms has made CHP in buildings a common and widespread choice. It is probably time to rethink how we treat this in North America.