Combined Heat and Power (CHP) in the State Scorecard and Beyond

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1 Combined Heat and Power (CHP) in the State Scorecard and Beyond Meegan Kelly Research Analyst, Industry Program ACEEE Presented to: MGA IEP Working Group January 9, 2015

2 ACEEE visits CHP plant 2

3 The American Council for an Energy- Efficient Economy (ACEEE) ACEEE is a 501(c)(3) nonprofit that acts as a catalyst to advance energy efficiency policies, programs, technologies, investments, & behaviors 50 staff; headquarters in Washington, D.C. Focus on end-use efficiency in industry, buildings, & transportation Other research in economic analysis; behavior; energy efficiency programs; & national, state, & local policy Funding: Foundation Grants (52%) Contract Work & Gov t. Grants (20%) Conferences & Publications (20%) Contributions & Other (8%) 3

4 Overview 1. CHP in ACEEE s State Scorecard Methodology, scoring rubric, etc. 2. CHP policy & actual deployment Correlation between scorecard scores and actual deployment 3. Impact of market considerations CHP Favorability Index concept 4

5 What is Combined Heat and Power (CHP)? CHP is the simultaneous production of electricity and useful thermal energy in a single integrated system. Heat that is normally wasted in power generation is recovered as useful energy, making CHP highly efficient. 5

6 Benefits of CHP More energy-efficient than separate heat and power Results in lower operating costs CHP reduces GHG emissions Increases grid reliability and resiliency Source: DOE & EPA, 2012: 6

7 2014 State Energy Efficiency Scorecard Considers six policy areas: 1. Utility and public benefits programs and policies 2. Transportation policies 3. Building energy codes and compliance 4. Combined heat and power (CHP) policies 5. State government-led initiatives 6. Appliance and equipment standards Source: Gilleo, et al 2014: 7

8 CHP Scorecard Methodology Maximum score of 5 points Eight factors considered: 1. Interconnection rules (up to 1 pt) 2. Inclusion of in EERS (up to 1 pt) 3. Inclusion in RPS (0.5 pt) 4. Favorable revenue streams (0.5 pt) 5. Financial Incentives (0.5 pt) 6. Loan programs (0.5 pt) 7. Output-based air emissions regulations (0.5 pt) 8. Additional supportive policies (0.5 pt) Source: Gilleo, et al 2014: 8

9 CHP Scorecard Methodology 4. Favorable revenue streams (0.5 pt) Wholesale net metering Feed-in tariffs Standard offer programs, etc. 5. Financial Incentives (0.5 pt) Production incentives (per kwh) Installation incentives (per kw) Investment credits Project grants 6. Loan programs (0.5 pt) See Appendix I from Scorecard for state-by-state summary (p.159) Source: Gilleo, et al 2014: 9

10 CHP Scorecard Methodology 1. Interconnection rules (up to 1 pt) 2. Inclusion in EERS (up to 1 pt) 3. Inclusion in RPS (0.5 pt) 4. Favorable revenue streams (0.5 pt) 5. Financial Incentives (0.5 pt) 6. Loan programs (0.5 pt) 7. Output-based air emissions regulations (0.5 pt) 8. Additional supportive policies (0.5 pt) * And we report two unscored metrics Source: Gilleo, et al 2014: 10

11 Top 2014 State Scores for CHP No state received the full 5 points Top three states include CHP targets in EERS Few notable policies in 2013 to increase scores State Interconnection EERS standard (1 treatment pt.) (1 pt.) RPS treatment (0.5 pts.) Revenue streams (0.5pts.) Incentives (0.5 pts.) Financing (0.5 pts.) Emissions treatment (0.5 pts.) Other policies (0.5 pts.) Score (5 pts.) Connecticut Massachusetts California Oregon Maine Maryland Rhode Island Vermont North Carolina Washington Source: Gilleo, et al 2014: 11

12 Leading state CHP policies: Connecticut: Strong CHP policy environment including tiered interconnection standards, incentives and financing, etc. 10 new CHP systems installed in Maryland: EmPOWER provides grants to encourage implementation of CHP and has been well-received by commercial and industrial customers with a second round of funding for projects in place in New Jersey: After Hurricane Sandy, the state has prioritized CHP for protecting against future extreme weather events especially at critical facilities. 12

13 Scoring is an inexact science Scores may not always reflect environment on the ground Are the policies we score states on successfully moving the needle on CHP deployment? Are we weighing the specific policy metrics in a way that truly reflects their importance? 13

14 Additional Metrics Noted but unscored factors: 1. Number of CHP installations Performance metric Useful for comparison But relative to state potential 2. Retail electric and natural gas rates Strongly influence economic attractiveness of CHP Beyond control of states 14

