The Role of Combined Heat and Power (CHP) in Virginia s Energy Future

Transcription

1 The Role of Combined Heat and Power (CHP) in Virginia s Energy Future Prepared for: Workshop on Combined Heat and Power Development in Virginia, Alexandria, VA Prepared by: M. Willingham and M. Pipattanasomporn Alexandria Research Institute 206 N. Washington St Suite 400, Alexandria, VA May 30, 2003

2 Table of Contents Background: Distributed Power Generation... 3 Combined Heat and Power: A Strategic Energy Resource... 3 What Does CHP Include?... 4 The Status of CHP in Today s Energy Market... 4 The Market Potential of CHP in Virginia... 5 CHP and Virginia s Air Quality... 7 CHP Initiatives in Other States... 8 References Appendices Appendix A: Other State Initiatives Appendix B: Review of Combined Heat and Power Technologies Appendix C: Cost and Performance Comparison from Manufacturers and DOE Studies for Microturbines and Fuel Cells 2

3 Background: Distributed Power Generation Distributed generation, defined as electrical power generation at or near the end user site, is poised to become a key element in Virginia's - and the nation's - energy future. From an overall power reliability standpoint, incorporation of individual distributed generation systems could lessen the load on the transmission system, and thus increase system reliability. According to the U.S. Department of Energy (DOE), distributed generation (DG) refers to a variety of small, modular power generating technology or storage systems located at or near an electrical load. From a strategic perspective, distributed generation applies to relatively small generating units typically less than 30 MW/e at or near consumer sites to meet specific customer needs, to support economic operation of the existing power distribution grid, or both. Reliability of service and power quality are enhanced by proximity to the customer; and efficiency is improved in on-site applications by using the heat from power generation. Distributed systems include biomass-based generators, combustion turbines, concentrating solar power and photovoltaic systems, fuel cells, wind turbines, microturbines, engine and storage technologies. Distributed power technologies provide site-specific benefits to both end-user customers and electric utilities. The U.S. Environmental Protection Agency notes that while central power systems remain critical to the Nation's energy supply, their flexibility to adjust to changing energy needs is limited. Distributed generation, on the other hand, complements central power by: (1) providing a relatively low capital cost response to incremental increases in power demand, (2) avoiding transmission and distribution capacity upgrades by locating power where it is most needed, and (3) providing the flexibility to put surplus power back into the grid at user sites. Even with these potential benefits, the promise of distributed energy resources has yet to be fully realized due to a combination of technical, regulatory and business practice barriers, compounded by uncertainties associated with nationwide deregulation. A recent DOE study "Making Connections: Case Studies of Interconnection Barriers and their Impact on Distributed Power Projects" [DOE-2000], reviewed the barriers that distributed generators of electricity encounter when attempting to interconnect to the electrical grid. As described in the report, some of these barriers have been shown to block "viable projects with potential benefits to both the customer and the utility system. Virginia offers a case in point, as well as a good testing ground, for resolution of issues cited by DOE. The May 2002 ARI distributed resources workshop, which addressed policy options for distributed resources in Virginia, served to both reinforce and expand on many of the DOE findings and underscore the rapidly changing landscape of energy delivery services under current and proposed deregulation initiatives. Combined Heat and Power: A Strategic Energy Resource One of the most promising components of the nation s distributed energy resources future lies in the development of combined heat and power (CHP) systems. According to the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy, CHP can be characterized as one of the most promising technology/market convergence to meet federal commitments of energy efficiency, cost savings, and environmental impact reduction. 1 1 CHP and the Contemporary Energy Industry, Anne-Marie Borbely, Energy User News, July

