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
ACEEE visits CHP plant 2
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%) www.aceee.org/@aceeedc 3
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
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
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: http://www.epa.gov/chp/documents/clean_energy_solution.pdf 6
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: http://www.aceee.org/state-policy/scorecard 7
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: http://www.aceee.org/state-policy/scorecard 8
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: http://www.aceee.org/state-policy/scorecard 9
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: http://www.aceee.org/state-policy/scorecard 10
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 1 1 0.5 0 0.5 0.5 0.5 0.5 4.5 Massachusetts 1 1 0.5 0 0.5 0.5 0.5 0.5 4.5 California 1 1 0.5 0.5 0.5 0 0.5 0 4 Oregon 1 0.5 0.5 0 0.5 0 0.5 0.5 3.5 Maine 1 0 0.5 0.5 0 0 0.5 0.5 3 Maryland 0.5 0.5 0.5 0.5 0.5 0 0 0.5 3 Rhode Island 0.5 1 0 0 0.5 0 0.5 0.5 3 Vermont 1 0.5 0.5 0.5 0.5 0 0 0 3 North Carolina 1 0.5 0.5 0 0.5 0 0 0 2.5 Washington 1 0.5 0.5 0.5 0 0 0 0 2.5 Source: Gilleo, et al 2014: http://www.aceee.org/state-policy/scorecard 11
Leading state CHP policies: Connecticut: Strong CHP policy environment including tiered interconnection standards, incentives and financing, etc. 10 new CHP systems installed in 2013. 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 2016. New Jersey: After Hurricane Sandy, the state has prioritized CHP for protecting against future extreme weather events especially at critical facilities. 12
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
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
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: http://www.aceee.org/blog/2014/11/chp-state-scorecard-books-and-ground 15
CHP Scores and New State Installs Source: ACEEE Blog, Nov 2014: http://www.aceee.org/blog/2014/11/chp-state-scorecard-books-and-ground 16
CHP Score Midwest Scores vs. Installations 3 18 2.5 16 14 2 12 1.5 10 8 1 6 0.5 4 2 0 0 CHP Score CHP System Installations 17
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
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
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 2016 2030 Source: Hayes, et al. 2014 Change Is in the Air: How States Can Harness Energy Efficiency to Strengthen the Economy and Reduce Pollution. http://www.aceee.org/research-report/e1401 20
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 235 235 1.00 Kansas 74 74 1.00 Wisconsin 457 457 1.00 Indiana 106 106 1.00 Nebraska 52 52 1.00 Illinois 321 321 1.00 ACEEE Estimated Achievable CHP Potential (adapted from ICF data) CHP Potential Adjusted for Cost-Effectiveness (using on EIA price forecast) Minnesota 185 185 1.00 North Dakota 16 15 0.92 Missouri 76 39 0.52 South Dakota 15 7 0.44 Michigan 309 118 0.38 Iowa 65 20 0.30 21
Market Favorability Index 1.00 Midwest CHP Market Favorability Index 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 22
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 76 159 235 76 159 235 0.0% 0.0% Kansas 23 51 74 23 51 74 0.0% 0.0% Wisconsin 47 410 457 47 410 457 0.0% 0.0% Indiana 40 66 106 40 66 106 0.0% 0.0% Nebraska 18 34 52 18 34 52 0.0% 0.0% Illinois 83 237 321 83 237 321 0.0% 0.0% Minnesota 54 131 185 54 131 185 0.0% 0.0% North Dakota 7 9 16 7 8 15 0.0% -13.3% Missouri 39 37 76 39 0 39 0.0% -100.0% South Dakota 6 9 15 6 1 7 0.0% -93.3% Michigan 70 239 309 70 48 118 0.0% -80.0% Iowa 20 46 65 20 0 20 0.0% -100.0% 23
Step 2: Policy Index Scaled Scorecard score tells us how favorable existing policies are for CHP in a given state 2014 Scorecard Score Scale: 0 5.0 CHP Policy Favorability Index Scale: 0.1 1.0 State 2014 Scorecard Score CHP Policy Favorability Index Ohio 1.5 0.37 Kansas 0.0 0.10 Wisconsin 2.5 0.55 Indiana 1.0 0.28 Nebraska 0.0 0.10 Illinois 1.5 0.37 Minnesota 1.5 0.37 North Dakota 0.5 0.19 Missouri 0.0 0.10 South Dakota 0.5 0.19 Michigan 1.5 0.37 Iowa 0.5 0.19 24
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
Overall CHP Favorability Index 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 CHP Market Favorability Index CHP Policy Favorability Index 26
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: http://www.mn.gov 27
Impact of Favorability on Potential 500 450 400 350 300 250 200 150 100 50 0 ACEEE Estimated Achievable Potential by 2030 (MW) Market Index Adjusted CHP Potential (MW) Market and Policy Index Adjusted CHP Potential (MW) 28
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
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
Other Resources SEE Action CHP Guide: https://www4.eere.energy.gov/seeaction/system/files/documents/see_act ion_chp_policies_guide.pdf ACEEE Website: http://www.aceee.org/topics/chp ACEEE State Scorecard: http://database.aceee.org/ Change is in the Air Report: http://www.aceee.org/research-report/e1401 31
Thank you! ACEEE Contacts: Meegan Kelly Ethan Rogers Neal Elliott mkelly@aceee.org erogers@aceee.org rnelliott@aceee.org (202) 507-4008 (202) 507-4751 (202) 507-4009