15 CHP in the State Scorecard: On the books and on the ground Compared the correlation between scorecard scores and installs Moderate correlation exists Uses 2014 scores and two years of installs (2013 and 2012) Source: ACEEE Blog, Nov 2014: 15

16 CHP Scores and New State Installs Source: ACEEE Blog, Nov 2014: 16

17 CHP Score Midwest Scores vs. Installations CHP Score CHP System Installations 17

18 More questions than answers States with strong policies and low deployment lead to more questions Policymakers want to know if/how they can increase deployment Developers want to know where to focus their efforts 18

19 Market Considerations Impacting CHP Retail electricity and gas prices are a powerful factor Drive CHP market by varying degrees depending on state Policies can improve economics, but may not overcome barriers from prices. 19

20 CHP Favorability Index Concept WHAT: State-by-state index assessing market and policy favorability for CHP WHY: To get a look at the degree to which prices influence CHP deployment HOW: Using 2013 data from ICF on technical potential and EIA forecasted electricity prices from Source: Hayes, et al Change Is in the Air: How States Can Harness Energy Efficiency to Strengthen the Economy and Reduce Pollution. 20

21 Step 1: Market Index Ratio tells us how favorable forecasted energy prices are to the future business case for CHP in a given state. State ACEEE Estimated Achievable Potential by 2030 (MW) Cost- Effectiveness Adjusted Achievable Potential by 2030 (MW) CHP Market Favorability Index Ohio Kansas Wisconsin Indiana Nebraska Illinois ACEEE Estimated Achievable CHP Potential (adapted from ICF data) CHP Potential Adjusted for Cost-Effectiveness (using on EIA price forecast) Minnesota North Dakota Missouri South Dakota Michigan Iowa

22 Market Favorability Index 1.00 Midwest CHP Market Favorability Index

23 In the Midwest, market conditions impact industrial sector State Commercial ACEEE Achievable Potential by 2030 (MW) Industrial ACEEE Achievable Potential by 2030 (MW) Total ACEEE Achievable Potential by 2030 (MW) Commercial Cost-Effective Adjusted Potential by 2030 (MW) Industrial Cost-Effective Adjusted Potential by 2030 (MW) Total Cost-Effective Adjusted Potential by 2030 (MW) Change in Commercial Capacity After Cost- Effectiveness Change in Industrial Capacity After Cost- Effectiveness Ohio % 0.0% Kansas % 0.0% Wisconsin % 0.0% Indiana % 0.0% Nebraska % 0.0% Illinois % 0.0% Minnesota % 0.0% North Dakota % -13.3% Missouri % % South Dakota % -93.3% Michigan % -80.0% Iowa % % 23

24 Step 2: Policy Index Scaled Scorecard score tells us how favorable existing policies are for CHP in a given state 2014 Scorecard Score Scale: CHP Policy Favorability Index Scale: State 2014 Scorecard Score CHP Policy Favorability Index Ohio Kansas Wisconsin Indiana Nebraska Illinois Minnesota North Dakota Missouri South Dakota Michigan Iowa

25 Overall CHP Favorability Index F CHP Index = F Market Index * F Policy Index Step 1: Creates market favorability index (F Market Index ) based on potential estimates Step 2: Creates policy favorability index (F Policy Index) based on 2014 Scorecard Score 25

26 Overall CHP Favorability Index CHP Market Favorability Index CHP Policy Favorability Index 26

27 Some take-aways With market favorability, policies likely to have greater impact Without market favorability, state policies may not be able to overcome economics Deployment depends on the spark spread (difference between griddelivered electricity and cost of self-generation) A CHP system installed at Bristol Myers Squibb in Connecticut. (Photo provided by the National Renewable Energy Laboratory). Source: 27

28 Impact of Favorability on Potential ACEEE Estimated Achievable Potential by 2030 (MW) Market Index Adjusted CHP Potential (MW) Market and Policy Index Adjusted CHP Potential (MW) 28

29 This is a simplified case Many aspects of economic attractiveness Only natural gas CHP, no opportunity fuels No waste heat to power Doesn t monetize ancillary services Min size 100 kw, max size 100 MW Doesn t include production incentives; no electricity export considered 29

30 So What Now? Favorability index as a new way to visualize market considerations Feedback on the concept is welcome! Next question might be, So what can we do to make a difference? Examples inside the region (IL) and outside (CT, MA, MD) that have overcome high upfront cost issue Institute for Industrial Productivity (IIP) and Bruce Hedman: Bruce.Hedman@iipnetwork.org 30

31 Other Resources SEE Action CHP Guide: ion_chp_policies_guide.pdf ACEEE Website: ACEEE State Scorecard: Change is in the Air Report: 31

32 Thank you! ACEEE Contacts: Meegan Kelly Ethan Rogers Neal Elliott (202) (202) (202)