Combined Heat and Power: Markets and Challenges Bruce A. Hedman ICF International Roundtable on Industrial Energy Efficiency and CHP June 28, 2012
Acknowledgements Based on work supported by: DOE s Advanced Manufacturing Office EPA s Combined Heat and Power Partnership 2
Benefits of CHP Benefits for U.S. Industry Reduces energy costs for the user Reduces risk of electric grid disruptions Provides stability in the face of uncertain electricity prices Benefits for the Nation Provides immediate path to increased energy efficiency and reduced GHG emissions Offers a low-cost approach to new electricity generation capacity and lessens need for new T&D infrastructure Enhances grid security Enhances U.S. manufacturing competitiveness Uses abundant, domestic energy sources Uses highly skilled local labor and American technology 3
CHP is a Clean, Efficient Method of Providing Energy Services Source: EPA CHP Partnership - 2012 4
That Efficiency Generally Results in Lower Emissions Source: EPA CHP Partnership - 2012 5
CHP Is already an Important Resource for the U.S. 82 GW of installed CHP at almost 4,000 industrial and commercial facilities (2011) Avoids more than 1.8 quadrillion Btus of fuel consumption annually Avoids 241 million metric tons of CO 2 as compared to traditional separate production CO 2 reduction equivalent to eliminating forty 1,000 MW coal power plants Source: CHP Installation Database 6
Capacity (MW) The Potential for Additional CHP is Large Existing CHP (82 GW) vs. CHP Potential (130 GW) by Application 60,000 50,000 40,000 CHP Potential Existing CHP 30,000 20,000 10,000 0 Source: ICF internal estimates 7
CHP Technical Potential <1,000 MW 1,000 1,999 MW 2,000 4,999 MW >5,000 MW Source: ICF Internal Estimate 8
The Potential for Additional CHP > 1MW Systems greater than 1 MW Textiles Metals 4% 4% Refining 7% Other Mfg 6% Chemicals 35% Gov t 8% Multi-Fam 4% Hotels 6% Other 7% Office/Retail 39% Food 13% Prisons 8% Paper 31% Industrial 50 GW Hospitals 13% Colleges 15% Commercial/Institutional 33 GW Source: ICF internal estimates 9
Waste Energy to Power Represents an Additional 10 GW of Potential Chemicals 7% Refining 27% Steel 7% Cement 4% Glass 3% Silicon 2% Aluminum 1% Pressure Reduction 25% Pipeline Compressors 15% Other Industry 9% Source: ICF Internal Estimate Waste Energy to Power 10 GW Potential 10
Annual CHP Capacity Additions Have Been Below 1,000 MW Since 2006 Excess generation capacity in some regions Changes in wholesale power market rules/changes to PURPA Volatile natural gas prices Market uncertainty Financial crisis 11
Current Market Conditions Most activity in states with favorable regulatory treatment and/or specific incentives Natural gas CHP in areas with supportable spark spread (Northeast, Texas, California) Biomass and opportunity fuels in Southeast, Midwest, Northwest and Mountain regions of U.S. Hot applications: universities, hospitals, waste water treatment, other institutional applications Growing interest in waste heat to power applications Project inquiries increasing 12
Annual Capacity Additions (GW) Emerging Drivers Growing recognition of CHP benefits by state and federal policymakers 6 5 Annual Capacity Additions Opportunities driven by environmental regulations 4 3 2 1 Changing natural gas outlook 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011-2013 Over 2,400 MW in announced/under construction 13
CHP Support by Policymakers 14
CHP s Higher Efficiency Results in Energy and Emissions Savings Category 10 MW CHP 10 MW PV 10 MW Wind 10 MW NGCC Annual Capacity Factor 85% 22% 34% 70% Annual Electricity 74,446 MWh 19,272 MWh 29,784 MWh 61,320 MWh Annual Useful Heat Provided 103,417 MWh t None None None Footprint Required 6,000 sq ft 1,740,000 sq ft 76,000 sq ft N/A Capital Cost $20 million $48 million $24 million $9.8 million Annual Energy Savings, MMBtu Annual CO 2 Savings, Tons 316,218 198,563 306,871 163,724 42,506 17,824 27,546 28,233 10 MW Gas Turbine CHP - 28% electric efficiency, 68% total CHP efficiency Capacity factors and capital costs for PV and Wind based on utility systems in DOE s Advanced Energy Outlook 2011 Capacity factor, capital cost and efficiency for natural gas combined cycle system based on Advanced Energy Outlook 2011 (540 MW system proportioned to 10 MW of output) CHP, PV, Wind and NGCC electricity displaces National All Fossil Average Generation resources (egrid 2010 ) - 9,720 Btu/kWh, 1,745 lbs CO 2 /MWh, 6% T&D losses; CHP thermal output displaces 80% efficient on-site natural gas boiler 15
CHP is Used at the Point of Demand Source: CHP Installation Database 16
CHP Can be a Cost-Effective Source of New Power Compare Compare CHP thermal credit reflects the cost of boiler fuel avoided by capturing and using the waste heat from CHP 17
Federal Support for CHP EPA recognizes CHP as an efficiency measure under developing greenhouse gas emission standards EPA includes output-based options that recognize CHP benefits in ICI Boiler MACT and Utility MACT (MATS) DOE increases technology deployment support for CHP and announces goal of 40 GW of new CHP capacity by 2020 Clean Energy Standard Act of 2012 - Includes nuclear, clean coal, and natural gas Recognizes the additional energy efficiency and greenhouse gas benefits of CHP Proposals to encourage rate-basing of utility investments in behind the meter energy efficiency and CHP 18