4 The Energy User News report notes that CHP systems were the most common sources of electricity in the United States at the beginning of the 20 th century. An increasing end-user focus on carbon taxes, emissions credits, and risk management, particularly as reflected in a commercial or industrial customer's balance sheet in a deregulated energy landscape, suggests a renewed primacy for CHP in a distributed energy resources portfolio. What Does CHP Include? Traditionally, electricity is produced at centrally located power plants and steam/heat is produced at the point of use at industrial, commercial, institutional locations using boilers. This process is known as separate heat and power (SHP), which requires burning fuel at two separate locations. In addition, the transmission of electricity from central power plants to the user site causes losses estimated at an average of 7%. With the use of CHP, electricity and heat can be produced from the same fuel combustion source. The simultaneous production of electricity and heat eliminates the need for a separate boiler, as well as increasing output-based electrical and thermal efficiency. This efficiency can be as high as 85% compared with a typical fuel conversion efficiency of only 30-50% in central power plants. In addition, by locating the CHP system at the point of use, electricity transmission losses can be reduced or eliminated. For example, a new simple cycle or combined cycle electric-only power plant might be 30-50% energy efficient -- i.e. it wastes 50-70% of the fuel that it burns in the form of heat. On the other hand, that plant, relocated to an industrial steam host and configured into CHP, can recover most of the waste heat to produce steam in addition to the electricity, with a resulting efficiency of 70-80% - i.e. it produces more output (electricity plus steam) while only wasting 20-30% of its fuel input. The Status of CHP in Today s Energy Market Although "CHP just isn't a strong market in the U.S. today," according to Mark Axford, vice president with GE-S&S Energy Products, both the evolution of deregulation throughout North America and requirements for new base load capacity should result in incentivized co-generation facilities. An additional environmental benefit that may yet enhance the economic value of CHP is that it offers the most significant opportunity for impacting global climate change without adversely affecting the U.S. economy. With the arrival of reliable reciprocating engines and smaller combustion turbines, microturbines and fuel cells, CHP is becoming feasible for small commercial buildings. This involves the installation of a system that generates part of the building's electricity requirement and provides heating and/or cooling. Packaged systems with capacities starting at around 25 kw could be installed at fast food restaurants and in larger commercial buildings. Though an important long-term market, this segment's total capacity is expected to be modest for the next few years 2. A number of small engine CHP packagers have entered and exited the market in the last 15 years, as market conditions proved too difficult for many. However, there is a new generation of technologies and developers hoping to reach the large number of customers in this small-end 2 COMBINED HEAT & POWER PROGRAM FOR BUILDINGS, INDUSTRY AND DISTRICT ENERGY TECHNOLOGY OVERVIEW < 4

5 market. These developers envision sales in the tens, even hundreds, of thousands of units. A recent DOE-commissioned study examining CHP technical and market potential in the commercial and institutional sectors lends a degree of support to the developers expectations. Major conclusions from the study include: 3 Significant CHP potential exists at commercial/institutional facilities - The total technical potential for the commercial/institutional sectors of approximately 75,000 MW electric capacity is on the same order of the remaining technical potential in the industrial sector (88,000 MW) Market penetration to-date is extremely low in the commercial/institutional sectors - Except for colleges and universities, market penetration of CHP into commercial/institutional applications is minimal. The bulk of existing CHP capacity is in larger systems - CHP systems of 20 MW or greater represent 63% of existing CHP capacity in the commercial/institutional market. The majority of the technical potential is in small sizes - 62% of the technical market potential is in system sizes less than 1 MW. Potential CHP sites represent a small fraction of commercial/institutional buildings - Based on existing technology, only about 5% of the 4.6 million existing commercial buildings in the United States technically meet the criteria for CHP (average electric demand > 100 kw and adequate thermal loads in the form of hot water or steam) The technical market for CHP could be expanded in the commercial/institutional sectors with advanced technologies that utilize thermal energy for non-traditional applications The Market Potential of CHP in Virginia The DOE study, which employed a financial and economic database to estimate potential CHP applications, derived its results from a combination of SIC codes and location information for commercial, institutional and industrial facilities. The primary steps in the process included the following: Identifying applications where CHP provides a reasonable fit to the electric and thermal needs of the user; Quantifying the number and size distribution of target applications; and Estimating CHP potential in terms of MW capacity The state-level study findings, summarized in Figure 1, indicate that Virginia has a market potential for CHP in the commercial and institutional sectors in excess of 1,800 megawatts, more 3 The Market and Technical Potential for Combined Heat and Power in the Commercial/Institutional Sector, Prepared for: U.S. Department of Energy by ONSITE SYCOM Energy Corporation, January

6 than half of which can be attributed to office buildings (23 percent), schools (20 percent) and hospitals (12 per cent). CHP Market Potential (MW) Hotels/Motels Nursing Homes Hospitals Schools Colleges & Universities Commercial Car Washes Health Clubs/Spas Golf Clubs Museums Correctional Facilities Water Treatment/Sanitary Extended Service Restaurants Supermarkets Refrigerated Warehouses Office Buildings Figure 1: Virginia Commercial/Institutional CHP Market Potential [ONSITE-2000] The commercial/institutional CHP market potential by size in Virginia is illustrated in Figure 2. Out of the total 1,859-MW potential, MW is in the kW size range and 546.2MW is in the kW size range. These categories (100kW 1MW) account for more than 60% of the total technical market potential in Virginia. On the other hand, the market potential is approximately 25% for CHP systems between 1MW and 5MW, and 10% for systems greater than 5 MW. Large MW Very Large MW Small MW kW kW 1-5MW >5MW Medium MW Figure 2: Virginia Commercial/Institutional CHP Market Potential by Size (ONSITE-2000) 6

7 CHP and Virginia s Air Quality In addition to provide energy savings, local transmission and distribution benefits and reliable power to the point of use, CHP systems also provide cleaner power than the separately produced heat and power. The emerging technologies hold the promise of negligible SOx and PM emissions and the NOx levels less than 9 ppm and 1 ppm respectively for microturbines and fuel cells. The environmental implications of these technologies are significant, particularly as an environmental issue of major concern in the Commonwealth of Virginia is the inability to achieve NAAQS ozonelevels. Several localities have been designated as ozone nonattainment areas, as shown in Figure 3, and others may be subject to future EPA designations. The low NOx emissions characterizing CHP systems can enhance CHP market potential in Virginia, particularly where areas are designated as non-attainment for ozone. Figure 3: Recommended Localities for Ozone Non-attainment Designation 7

8 CHP Initiatives in Other States Although CHP has the potential to reduce overall emissions, as mentioned in the previous section, existing environmental regulations in many states do not adequately incorporate the efficiency and emissions benefit of CHP. Currently, there are only three states that have taken actions to define emissions regulations specific to CHP. The following section summarizes the state-level actions of these three states Texas, California and New York. The summaries of the actions by other states can be found in [E. Brown, 2002]. Texas The Texas Natural Resources Conservation Commission (TNRCC) has recognized the contribution that CHP could make to address air quality problems. It has an exception for CHP in the air quality requirements by altering the generator guideline to reflect output-based standards. The brief guideline Air Quality Standard Permit for Electric Generating Units [TNRCC 2001] is available at The guideline requires the manufacturer or owner of the generating unit to certify the emissions of NOx in pounds of pollutant per megawatt hour (lb/mwh). It also requires a nameplate attached to the unit, as well as testing (using EPA reference methods, California Air Resources Board methods or equivalent testing) upon request. The rule contains two provisions that allow adjustments to meet the emission standards to encourage the efficient use of energy resources and to reduce inefficient generation: It allows a DG unit with CHP operation to take a credit based upon the amount of heat recovered and also established requirements to ensure that the heat recovered is used. (output-based standard) It establishes a higher NOx and SOx standard for generating units that use landfill gas, digester gas, or oil field gases as fuel. This higher standard represents the best technology available for lean burn engines. The guideline also establishes the emissions standards for units 10MW that must be certified based on whether the generator is located in the West Texas Region or East Texas Region. The West Texas standards represent BACT and should allow for clean reciprocating engines to register under the standard permit, as well as clean diesel engines as peaking units. For units operating > 300 hours/year = 3.11 lb/mwh For units operating 300 hours/year = 21 lb/mwh The East Texas standards represent BACT recognizing the unique ozone problems in East Texas and should allow fuel cells, microturbines, clean turbines using catalytic combustors or flue gas cleanup, as well as the very cleanest reciprocating engines using catalytic converters. Prior to Jan 2005, operating > 300 hours/year = 0.47 lb/mwh Prior to Jan 2005, operating 300 hours/year = 1.65 lb/mwh After Jan 2005, operating > 300 hours/year = 0.14 lb/mwh After Jan 2005, operating 300 hours/year = 0.47 lb/mwh The guideline establishes the emissions standards for units > 10MW that represents BACT previously established for simple cycle and combined cycle turbines. 8

9 operating > 300 hours/year = 0.14 lb/mwh operating 300 hours/year = 0.38 lb/mwh The guideline requires owner or operator to re-certify a unit every 16,000 hours of operations but no less frequently than every 3 years to ensure continuing compliance with the emissions limitation. California Emissions regulations and rules specific to CHP are set by local air quality districts. The new regulations in 2003 have a CHP provision that allows for a minimum 60% efficiency and slightly higher emission standards to balance the offset in emissions that CHP provides. This emissions regulation Guidance for the Permitting of Electrical Generation Technologies [G. Chin, 2002] is available at This guidance document discusses two principal electrical generation technologies: gas turbine electrical generation technologies rated at less than 50MW using either natural gas or waste gases, and stationary reciprocating engines using either fossil fuel or waste gases. For microturbines, beginning in January 2003, emissions will be regulated through the California Air Resources Board DG certification program. For fuel cells, since the NOx emission is measured 0.06 lb/mwh, which is near the emission level of a central station power plant equipped with BACT, the ARB staff has no additional recommendations regarding BACT requirement. This guidance document addresses: The evaluation of recent BACT 4 determinations of gas turbines rated at 50MW and reciprocating engines; and the evaluation of the feasibility of DG technologies achieving emission levels of central station power plants equipped with BACT as illustrated in the following table. Equipment Category NOx (lb/mwh) VOC (lb/mwh) CO (lb/mwh) PM (lb/mwh) Gas < 3MW Turbines 3-12 MW simple cycle MW combined cycle MW simple cycle MW combined cycle Waste gas fired 1.25 NA NA - IC Fossil fuel fired Engines Waste gas fired NA The evaluation of the air quality benefits of CHP electrical generation technologies, and clarification of emissions testing and monitoring requirements. The guideline recommends procedure for district staff to include the benefits of CHP toward compliance with the emission level of central station power plants equipped with BACT. However, this credit cannot be used to avoid satisfying district BACT requirements or in quantifying an emission offset credit. 4 This BACT is referred to as California BACT, meaning the rate of emissions which reflects (a) the most stringent emission limitation which is contained in the implementation plan of any State, or (b) the most stringent emission limitation which is achieved in practice, whichever is more stringent. 9