State Support for CHP Eighteen states include CHP or waste energy recovery in portfolio standards Specific incentives for CHP (tax credits, streamlined permitting, capital incentives) New York California Massachusetts New Jersey Ohio 19
Environmental Drivers 20
Pending Environmental Pressures Utility Regulations Air Emissions Mercury and Air Toxics Standards (MATS) Cross-State Air Pollution Rule (CSAPR), formerly Transport Rule Water/Solid Waste Cooling Water Intake Structures (CWIS), aka 316b Coal Combustion Residuals (CCR), aka ash rule Industrial/Commercial/Institutional (ICI) Boilers ICI Boiler NESHAPS (National Emissions Standards for Hazardous Air Pollutants), aka :Boiler MACT 21
Impact of Pending Utility Regulations Will require compliance investments and/or drive closings of some coal capacity Estimates of shutdown coal capacity range from 20 to 50 GW Price impacts will be regional EPA estimated 1 to 7% increase in electric prices by 2015 for MATS Limited price impacts in restructured regions Greater price impacts in regulated markets Closings could result in localized reliability concerns providing opportunities for CHP and Recycled Energy 22
ICI Boiler MACT Standards for hazardous air pollutants from major sources: industrial, commercial and institutional boilers and process heaters Major source is a facility that emits: 10 tpy or more of any single Hazardous Air Pollutant, or 25 tpy or more of total HAPs Emissions limits applicable to new and existing units > 10 MMBtu/hr Limits will be hard to meet both technically and economically for solid and liquid fuels 23
CHP as a Compliance Strategy Compliance with MACT limits will be expensive for many coal and oil users (standard compliance measures) May consider converting to natural gas Conversion to gas for some oil units New gas boilers for many coal units May consider moving to natural gas fueled Conventional CHP (trade off of benefits versus additional costs) Represents a productive investment Potential for lower steam costs due to generating own power Higher overall efficiency and reduced emissions Higher capital costs, but partially offset by required compliance costs or new gas boiler costs 24
Potential CHP Capacity at Affected Facilities Fuel Type Number of Facilities Number of Affected Units Boiler Capacity (MMBtu/hr) CHP Potential (MW) Coal 333 760 177,435 17,746 Heavy Liquid 194 422 52,358 5,237 Light Liquid 145 330 29,495 2,950 Total 672* 1,512 259,288 25,933 The data on this chart is still being refined *Some facilities are listed in multiple categories due to multiple fuel types; there are 621 ICI affected facilities CHP potential based on average efficiency of affected boilers of 75%; Average annual load factor of 65%, and simple cycle gas turbine CHP performance (power to heat ratio = 0.7) 25
Natural Gas Outlook 26
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average Bcfd Shale Gas Production has Increased 14 Fold since 2005 High and volatile gas prices prior to the recession drove E&P investments that led to the shale gas boom. Despite relatively low natural gas prices, production continued to increase in 2011. Shale gas production growth was strong again in 2011, but drilling activity is slowing. Producers also continued to shift drilling activity from drier gas formations to oil and liquids-rich gas plays. 80 70 60 50 40 30 20 10 0 U.S. Gas Supplies (Annual Average Bcfd) 2012 ICF International. All rights reserved. All Other Production Shale Production Net Imports 27
Bcfd Shale Gas Has Replaced LNG as the Long Term Marginal Supply While conventional production continues to decline, unconventional gas production, primarily shale gas, continues to grow robustly. By 2035, shale gas will account for over half of U.S. and Canadian production. 120 100 80 60 40 20 U.S. and Canadian Gas Production (Average Bcfd) Shale Tight Coalbed Methane Offshore Convention al Onshore 0 2010 2015 2020 2025 2030 2035 2012 ICF International. All rights reserved. 28
Gas Prices Likely to Remain Between $5.00 to $7.00 Into 2030 Henry Hub natural gas prices are projected to average between $4 and $7 per MMBtu throughout much of the projection. Gas Prices at Henry Hub (2010$/MMBtu) Robust growth in gas demand will eventually apply upward pressure on gas prices. $5 to $7 gas prices are sufficient to support the levels of supply development in the projection, but not so high as to discourage market growth. Source: ICF Estimates, 2012 29
Hurdles to Increased Use of CHP Financial uncertainty CHP cost and performance uncertainty Regulatory uncertainty Utility uncertainty Utility goal is affordable and reliable power Generally neutral to negative on CHP CHP represents a loss of revenue to the utility and can result in the deferral of investment This often results in unfavorable tariffs, drawn out interconnect and other utility roadblocks to CHP 30