10 The credit will be granted in form of allowing the process heat to be added to the total energy production at the facility, if the CHP meets the following criteria: 1) design to achieve a minimum efficiency of 60% in the conversion of the energy in the fossil fuel to electricity and process heat; 2) design to achieve an annual average efficiency of 75% in the conversion of the energy in the fossil fuel to electricity and process heat; and 3) BACT requirements are satisfied for the size and class of electrical generation technology. Basis for calculation: Lb/MWh = emissions (lb/hr) / [MW (electrical) + MW (process heat)] New York New York has yet announced any specific action pertaining to CHP emissions regulations; however, the New York Department of Environmental Conservation (DEC) is currently under state order to revise emissions standards for DG. The DEC is currently working on a white paper describing options that will be largely based on California, Texas, and RAP output-based standards (described in Appendix). According to [B. Hedman et,al., 2002], the current regulatory method in NY state for assessing emissions penalizes high efficiency CHP technologies. The current method is based on pollutant per unit of fuel input, rather than on pollutant per unit of useful energy output. In addition, the air permitting process (Title V Permit 5 ) for construction and operation can be lengthy, complicated and costly, thus discouraging the use of CHP. Complexity: In non-attainment areas, major new sources are required to meet New Source Review (NSR) standards, which requires installing Best Available Control Technology (BACT) and offsetting emissions through purchase of emissions reductions or curtailment elsewhere (described in Appendix). Delay: The application process requires applicants to identify and address each applicable state and federal requirement, and includes posting of public notice prior to being approved by the DEC. BACT determinations and obtaining offsets are timeconsuming processes. In addition, it routinely takes up to 120 days to issue a State Facilities Permit for Synthetic Minor Permit 6, as opposed to Minor Facilities Registrations, which must be issued within 30 days. Cost: Upfront costs involved in obtaining a permit include: engineering; consulting; legal fees; drawings; etc, in addition to direct charges levied by DEC. Plus, once the Title V Permit is issued, the source will receive a bill each year from DEC based on its actual emissions of regulated pollutants. 5 Title V permits are required for any source for which the potential to emit (PTE) exceeds the major source threshold for any regulated contaminant. 6 synthetic minor means that although the facility s potential to emit makes it a major source, its operating conditions or other limitations cause its actual emissions to be less than the major thresholds 10

11 References [DOE 2000] [ONSITE 2000] [E. Brown 2002] [TNRCC 2001] [G. Chin 2002] [B. Hedman 2002] U.S. Department of Energy Distributed Power Program, Making Connections: Case Studies of Interconnection Barriers and their Impact on Distributed Power Projects, July ONSITE SYCOM Energy Corporation, The Market and Technical Potential for Combined Heat and Power in the Commercial/Institutional Sector prepared for U.S. Department of Energy and Energy Information Administration, January Elizabeth Brown, Kalon Scott, and R. Neal Elliott, State Opportunities for Action: Review of States Combined Heat and Power Activities, September Texas Natural Resource Conservation Commission (TNRCC), Air Quality Standard Permit for Electric Generating Units, G. Chin, Project Assessment Branch Stationary Source Division, Guidance for the Permitting of Electrical Generation Technologies, July B. Hedman, K. Darrow and T. Bourgeois, Combined Heat and Power Market Potential for New York State, October Appendices Appendix A: Other State Initiatives Appendix B: Review of Combined Heat and Power Technologies Appendix C: Cost and Performance Comparison from Manufacturers and DOE Studies for Microturbines and Fuel Cells 11